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Over 480 people were arrested in Panama City on 12 February, after protest demonstrations over plans to reform the social security agency, Caja de la Seguridad Social (CSS), turned violent.

Police fired tear gas at demonstrators in the capital, many of whom took refuge in a half-built children’s hospital, from where they threw bricks and other objects. Sixteen members of the police were injured. The main organiser, Sindicato Único de Trabajadores de la Industria de la Construccíon y Similares (Suntracs), considered Panama’s most powerful labour union, blocked some of the main roads in the capital. The government was fiercely critical of the protests.

• Government criticises protests

President José Raúl Mulino slammed the protests organised by Suntracs. He said it was “intolerable” that the hospital should be used as a “barricade” by “terrorist trade unionists subverting public order”.

Two CSS reform bills are currently being debated in the legislative assembly. One of the bills allows the government to make a US$91m extraordinary contribution to try and shore up CSS’s shaky finances. The other proposes substantial reforms including increasing the retirement age to 65 for men (up from 62) and to 60 for women (up from 57), increasing employer contributions by three percentage points, and setting the annual government contribution at US$1.2bn.

In initial readings of the second bill, deputies have rejected the increase in retirement age and asked for the government contribution to retirement funds to be raised to US$1.4bn. The bill is likely to be debated for a few more weeks in the legislature and could well still trigger more protests.

On 26 February the executive board of the International Monetary Fund (IMF) confirmed that it had approved a financing agreement worth US$1.4bn for El Salvador.

The deal is a 40-month arrangement under the Extended Fund Facility (EFF), which was agreed in December 2024 following almost four years of negotiations. It was delayed by IMF concerns around President Nayib Bukele’s decision to make the cryptocurrency bitcoin legal tender alongside the US dollar, El Salvador’s official currency, as well as a lack of financial transparency and the degradation of the rule of law during his time in office.

In a report laying out the board’s endorsement of the plan, the IMF said that these concerns had been relieved by a number of “prior actions” undertaken by Bukele. This includes the disclosure of financial statements from government agencies; reforms to the bitcoin law; increased transparency around public investments in bitcoin; and a new anti-corruption law which stipulates that high-level officials must disclose their assets.

The report highlighted the fact that El Salvador’s economy has been expanding steadily on the back of robust remittance inflows and tourism and a “greatly improved security situation”. Inflation has eased, external deficits have narrowed, and some debt rescheduling has reduced near-term financial needs. However it underlines that the country continues to face deep macroeconomic imbalances, high debt levels, and barriers to investment and productivity. 

The EFF package is therefore designed to support growth and resilience by rebuilding financial buffers, improving public finances and boosting governance and transparency while reducing bitcoin-associated risks, according to the IMF. Of the total US$1.4bn, 60% of the funds will be used to finance the country’s fiscal deficit, build a central bank liquidity buffer and other forms of budget support, while the other 40% is set to be used to increase international reserves.

At the same time, El Salvador is committed to improving the primary fiscal balance by 3.5% of GDP over the 40-month programme, including a 1.7% adjustment this year. Savings will be made by cutting the public sector wage bill, a process that already began with measures included in the 2025 budget, such as banning pay rises and ending a wage indexation mechanism known as the “escalafón” for all but the lowest earners in the health and education sectors. Spending on goods and services will also be reduced, as will cash transfers to local authorities. Further reforms of the civil service and the country’s pension system will also be required, according to the IMF, and the deal stipulates that a pension reform should be implemented by 2026. This will likely involve reducing pension payments or eliminating some specific pension schemes.

The deal also means that the use of bitcoin – which became legal tender in 2021 - must become voluntary (in effect taking away its formal legal tender status), as well as requiring that taxes be paid exclusively in US dollars. The agreement will also limit “public sector engagement in bitcoin-related activities and transactions,” prohibiting further bitcoin purchases for the duration of the programme.

In the short-term, the agreement reduces the risk of a sovereign default in El Salvador, staving off the possibility of an economic crisis. In the medium-term, the idea is to strengthen governance and transparency in order to improve the business climate and attract more investment and external financing. The IMF predicts that the Inter-American Development Bank (IDB), the World Bank, the Central American development bank (BCIE) and the Latin American development bank (CAF) could provide a further US$2.2bn over the course of the programme. 

The IMF also believes that the programme will allow El Salvador to access international capital markets at more affordable interest rates. This would make it easier to address shortfalls in infrastructure and human capital that the IMF says are holding back development. Bukele has already announced a raft of infrastructure projects in the east of the country, such as a new airport in La Unión, the expansion of the La Unión port and the expansion of the road network.

However, despite stipulating that at least 1.5% of GDP be spent on social programmes, the agreement requires cuts to public spending which will likely worsen public services such as health and education. Job losses and the required pension reform will also have a negative impact on the finances of a significant number of households. Rising unemployment and poverty due to austerity measures will likely hit Bukele’s approval ratings and could increase the risk of social unrest.

However Bukele is currently among the most popular leaders in Latin America and his Nuevas Ideas party dominates state institutions, limiting the possibilities for organised political opposition. Bukele’s increasing willingness to crack down on dissent will also limit the capacity of civil society to organise protests and demonstrations, meaning that the deal is unlikely to loosen his grip on power.

At the same time, there is a possibility that Bukele puts the future of the deal at risk. In recent weeks the president has announced on various occasions that the government had acquired more bitcoin, in a clear violation of the terms of the IMF agreement, and said that he was also planning more purchases in the future.

The Salvadorean president may be hoping that his close relationship with US President Donald Trump, who is also known to be favourable to cryptocurrencies, will limit any pushback from the Fund. For its part, the IMF says that Bukele’s “strong and stable” relationship with Washington will make for “a new, improved business and investment climate,” which it believes will attract significant investment in residential, commercial and hospitality developments. 

Looking ahead, it seems unlikely that the IMF will punish Bukele if he continues to flout the terms of the agreement. As a result, the Fund will strengthen his political position by reducing the risk of an economic crisis and boosting his legitimacy, giving the Bukele administration an opportunity to improve El Salvador’s economic prospects by attracting investment and external financing for key projects. Although the IMF claims that the agreement will improve governance and transparency, this is unlikely to be the case given Bukele’s control over state institutions. While this will increase corruption risks, it is unlikely to put off those investors who feel that they can secure deals by negotiating directly with the president. 

As a result, the deal looks set to enable the further consolidation of power by Bukele and his allies, furthering the ongoing process of democratic backsliding in El Salvador. It will also likely lead to increasing inequality as the Salvadorean elite linked to Bukele benefit from increased investment and financing while ordinary households suffer the negative effects of austerity. While it is possible that more spending on infrastructure attracts investors, it is unlikely that many well-paid, high-quality jobs will be created unless Bukele succeeds in improving the education system, a considerable challenge which would take time and money to overcome even if the political will were there.

IDB loan

On 25 March El Salvador’s 60-member unicameral national legislature approved a new US$500m loan from the Inter-American Development Bank (IDB) aimed at advancing macroeconomic and fiscal sustainability. It followed the recent agreement reached by the Nayib Bukele government and the International Monetary Fund (IMF). According to an IDB press release dated 20 March, this loan will provide the country with the fiscal space “to advance on reforms to increase tax revenue, reduce public debt, rebuild international reserves and improve financial governance and integrity”. It notes that the loan has a seven-year maturity, a three-year grace period and an interest rate based on the Secured Overnight Financing Rate (SOFR).

*** Israeli fears over economy.  On 25 March, Israel’s Finance Minister Yair Lapid said he was “very worried by the economic data presented to me” by senior Treasury officials.  Following discussions with Prime Minister Binyamin Netanyahu and “marathon meetings” with top officials, Lapid is reported to be planning to slash $4.3bn from spending. 

However, “detailed decisions” on the spending cuts have not yet been taken.  According to a report in the Jerusalem Post on 25 March, Lapid said: “After I finish the discussions with heads of the Treasury and the prime minister, I will turn to the Israeli public and present it with the state of the economy as it really is and the decisions necessary to return it to the right path.”

*** German arms smuggling.  Germany’s Customs Office of Criminal Investigations (ZKA) said in its 2012 report that the smuggling of arms and weapons to countries in crisis has been increasing rapidly.  According to the report, which local media sources have seen, there were 136 investigations for violations of the Military Materiel Law and the Foreign Trade Law, 35 more than in 2011. 

ZKA’s chief Norbert Drude was quoted as having particular concerns “about Iran’s aggressive procurement efforts”.  Drude is reported as saying that 75% of the investigations are related to Iran.  Specifically, Drude said that Iran is seeking technical equipment for the development of nuclear weapons.  He also mentioned biological and chemical weapons.

*** Egypt’s President Mursi opposes military intervention in Syria.  On 26 March, Egypt’s President Mursi told the Arab Summit in Doha: “Egypt rejects any foreign military intervention to resolve the Syrian crisis as the Syrian people are able to overcome this ordeal.”

*** Russian public’s biggest worry is corruption.  A recent opinion poll from the Levada Centre, conducted during February, indicates that Russians have become less worried about the economy and more worried about corruption, social inequality, and immigration.  Although inflation still tops the list of worries, with 68% of respondents citing it as their biggest worry, this is down three percentage points since 2010.  Those worried by unemployment has also dropped from 47% to 35%.  Corruption, on the other hand, now concerns 39%, up significantly from 28%.

Another area that is rising up the scale of worries, albeit from a low base, is immigration.  17% now express concern about this as against 10% in 2010.  Inequality now worries 35% as against 29% in 2010.  Civil rights and democratic freedoms, on the other hand, seem hardly to be a concern at all, troubling just 4% of respondents.

El Consejo Nacional Electoral (CNE) de Ecuador rechazó el 26 de noviembre un pedido del opositor Partido Sociedad Patriótica (PSP) para iniciar el procedimiento de realizar un referéndum sobre el paquete de enmiendas constitucionales que actualmente se encuentra frente a la unicameral Asamblea Nacional.

Incluida entre las 16 enmiendas propuestas por la gobernante Alianza País (AP) está una que permite la reelección indefinida para todos los puestos electos popularmente, la cual la oposición dice que es un intento de parte del Presidente Rafael Correa para poder perpetuarse en el poder.

El CNE dijo que su decisión estaba basada sobre el fracaso del PSP en seguir los procedimientos establecidos. El PSP, liderado por el ex presidente Lucio Gutiérrez (2003-2005), sometió su pedido a la CNE el 29 de octubre, pidiendo la entrega de los formularios a ser usados para recolectar firmas en apoyo de un referéndum sobre los cambios constitucionales propuestos. Desde entonces el partido ha lanzado una campaña nacional en apoyo de su propuesta de referéndum.

El CNE alegó que el fracaso del PSP en seguir el procedimiento se debe al hecho de que cualquier petición sobre asuntos constitucionales (sea emanada del presidente, de la Asamblea Nacional, o del público) primero debe ir a la Corte Constitucional (CC) para su consideración. Y agregó que cualquier campaña para recolectar firmas solamente podría iniciarse después de esta aprobación (de la CC).

Sin embargo, el CNE ya ha dictaminado, en respuesta a un pedido de la Asamblea Nacional, que las reformas propuestas no son ‘estructurales’ en su naturaleza y por lo tanto pueden ser procesadas por la legislatura sin necesidad de un referéndum.

El argumento del CNE luce enteramente circular y diseñado para no darle a la oposición una respuesta concreta, sino evasivas y ambigüedades. Pero sin desalentarse el miembro del PSP, Gilmar Gutiérrez (hermano de Lucio), le dijo a los periodistas que el partido seguiría adelante y sometería un nuevo pedido de referéndum a la CC.

EL CNE, que anteriormente este año rechazó un pedido de un referéndum sobre la controversial decisión del Presidente Correa de explotar la reserva de 1mm de barriles de petróleo ubicada en la vecindad del parque nacional y territorio indígena de Yasuní, aún debe dictaminar sobre un segundo pedido de referéndum sobre los propuestos cambios constitucionales, presentado a inicios de este mes por Guillermo Lasso, el candidato presidencial del 2013 y líder del también opositor Creando Oportunidades (Creo).

Casi con certeza, el CNE también lo rechazará sobre la misma base. De hecho, el pedido de referéndum de Lasso ya ha sido cuestionado precisamente sobre ese punto en una corte de Guayaquil.

Mientras tanto, el primer debate en la legislatura sobre el paquete de reformas está programado para el 1 de diciembre. Teniendo en cuenta el dominio de la AP en la Asamblea (tiene 100 de las 137 bancas), probablemente será aprobado (pese a que las encuestas muestran que una fuerte mayoría de ecuatorianos desea un referéndum). Un segundo debate puede realizarse solamente año y un día después del primero, por lo tanto, el 2 de diciembre del 2015 sería le fecha más cercana. La reforma sobre la reelección indefinida necesita estar vigente para febrero del 2016, un año antes de la próxima elección general, programada para febrero del 2017.

• CREO responde

El vocero de Creando Oportunidades (Creo), César Monge, rechazó el dictamen del Consejo Nacional Electoral (CNE). “No sabemos si el señor Pino Carlier obedece órdenes de algún campo político, pero podemos ver en su perfil de Facebook que él trabaja, o trabajaba, como cabeza de operaciones para Alianza País”.

Trinidad & Tobago’s People’s National Movement (PNM) government, led by Prime Minister Keith Rowley, won the 28 November local government elections by 7-6 against the opposition United National Congress (UNC), with a tie for the Sangre Grande Corporation. The PNM won 83 of the 137 electoral seats in the 14 corporations, and the UNC won 54.

The most notable feature of the election was the very low turnout, which was put at just 17%. At the 2013 local elections, also won by the PNM, the turnout was over 43%. The other notable feature was that none of the five other parties or four independents won a seat.

Despite the PNM victory, the UNC was able to take comfort from winning several districts that were previously held by the PNM and by winning the popular vote. The UNC secured 122,558 votes (51%) against the PNM’s 117,054 (49%). This was enough for UNC leader Kamla Persad-Bissessar to declare a moral victory.

The former prime minister said: “Tonight I believe is a victory for the people of Trinidad and Tobago. We asked that the people send a message to the Government that there was so much pain and suffering that the time for change has come. We trust that the Rowley Government received that message.”

Persad-Bissessar added that the result was a “sign of victory to come” on the national stage. However, the PNM government has only been in power for 15 months and so there is some time to go before the next general election. It is also worth noting that the UNC won the popular vote in the September 2015 general election, which the PNM won by a close 23-18 seats, so the local election result does not represent any major shift in public opinion.

Rowley declared himself (and the PNM) “very pleased” with the results. He said that the local polls had been held “at a particularly difficult time for Trinidad and Tobago” and that, therefore, it was not surprising that “there were some people who were disappointed that things were not as rosy as it should be”.

The government will be hoping, above all else, that the recent decision by the Organisation of Petroleum Exporting Countries (Opec) to cut production will result in a sustained rise in the price of oil. However, Trinidad & Tobago has been “invited” by Opec, along with 13 other non-Opec countries, to participate in the production cut back.

It is not yet clear how much of a cut Trinidad will be expected to contribute, but a meeting to discuss this has been scheduled for 10 December in Vienna. Trinidad’s current production is around 66,000 barrels per day. In total, Opec is looking for a 600,000 barrel per day contribution from non-Opec countries, including Russia which has been asked to reduce output by 300,000 barrels per day.

Meanwhile, state-owned oil company Petrotrin has announced a preliminary loss of TT$533m (US$79m) for the year ending in September, down from the 2015 loss of TT$819m (US$121m). A company statement noted: “Lower operating expenses helped to reduce the loss from the prior year. The Company continues to meet its debt service, required capital expenditure, and asset maintenance obligations with the support of its shareholder.”

ARGENTINA | Trade deficit. Argentina posted a trade deficit of US$1.15bn in May, according to figures released by the national statistics institute (Indec). This compared unfavourably with the trade surplus of US$368m recorded in the same month in 2022, a result of the impact on agricultural exports of the severe drought that has afflicted the country.

Exports totalled US$6.20bn in May, down 24.8%, while imports declined by 6.7% year-on-year to US$7.36bn.

BRAZIL | Interest rate maintained. Brazil’s central bank (BCB) voted to maintain the benchmark interest rate at 13.75% on 21 June, urging “patience and serenity in the conduct of monetary policy”, in response to the repeated criticisms from Brazil’s government and some business groups, who have accused the BCB of suffocating the country’s economic growth.

The BCB did not suggest when the rates could be lowered, even as inflation is slowing.

The recently appointed monetary policy director of the BCB’s board of governors and a government ally, Gabriel Galípolo, did not attend this latest monetary policy meeting, although in future meetings he is expected to push for the government’s interests.

Preparations are underway for Bolivia’s presidential transition on 8 November which will place the country under an elected conservative government for the first time since 2006. As well as the urgent task of getting the ailing economy back on solid ground, President-elect Rodrigo Paz is preparing to carry out a foreign policy pivot that is likely to bring Bolivia closer to the US and away from the authoritarian leftist governments that are allied with outgoing President Luis Arce. This does not, however, apply to China, a key investor in Bolivia’s nascent lithium sector and one with which Paz intends to deepen ties.

The changes that Paz intends to implement in Bolivia’s economic model and its diplomatic stance are to some extent intertwined. His election was widely welcomed by right-of-centre governments in the region, particularly the US, which is one of nine countries that have jointly offered to support the incoming administration’s efforts to stabilise the economy. Paz said on 25 October that he would fly to the US the following week for discussions aimed at resolving the fuel shortages that are driving Bolivia’s economic downturn, although no further details have been announced regarding this trip.

Paz is enjoying some early tailwinds at home, where the senate has approved loans which were long held up amid tensions between congress and the Arce administration. In recent days the senate has approved credits totalling nearly US$460m from the Latin American development bank (CAF), the Export-Import Bank of Korea, and the Plata Basin financial development fund (Fonplata).

These funds were denied to Arce due to opposition from the faction of the ruling left-wing Movimiento al Socialismo (MAS) that is loyal to former president Evo Morales (2006-2019). The belated approval of the loans could be read as an early goodwill gesture from Morales’ movement, although as almost all MAS legislators lost their seats in the election, it is on the streets where Morales’ influence will be felt in the form of potential protests, rather than in congress.

In terms of foreign policy, Paz is certain to distance his government from the authoritarian leaders of Venezuela, Cuba, and Nicaragua, who are friendly with Arce. Paz has said that no representatives from these countries will be invited to his inauguration, and on 28 October he expressed support for the Venezuelan opposition. Under his leadership, he said, Bolivia would “always be on the side of democracy and freedom” while President Nicolás Maduro “represents the total opposite”. Bolivia has already been suspended from the regional left-wing bloc Alianza Bolivariana para los Pueblos de Nuestra América (Alba), which on 24 October issued a statement expressing concern at the country’s swing to the “far-right” and denouncing Paz’s prior criticism of Maduro.

At the same time, however, Paz will be at pains to maintain good relations with two of the Arce administration’s most powerful allies, China and Russia, which through their respective state-owned companies Citic Group and Uranium One Group are the leading international investors in Bolivia’s lithium sector. Paz met with China’s ambassador in La Paz, Wang Liang, on 27 October, and said afterwards that they had agreed to “strengthen diplomatic and trade relations”.

Asked about his stance towards Russia’s President Vladimir Putin, Paz said on 28 October that he felt “conflicted, because he’s in a real global conflict, but Russia has a relationship with Bolivia and has interests here” that would require both governments to work together.

Tensions with running mate

Rodrigo Paz’s running mate, the popular former police captain Edman Lara who played a significant role in his success, said on 27 October that he fears he is being sidelined. “It’s difficult to speak with him,” Lara said in a video on social media. “He doesn’t answer calls or messages, I don’t know what’s happening – I’d like to think that it’s because he’s busy,” Lara said, adding that he “won’t allow” the role of vice president to be diminished and said that many people voted for Paz “because they believed in Captain Lara”.

The stage is now set for an unconstrained increase in public spending ahead of presidential elections in October. President Hugo Chávez used the powers conferred on him by the national assembly in late 2010 to legislate by decree the removal of the debt ceiling that can be contracted by the State. The opposition Mesa de la Unidad Democrática (MUD) contends that the Chávez administration will now ramp up spending even more to fund ever-more costly ‘missions’ in order to try and buy re-election, not to mention saddling the public, and future governments, with enormous debt.

Chávez used his ‘enabling powers’ to reform the ‘organic law for the financial administration of the public sector’ to allow the government to borrow beyond the limit imposed by the ‘law of annual indebtedness’ without consulting either congress or the central bank. The official gazette explained that the reform would enable the government to respond to “unforeseen circumstances or circumstances that are difficult to foresee.” In theory, the reform only permits additional debt to be contracted in order to guarantee food sovereignty, the preservation of social investment and security or integral defence, and the restructuring of debt. In practice, this provides sufficient latitude to justify any additional spending the government wishes.

The MUD argues that the reform contravenes the government’s own (1999) constitution, article 312 of which specifically states that the government must obtain special approval to contract new debt, which must be “at a prudent level in relation to the size of the economy”. Last year, Chávez promulgated the ‘Special Complementary Indebtedness Law’, allowing the government to issue an additional BF45bn (US$10.4bn) in debt.

The biggest concern is that the latest reform does not require the government to account for the money that it chooses to borrow. The government’s reputation for the transparent use of funds precedes it: the national development fund (Fonden) is probably the largest of all of the Bolivarian Revolution’s opaque funds, where billions of dollars are shuffled to and from the state oil company Pdvsa, for instance, and also into other smaller funds ostensibly created for more specific social development projects.

Pdvsa profits rise 42% in 2011

Venezuela’s oil & mining minister, Rafael Ramírez, announced on 17 April that the state-owned oil company, Petróleos de Venezuela (Pdvsa), posted net profits of US$4.5bn in FY2011, up 42% year-on-year from US$3.14bn in FY2010. Aside from continued record-high oil prices, the sale of the firm’s four Ruhr Oel refineries in Germany also underpinned the net result in 2011. Pdvsa’s consolidated revenues rose 34% to US$124.75bn, from US$94.9bn in 2010 .

The company spent US$17.5bn on capital investment in 2011, up 32% on what it spent in 2010. That was a tad lower than targeted investment for last year, of US$18.4bn, but not by much. In previous years the firm has missed its ambitious investment targets by a country mile.

The fruits of this investment have yet to pay off as total production was put at 2.99m barrels per day (bpd) last year, basically stable on 2010’s 2.97m bpd. Ramírez said exports came to 2.46m bpd in 2011. External estimates of Venezuelan oil output come in a bit lower – for instance, the Organization of  Oil Exporting Countires (Opec), of which Venezuela is a leading member, puts it about 2.8m bpd in March, making exports comcomitantly lower.  However, the discrepancy between the Pdvsa report and private estimates is lower than it has been in several years. Ramírez said the target for 2012 is to reach 3.5m bpd.

Ramírez said Pdvsa planned to invest US$266bn between now and 2018 and he invited locally-based private companies to participate, declaring that oil policy is “national” first and foremost.  Given that an estimated 204 companies linked to the oil sector have been expropriated under Chávez, that comment will not do much to assuage investor nerves. Yet for the brave investor, Venezuela, which is sitting on the biggest oil reserves in the world, still represents a huge opportunity and oil majors from around the world remain eager for a slice of the lucrative Orinoco belt.

However, not everything is rosy, as the company reported that costs and expenditures reached US$89.56bn, US$39.78bn of which was for the purchase of crude and other products from its overseas affiliates. Ramírez said that given the high level of costs, the company is set to “revise its foreign assets”. In addition, another area where there was a substantial increase in spending was the opaque social expenditure, which climbed from US$7.02bn in 2010 to US$30.08bn in 2011, a 328% increase.

Pdvsa’s financial debt went rose US$11.1bn in the space of a year, from US$21.3bn in 2010 to US$32.4bn in  2011. That new debt was mostly in the form of bonds with an average coupon of 10% a year. Notably, debt to suppliers (mainly oil service companes in the Orinoco) has crept up again to reach US$12.3bn. Finally, accounts receivable in 2011 doubled to US$30.9bn, up from US$14.8bn in 2010. Of that, some US$6.0bn is owing from“related entities” like Corpoelec and Pequiven. Another US$6.0bn is effectively the cost of the discount oil provided by Venezuela to countries in Central America & the Caribbean under Petrocaribe .

Pdvsa and China

Pdvsa and China National Petroleum Corp (CNPC) will shortly begin construction of a joint refinery on the south coast of China.  CNPC will have a 60% share of the refinery and  Pdvsa 40%. Pdvsa hopes that the refinery will allow it to sell more crude to China, now the second largest global oil consumer. According to the latest Pdvsa report, 225,000 barrels of oil are being sent to China daily (b/d). Pdvsa’s president and oil minister, Rafael Ramírez, has previously said Venezuela is shipping China more than 400,000 b/d; however, up to 250,000 b/d are payment in kind for Chinese loans.

Aiming for more electricity production

The energy minister, Héctor Navarro, announced in mid April that the government expects to produce up to 40,000 megawatts of electricity starting in 2015. According to energy ministry figures, Venezuela currently has an installed capacity of 25,000 megawatts. The country suffered a severe energy shortage in 2010 and last year the government had to impose a series of measures to reduce electricity consumption in order to avoid further energy insufficiency problems.

During the presentation of a recently purchased Argentine-made Kaplan turbine to be installed at Tocoma hydroelectric project, Navarro said that “we have set ourselves the goal that Venezuela must reach an installed capacity of 40,000 megawatts in the next five years”. Navarro added that the Tocoma project on the Caroní River, Venezuela’s second largest with one of the highest discharge rates in the world (4,850m 3 /s), is to have 10 Kaplan turbines which will add some 2,000 megawatts of installed capacity. He said that the project, which began in 2008, is expected to become fully functional by 2014. Navarro explained that the addition of this installed capacity would bring the total capacity produced by hydroelectric plants in Venezuela to 17,000, which should allow the government to achieve its objective.

• Aesop’s fables

Rodrigo Chaves,the World Bank’s director for poverty reduction and economic management in Latin America and the Caribbean, warned on 24 April that Venezuela is particularly vulnerable to weaker Chinese demand and any downturn in global oil prices, as it failed to set aside rainy day funds in the boom years. He said that Venezuela, " like the grasshopper in Aesop’s fable,  spent the summertime singing”.

*** Chavez successor puts workers in uniform, uses troops as police.  On 22 May, Venezuela’s new president, Nicolas Maduro, announced in an address to the first class of graduates from the Universidad Bolivariana de los Trabajadores (UBT), that he had ordered the military high command to proceed as rapidly as possible to establish a workers’ militia, to be called Milicia Obrera Bolivariana (MOB).  This, he said, would fill the need to strengthen “in face of fascism and the bourgeoisie, the worker-military alliance — the alliance of the Bolivarian national armed force (FANB) with all the workers of the fatherland”.

Maduro added: “The working class will be ever more respected, and all the more so if the workers militias have 300,000, 500,000, one or two million workers in uniform, armed and trained for the defence of the fatherland”.  The authorities of the Universidad Militar Bolivariana and the UBT have been ordered to get together so that the workers and their teachers should attend the military academies and go to the factories, in order to set in motion a process of “civic-military self-formation".

The workers’ militia initiative came two weeks after Maduro had announced the launch of a new anti-crime drive, the 20th since the beginning of Chavez’s first term in office in 1999.  This drive involves the deployment of the military in ‘pilot’ areas around the country.  According to Maduro, the officers of the armed forces had shown great enthusiasm for going out “in a civic-military union to protect the people”.  Interior & justice minister, Miguel Rodriguez Torres (a retired general who served previously as head of Sebin, the national intelligence service), explained that the new plan, codenamed “Patria Segura” (Safe Fatherland), would involve the deployment of about 3,000 members of the three armed services in 500 ‘pilot’ areas across the country.  The first of these, he said, would be two municipalities in the opposition-ruled state of Miranda: Sucre and Baruta. 

Maduro has been making great efforts to ensure that the armed forces remain the bulwark of the regime. In early May, he announced the launch of a ‘special mission’ to improve social benefits for the military as well as pay.

*** Tunisian salafists.  Tunisia, where the Arab Spring began, is now thought to be home to between 3,000 and 4,000 jihadist Salafists.  The jihadist strongholds include neighbourhoods in the western suburbs of Tunis.  The feeling among local sources is that the Muslim Brotherhood-connected Ennahda movement, which leads the coalition government, cannot long defer a showdown with the jihadists.  In February, the assassination of leftist leader Chokri Belaid by jihadists led to the resignation of the former prime minister and the replacement of three important ministers from the Ennahda party with technocrats.

CHILE | Reaping benefits of China FTA. Chile’s exports to China have increased dramatically over the last seven years, according to a report released on 3 September by the country’s foreign economic relations directorate (Direcon) covering the 2005-2012 period.

In 2005 Chile became the first Latin American country to have a free trade agreement (FTA) with China, meaning Chile’s experience provided an important point of reference for other economies in the region. In this sense it is interesting that Direcon’s figures show that while, predictably, the exports have been led by copper, non-mining exports have also registered a significant 19.5% annual average increase since 2005.

In its report, Direcon highlights that the role played by non-mineral exports in increasing bilateral trade by an annual average of 21% (to US$35.6bn in 2012) “has not been minor”. The report notes that the performance of fresh fruit exports has been remarkable, with an average annual growth rate of 83.3% for the period. This allowed Chile’s fresh fruit exports to increase their relative share within the non-mining exports sector (which accounted for US$2.4bn in exports in 2012) by almost twentyfold.

Commenting on this aspect Direcon director Alvaro Jana explained that the “strong increase observed when comparing 2012 to the year prior to the coming into effect of the FTA, can be primarily explained by the performance of grapes, plums and cherries”. Jana added that “2012 was a historic year for fruit [exports], which registered the largest yearly growth rate of 109.1% to reach a record figure of US$365m”. This despite the fact that, while plums and cherries currently face no tariffs, grapes must still pay a 3.9% tariff in order to have access to China’s domestic market.

The remarkable increase in fresh fruit exports has contributed to the increase in the number of Chilean products exported to China, which went from 290 in 2005, to 506 in 2012. Perhaps more significantly all this has in turn contributed to the doubling in the number of firms that export products to China, which stood at 921 in 2012.

• Mexico’s reaction

Mexico’s foreign ministry noted that the alleged NSA activities may be contrary to the UN charter and the jurisprudence of the International Court of Justice at The Hague (whose authority the US does not recognise).

• PT prepares for protests

As a new video by Brazil’s branch of Anonymous calling for mass action on 7 September circulates the country, the PT, not to be outdone, is calling for its members to take to the streets too. Valter Pomar has asked PT supporters to come out in defence of democracy. According to Folha de São Paulo, the PT’s aim is to prevent “right-wing” groups taking advantage of the Independence Day celebrations.

• Dirceu dissents

José Dirceu, former chief-of-staff to President Lula da Silva, and the architect of the mensalão scheme was one of the most outspoken critics of the principle of congress’ proposal to end secret voting. The former congressman, who is banned from standing for office until 2015 following his conviction for racketeering, embezzlement and money laundering, argued on his blog that by ending secret voting in all cases, congressional deputies would be far more vulnerable to external pressures: political, economic and corporate.

• G-20

On the way to Russia for the G-20 summit this week, President Fernández stopped briefly in Morocco to change planes. Having flown in the presidential jet, Tango 01, across the Atlantic, Fernández changed planes to avoid any possibility of the jet being impounded by judges acting on behalf of hedge funds attempting to reclaim their debts from the Argentine state. Hedge funds, or vulture funds as the president calls them, are one of the topics she is due to address at the meeting.

Eclac lowers growth forecast to 6%: The latest Eclac report predicts that Panama will grow by 6% in 2015, down one percentage point from its previous forecast. Growth in 2014 slowed to 6.2%. According to a report filed by the International Monetary Fund (IMF) on its recent fact-finding mission to the country, the slowdown was due to a slower pace of public investment, continued weaknesses in the Colón Free Zone and delays in the expansion of the Panama Canal. Still, at 6% Panama’s growth is forecast to be the greatest in the region.

Eclac has lowered its forecasts for the region as a whole. Whereas it previously predicted the continent would grow by 2.2%, it now expects overall growth of just 1% for 2015. In a statement to accompany its prediction, Eclac explained that the revision “reflects a global environment characterized by lower than expected growth in late 2014. With the exception of the United States, growth projections have been revised downwards in industrialised countries and emerging economics will continue to slow”.

While growth slowed in Panama in 2014, so too did inflation, to 2.6% as lower oil prices and price controls on certain food items kicked in. For 2015, the IMF is predicting inflation of 1.5%. The current account deficit remained high in 2014, at 11.4% of GDP, owing in part to strong investment-related imports, but this is expected to drop over time as investment projects wind down and exports increase. This deficit is expected to continue to be financed by buoyant foreign direct investment inflows. A new social and fiscal responsibility law is set to limit the government’s capacity to run up a fiscal deficit: for 2015 it is budgeted to be 3.7% of GDP.

Panama metro: Three international consortia have submitted their bids to win the contract to build the second line of the Panama City metro. The bidders are: UTE Panama II (comprised of Spain’s Dragados SA de España, Mexico’s Ingenieros Civiles Asociados and Peru’s Graña y Montero); Consorcio Línea 2 (Brazil’s Constructora Norberto Odebrecht and Spain’s FCC Construcciones) and Consorcio PANAMetro (China Harbour Engineering Company, China Railway First Group and Spain’s Corsan-Corviam Construction). The second Metro line, which will span 21km and comprise 16 stations, is expected to be completed by December 2018.

Last month, Panama’s Security Minister Alexis Bethancourt suspended all trips abroad in order to direct police operations against local delinquents. Announced on 10 October, his decision points to continued problems facing the Partido Panameñista (PPA)-led El Pueblo Primero (EPP) coalition government led by President Juan Carlos Varela vis-à-vis security – the chief public concern – despite its recent claims of progress.

Bethancourt had been due to head up a government delegation sent to attend the 10-12 October 12th Conference of Defence Ministers of the Americas (XII CDMA) in Trinidad & Tobago. However, the announcement that he would no longer be attending came the same day that a shootout took place in the Arco Iris area of Colón City (the capital of the eponymous province) which left three people dead. Four days earlier, the security ministry announced that Bethancourt would lead an operation which was due to start on 22 October known as ‘Colón Seguro’ in Colón City with the support of national police (PN) chief, Omar Pinzón; executive secretary of the national security council, Rolando López; and Carlos Rumbo Pérez, the provincial PN director. The operation has five basic components: capturing drug traffickers; seizing illegal weapons from the streets; adding more PN officers to the streets; strengthening intelligence to locate local delinquents; and sending more resources to the province (although figures were not specified). The security ministry also announced that anyone who provided information resulting in the arrest of drug traffickers would receive compensation of between US$20,000-US$25,000. According to the press release, the ministry has information that drug gangs are sending drugs to Europe and the US from Colón.

The continued need to address security was suggested by a Dichter & Neira survey released on 20 September which found that it topped the list of public concerns – cited as such by 21% of the 1,200 respondents, ahead of the cost of living (17%) and unemployment (13%). Meanwhile, a subsequent survey by the same pollster, released on 18 October, showed that just 16% of respondents thought that security had improved under the Varela administration which took office in July 2014, while 73% are in favour of more police officers on the streets, and 88% would like security cameras to be installed throughout urban areas. The latest Dichter & Neira survey gave Varela 39% approval, his second worst rating in the last 12 months (above only 36% registered in August).

Yet this comes despite claims of progress by the government. On 3 October, the security ministry published figures which showed that from January to 27 September 2016, 304 homicides were registered nationwide down from 374 over the same period in 2015. The report also shows that in the past three years, the national homicide rate has fallen – from 16.1 per 100,000 inhabitants in 2014, to 12.4 in 2015 and to 7.5 currently. As regards drug seizures, official figures released by the security ministry on 20 October showed that so far this year, 50.3 tonnes(t) of drugs had been confiscated and over 1,500 people had been arrested by the various forces that take part in anti-drug operations: the PN; the border service (Senafront); and national air service (Senan). According to the security ministry, the PN confiscated 26.5t of illegal drugs with Senan and Senafront confiscating 21.5t and 2.3t respectively. Bethancourt said that in 2015 a record 58 tonnes of drugs had been confiscated and that the latest figures suggest that this could well be surpassed in 2016.

• Drug seizures

According to a 20 October report by Panama’s security ministry, over the last eight years, a total of 371.2tonnes (t) of drugs have been seized. This breaks down as: 54.3t in 2009; 54.2t in 2010; 39.6t in 2011; 35.1 in 2012; 41t in 2013; 39t in 2014; 58t in 2015 and 50.3t so far in 2016.

ARGENTINA | Economic recovery? On 20 August Argentina’s national statistics institute (Indec) released the monthly indicator of economic activity (Emae), used as a proxy of GDP, which gave an indication of the extent of the damage caused by one of the region’s longest and strictest lockdowns for coronavirus (Covid-19). It revealed a 12.3% contraction in June compared with the same month in 2019 and an accumulated six-month contraction of 12.9%, again compared with the same period a year before.

June’s year-on-year figure represents an improvement on the hefty contractions recorded in April (26%) and May (20.5%) and hints at economic recovery. According to Indec, the change reflects May’s loosening of some quarantine restrictions, particularly in industry and commerce in the provinces less impacted by Covid-19.

President Alberto Fernández has been quick to highlight the improvement on a handful of occasions, telling local radio La Red on 15 August that Argentina’s economic activity has shown signs of recovery and expressing his hopes for a promising future. However, a more sombre look suggests June’s rate of decline is only encouraging because it follows two of Argentina’s largest contractions since records began. It also continues a trend of near-constant contractions since April 2018.

Reading the runes, Chile’s ruling left-wing coalition is offering to make significant changes to the draft constitution produced by the constitutional convention (CC). Electoral surveys consistently show that voters are likely to select the ‘reject’ option in a referendum on the draft constitution on 4 September. President Gabriel Boric and his governing alliance are hoping that by offering to amend the more contentious aspects of the constitution it will be possible to persuade voters to ‘approve’ it in the upcoming referendum.

President Boric’s left-wing Apruebo Dignidad coalition and the allied Socialismo Democrático coalition of traditional leftist parties agreed on 11 August to modify the constitution in five main areas: plurinationality; health and education; public security; the political system; and the judicial system.

The proposed amendments would water down the indigenous autonomy enshrined in the draft constitution. They would make it emphatically clear that indigenous autonomy would need to be “coherent with the unique and indivisible character of the Chilean state”. The mechanism of indigenous consultations would only be applied on issues that “directly affect indigenous peoples” and not on “issues of a national character or constitutional reforms”. The powers of indigenous justice systems, meanwhile, would be circumscribed. They would be applicable only to members of indigenous communities; they would be voluntary; and they would have no jurisdiction over criminal offences.

In terms of social rights, the two parties agreed that the constitution would be modified to recognise that public and private pensions, health, and education provision may co-exist, while reaffirming residential property rights. They also agreed that there should be constitutional provision for deploying the armed forces during a state of emergency.

As regards the political system, the parties agreed to achieve a “better balance between the legislature, central government, and territorial entities”. They made no mention of the proposed elimination of the senate, which in the draft constitution is to be replaced by a Regional Assembly with less power. On the judicial front, the pro-government parties agreed to reconsider the proposed 17-member Council of Justice, which would only include eight judges. Its name will be changed back to Judicial Power and there will be an explicit guarantee that it will be composed by a majority of judges and that their independence will be protected.

Modifying constitution

The offer of concessions by the pro-government parties coincided with a vote in the lower chamber of congress to make the existing constitution, dating back to the military dictatorship, easier to modify. Deputies voted by 130-15 with one abstention in support of a bill proposed by the centre-left opposition Democracia Cristiana (DC) to lower the threshold for constitutional change to special majorities of four-sevenths, down from two-thirds at present. 

At the start of this year, Brazil assumed the annual rotating presidency of the Brics group of developing economies it initially established with Russia, India, China, and South Africa, before the groups invited new full members in 2023 and new partner countries in 2024. On 6 January Brazil announced that the group would expand even more, hailing the accession of Indonesia as a full Brics member.

The Brazilian government released a list of five priorities on 1 January for its 2025 Brics presidency: institutional strengthening; cooperation between Global South countries, especially on public health; improving the financing structures to address climate change; promoting responsible and inclusive governance of artificial intelligence; and developing payment methods to facilitate trade and investment. The objective regarding climate finance suggests that President Luiz Inácio Lula da Silva is seeking to tie Brazil’s Brics events, running from February to July, to the United Nations (UN) climate change conference (COP30) to take place in Belém, the capital of Pará state, from 10-21 November.

Given that climate cooperation has been a key pillar of Brazilian foreign policy under Lula, trumpeting the green agenda is likely to be a rallying call to deepen ties with other high-biodiversity countries, such as Indonesia. At the UN biodiversity conference in Colombia last October (COP16), the Brazilian delegation sought to rally support for its Tropical Forest Finance Facility (TFFF) proposal, a multilateral climate financing mechanism the Lula government plans to debut at COP30. The success of the TFFF will to some extent depend on the ability of Brazilian diplomats to work with Southeast Asian partners such as Indonesia and Malaysia, as these countries are known as the main custodians of the Borneo-Mekong-Southeast Asia basin – the third largest tropical rainforest area behind South America’s Amazon basin and central Africa’s Congo basin.

Another common trait shared by Brazilian and Indonesian diplomacy is the emphasis of maintaining stable relations with both the US and China. Although Brics membership entails more approximation to China, both Brazil and Indonesia are traditional US allies. Indonesia’s President Prabowo Subianto even called US President-elect Donald Trump in November to congratulate him on his election victory.

Brics expansion

According to Agência Brasil, the state news agency, nine of the 13 countries offered in October 2024 to become Brics partner countries have accepted their invitations, as of 6 January. Only Nigeria, Turkey, Algeria, and Vietnam are yet to announce their membership. In March this year, President Lula is due to visit Vietnam, where the topic of Brics cooperation is likely to be on the agenda.

Trade slump

The Brazilian government’s fanfare over its foreign policy opportunities this year came on the same day that less-than-encouraging trade figures were released. On 6 January the ministry for development, industry, trade, and services reported that Brazil’s trade surplus for 2024 came to US$74.6bn, down 24.6% from 2023. The lower surplus was mainly driven by a slump in the export value of agricultural products in 2024, which totalled US$72.5bn, marking a decrease of 11.0%.

The annual export value to Brazil’s largest trade partner, China, came to US$95.9bn, down 9.3% from the previous year. Meanwhile, Brazil’s exports to member states of the Association of Southeast Asian Nations (Asean) totalled US$26.38bn last year, up 8.13% year-on-year. Exports to African countries also saw an annual rise. Brazil’s total export value to Africa came to US$15.87bn, up 20.5%. However, the total export value to South American countries last year was US$36.92bn, down 14% from 2023. In 2024, Brazil’s exports to the US posted an annual rise of 9.2%, reaching an export value of US$40.3bn, although Donald Trump’s inauguration on 20 January is expected to bring a more protectionist turn that could hinder Brazil’s exports.

Supreme court (STF) justice Alexandre de Moraes issued a preventive arrest warrant on 4 June for federal deputy Carla Zambelli, of the right-wing Partido Liberal (PL). In mid-May Zambelli was sentenced to 10 years in prison for instigating a plot to hack into the computer systems of judicial authorities, but she was free to travel while awaiting the results of the appeals against her conviction and reportedly left Brazil in late May. Although Zambelli has given interviews to the press in which she insisted that she was not fleeing the country to avoid serving her sentence, reports in the media have interpreted the arrest order as a warning against far-right figures, such as former president Jair Bolsonaro (2019-2023), who have been accused of crimes against Brazil’s institutions.

Bolsonaro has been unable to leave the country since his passport was seized in February 2024, as part of a police investigation into an alleged plot to launch a military coup to help him stay in power after losing the 2022 presidential race. However, if the STF finds Bolsonaro guilty of taking part in this coup plot, there is still the risk that he might flee the country to escape arrest. Some political pundits have speculated that, even without a passport, it is physically possible for Bolsonaro to get into a car and drive across to Argentina; there he could request his ally, Argentina’s President Javier Milei, to grant him political asylum.

Argentina was reportedly the route that Zambelli took when she left Brazil. Although her current location is still not confirmed, several media outlets have reported that Zambelli travelled to Argentina by car and then flew to the US, and that her ultimate destination is Italy, where she plans to be based temporarily, since she holds Italian citizenship.

Now that an arrest warrant has been authorised, Brazil’s federal police (PF) will request Interpol to declare Zambelli an international fugitive by issuing a red notice. In the meantime, all eyes will be on the Italian courts. If Zambelli has managed to travel there, it would be up to Italian authorities to review an eventual extradition request from Brazil. Some media reports have compared Zambelli’s situation with that of Henrique Pizzolato, a former executive at state-owned bank Banco do Brasil, who was convicted on corruption charges in 2012. Since he is a dual Brazilian-Italian citizen, he fled to Italy in 2013, but an Italian court approved his extradition in 2015.

Zambelli conviction

On 14 May a panel of five STF justices sentenced federal deputy Carla Zambelli to 10 years in prison for instigating a plan which involved hacking into the computer systems of the judicial watchdog Conselho Nacional da Justiça (CNJ). She hired a hacker to insert fake release orders and a fake arrest order into the CNJ systems as a way to sow confusion and undermine public trust in the judiciary.

Pese a todas las dramáticas conversaciones acerca del fermento de una crisis que espera al milagro económico de Brasil, no existe mucha evidencia de ello que pueda encontrarse en las estadísticas oficiales.

Como se esperaba, el comité de política económica (Copom) del banco central (BCB) votó por unanimidad esta semana elevar la tasa de interés referencial, Selic, en 25 puntos básicos, a 12,5%, con un sesgo neutral, su quinto incremento consecutivo. La breve declaración de Copom sugiere que el BCB podría tomar una actitud de esperar y ver qué pasa desde agosto, con un ojo en la demanda interna y el otro en la evolución de la crisis de la deuda en la zona del Euro y en EU.

La inflación en el precio al consumidor está descendiendo, debajo de las expectativas a 0,10% a mediados de julio, el ritmo más lento en 11 meses, en medio de menores precios de los alimentos y el combustible. La tasa anualizada aún estaba por encima de la meta techo de 6,5%, habiendo llegado a 6,75%, pero el presidente del BCB, Alexandre Tombini, insiste en que la inflación declinará desde agosto. En el último (15 de julio) informe ‘Focus Report’ de economistas locales, las expectativas inflacionarias para 2011 eran estables en 6,31%. El consenso para 2012 se elevó a 5,2%.

El fuerte Real ha ayudado a contrarrestar la inflación, pero permanecen las presiones salariales en un muy estrecho mercado laboral. La tasa oficial de desempleo en las seis principales áreas metropolitanas fue de sólo 6,2% en junio, cayendo de 6,4% en mayo, de acuerdo con el instituto nacional de estadísticas (Ibge), y la más baja tasa para el mes desde 2001. El desempleo a final del año podría volver a los niveles de diciembre de 2010 (5,3%). En los 12 meses hasta junio de 2011, 172.000 personas que buscaban empleo lo han encontrado. Pero lo más importante, dado el número de nuevos entrantes en el mercado laboral, 512.000 nuevos empleos fueron creados en el mismo periodo. Esta es una cruda comparación con EU, donde desde marzo de 2011 el desempleo (no agrícola) ha crecido en 545.000, de acuerdo con el US Bureau of Labor Statistics. Los salarios brasileños aún están creciendo. Los salarios promedio alcanzaron  R$1.578 (US$1.000) porf mes en junio. Dado que la economía se está desacelerando, su capacidad de generar empleos es impresionante.

Las autoridades están tratando de preparar un suave aterrizaje, pero no es fácil. El crédito total pendiente creció 20% año en año en mayo, a R$1,8bn (US$1,15bn), encabezado por un 50% de incremento en el préstamo hipotecario. En junio, el BCB elevó su pronóstico para el crecimiento del crédito a 15% en 2011, subiendo de 13% previamente. El BCB recientemente ajustó las regulaciones sobre las tarjetas de crédito para préstamos al consumidor respaldadas por los salarios y las pensiones. Los préstamos deducibles de las nóminas han crecido rápidamente. En algunas estimaciones, los hogares gastan un record de 24% de su ingreso disponible en servicios no hipotecarios. Si se incluyen las hipotecas, podría ser tan alto como 40%. El promedio de la tasa de default de préstamos permanece sin cambios en 5,1% en mayo (desde abril). El crédito total llegará a alrededor de 48% del PIB este año, según pronóstico del BCB.

El Real que ha llegado a su más fuerte nivel contra el dólar desde 1999, a principios de este mes, fue negociado con una leve debilidad en R$1,57/US$ el 20 de julio. Hasta ahora este año el Real se ha apreciado en 6,2% contra el dólar. La perspectiva de más alivio cuantitativo en EU complicará más la vida de los estrategas brasileños en políticas. Tombini ha aparecido para advertir a las compañías locales que se preparen para un cambio en política. Esos comentarios son crípticos, pero parecen apuntar hacia los esfuerzos para detener a las compañías extranjeras en su empuje la tasa de cambio aún más. Tombini recordó que cuando la crisis financiera global  causó que el Real  se depreciase temporalmente a fines de 2008 e inicios de 2009, muchas firmas brasileñas experimentaron problemas de flujo de dinero, habiendo aprovechado previamente la ventaja de un fuerte Real para pedir préstamos en dólares. El BCB está interviniendo fuertemente y ha gastado más de US$330bn compras spot y en mercados a futuro, para tratar de poner un piso bajo el dólar contra el Real, aunque con poco efecto. En julio, el BCB de nuevo elevó los requerimientos selectivos de reservas (sobre bancos en posiciones de escasez en dólares). El ministerio de finanzas ha insinuado una extensión del impuesto a las transacciones financieras para compras por extranjeros de contratos a futuro en moneda local. Sin embargo, el problema es muy difícil de corregir debido a que el dólar es débil en otras partes y las tasas reales de interés (ajustadas a la inflación) son bajas fuera del Brasil.

• Las exportaciones se sostienen bien

Pese al fuerte Real, las exportaciones se elevaron 31% año en año, a US$94,6bn en los primeros cinco meses. Las importaciones crecieron 29% para llegar a US$86,1bn. Son más impresionantes las cifras de cuenta corriente: en los primeros cinco meses de 2011 la cuenta de inversiones financieras en Brasil totalizó US$62,7bn, subiendo de US$36,9bn en igual periodo de 2010. Poca moneda extranjera va a los activos financieros locales: la bolsa de valores ha tenido un débil desempeño este año. Extrañamente, las compañías brasileñas, que gastaron US$26bn en adquisiciones extranjeras en los primeros cinco meses de 2010, han recortado de  nuevo este año, invirtiendo US$6,6bn en el exterior hasta mayo.

Although the growth rate is slowing, the headline figure is still impressive at 6.5% year-on-year, in the third quarter.

Given the state of the world economy and the volatility of commodity prices, the fractional (0.1 of a percentage point) slowdown from the second quarter year-on-year growth rate of 6.6% is impressive. The figures come from the official statistics agency, the Instituto Nacional de Estadística e Informática (INEI).

The government said that weaker growth in Europe and the US had affected  demand for Peru’s textiles in the third quarter and prompted lowers copper and gold prices. The domestic economy, however, is pretty strong (“very strong” according to the central bank president, Julio Velarde. This suggests that the central bank may follow Colombia’s example and tighten monetary policy. In November, however, the central bank took Chile’s view and left rates unchanged.

Both fiscal and monetary policy are stimulative. The finance minister, Miguel Castilla, said that the government will continue to stimulate the economy by 1.8% to 2% a year. The government plan is designed to make up for weak private sector investment (which might get weaker, if foreign mining companies lose confidence after the Conga project to expand the Yanacocha goldmine was “temporarily suspended” after locals protested about the threat to their water supplies).  Private sector investment was up 9.5%, year-on-year in the third quarter, down from an annual expansion of 16% in the previous quarter. Even so, private sector purchases on equipment and machinery were up 17.4%.

Castilla had been claiming that private investment growth would grow as the government resolves social conflicts delaying mining investment and speeds up

Private consumption in the third quarter was up 6.3% which was down on the 6.7% rate of the second quarter.

Government spending was up 8.3% year-on-year thanks to wages rise for public officials and increases in the purchases of goods and services.

On the supply side, fishing was the faster grower, up 64%, but the sector is so volatile according to weather conditions and the imposition and removal of bans, that the series provides no pattern. Financial services were up 11.5%, transport and communications 11% and commerce 9%. Agriculture is lagging a bit, up just 6%. This sluggishness shows why farmers are so willing to join protests. Manufacturing is also weak, up just 3%.

Exports: By 2012, the government expects exports to hit US$49bn. The forecast came from the foreign trade and tourism minister, José Luis Silva. Exports this year should be about US$43bn. In the first nine months revenues were up 35%. China is the country’s biggest export market. It is worth noting that although its range of imports from Peru is increasing the overall growth in sales (16%) to China is running at half the rate of the total

Tan pronto como la Izquierda montó su desafío al Presidente Rafael Correa, antes de las elecciones de febrero próximo, ya quedó en medio de considerable duda. Alberto Acosta, un alejado aliado de Correa, fue electo para competir por la Coalición de izquierda, la Coordinadora Plurinacional por la Unidad de las Izquierdas después de una convención nacional el 1 de septiembre[IL-12-35]. Pero la viabilidad de su candidatura quedó inmediatamente en el aire después de que el consejo nacional electoral (CNE) anunció no podría registrar a dos de los más grandes partidos dentro de la coalición debido a que muchas de las firmas que ellos presentaron con este propósito habían sido falsificadas.

El CNE se rehusó a registrar a Pachakutik, el brazo político de la organización indígena Conaie, y al Movimiento Popular Democrático (MPD), un ex aliado del Presidente Correa con fuertes lazos con los sindicatos de maestros.

El CNE inicialmente había registrado a los dos partidos, pero fue antes de que Correa denuncie “un monstruoso fraude” a fines de julio, acusando a los partidos políticos de la oposición de una masiva falsificación de firmas en el proceso de registro electoral [IL-12-30]. Después de reevaluar las solicitudes de Pachakutik y el MPD, el CNE declaró que miles de las firmas presentadas eran inválidas. Los dos partidos tienen hasta el 24 de septiembre para reunir miles de firmas adicionales de buena fe para cumplir con los requerimientos de registro del partido.

Miembros de Pachakutik y el MPD marcharon el 14 de septiembre hasta las oficinas centrales del CNE en Quito para protestar contra lo que ellos afirman que es un fraude electoral. Gustavo Larrea, un ex alto ministro del gabinete bajo Correa, que ahora apoya el intento presidencial de Acosta, acusó al CNE de manipular todo el proceso para eliminar la mayor amenaza al intento de reelección de Correa (que aún debe ser confirmado). El pidió a los jueces del CNE que renuncien debido “a la ausencia de transparencia y claridad en el proceso electoral”.

“En vez de andar en marchas, vayan y recolecten firmas,” se burló Correa. “Además de no tener vergüenza, ustedes son holgazanes”. Correa también se lamentó el hecho de que Acosta, un co-fundador de la gobernante Alianza País (AP), había elegido lanzarse con “estas personas”, poniéndose al lado de los “tiradores de piedras” por encima “del proyecto revolucionario”.

Como es habitual, Correa apuntó a los medios. Dijo que la marcha hasta las oficinas de la CNE, que él afirmó que había sido “apoyada totalmente por los medios”, había sido un abyecto fracaso. También acusó a la opositora Coordinadora Plurinacional por la Unidad de las Izquierdas de buscar desacreditar al CNE a fin de “crear el caos y conspirar contra la democracia, la constitución y la ley”.

En defensa del CNE, ya ha confirmado el registro de cuatro partidos además de la AP, todos los cuales son hostiles a la administración Correa: el Partido Sociedad Patriótica (PSP), del ex presidente Lucio Gutiérrez (2003-2005); Ruptura de los 25, un miembro fundador de AP que cortó sus lazos con Correa en enero del 2011 en base a que él se volvió crecientemente autoritario y concentró el poder en sus propias manos; el Partido Avanza, un nuevo partido concentrado en el fortalecimiento de la juventud; y Movimiento Creando Oportunidades (Creo) por el cual Guillermo Lasso Mendoza, hasta recientemente el presidente del Banco de Guayaquil, aceptará formalmente una invitación para competir por la presidencia en un evento en Portoviejo, la capital de la norteña provincia costera de Manabí, el 29 de septiembre

• Bajo la presión del tiempo

También enfrentando la exclusión en la próxima elección de febrero están un partido tradicional y un partido recientemente establecido: el Partido Roldosista Ecuatoriano (PRE) es uno de los partidos políticos tradicionales ridiculizado por el Presidente Correa como la partidocracia; y Concertación, que es un nuevo partido centrista formado en el último año. El consejo nacional electoral (CNE) ha instruido a ambos partidos que necesitarán reunir nuevas firmas para el 24 de septiembre o no aprobarán el proceso de registro.

Colombia's economy should continue to achieve steady growth without inflation in 2015 - in spite of the sharp fall in the oil price through 4Q14.

According to the International Monetary Fund (IMF), the oil and mining sector accounted for over half of Colombia's export revenues in 2013. Of all the challenges that policy-makers could face, slippage in the price of oil is the one that is the most problematic. A fall in the price of oil of even US$10/barrel can have a significant impact on exports and government revenues (see box entitled, ‘What could go wrong?’).

However, much of the shock has already been borne by the exchange rate. For almost all of the period from the beginning of 2013 to early September 2014, the Colombian peso traded between COP1,750/US$ and COP1,930/US$. Since then, the peso has declined precipitously, with the result that the exchange rate in mid-December was about COP2,400/US$ or so. The movement in the currency has more or less matched the movement in the price of oil.

Other factors are also underpinning financial and economic stability and should continue to do so. One factor is the two-year Flexible Credit Line (FCL) for the Colombian government approved by the IMF in mid-June. At prevailing exchange rates, the FCL was worth nearly US$6bn. This is in the context of a US$400bn economy and government spending of around US$116bn in 2014.

Another factor is the enshrinement of the concept of fiscal stability in the constitution and the legal system. As the box entitled ‘Fiscal discipline - a central tenet of the policy mix’ - explains, the government has announced a number of measures to fund the COP12.5trn gap between revenue and spending in the latest budget. As Chart 1 shows, the IMF is looking for the government to run a primary surplus over the coming five years. The deficit should consistently be less than 1% of GDP. At a time when the economy appears likely to grow at an annual rate of about 4%-5%, with inflation of 2%-3%, the ratio of government debt to GDP should fall over time. In any case, at about 34% the ratio is not high. Meanwhile, at US$16bn or so, the current account deficit is of a scale that it can fairly easily be funded by inwards foreign direct investment (FDI).

The resilience of the Colombian economy is reflected in the minutes of the latest (28 November) meeting of the central bank (Banrep’s) board of directors. The board kept the key policy rate unchanged at 4.5%. It noted that the fall in the peso on foreign exchange markets had not had a significant impact on actual inflation (3.29% in the year to October) or expected inflation (close to BanRep’s 2%-4% target over two, three and five years).

BanRep expects that GDP growth of 4.5%-5.5% for 2014 as a whole, with 5.0% the most likely outcome. BanRep is, therefore, slightly more optimistic than the IMF. At its meeting, the Board noted that growth would be underpinned by domestic demand. “This is suggested by the behaviour of retail sales, consumption credit, consumer confidence index, and that of the labour market, which indicate that consumption would maintain a strong momentum. The increase in the external purchases of machinery and transportation equipment, and the trend registered by civil works, anticipate a good performance of investment, although at lower rates than those observed for the first half of the year. Growth in consumption has been underpinned by an expansion in credit that is faster than the increase in nominal GDP. The banking sector is well capitalised, well regulated and has been expanding internationally (mainly into Central America).”

As the box entitled ‘Colombians are underbanked and unequal’ shows, the banking sector has a lot more work to do to reach poorer households, who are still largely living and working outside the formal economy. Financial inclusion can and should be a part of a reduction in inequality, in a country where one fifth of the population receives just 3% of the national income.

If reducing inequality is one challenge facing the government, perceptions of corruption are another. As chart 2 shows, research undertaken for the World Economic Forum’s latest (2014) Global Competitiveness Report found that corruption and inadequate infrastructure are the two most problematic factors for business in Colombia. The inefficiency of government bureaucracy was in third place. All three were seen as being significantly bigger challenges to doing business in the country than existing tax regulations, the level of tax rates and (perhaps surprisingly for a country that is home to a long-running insurgency) crime and theft.

Chart 2: The most problematic factors facing businesses in Colombia
Weighted % responses

Source: World Ecnomomic Forum, Golbal Competitiveness Report 2014-15

Overall, though, it is the strengths of Colombia’s economy that stand out. The adjustment in the currency and other factors have ensured that the economy has remained quite resilient in face of a fall (of about 45% so far) in the price of oil, the most important export. Despite the challenge of a sustained decline in oil prices, this augurs reasonably well for 2015.

Colombians are underbanked and unequal

• At the end of 2012, the stock of credit amounted to 37% of GDP, which was below the regional average.
• In 2011, only 15% of people in the bottom 40% income share had an account with a formal financial institution: some 45% of people in the top 60% income share had such an account.
• In 2010, only 41% of small companies (with fewer than 20 employees) had a bank loan or a credit line. For large firms, the corresponding figure was 72%.
• The Gini index improved marginally, from 58.7% in 2000 to 55.9% in 2010, when 20% of the population accounted for 3% of national income.

Sources: World Bank Global Financial Inclusion Database, IMF.

The commitment to fiscal discipline

• Fiscal discipline is a central tenet of the government's policy mix. As a part of the Fiscal Transparency and Responsibility Law (#819 of 2003), the government is required to present the Medium Term Fiscal Framework (MTFF) to congress each year. In particular, the government has to confirm that it has met the fiscal targets set out in the previous year's MTFF: in the event of non-compliance, it is required to explain the deviation and what corrective measures will be applied.

• In June 2011, Colombia's congress approved a fiscal rule which requires the structural deficit (i.e. allowing for oil-related revenues and the output gap) to be below 2.3% of GDP from 2014, below 1.9% in 2018 and below 1.0% from 2022. If output growth is two percentage points (or more) lower than potential, the government can pursue an expansionary fiscal policy. Moreover, the rule can be suspended in the event that extraordinary events threaten Colombia's macro-economic stability.

• In 2011-12, the government outlined a strategy which tilts the composition of its debt in favour of local currency securities. In mid-September 2014, congress passed the National General Budget, in which spending exceeded revenue by COP12.5tn (roughly US$6.25bn at the prevailing exchange rate). As required by the law, the government then identified ways in which the deficit would be funded. It has announced five measures. One is the extension of the Gravamen a los Movimientos Financieros (GMF- the financial transactions tax) at the current rate of 0.4% for another four years. The GMF rate will decrease progressively by 0.1% each year from 2019 to 2021, after which it will remain at 0.1%. Second, the government has changed the rates of the wealth tax, and the bases on which they are levied. Third, the CREE - the corporate equality/ fairness tax, has been increased for companies with profits of over COP1bn. The overall CREE rate will be increased by 1 percentage point from 2016. Fourth, the Value Added Tax (VAT) rebate (of 2 percentage points) for payments made by credit card and mobile banking (which had been introduced to encourage people into the formal banking system will be ended. Finally, the government is looking to remove a lot of corporate tax breaks, which have resulted in an overly complicated system.

What could go wrong?

In May 2014, the IMF looked at Colombia's vulnerability to external shocks in a Selected Issues Paper (Country Report No. 14/167). The biggest challenge identified was a fall in the price of oil, which accounted for over half of total exports in 2013. Of all government revenues, about 16% of the total are oil-related: these oil-related revenues amount to around 4.5% of GDP. The IMF also noted that lower oil prices could reduce FDI inflows, given the focus of foreign investors on the Colombian energy sector. The IMF assessed that a US$10 fall in the price of oil could reduce exports by US$3.3bn or so (0.9% of GDP) and fiscal revenue by around 0.4% of GDP.

The IMF also considered that a negative growth shock in major trading partners - the US, the European Union, China and a group of countries in Central and South America - would curtail exports. Such a shock - or any event that resulted in an increase in global risk aversion - could affect Colombia directly by reducing the access of its banks to global capital market. Alternatively, the shock could affect the country indirectly, by bringing about a fall in the oil price.

Interestingly, the IMF assessed that the impact of a growth shock (i.e. growth in GDP in 2014 being 1% lower than projected) in Colombia's Latin American trade partners (other than Venezuela) would be greater than that of a similar shock in the US, the European Union or China. This was because of the growing trade links between Colombia and the other countries (particularly in manufacturing), the 'close association' of the various countries' economic cycles and the vulnerability of the other countries to similar shocks.

The IMF noted that Colombia is exposed to shocks in Central America for another reason. As at the end of 2013, the three largest banks (Bancolombia, Banco de Bogotá and Davivienda) had invested US$44.4bn through their subsidiaries in the region. The largest single apparent exposures were Panama (US$24.5bn), El Salvador (US$7.6bn), Costa Rica (US$5.4bn), Honduras (US$3.6bn), the British Virgin Islands (US$3.0bn) and Guatemala (US$2.2bn). In practice, the Panamanian subsidiaries operate across the region, which means that the effective exposure to Panama is lower, and to the other countries is higher, than these figures would indicate on their own. The banks' collective exposure to Central America amounted to 82.1% of their foreign investments and 22.0% of the total assets of Colombia's banking system. The IMF observed that 'exposure to shocks in Central America is mitigated by the strength of the balance sheets and soundness indicators of the subsidiaries in the region, which for the most part boast adequate capitalisation and robust profitability.'

The IMF was also fairly sanguine about the impact of rising interest rates in the US. The IMF assessed that any increase in the yield on US Treasury bonds would be matched by a similar rise in the yield of Colombian government bonds. However, such an increase would likely be accompanied by ongoing robust (or increasing) growth in the US economy, which would boost Colombian exports.

On 24 June, 2013, the IMF’s Executive Board approved a two-year Flexible Credit Line (FCL) arrangement for the government of Colombia. The FCL was for the equivalent of SDR3.87bn (or US$5.96bn at that time). The IMF applauded the policy framework and the general resilience of Colombia's economy. The IMF also noted that the FCL arrangement would enable the government to maintain orderly financial market conditions, through providing a buffer against tail risks.