The government of President Sebastián Piñera has come in for a drubbing from the Instituto Nacional de Derechos Humanos (INDH), an official body created two years ago to monitor the authorities’ performance in the area of human rights. Prominent among its criticisms, as last year, is police violence. The problems it highlights are still continuing, particularly in the Mapuche heartland in the south.

The INDH’s annual report, Situación de los Derechos Humanos en Chile 2012, was delivered to the President and made public on 10 December. It does acknowledge progress towards a culture of human rights in Carabineros, the paramilitary police, thanks to the creation of a human rights department and such initiatives as the installation of video cameras and the posting of observers in police vans.

This notwithstanding, the INDH concludes from its review of  anticrime policies. complaints of police violence and recourse to the state security law (Ley de Seguridad del Estado) that Chile has ‘a series of laws, policies and practices [that conprise] an inefficient security system’ which can undermine the protection of basic rights. Policies based on increasing the severity of punishments and granting greater powers to the state’s forces of order and security, it says, create ‘a field of arbitrariness’ manifest in the incidents of police violence, overcrowding of prisons, and ‘vague and broad’ definitions of criminal offences, as in the antiterrorist law — which establishes ‘exceptional procedures’ that affect the right to due process and violate the principle of equality before the law.

On the specific issue of police violence the report condemns the ‘irregular and disproportionate use of anti-riot shotguns’ and highlights the ‘worrying’ number of complaints about ‘sexual aggression’ against women in demonstrations. The INDH says that in 2012 this violence has mainly affected vulnerable sectors of society, such as women, minors and Indians.

Asked to comment upon the report, interior minister Andrés Chadwick said, ‘We pay attention to the Carabineros’ obligation to use force as the law stipulates, that is, proportionately. We’ll look into this and talk with the General of Carabineros, because they are always very willing, if there is any observation or reservation about some situation that could be considered an excessive use of force, to correct this.’ On the use of the antiterrorist law Chadwick said that this was ‘a law that has full democratic validity in Chile’.

Slow motion

The difficulty of setting things right in this area was brought to the fore later in the month when two jailed Mapuche inmates of Angol prison, Héctor Llaitul and Ramón Llanquileo, reached the 40th day of a hunger strike demanding a review of their sentences. The two, who are leaders of the militant Coordinadora Arauco Malleco (CAM) and proclaim themselves political prisoners, were convicted in March 2011 of attacking a public prosecutor and assaulting a farmer, and sentenced, respectively,  to 25 and 20 years imprisonment.

They then staged a hunger strike that lasted 86 days before the supreme court reviewed their case and reduced their sentences to 14 and 8 years. They sought a second review, on the grounds that they had been tried twice for the same offences (once by a military court, once by a civilian one), and demanding a second reduction of their prison terms, to 11 and 4 years. This was turned down by the appeals court in Concepción and the case is now again before the supreme court.

Another Mapuche held at Temuco prison, Leonardo Quijón, began a hunger strike on 27 November after a court in Collipulli turned down his request for release on bail. Quijón had been accused of taking part in the 1 September murder of a farmer by several masked persons. He turned himself in two days later claiming that he had not been involved in the crime and he was remanded in custody. Quijón and four other Mapuche inmates then went on a hunger strike which ended with Quijón being hospitalised with a heart ailment.

Up to the time of writing, the prosecutor in charge of the case had not taken a statement from Quijón, despite having been ordered to do so by the judge, nor ordered DNA tests which his lawyer says would exonerate him. Back in 2009 Quijón was charged with involvement in a clash with Carabineros (in which he was injured by shotgun pellets) and the torching of two buses. The government, invoking provisions of the antiterrorist law, had based the cases against him on the statements of unidentified witnesses; the court acquitted him on both charges.

In a separate case, on 12 December the supreme court reversed the ruling of a court in Angol that had sentenced Mijael Carbone Queipul, spokesman for the headman of the Temucuicui community, to seven years imprisonment for the ‘frustrated homicide’ of Carabineros officers in May 2011 and for having fled arrest. The supreme court said that the arguments invoked in the ruling lacked foundation and flew in the face of the rules of logic (no witnesses had identified Carbone). A retrial has been ordered.

Two recent attacks

Meanwhile, violence by Mapuche militants reared its head again. On 20 December near Cañete in the southern department of Bíobío, the historic northern border of Mapuche territory, unidentified raiders entered a forestry establishment in the early hours and set fire to a container. On two others they left graffiti with slogans of the CAM.

Not far from there, at about the same time, a group of four masked people  entered a forestry estate, shot dead the caretaker and injured his wife, then set fire to their house and a depot.

The governor of Bíobío, Víctor Lobos, said that no evidence had been found to connect the two incidents, and the public prosecution service said that there was no evidence connecting the second attack  with any Mapuche group active in the area. Chief national prosecutor Sabas Chahuán has announced the appointment of a team of four public prosecutors to head the investigation into the attacks.

On 25 December several online services carried a communiqué signed by the ‘resistance’ groups of the CAM, the Órganos de Resistencia Territorial CAM (ORT-CAM), repudiating reports by a number of news media that attributed the second, murderous, attack to them. It said, ‘This is an isolated event that has nothing to do with our methods.’ A day earlier officers of the police’s special investigations brigade in Temuco arrested three Mapuche suspected of having carried out a string of armed robberies from rural houses. In one case the robbers, always masked, set fire to the houses and vehicles parked next to them.

* The INDH report is available at: http://www.indh.cl/informe-anual-situacion-de-los-derechos-humanos-en-chile-2012/

Published in Southern Cone

After months in the pipeline, Nicaragua’s 92-seat unicameral legislature approved President Daniel Ortega’s tax reform proposal.

As was the case with his 2009 fiscal reform, the new bill, which was agreed with the private sector lobby, Cosep, fails to introduce major structural changes, once again exposing the gap between Ortega’s radical left-wing rhetoric and his pro-business policies.

The reform also failed to address the issue of tax exemptions and exonerations – long a demand of the International Monetary Fund (IMF). Yet despite this, a new agreement with the IMF appears to be on the cards. The left-wing government’s cooperation with the US (and other multilateral finance organisations like the World Bank) also appears unaffected by the transparency concerns surrounding the recent 4 November municipal elections.

On 30 November, all 63 deputies from Ortega’s ruling Frente Sandinista de Liberación Nacional (FSLN) approved the so-called tax harmonisation law (LCT). Ortega has twice promised to overhaul the tax structure, first upon taking office in 2007 and again in 2012. A limited tax reform introduced in December 2009 boosted revenues by just 0.7% of GDP. As in 2009, Bayardo Arce, Ortega’s economic affairs adviser, who presented the reform, argued that it is not aimed at increasing collection - it would boost revenues by just 0.2% of GDP - but at strengthening tax administration via new mechanisms such as electronic billing. Other provisions include raising the income tax threshold for salaried workers to C$100,000 (US$4,165) from C$75,000 (US$3,124). As of Fiscal Year (FY) 2013, this would increase by C$5,000 annually, to eventually reach C$120,000.

Nicaragua already has the highest tax take as a percentage of GDP in the region (see sidebar), but the new law was slammed by civil society groups for keeping in place existing exonerations for another two years. This, critics argue, is indicative of Ortega’s alignment with big business and his unwillingness to upset the powerful Cosep.

According to figures cited by a local weekly, Confidencial, in 2010 Nicaragua lost an estimated N$9.4bn/US$399m to tax evasion and N$10.5bn/US$447m to exonerations – roughly totaling N$20bn/US$846m, or 14.2% of GDP. In a 12 July statement released after the conclusion of its Article IV consultation, the IMF called for “reforms to strengthen further the revenue effort” and highlighted as “particularly important” the need to “widen the tax base by curtailing exemptions”.

Experts such as Adolfo Acevedo, an economist for a local civil society umbrella group, Coordinadora Civil, welcomed the fact that the new reform orders the finance ministry to provide the national assembly and the comptroller general’s office with details as to which companies will benefit from these exonerations – which should improve transparency.

Despite its failure to heed the IMF’s recommendations, the Ortega government is confident of securing a new arrangement with the Fund, which otherwise has been largely positive on its management of the economy, which grew by 4.7% last year, above the regional average of 4.3% for Central America. In late 2012 the IMF sent a delegation to Managua to discuss a new arrangement to replace one that ended in October 2011. The general manager of Nicaragua’s central bank, Ovidio Reyes, said that just two further steps were necessary for a new agreement - the quantification of the tax reform to be incorporated into the macroeconomic framework and the formal negotiation of a letter of intent.

In a further sign of confidence in the government, and despite the controversy over the municipal elections, the World Bank announced on 14 November that it had approved its 2013-2017 strategy for Nicaragua, contemplating interest-free loans and donations totaling US$50m-US$60m. The next day the Inter-American Development Bank (IDB) announced that it had approved a US$39.2m loan to improve the efficiency and safety of Nicaragua’s transport system. Ten days earlier, the IDB also said that it had approved a US$35m loan to improve Nicaragua’s electricity service.

Continued cooperation with the US

While the US State Department and private sector lobbies such as the American Chamber of Commerce in Nicaragua (Amcham) expressed concern about the 4 November municipals, bilateral ties still appear strong in the key areas of trade and security.  A trade mission comprising six major US companies visited Nicaragua in December “with the objective of exploring the country’s agribusiness potential and the facilities offered by the country to do business”, according to ProNicaragua, the official investment and export promotion agency.

According to figures from the Office of the US Trade Representative, Nicaraguan exports to the US reached US$2.6bn in 2011, up 29.7% on 2010, and 341% on 2000. Nicaraguan sales to the US have risen 121% since 2005 (prior to the free trade agreement between the US-Central America-Dominican Republic, Cafta-DR). Nicaragua imported US$1.1bn of US goods in 2011, up 7.3% from 2010, and 178% from 2000. US exports to Nicaragua are up 69% since 2005.

  • Tax take

According to the Central American institute of fiscal studies (ICEFI) Nicaragua’s tax take in 2011 was 19.8% of GDP – well above the 14.5% average for Central America and up from 18.4% in 2010. This compares with 15.6% for Honduras; 14.5% for El Salvador; 13.7% for Costa Rica; 12.2% for Panama and 11.2% for Guatemala.

  • Nicaragua boasts record exports

Nicaragua’s official investment promotion agency, Cetrex, recently announced that exports reached a record US$2.5bn in the first 11 months of the year, up 18.7% on the same period in 2011 and more than the total US$2.3bn registered for the whole of 2011. According to Cetrex, the US remains the main export market, accounting for 27.71% of the total, followed by Venezuela (15.55%); Canada (11.44%); and El Salvador (9.07%). The country’s leading export is gold label coffee, followed by gold and then beef.

%PM, %20 %730 %2012 %16:%Dec

REGION: Petrobras pulls out of Argentina

The winds are changing in the Southern Cone as investors eye up Argentina’s massive shale gas deposits, with the unconventional sector likely to be up and running by 2015, potentially sooner than Brazil’s deep-water pre-salt oil sector.

The US oil giant, Chevron, has inked a letter of intent with Argentina’s cash-strapped state oil company, Yacimientos Petrolíferos Fiscales (YPF), for the development of the massive ‘Vaca Muerta’ shale gas deposits in the Patagonian province of Neuquén.

The ‘Vaca Muerta’ comprises some of the largest currently known shale reserves in the world outside of China and the US, with some 774 trillion cubic feet of gas and 741m barrels of oil, according to the US Energy Information Administration (EIA), more than enough to allow Argentina to meet its domestic needs and become a hydrocarbons exporter. “Just developing 15% of the Vaca Muerta would balance the country’s energy deficit and end the need for imports,” Juan Garoby, head of YPF’s unconventional resources, told the UK daily, FT, in early November.

Miguel Galuccio, the president of YPF, on 19 December signed a preliminary US$1.0bn deal with Chevron’s Latin America and Africa chief, Ali Moshiri, for a pilot project to drill over 100 shale gas wells in the next 12 months. The expectation on both sides is that the pilot project will lead to a permanent partnership in Vaca Muerta, whose full development costs are estimated at some US$15bn. Chevron will stump up much of the cash in return for an equity share in this potentially lucrative multi-year project.

According to Garoby, in 2013 YPF also intends to invest US$1.5bn to develop up to 132 pilot shale oil wells in the Loma La Lata and Loma La Campana fields, and 16 shale gas wells at the nearby El Orejano field, to test well spacing and other technical factors. YPF intends to be in “factory-mode” from 2014-17, investing some US$12bn – with about half from Chevron – to drill 2,000 shale oil wells.

Industry analysts suggest that Chevron is taking a big leap of faith given the uncertain and ever-shifting business operating environment in Argentina under the current government, with investor nerves newly on edge since the administration led by President Cristina Fernández expropriated a majority stake in YPF from Spain’s Repsol in April.

Repsol is now suing the Argentine government in Madrid and Washington for compensation. It has also sued Chevron in New York in order to prevent it from developing assets in Argentina in partnership with the re-nationalised YPF. As if that were not enough, an Argentine court also recently embargoed Chevron assets in Argentina on behalf of Ecuador, where courts have ordered the US firm to stump up a whopping US$19bn in an environmental damages lawsuit.

Moshiri insisted that the embargo would not affect Chevron’s partnership with YPF, dismissing it as “an issue with lawyers trying to sue everyone and not benefiting anyone”. (Certainly, despite the current very public face-off between the government and the federal judiciary, it is a very good time to be a corporate lawyer in Argentina). He was also dismissive of the Repsol case. “What Repsol did is completely irrelevant and doesn’t harm the relationship we’ve had with YPF…Whatever happens, it won’t block progress”. He added, “YPF is top-notch when it comes to technology and human resources”.

Petrobras struggles to convince

While YPF’s star is rising, Brazil’s Petrobras is no longer shining so brightly.  Just days before YPF announced its deal with Chevron, Petrobras confirmed that it had hired Scotiabank to oversee the sale of its Argentine subsidiary, Petrobras Argentina. Of four Argentine suitors, YPF is the most likely purchaser, according to industry analysts. Petrobras has been divesting its foreign assets so as to concentrate on its domestic offshore sector. Two years ago it sold off a refinery and a major chain of gas stations in Argentina. Last April the Petrobras president, Maria das Graças Foster, said that the company would continue to invest in Argentina but in June she announced that the firm was seeking to raise some US$14.8bn through the sale of assets and some restructuring.

In a company statement this week (15 December), Petrobras announced that it would seek to cut its costs by R$32bn (US$15.4bn) in its upstream, downstream and power segments “gradually and progressively”. Petrobras put its estimated annual financing needs at US$16bn-US$18bn in its 2014-2016 budget plan. Moody’s Investors Service recently cut its credit outlook for Petrobras to negative from stable, citing rising debt levels and growing uncertainty over how quickly it can bring the US$237bn pre-salt sector on stream.

However, in a much-needed positive for the company, Finance Minister Guido Mantega signalled this week that the government will allow pump prices to rise in 2013. Petrobras shares rose 2.3% on the local Bovespa index in response. Ordinary shares were trading at about R$20.7 (US$10) on 20 December By way of comparison, on the NYSE Chevron was trading at US$110 on 20 December, with YPF at US$15 and Petrobras at US$20. Colombia’s Ecopetrol, the new market darling, was trading at US$60, which is down on earlier year highs.

  • Galuccio

The Chevron deal gives Miguel Galuccio, coaxed from London back to Argentina by President Fernández in May, some critical breathing space. For the past six months he has had to steer a tricky course – trying to stay on the right side of the Fernández administration while at the same time seeking much-needed cash from private investment partners for YPF when the rules of the game are very unclear. On the assumption that the government will not look a gift ‘cow’ in the eye, Galuccio might now be able to convince the likes of Axel Kicillof, the Marxist deputy economy minister with the ear of the president, to take more of a hands-off approach towards YPF moving forward. That might be wishful thinking - Fernández has looted everything from central bank reserves to pension funds to date. With general elections due in 2015, the Vaca Muerta is likely to be served up for dinner – and dessert – sooner rather than later.

Published in Brazil & Southern Cone

In Caracas on 12 December Vice President and Foreign Minister Nicolás Maduro announced after six hours of a “complex, difficult, delicate operation," in Cuba to remove cancerous tissue President Hugo Chávez faced a complex and hard post-operative process”.

Chávez returned to Havana for an extended period for further medical treatment on 9 December, a day after he declared his number two Nicolás Maduro as his preferred successor in the event of his departure from power.

Maduro’s anointment was long expected but it was the first time that Chávez had ever addressed in public the issue of his succession. Clearly, he wants to leave things all tied up and his insistence on the constitutional order of things was notable, not least given the concerns about the commitment of some in the ruling Partido Unido Socialista de Venezuela (PSUV) to a legal transition.

Unfortunately for Chávez, the question now is all about the timing of his departure from the presidency.

Under the constitution: If a president becomes permanently incapacitated in his final two years, the vice-president takes over and sees out the term. If a president-elect becomes permanently incapacitated before taking office, the national assembly president (the hard-line Diosdado Cabello) temporarily assumes power and must convene elections in 30 days. In this case, Chávez is both the outgoing president and the president-elect, so there has been confusion as to which rule should have precedent; however, the consensus is that Cabello would step in.

If a president becomes permanently incapacitated in the first four years of his six-year term the vice-president takes over and must convene elections within 30 days. There had been talk of a constitutional reform so as to remove this break clause - allowing the vice-president to take over and remain in office without the need for fresh elections - but that is now unlikely.

Chávez tacitly admitted to a risk that he might not be able to assume office on 10 January. That would immediately trigger elections under Cabello. An alternative scenario is that he assumes office but then steps aside/resigns, again triggering immediate elections. In both scenarios, stepping aside could potentially allow Chávez to campaign on Maduro's behalf in the elections, greatly increasing Maduro's chance of victory against the presumptive opposition candidate, Henrique Capriles Radonski.

The PSUV held an emergency meeting in Caracas on 10 December attended by Maduro, Cabello, who doubles as the PSUV's first vice-president, and its 23 gubernatorial candidates for the 16 December regional elections. Elías Jaua, the PSUV's flagship candidate (he is competing against Capriles in the central state of Miranda) denied that the PSUV intended to cancel the regional elections and reiterated Chávez's day-earlier calls for unity.

More than ever, Capriles now urgently needs to win convincingly against Jaua in Miranda. If he doesn’t, he won't stand a chance against Maduro. “Venezuela doesn’t have succession,” Capriles complained. “This is not Cuba nor is it a monarchy". Others in the opposition sniffed that Fidel Castro had chosen Venezuela's next president.

  • Cabello – an unknown quantity

“Even the opposition should be praying that Chávez gets better…He is the guarantee of peace in the country”, Cabello declared on state TV after Chávez’s address. It was an odd statement; appearing to hold out the prospect of violence. The opposition media is putting it about that Cabello and his hard-line military contacts might move against Maduro in the event that Chávez fails to recover.

Published in Venezuela

The Mexican reaction to the votes in three US states on propositions to legalise cannabis has been varied, with some officials saying that the results will impact policymaking while others tried to work out what the effect would be on Mexico’s role as the main supplier of cannabis to the US.

Former interior minister Alejandro Poiré (the incumbent the time of the votes) said that the changes in the US make necessary a global debate on the legal status of marijuana in order to establish a “coherent stance”. The now former president, Felipe Calderón (2006-2012) said it demanded a ”fundamental rethink of drug policies across the hemisphere”. Luis Videgaray, the chief coordinator of President Enrique Peña Nieto’s transition team (and now finance minister), expressed “concerns” about the outcome.

The analyst Alejandro Hope, co-author of a study published by the Instituto Mexicano para la Competitividad (IMCO), calculated that if legalisation were approved in Oregon, Washington and Colorado, the earnings of Mexican traffickers from marijuana could shrink by 30%. Hope later qualified this, saying that consequences for Mexico would depend on how the federal government in the US reacted to the outcome of the votes. Among the options he lists are seeking the repeal of legalisation laws in the courts and increasing federal anti-drugs operations in the legalising states.

As it turned out, broad legalisation was approved only in Washington and Colorado - decriminalisation of medical marijuana was approved in Massachusetts and voters in Montana approved the tightening of restrictions on medical marijuana.

Raymond Yans, head of the International Narcotics Control Board (INCB), said, “Legalisation of cannabis within these states would send wrong and confusing signals to youth and society in general, giving the false impression that drug abuse might be considered normal and even, most disturbingly, safe. Such a development could result in the expansion of drug abuse [...] The cannabis on the illicit market today is much more dangerous than that seen in the 60s and 70s”. He added that he expected US Attorney General Eric Holder to “take all the necessary measures” to keep cannabis illegal throughout the country. The Justice Department has limited its reaction to stating that its policies had not changed.

Voters' verdicts

Approved

Colorado: legalising marijuana for over-21s, regulating and taxing it like alcohol and tobacco.

Washington: easing restrictions on production sale and use of marijuana, imposing 25% excise tax on sales.

Massachusetts: decriminalising medical marijuana.

Montana: Tightening restrictions on cultivation, distribution and use of medical marijuana.

Defeated

▪  Oregon: Legalising cultivation and use; regulation of commercial growing and sale.

Arkansas: Legalising medical marijuana and sale through non-profit outlets.

Note: 18 states plus DC allow medical use of marijuana in some manner (14 of them allowing limited growing). Five of these states accept registry ID cards issued by other states.

Published in Mexico & Nafta

The latest report from the Planning Institute of Jamaica (PIOJ) shows the economy contracting by 0.6% for the July-September quarter year-on-year.  A further contraction of between 0.5%-1.5% year-on-year is now forecast for October-December.  Confidence is lacking, and is unlikely to return until the government reaches a new agreement with the International Monetary Fund (IMF).

In the goods-producing sector of the economy, the performance was bad across the spectrum but particularly so in Mining & Quarrying, which recorded a 10.4% year-on-year decline.  Total bauxite production was down by 7.7%.  Even Agriculture, Forestry & Fishing, which has shown good growth all through the year, advancing by 9.5% in the April-June quarter, contracted by 0.5% in July-September due to drought conditions in June and July.  The Services Industry was better, showing zero growth for the quarter.

The slightly better news was that the fiscal deficit for the July-September quarter was J$3.6bn (US$39.5m) below the budgeted figure at J$21.7bn (US$2.38bn), despite the worse than expected economic performance.  Revenue was down, of course, bringing in J$7.2bn (US$79m) less than budget, but expenditure was J$10.8bn(US$118m) below budget as well.  Total revenue of J$80.9bn (US$888m) was well down on the J$102.6bn(US$1.12bn) collected in July-September 2011.

The trade deficit, however, has worsened. For January-July 2012 it was US$2.76bn, which was US$27.6m worse than in the same period in 2011.  Imports were up 0.05% and exports were down 2.7%.  Remittances were up 2.5% for January-August, at US$1.36bn, but they fell during July-August by 1.8% on the same period last year.

On the employment front, although the labour force grew by 11,100, the unemployment rate was up from 12.3% in July 2011 to 12.8% in July 2012.

The PIOJ describes the prospects for the economy in the short-term as “challenging”, but it says these challenges could be partially mitigated by the boost to consumer and business confidence that would come with the completion of an agreement with the IMF.  But therein lies a tale.

On 20 November, Jamaica’s Finance Minister Peter Phillips told parliament that an agreement with the IMF would be in place by the year end and that the talks on acquiring balance of payments support were going according to schedule.  The opposition responded by saying this could not be so – and were very quickly proved right.  The next day, the minister responsible for information, Senator Sandrea Falconer, told a press conference that a deal was unlikely to be in place by the end of the year, although it should be completed in January.

The last IMF visit to Jamaica was from 25 September – 5 October.  It reported “significant progress” that could underpin a Letter of Intent and Memorandum of Economic and Fiscal Policies.  And “mutual understandings” were said to have been reached on “elements” of a growth agenda, “some” structural reforms, and a “preliminary timetable” for implementation.  The message behind this was that there was still some hard-bargaining to do, and it seems that this does indeed remain the case.

Published in Caribbean

Governor Geraldo Alckmin asked the state security secretariat to publish its latest crime statistics a few days early, so as to shield his new state security secretary from the negative fallout. According to the figures, 1,157 people in the city of São Paulo were murdered between January and October this year, more than in all of 2011.

In October alone, there were 149 murders in São Paulo city, more than double the 78 registered in the same period a year earlier. In Greater São Paulo, there were 289 homicides in October, up over two thirds (65.3%) on the same period of 2011. In the State overall, homicides rose 38% to reach 505 in October, up from 366 in October 2011. In the first 10 months of this year, there was a 29.1% rise in the number of homicides in the city and an 11.6% rise in the State as a whole.

The figures were released on the same day as Governor Alckmin announced a change at the top of the state security office, with the resignation of Antônio Ferreira Pinto, who had been in office since 2009. Pinto was well regarded, and crime statistics continued to fall on his watch (until this year). However he managed to make enemies within the civil police (PC) thanks to his moves to assert more control over the corps. As a former military police officer for 11 years, Pinto was always viewed with some suspicion by the PC, which complained that he was inflexible. Pinto was also outspoken, ticking off the press for “glamourising” Primero Commando da Capital (PCC), Brazil’s biggest and most notorious criminal gang (rooted in São Paulo).

His replacement, Fernando Grella Viera, is a former state prosecutor general known for a more low-key approach. The former state governor José Serra has described him as a “diplomat”. He was brought in by Alckmin to take a more conciliatory approach to the PM and the PC, which have a long history of rivalry and still barely communicate. Alckmin is determined to get the two forces working together. Grella Viera is expected to make changes at the top of both police forces. The PC’s delegate general, Marcos Carneiro Lima, indicated on 22 November that he would resign as a matter of course to allow Grella Viera to form his own team, adding that he felt it time to move on.

Alckmin is very keen to get São Paulo out of the spotlight. Although the latest crime wave has made international headlines – and is being spun as a repeat of the grisly and vicious war that took place in the city in 2006 between the PCC and the PM, in which almost 400 people died – the reality is more nuanced.

The conservative weekly Veja this week published a useful comparative study of crime stats in São Paulo and it concluded that current perceptions are some way away from the actual reality on the ground. As Alckmin has repeated over and over this past month, São Paulo remains one of the safest states in Brazil, with a below national-average homicide rate.

In 1999, according to Veja, one person was killed every hour in São Paulo, on average. By the end of last year, that average had fallen to one every 8.5 hours.  Even with the latest spike, the average is still one homicide every five hours, still much better than it was in 1999. The homicide rate (intentional) in São Paulo in 1999 was an exceptionally high 52.58 per 100,000 residents. It was 8.95 in 2011, a huge improvement (and there was similar improvement on other crime stats).  To date in 2012 it has averaged 11.2, although in the month of October alone it was 15.7, nearly double the 2011 average. The average homicide rate in Brazil overall was 22.3 in 2011.

Several local crime experts deny that the latest wave of violence is a textbook repeat of the 2006 war between the then all-powerful PCC and the PM. In fact, some argue that the violence in fact may evidence a weakening and splintering of the PCC in the face of stronger action against it by the federal and state security forces, led by the PM.

Police sources told Veja that state intelligence sources earlier this year got wind of plans by the PCC to induct a new younger generation of leaders by means of a string of criminal operations to “legitimise” the new leaders. Acting on this intelligence, the PM’s shock troops, known as the Rondas Ostensivas Tobias de Aguiar (Rota), acted “strategically” against these new leaders, with a string of arrests and crackdowns which led to several large seizures of guns and arms. With its drug business under financial pressure, the PCC leadership is said to have told its underlings not to retaliate, for fear of making the situation worse. They refused to listen.

The same experts suggest that the traditional PCC leadership (most of it in prison) no longer reigns supreme. The PCC’s best-known leader, Marco Willians Camacho (‘Marcola’), has been in jail for six years and although some reports would have it that he is directing the latest violence from his cell, others argue that he is no longer relevant, “Today Marcolo is a kind of Queen of England of crime”, one commentator quipped, adding that two other factions are fighting it out for leadership of the gang.

One outcome of this alleged infighting is a lack of discipline out on the streets; with renegade cells refusing to obey orders from the top to lay off on the attacks against the PM. Alckmin himself argues that he has the main criminal gangs like the PCC, Comando Vermelho, Terceiro Comando and PM-run militias on the run. That’s also a little simplistic: organised crime – and police corruption — remains a major problem in São Paulo and elsewhere. Although it may not feel like it at the moment in São Paulo, increasingly the Brazilian federal and state security authorities are acting more coherently against it, however.

  • Alckmin slaps down Carvalho

Governor Alckmin dismissed as “unhappy” comments made by the federal secretary of the presidency, Gilberto Carvalho, comparing the violence in São Paulo to the situation in Palestine. Carvalho suggested that more people were dying in the violence in São Paulo than in the Palestine conflict. “Yesterday people were alarmed about the deaths in Palestine and the statistics show that in Greater São Paulo you have more people lost, murdered, than in one of the attacks there. People should be aware of this,” he stated after a ceremony at the presidential palace (Planalto) in Brasília on Tuesday.

Published in Brazil & Southern Cone

The ‘decapitation’ of the Gulf cartel has been followed by that of Los Zetas. This has left the Sinaloa/Pacífico cartel as the last big one still standing. It has also triggered a wave of speculation about what will happen next within the Zetas structure and, by extension, what will happen in the broader universe of the drugs trade and organised crime that President-elect Enrique Peña Nieto will be facing when he takes office on 1 December.

In September President Felipe Calderón announced the “decapitation” of the Gulf cartel and the capture of Iván Velázquez Caballero (‘El Talibán’ or ‘Z-50’), a regional Zetas boss who had defected as a result of a feud with the organisation’s second-in-command, Miguel Ángel Treviño Morales (‘Z-40’) [SSR-12-09].

The string of blows against the cartels continued into the following month. On 5 October, the navy ministry (Semar) announced the arrest of the man who has become one of the most notorious murderers in Mexico: ‘la Ardilla’ (Salvador Alfonso Martínez Escobedo), believed to have ordered the massacre of 72 Central American migrants in San Fernando, Tamaulipas, as well as another 100 or more “executions”. Martínez Escobedo was presented as the top Zetas leader in Coahuila, Nuevo León and Tamaulipas.

On 7 October Semar announced that in Coahuila marines had cornered and killed the paramount Zetas leader, Heriberto Lazcano Lazcano (‘el Lazca’ or ‘Z-3’). Because of the reputation the Zetas have earned as the most violent of Mexico’s criminal organisations, this event was widely hailed as the most important coup in Calderón’s drive against organised crime. There was, however, a snag: the very next day a group of armed men broke into a funeral home in Sabinas, Coahuila, where Lazcano’s body had been deposited and made away with it. Inevitably, this has already led to speculation that it might not have been Lazcano.

Lazcano’s reported death came just after Calderón ordered the deployment of a1,500-strong contingent of soldiers, marines and federal police to Coahuila in response to the 3 October murder of José Eduardo Moreira Rodríguez, the son of former Coahuila governor and former Partido Revolucionario Institucional (PRI) party president, Humberto Moreira, who also happens to be a close associate of President-elect Peña Nieto. This murder prompted rumours that the Zetas might have been involved, but there has been no confirmation that Lazcano’s killing was the result of the surge ordered by Calderón in Coahuila.

Striking at other cartels

On 14 October near Oso Viejo, Sinaloa, an army unit killed Manuel Torres Félix (‘el M-1’ or ‘el Ondeado’), a close associate of Ismael Zambada García (‘el Mayo’, second to Joaquín Guzmán Loera, ‘el Chapo’, in the hierarchy of the Sinaloa/Pacífico cartel) and reputedly close to one of Chapo’s sons, Ovidio Guzmán López.

On 31 October in Hidalgo de Parral, Chihuahua, the army captured José Salgueiro Nevarez (‘el Che’), together with another five men. Salgueiro was presented as ‘an important lieutenant’ of  ‘el Chapo’, involved in growing cannabis in Chihuahua and exporting it to the US, retail drug trafficking in Mexico, and extortion of businessmen and entrepreneurs. Two of those arrested with him were leaders of gangs of gunmen affiliated with the Sinaloa/Pacífico cartel.

Aftermath

While there is widespread consensus that the Sinaloa/Pacífico has been left as the largest drug trafficking organisation in Mexico, there is no such agreement about what will happen to Los Zetas after Lazcano’s killing. On 11 October, Admiral José Luis Vergara, the spokesman for Semar, said, ‘From the information we have, we don’t believe there will be a struggle for power [within Los Zetas] since we believe that Z-40 will definitely take control.’ Others are not so sure that this will be the case.

One scenario is that Treviño (‘Z-40’) will not enjoy the same authority as Lazcano, mainly because he does not come from the founding group of former members of the military special forces – actually, only some of the military deserters recruited to form Los Zetas came from the elite Gafes. Treviño was recruited by the late Gulf cartel boss Osiel Cárdenas in 1999, the same year as Arturo Guzmán Decena, the army deserter who set up Los Zetas as the cartel’s ‘enforcer’ unit. Treviño had caught Cárdenas’s eye because of his skills as a smuggler; under the Gulf cartel umbrella he became the boss of Nuevo Laredo, Tamaulipas, one of the most important hubs of the US-bound drugs traffic.

The zeal and brutality with which Treviño defended his control over Nuevo Laredo were seen as an asset by Guzmán Decena and his successor as leader of the Zetas, Lazcano. Treviño is currently being portrayed as the man who fostered the Zetas culture of savage violence. However, his contribution to the Zetas split with the Gulf cartel was to persuade Lazcano that they could ‘graduate’ from their established role as ‘enforcers’ to trafficking drugs themselves.

Los Zetas were never a monolithic organisation. They operated as a network of cells, often drawn from existing criminal gangs, with local leader who enjoyed considerable autonomy, and paid Lazcano for the ‘franchise’. This gave the cells the leeway to engage in activities other than drug trafficking, such as kidnapping and extortion — which rely on intimidation and violence to ensure compliance.

One such cell has already openly declared war on Treviño. Calling themselves Los Legionarios, they have announced this on banners in Nuevo Laredo. Even before the announcement of Lazcano’s demise, Iván Velázquez Caballero (‘el Talibán’ or ‘Z-50’), reputed Zetas boss in Nuevo Laredo, had sought an alliance with the Gulf cartel and La Familia Michoacana in his feud with Treviño [SSR-12-09]. It should be recalled that Treviño is hardly averse to alliances: he and Lazcano struck one with the Beltrán Leyva organisation when they broke away from the Gulf cartel.

Much, therefore, depends on how much control Treviño manages to retain over the Zetas cells; what, if any, alliances he pursues; and how these cells respond to the shakeup at the top of the organisation — breaking away individually or loosely linked with other cells. What most analysts and commentators see as certain is that the cells are unlikely to abandon their other criminal pursuits.

William Brownfield, the US Assistant Secretary of State for International Narcotics Affairs, said in an interview published on 20 October in the Colombian newspaper El Tiempo, ‘In my view we are witnessing the beginning of the end with the decapitation of the [Mexican cartels] and the reduction of their operational capabilities. This is what we saw in Colombia in the 1980s and early 1990s, when the cartels felt the pressure of the authorities and responded with violence [...] My theory is that this is what we’re witnessing in Mexico today.’

Published in Mexico
%PM, %06 %679 %2012 %15:%Nov

Cuba’s missing data: what does it mean?

It has become increasingly difficult to assess the performance of the Cuban economy in recent years, because of the non-appearance of some important economic data. At the end of October, the Anuario Estadístico de Cuba, which is usually published by July by the Oficina Nacional de Estadísticas e Información (ONEI, the national statistics office), was missing three chapters: chapter 5, which covers national income accounts; chapter 6, public finances; and chapter 8, the external sector.

The biggest gap in the data is in the external accounts. Not only is the relevant chapter missing from the 2011 Anuario, but there were also important omissions from the previous two years’ reports. Earnings from services exports have not been reported since 2009, and there have been no published figures for Cuba’s external debt, changes in international reserves or the composition of capital flows since 2008, 2004 and 2001 respectively.

No official explanation has been given for the gaps. It is unlikely that the delays are merely due to administrative inefficiency. Cuba’s system of data collection is extensive and the ONEI is a well-run institution. The missing data in the 2012 Anuario may therefore have a deeper significance.

In the past, there have been two main reasons for the failure to publish economic data. One is the government’s habitual secrecy, officially justified in terms of perceived national security threats (for example, details of foreign investors and lenders are hidden, for fear that partners might be punished under US laws; and the level of international reserves is regarded as an official secret, as it might be of use to US legislators designing economic sanctions).

The other is severe economic upheaval, as in the early 1990s, when the economy contracted by more than a third due to the loss of Soviet preferences. This year, there has been no increase in the threat from the US, and the economy is not in difficulties. It therefore seems that the data shortage may stem from a combination of existing official secrecy and another kind of upheaval: the structural transformations.

Services: a huge gap in the current account

Services exports have been a key driver of Cuban economic growth for the past two decades: in 2009, the latest year for which a figure has been published, they reached US$7.6bn, or 73% of all Cuba’s export earnings, up from 9% in 1990 and 65% in 2000. In the 1990s, that growth was driven by tourism (with gross income up from less than US$250m in 1990 to almost US$2bn in 2000), but in the past decade, tourism growth has slowed, so that it now accounts for only around one-third of services earnings. Non-tourism services have now become the main driver.

An ‘oil-for-doctors’ agreement between Cuba and Venezuela, signed in 2004, clearly explains a great leap in non-tourism services income. The total inflow in this category rose from less than US$1.0bn in 2003 to over US$4.0bn by 2005, and by 2009 they had reached US$5.5bn. But these statistics do not give a clear picture of the contribution of the Venezuela connection. The valuation of Venezuela’s payments for Cuban professional staff is unconventional, as the price is linked with fluctuations in the oil prices. This makes it difficult to identify changes in volume from the 2005-09 earnings figures, and adds a wide margin of error for estimates (in the absence of any official data) for 2010-11.

Interpretation of the accounts is also hampered by the fact that the composition of the broad category of ‘non-tourism services’ has never been revealed in the accounts. It has been widely assumed that the increase in non-tourism services earnings can be entirely explained by Cuba’s growing ties with Venezuela, but this is an over-simplification. In the past five years, other types of non-tourism services have also been expanded, including the sale of professional services (mainly medical), and licensing production of Cuban-patented medicines, to China and other major non-OECD (Organisation for Economic Cooperation and Development) markets. These other activities are becoming increasingly important for Cuban economic prospects, but their scale remains a secret.

A further complication is created by another structural change that has coincided with the deepening of ties with Venezuela: an increase in Cuban medical aid to third countries, particularly to members of the regional left-wing wing integration bloc, Alianza Bolivariana para los Pueblos de Nuestra América (ALBA). Such donations appear as a new negative entry in the ‘current transfers’ item of the current-account of the balance of payments, turning net inflows (mainly remittances) of US$974m in 2004 to a net outflow of US$367m in 2005. This suggests that more than US$1bn of the income reported from the export of services is used to pay for Cuban medical aid programmes.

The capital account: information black-out

The supply of data on capital account flows has diminished in the past few years, presenting a puzzle for potential creditors or investors seeking to assess the degree of sovereign risk. While national security concerns may explain why there have been no figures for Foreign Direct Investment (FDI) or debt flows for more than a decade, the lack of debt stock figures in the Anuario since 2008 may be also be connected with the increase in ties with Venezuela.

The deal with Venezuela provides for concessionary finance for oil imports when the oil price is high, so with the average oil price having more than doubled since the agreement was signed, the level of Cuba’s debt will have increased sharply. Although Cuba’s debt service burden will have been mitigated by Venezuela’s favourable terms for the new debt, an unwillingness to reveal the extent of the deterioration in the debt stock ratios may explain the lack of official debt figures.

In the absence of debt figures, Cuba’s creditworthiness can only be judged indirectly, using other data, reports by creditors and official statements. A current-account deficit of more than 4% of GDP in 2008 (arising from a sharp fall in the nickel price that coincided with three major hurricanes) was eliminated thanks to a sharp fall in import spending (down by a remarkable 37% in 2009, and remaining below the 2007-08 peak since then). Official statements claim that debt arrears incurred in 2008-09 have been cleared, and this impression is confirmed by the lack of recent creditors’ complaints of late payments. The tone of official discussions of foreign payments has become more confident over the past two years, perhaps suggesting that new sources of financing are becoming available (particularly from China) and the level of international reserves is being rebuilt, but in the absence of further data, creditors and potential investors remain wary.

Economic performance in 2012: piecing together evidence

The structural change in Cuban international economic relations, with its increased dependence on non-tourism services exports, has resulted in less transparent national accounts. At the same time, the Cuban economic system is undergoing profound changes, which will be affecting how the accounts are compiled and the structure of the fiscal accounts. This has combined with existing habits of secrecy to make it very difficult for business partners to assess how the Cuban economy is performing, or the extent of its vulnerability to changes in international conditions.

The only economic indicator that is published monthly by the ONEI is tourist arrivals. A 5.1% increase in arrivals in January-September confirms that the sector continues to grow despite weak GDP among its traditional source countries, but since tourism revenue accounts for less than one fifth of total exports of goods and services, this information provides little indication about economic performance more generally. For that, the only evidence available is snippets of information reported in the Cuban press. These suggest that the economy has been expanding in 2012, but at a disappointingly slow rate.

In the National Assembly in July, officials reported that annualised GDP growth in the first half of the year was 2.1%, weaker than the full-year target rate of 3.4%. There have been reports of improvements in the sugar sector, and modest increases in construction and manufacturing activity, while public services are being rationalised.

A cautious policy approach, with foreign exchange rationed and fiscal spending tightly controlled, appears to be preventing slippage in the trade and fiscal accounts and allowing debt servicing obligations to be met, but as yet there is no evidence of any significant boost to output (or fiscal revenue) arising from the restructuring of agriculture and much-vaunted economic reforms.

It remains possible that the delay in the publication of the final chapters of the Anuario may be not because of a trend towards less transparency, but because the accounting systems are being revised and improved. If so, new data should be available in the next few months.

For instance, Cuba’s Finance and Prices Minister Lina Pedraza was recently in Moscow to sign a five-year cooperation agreement between the Cuban and Russian treasuries. The 2013-2018 agreement includes training in Russia for Cuban administrators. Prensa Latina reported that Pedraza and a Cuban delegation also toured Russia to examine tax collection and budgeting methods. In 2011, the two finance ministries inked an MOU covering budget policy, including judicial regulation, planning, accounting and budget execution.

But if not, the dearth of information will not only add to uncertainty and risk perceptions among potential foreign investors and creditors, but also undermine the government’s claims to be improving accountability and promoting participation in economic policy debates.

  • “While national security concerns may explain why there have been no figures for Foreign Direct Investment (FDI) or debt flows for more than a decade, the lack of debt stock figures in the Anuario since 2008 may be also be connected with the increase in ties with Venezuela.”
  • “A cautious policy approach, with foreign exchange rationed and fiscal spending tightly controlled, appears to be preventing slippage in the trade and fiscal accounts and allowing debt servicing obligations to be met, but as yet there is no evidence of any significant boost to output (or fiscal revenue) arising from the restructuring of agriculture and much-vaunted economic reforms.”
Published in Leader
%PM, %31 %678 %2012 %15:%Oct

The green costs of the white powder

We are not talking about how many greenbacks are needed to purchase a gram of cocaine, but of the cost that the cocaine trade and other associated illicit activities have on the environment. According to a recent report by the online magazine Yale 360, in northern Guatemala’s Petén region, which is the country’s largest, illicit activities, particularly those related to the narcotics trade, are jeopardising Guatemala’s largest nature reserve and Central America’s largest tract of untouched tropical rainforest, the 2.1m hectare UN Educational Scientific and Cultural Organization (Unesco)-designated Maya Biosphere Reserve.

The reserve, which covers 19% of Guatemalan territory and contains roughly 60% of its productive lands, is home to a host of habitats, including many endangered species. Unlike most rainforests in the world, which face ‘traditional’ threats such as illegal logging in the northern Amazon region of Brazil, the Maya Biosphere Reserve is under threat from Mexican Drug Trafficking Organisations (DTOs), which carve out clandestine landing strips, and Salvadorean organised crime groups that clear out areas to set up cattle ranches used to launder proceeds from the drugs trade.

According to local park authorities cited by Yale 360, the reserve has effectively been split in two: the eastern side, which borders Belize and contains a Unesco world heritage site, the archaeological ruins of Tikal, remains intact; conversely, the western and northern sides, which border Mexico, are under siege from criminal groups.

This is because northern Guatemala provides an ideal location for the refuelling of small planes involved in narco trafficking, while at the same time the park’s proximity to Mexico enables DTOs to transfer the cargo to trucks across the highly porous border; the trucks then use Mexico’s road network to transport it onwards to the northern border with the US. Similarly, locals speak of the development of narcoganaderia (i.e. narco-ranching), whereby criminal groups clear land to establish illegal ranches in which they invest money obtained from the drugs trade; the cattle is later sold to the Mexican market just across the border, bringing the flow of illicitly-obtained cash into a neat full circle.

  • Oldest burial in Central America found

In October a team of archaeologists reported the discovery of the oldest burial site in Central America at the complex of Takalik Abaj, some 45km south of the border with the Mexican state of Chiapas. According to the experts, the burial contained no human remains but many relics that point to the economic and political power of the individual it once contained, whom they have named K’utz Chaman. Chaman may have even been the ruler who served as transition between the Olmec (1500-100 BC) to the Maya (800-300 AD) cultures in Takalik Abaj.

Published in Postscript
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