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ECUADOR | Falling foul of CAN once again. On 6 January the general secretariat of the Andean community of nations (CAN) trade bloc issued a communiqué stating that Ecuador cannot unilaterally decide to introduce any economic safeguard measures against imports from fellow CAN members Colombia and Peru in order to protect its domestic market.

The communiqué came in response to an announcement by the government led by President Rafael Correa in late December that it would introduce temporary economic safeguard measures against Peruvian and Colombian products due to the sudden devaluation of Colombia’s and Peru’s national currencies. Arguing that Ecuador’s dollarised domestic economy is vulnerable to volatility in the value of the currency of its neighbours and trading partners, the Ecuadorean government said that it had decided to introduce a 7% duty on Peruvian imports and a 21% duty on Colombian imports effective from 5 January.

The decision was immediately rejected by both the Peruvian and Colombian governments, both of which sent formal notes of protest to the CAN general secretariat. Peru’s foreign trade & tourism ministry (Mincetur) said that while CAN guidelines do allow for a member State to request permission from the general secretariat to implement temporary economic safeguards whenever there are changes that significantly alter normal trade terms, introducing such measures without prior consultation went against CAN principles.

A Mincetur statement said that the move by the Ecuadorean government was “contrary to the spirit of dialogue... and the re-engineering of the sub-regional Andean integration process” being pursued by all CAN member States. Similarly, Colombia’s ministry of trade, industry & tourism (MCIT) also emphatically rejected the “surprising and unconsulted” measures adopted by Ecuador that “do not adhere to the procedures established in the CAN framework, which govern trade between the two countries”.

Meanwhile the CAN general secretariat was clear that Art. 98 of the 1969 Cartagena accords that gave rise to the CAN stipulates that no member State can adopt economic safeguard measures until the general secretariat issues a decision on the matter. The general secretariat added that it would now analyse the issue and look to issue a resolution in the next 30 days.

This is the second time that temporary measures adopted by the Ecuadorean government to protect its domestic market from what it considers to be unfair competition have been shot down by the CAN. Back in June 2014 the CAN’s general secretariat ruled that some import restrictions introduced by the Correa government on goods from other CAN member countries were hindering trade within the bloc [WR-14-24], and it asked Ecuador to remove these or face potential sanctions.

COLOMBIA | New minimum wage. On 30 December the Colombian government issued a decree setting the national minimum wage at Col$644,350 (US$264.54) a month, a 4.6% increase, which became effective on 1 January. The decree was the end result of weeks of intense tri-partite negotiations between the government, trade unions and business lobby groups such as the national association of entrepreneurs (Andi) and the national trade council (CGN); and it represents a concession towards the business sector at the expense of the unions.

Following the pivotal support that the government’s recently approved tax reform received from the private sector [WR-14-50], the government led by President Juan Manuel Santos was under pressure to offer concessions to the sector on this matter. Thus the agreed minimum wage increase is closer to the 4.5% proposal tabled by the business lobbies than to the no less than 5% increase suggested by the unions. The president of Andi, Bruce Mac Master, said that he was “satisfied” with the deal reached with the government as this would ensure the key objectives of promoting economic growth while also increasing domestic workers’ purchasing power.

But these sentiments were not wholly shared by union leaders, with the president of the Central Unitaria de Trabajadores (CUT), Luis Alejandro Pedraza, complaining that the lower-than-expected increase will prevent workers from greatly improving their economic lot, pointing out that the majority of this increase would be eaten up by inflation, officially forecast at 3%. The fact that on 5 January Colombia’s national statistics agency (Dane) revealed that year-end 2014 inflation was 3.66%, 1.72 percentage points higher than that registered in 2013 and higher than the 3.5% forecasts will give Pedraza’s argument greater weight.

• Bolivia banking on solid 2015 growth

On 4 January Bolivia’s economy & finance minister, Luis Arce, predicted real GDP growth of 5.9% for this year, higher than the healthy 5.5% expected for 2014. Arce said that his view of the Bolivian economy was “very optimistic” and that his projections were based on the expectations that the country’s key mining and hydrocarbons sectors will continue to have solid performances; and on the government’s plans to invest US$6.17bn this year, US$4.5bn more than in 2014. However, Arce was also careful to point out that the persistent fall in international oil prices observed since the tail end of last year could affect Bolivia’s economic performance and that the potential impact would be constantly analysed by his ministry over the next 12 months.

El decreto emitido por el gobierno uruguayo encabezado por el Presidente Tabaré Vázquez, declarando por 30 días a la educación como un servicio público esencial – lo que vuelve ilegal hacer huelgas– parece haber fracasado esta semana con las huelgas en el sector extendiéndose por todo el país.

Las relaciones entre el gobierno de la coalición de Izquierda del Frente Amplio (FA) de Presidente Vázquez por un lado, y el Plenario Intersindical de Trabajadores-Convención Nacional de Trabajadores (Pit-Cnt) y los sindicatos de maestros por el otro, han llegado a su punto más bajo. El punto de discordia es una antigua disputa sobre los niveles salariales.

Después de una serie de paros escalonados y tensas negociaciones, el 21 de agosto el gobierno sintió que había concretado un posible acuerdo con los representantes de Pit-Cnt –o, al menos, uno que pondrían a consideración de sus miembros. El acuerdo propone un acuerdo salarial por dos años (2016-2017) y un compromiso de elevar el salario básico mensual de los maestros a Ur$25.000 (US$875) para el 2020 (los maestros están exigiendo un salario de Ur$30.000 para esa fecha).

El ministro de economía & finanzas, Danilo Astori, insistió en que os maestros del sector público habían conseguido un buen acuerdo. En los últimos 10 años de gobiernos del FA, dijo Astori, el presupuesto de la Administración Nacional de Educación Pública (Anep) había crecido un 122%, y el salario promedio de los maestros con 20 horas de clase por semana se elevó un 64% en términos reales. Al mismo tiempo, el gobierno dijo que bajo sus actuales planes de presupuesto a cinco años, la educación obtendría el mayor incremento. Como porción del PIB el gasto de la educación sería del 4,8% en el 2015 y el 2016, creciendo al 5% en el 2017 y al 6% en el 2019 (los sindicatos quieren que la meta del 6% se logre con mucha mayor rapidez).

Pero el acuerdo no fue aceptado, y cuando los sindicatos de maestros convocaron a otros tres días de huelga, el gobierno reaccionó con una línea dura. El 24 de agosto la ministra de educación, María Julia Muñoz, anunció el decreto de ‘esencialidad’, efectivamente prohibiendo las huelgas por un periodo de 30 días, efectivo desde el 26 de agosto. Muñoz dijo que el objetivo del decreto era “abrir un periodo de reflexión para que sean aceptadas las propuestas del gobierno”, agregando que el gobierno de Izquierda sentía “dolor” emitiendo el decreto, pero lo estaba haciendo porque los derechos de los estudiantes eran fundamentales.

Al parecer, del lado del gobierno el decreto fue una movida táctica para tratar de darle el último empuje a una solución. De hecho, funcionarios del gobierno sugirieron poco después que el decreto podría ser revocado si los sindicatos simultáneamente levantaban su huelga.

Pero a pesar del apoyo de algunos líderes del Pit-Cnt, este acuerdo también fracasó y parece que el gobierno ha subestimado la fuerza del sentimiento entre las bases de los maestros. Los sindicatos afirmaron que el decreto es en sí mismo una restricción ilegal del derecho constitucional a la huelga, e iniciaron una acción legal contra el mismo en Uruguay y han apelando en el exterior a la Organización Internacional del Trabajo (OIT).

El 26 de agosto, el día que entró en vigencia el decreto, muchos maestros lo desafiaron permaneciendo en huelga. Por su lado, Anep, dijo que estaba en dificultades sobre cómo implementar el decreto que establece sanciones contra maestros que no asisten a sus trabajos. El gobierno está en medio de un dilema: echarse atrás socavaría su autoridad, pero si sigue presionando podría extender la disputa e incrementar el costo político.

• Abuchean a Vázquez y Sendic

Durante las celebraciones del Día de la Independencia de Uruguay, en Piedra Alta, en el departamento de Florida, el Presidente Tabaré Vázquez fue abucheado por los manifestantes congregados en el lugar. Por su lado, el Vicepresidente Raúl Sendic fue abucheado afuera del congreso nacional por manifestantes, quienes le gritaban “traidor”.

While last year’s Odebrecht corruption scandal opened a Pandora’s Box across the region, the response was also regional, marking an important step forward for Latin America. Moving forward, the hope is that integrated anti-corruption frameworks will become institutionalised across the region, making it more straightforward to ‘follow the money’.

The IMF in its blog series recently considered the problem of corruption in Latin America. It examined measures that have worked well in other countries, in a bid to lay out a basic framework that could be adapted to regional characteristics.

At the outset, it notes that a lasting solution will require “sustained action on many fronts to create a major shift in societal expectations”. While improving institutions and lowering corruption obviously go hand-in-hand, this is easier said than done. Getting a better legal framework in place does not necessarily translate into results on the ground without stronger enforcement. In and of themselves, ‘best-practice’ rules and regulations are just a first step.

A lasting solution to corruption will require sustained action, across many fronts. The aim, as the Fund puts it, is to create a major fundamental shift in societal expectations that helps ‘push’ countries out of the corruption trap.

It’s not as if Latin America has been a laggard in fighting corruption. The IMF notes that the region has been an international front runner in adopting an anti-corruption convention (adopted by the Organization of American States just over 20 years ago, back in 1996), which, apparently, has been a model for others. More recently, a string of countries have either upgraded or are in the process of upgrading their legal and judicial frameworks, including Argentina, Brazil, Chile, Ecuador, Guatemala, Mexico, Paraguay, and Peru. In addition, the Fund notes, several countries have introduced and enhanced asset declaration requirements (albeit these vary from country to country). Some countries are also taking measures to enhance fiscal transparency, both independently and with the support of multilaterals like the World Bank and the IMF.

The Fund expresses optimism that the enforcement of upgraded legal frameworks is in fact making firm progress, pointing out that Brazil’s Lava Jato investigation (now coming to an end after almost three years), reflects “a more efficient judiciary, independent and adequately resourced prosecutors, and decisive support from the media and society”. Similarly, it notes, Guatemala in recent years has successfully unmasked tax evasion, money laundering, and illegal funding through its UN-backed International Commission Against Impunity (CICIG). And in reference to the Odebrecht scandal, it notes that the likes of Peru and the Dominican Republic “have forcefully pursued allegations against former high-level officials associated with the Odebrecht scandal”. Another question, not fully addressed by the IMF, is whether all these investigations actually led to successful prosecutions and sentencing – which has not always been the case.

“Combatting entrenched corruption requires ending a corruption trap where the existing structure of incentives are self-perpetuating”, the IMF says. “Breaking this inefficient equilibrium requires solving a collective action problem (putting up a fight against vested interests) and overcoming formidable political economy hurdles”.

International experience, it continues, suggests that an effective anti-corruption strategy requires “strong legal frameworks, intensity of enforcement and clean-up, and perseverance. Strong national ownership and leadership are also critical to ensure that public support by broad segments of society is sustained throughout this long fight”.

The Fund suggest that key elements of a multi-pronged strategy might include the following:

1. A key role for task forces

A hurdle for any government fighting corruption is opposition from well-organised vested interests, the Fund observes. If public officials and political parties are complicit, efforts to curb corruption may require the establishment of independent special task forces, as in Guatemala.

2. Raising transparency and accountability

It goes without saying that more transparency is fundamentally important to curbing corruption. The IMF notes that increased transparency increases the chances of detection for a given level of law enforcement. Traditional measures to increase transparency and accountability include, among others: freedom of information laws, income and asset declarations, random audits, strengthening public management and fiscal transparency, especially in resource rich economies, and improving governance of state-owned enterprises.

However, the Fund adds that more can be done to push the boundaries of transparency and accountability, as follows:

• To end corporate secrecy, beneficial ownership information for firms should be collected and can be made available through centralised registries. Public and private entities involved in public procurement and investment could create internal anti-corruption committees reporting directly to the Board, or the comptroller/auditor general to foster partnerships between internal stakeholders and external auditors.
• Conflicts of interest could be addressed by suspending business activities of elected officials where this is currently not required.
• Federal governments can help provide incentives for sub-national units to implement transparency best practices. In support of this, the IMF and other multilaterals are putting more focus on promoting fiscal transparency

3. Strengthening public procurement and investment processes

The Fund notes that otherwise sound legal frameworks in Latin America have been shown to have loopholes in public procurement, state-owned enterprises, and public-private partnerships. It notes that stronger contractual frameworks and implementation, eliminating ad hoc exceptions, and possibly ruling out contract renegotiations in the short term, could help close these fiscal loopholes and help establish a Transparency Framework.

It adds that efforts could also include: ensuring competitive auctions, mandatory bidding for any additional public spending needs, providing full information on awarded contracts and modifications, tracking of procurement spending, and developing policies to minimise the rent seeking corrupt practices

4. Eliminating unnecessary rules

The Fund makes the point that too much regulation can create ‘fertile ground’ for corrupt behaviour, by creating artificial sources of revenues (for instance, rationed import licenses). Enhancing competition and lowering red tape are thus key ingredients to fighting corruption, it notes.

5. Dealing with the short run costs

Successful efforts to uncover corruption can create uncertainty in the short term – as very clearly evidenced by the case of Brazil. “This can hinder public sector decision making and forestall investment”, the Fund notes. Again, Brazil provides an example. “While long-run benefits far exceed short-run costs when it comes to institution building, the latter can arguably prevent change from happening”, the Fund admits. In this context, measures to curtail such ‘transition costs’ would help support the process. This might include: improving judicial frameworks to avoid lengthy legal procedures, a clear framework to handle leniency agreements and plea bargaining, and a flexible and efficient bankruptcy law – ensuring that assets remain operational. In addition, lending facilities could be carefully designed to soften a credit crunch during periods of heightened, uncertainty, it adds.

In conclusion, the IMF notes that defeating corruption ultimately requires standing up to powerful vested interests – both private and public – who benefit from the status quo. There is no fixed formula, no IMF ‘recipe’.

While a rare window of opportunity has opened in Latin America to maintain the reform momentum, the Fund notes, “efforts are also needed to tackle transition costs toward achieving a more just society and stronger economy for all”.

The case of Central America

Meanwhile, a new book by the Central American Institute for Fiscal Studies (Icefi, in the Spanish acronym) examine the paths to corruption in the Northern Triangle countries and proposes an agenda to combat it.

The book, entitled ‘Corruption: Its Paths and Impact on Society and an Agenda to Combat It in the Northern Triangle of Central America’, studies the relationship between corruption and democracy, highlighting corruption in El Salvador, Guatemala and Honduras – having special characteristics derived from historical aspects, such as the construction of weak states, periods of authoritarianism, civil war and counterinsurgent systems and the undermining of judicial independence.

Icefi holds that these are all characteristic of weak and dysfunctional democracies. The book emphasises that corruption must be understood and combatted as a problem that is not exclusive to the public sector because it affects and is particularly relevant to the private corporate sector. The book demonstrates the systemic presence of private stakeholders involved in most cases analysed.

The institute identified eight principal paths that lead to corruption: outdated legislation; weak institutionality; limited capacities and resources in the systems for administration of justice; electoral systems and political parties with no democratic rigor; deficient access to public information; scarce citizen participation; conflicts of interest and impunity. It analyses each of these so-called paths to corruption, identifying particular characteristics in the three Northern Triangle countries.

The Icefi proposes an anti-corruption agenda for the Northern Triangle which includes legislative actions and institutional strengthening to achieve eight main objectives: 1) the preparation, discussion, approval and implementation of national policies or spaces for transparency, open government and anti-corruption policies; 2) fiscal policy prioritising transparency; 3) to ensure the honesty of public officials and employees, as well as a culture of accountability and open government; 4) to give guaranteed access to public information, including open data policies and protection of personal data; 5) to facilitate citizen participation through the promotion of spaces for collaboration between public administration and civil society; 6) to incorporate an analysis of private sector responsibility in efforts to combat corruption; 7) to recognise and combat the relationship between corruption and public electoral systems; 8) structural reform of the system for the administration of public justice, including actions to strengthen the capacity to combat corruption.

CUBA | Dual currency system ends. On 1 January a new reform took effect ending Cuba’s dual currency system, which had been split between a convertible peso (CUC), pegged to the US dollar, and a domestic peso (CUP), with an exchange rate of 24 to the CUC. Announced in December 2020 by the Communist government led by President Miguel Díaz-Canel, the reform sets the now single exchange rate at CUP24/US$1 and phases out the CUC within six months. The change was widely considered necessary to stabilise the national economy given the triple crisis facing Cuba posed by the coronavirus (Covid-19) pandemic and its impact on the island’s crucial tourism sector; US economic sanctions; and the ongoing economic collapse of its key ally, Venezuela. Yet the impact of the reform and the effective devaluation of the peso, which is set to drive up inflation and erode Cubans' purchasing power, continues to spark widespread concern. Acknowledging these concerns, the government announced plans to raise salaries, pensions, and social assistance. Under the changes, the minimum monthly wage for those employed in the state sector (which accounts for most jobs) will rise from CUP400 to CUP2,100 (US$87.5), while the more than 1.7m Cubans who benefit from social security will see monthly pensions rise from CUP280-CUP300 to CUP1,528. However, the wage increase does not apply to the private sector, and economists and the government itself recognise that this, along with other measures of support for the population, are unlikely to offset the increased costs of the basic food basket, which will come in at CUP1,528; nor that the elimination of various other subsidies that have also been announced by the government.

Central America & Caribbean:​ Inflation
Monthly year-on-year figures

ECUADOR | Drilling banned in Yasuní buffer zone. On 2 February Ecuador’s constitutional court (CC) struck down aspects of a 2019 decree issued by former president Lenín Moreno (2017-2021) which had permitted oil drilling operations in the buffer zone around Yasuní national park in the provinces of Pastaza and Orellana. The CC determined that oil drilling in this area violates the principle of non-contact with isolated indigenous peoples, as is outlined in Ecuador’s constitution. The ruling will impact the ‘Block 43’ oil well, part of the Ishpingo-Tambococha-Tiputini (ITT) oilfield which is operated by state oil company Petroecuador. Kevin Koenig, the director of climate and energy campaigns at US-based NGO Amazon Watch, noted that the ruling is “a reminder for oil companies and investors that expanding oil extraction in Ecuador’s Amazon is a risk and full of potential legal liabilities”.

PERU | New finance minister. Peru’s finance minister, Pedro Francke, resigned on 31 January amid a major cabinet rift over President Pedro Castillo’s alleged lack of support for interior minister Avelino Guillén, who himself stood down several days earlier following disagreements with the police leadership. Francke has been replaced by the similarly moderate-left economist Óscar Graham Yamahuchi.

BOLIVIA | Mining royalties recover. The president of Bolivia’s state-run mining company Corporación Minera de Bolivia (Comibol), Eugenio Mendoza, announced on 3 February that mining royalties were up B$708m (US$102.9m) in 2021 compared to the previous year. Royalties received by departments last year amounted to B$1.6bn, up from B$914m in 2020. According to the national statistics institute (INE), in Q3 2021 the mining sector rebounded from the dip brought on by the coronavirus (Covid-19) pandemic, with the sector growing by 53.82% year-on-year, compared to a 36.59% year-on-year contraction in Q3 2020.

Andean countries: inflation rate
Percentage variation (year-on-year)

Andean countries: GDP growth (%)
Quarterly figures are year-on-year growth

In mid-November fuel began flowing again through the Varreux oil terminal southeast of Haiti’s capital Port-au-Prince, after a two-month interruption when the facility was blockaded by ‘G9’ alliance of gangs which is led by former police officer Jimmy ‘Barbecue’ Chérizier. 

The story of fuel supplies and the Varreux terminal is a microcosm of Haiti's spiralling humanitarian and political crisis. The 11.7m population of the poorest country in the Americas faces an acute energy crisis. Only about 30% of the population has access to electricity, often intermittently and at scarcely affordable rates. In rural areas the proportion falls to 10%. Despite good renewable energy potential (wind and solar) and because of a lack of investment in green energy, the country remains almost completely dependent on fossil fuels for electricity generation, with petrol and kerosene also being used for transport, domestic lighting, and cooking. Because of the power cuts, businesses, grocery stores, and hospitals often use their own generators. Around 70% of Haiti's fuel imports come in through Varreux, owned by the West Indies Energy Co, (WINECO). In normal times the fuel is held in storage tanks and distributed around the country by a fleet of tanker trucks.          

Amid a collapse in law-and-order, G9, one of about 100 gangs operating in the country, had seized access roads and shut down the terminal late last year, reputedly extorting US$100,000 to reopen it. Last October the terminal was blockaded once again, this time in response to a decision by Prime Minister Ariel Henry to withdraw fuel subsidies (which implied price hikes of 89%-128%). WINECO is owned by the Mevs family, one of the country’s wealthiest. The country’s six richest families are known as the ‘Bambam’ - an acronym formed by their surnames - and are often accused of conspiring with politicians and gang leaders to defend their economic interests.

Why G9, which had been demanding the resignation of the prime minister, ended its siege of Varreux was not immediately clear. But Tom Adamson, a Port-au-Prince based Canadian businessman, commented before the end of the siege that “in the past there have been rumours that the government gave gangs money to quieten them down. So perhaps, under the table, they are asking for money, but I don't know."

What is clear is that the closure of the terminal for two months has had a catastrophic economic affect. The United Nations (UN) estimates that over 96,000 Haitians have been forced to leave their homes to escape infighting between the gangs. Kidnappings have increased. Petrol stations shut down while water delivery companies and waste collection stopped. Schools and hospitals reduced their activities. The Caracol Industrial Park, a manufacturing hub in the north of the country which employs 15,000 staff, mainly in textile production, was forced to close. There were longer power cuts and a loss of mobile phone coverage. It is estimated that the annual inflation rate has surged to over 35% with some local economists warning that the country may face a more damaging slide into outright hyperinflation.

Food supplies fell sharply, with the World Food Programme reporting in October that 4.7m people (over one third of the total population) are experiencing “acute hunger”. Partly attributed to the lack of clean drinking water, there has been a new outbreak of cholera in Port-au-Prince and beyond, with the Pan American Health Organisation (PAHO) saying on 16 November that 175 people have died, 7,600 have been hospitalised, and at least half a million are at risk of contracting the disease. Overall economic activity, which in recent years has been stagnant, is widely expected to have turned sharply negative in the second half of 2022.

• UN response

Some form of UN-sanctioned intervention - to establish ‘humanitarian corridors’ to guarantee food and medicine supplies, remains under discussion. There is also talk of increasing financial aid with the Inter-American Development Bank (IDB) announcing a US$60m grant to improve food security, health, and economic resilience. Given the chequered history of previous foreign interventions in Haiti, it looks as if the crisis is likely to drag on some time yet without resolution.

*** JAMAICA REIMPOSES STATE OF EMERGENCY. On 28 December, Jamaica reimposed a 14-day state of emergency (SOE) in eight parishes, including in Kingston and in some central and western parts of the country, enabling the police to arrest people and search buildings without a warrant. The SOE was declared on 15 November, and then again on 6 December. On 5 October, the US State Department had issued a level 3 travel advisory for Jamaica indicating that US nationals should “reconsider travel” to Jamaica because of the threat of crime. The advisory said that “violent crimes, such as home invasions, armed robberies, sexual assaults and homicides, are common” and that “sexual assaults occur frequently”. It added that “local police lack the resources to respond effectively to serious criminal incidents”.

Reimposing the state of emergency on 28 December, Prime Minister Andrew Holness said: “While we have had reasonable success in controlling the number of murders leading up to and during the Christmas season, the threat levels for ongoing gang conflicts…[remain] elevated and extensive in scale.”

The opposition People’s National Party (PNP), led by Mark Golding, has opposed the extension of the SOEs, but Holness responded by saying: “We will use this tool as long as there is a threat to life and property…and on so extensive a scale that they will deprive citizens of their rights and freedom…The government will continue to be relentless in our efforts to control murders specifically and crime in general. We will continue to use all measures available to us. We will use the SOEs when necessary. Criminals and criminal masterminds can take no comfort that the time for declaration is short. We are and we will continue to use all lawful powers within our means to control crime and to save lives.”

*** NEW FERRY NETWORK PROPOSED FOR EASTERN CARIBBEAN. A study is being undertaken by the Economic Commission for Latin America and the Caribbean (Eclac) for the introduction of new ferry services to connect the Eastern Caribbean. Four routes are under consideration, namely: 1) Colombia, Aruba, Bonaire, Curaçao, Trinidad & Tobago; 2) Trinidad & Tobago, Guyana, and Suriname; 3) Puerto Rico, Antigua & Barbuda; Guadeloupe, and St Lucia; and 4) St Lucia, St Vincent & the Grenadines, Grenada, and Trinidad & Tobago. The latest study indicates that Route 2 (Trinidad & Tobago, Guyana, and Suriname) would have the best profit margins at 50% capacity. Route 4 would be important for the improvement of connectivity in the region, but it would require higher passenger transport capacity of at least 60% for the route. Route 1 (Colombia, Aruba, Bonaire, Curaçao, Trinidad & Tobago) “is not recommended in a first stage of implementation (pilot project) due to the long trajectory that it represents and its large time duration to be completed”.

The study adds: “Further political integration would be critical to ensure the success of the ferry service implementation. First, the Chaguaramas Treaty, which established the Caribbean Community and Common Market (Caricom), should be revisited to identify opportunities for improvement, facilitating the entry of work vehicles (cargo trucks, etc) and ensuring free transit in the countries where the service would operate. Similarly, customs and immigration regulations for the flow of goods and people should be reviewed and improved to speed up the process and reduce transaction costs.” Port capacity is another key factor that needs addressing. The study warns about “the lack of efficiency in port infrastructure, measured in terms of availability of port equipment, labour, information systems, fluidity of the processing of ship arrival information, and registration of passengers and merchandise”. The study calls, as a next stage, for “an institutional consultation process with private sector representatives to specify the possible types of ships available, routes, and port improvements needed, as well as financing mechanisms”.

*** Mexico debating deal with drug barons.  Last week, Mexico’s President Felipe Calderon hosted Javier Sicilia, the renowned Mexican poet whose son was killed in drug-related violence in March.  Two days later, on 11 May, Sicilia was invited by the senate standing committee to address them on how to restore law and order in Mexico.

Sicilia’s view is that the state cannot beat the gangsters and that it should do a deal.  The deal he has in mind is not one that will endear him to the United States.  He believes that the government should turn a blind eye to drug trafficking (ie shipping drugs to the US), but not to drug pushing within Mexico.  Sicilia needs to be taken seriously.  On 5 May he led a march from Morelos to Mexico City that eventually gathered 100,000 followers.

The gangster murder rate in Mexico has shot up again after a lull in the first quarter and is on target to surpass last year’s 11,583.  In 2006, the year that Calderon came to power, the annual gangster-related death toll was under 2,500.  Approximately 300 people a week are now being killed by gangsters, and the public no longer accepts the government view that most of the victims are involved in the drug trade.  Like Sicilia’s son, too many of the victims are innocent bystanders

***  France immoveable on CAP.  As the European Union continues to struggle with the debt problems of its weaker members, President Nicolas Sarkozy of France has reiterated France’s immoveable opposition to any reduction in the Common Agricultural Policy (CAP).  The CAP represented 31% of the EU’s budget in 2010.

Speaking on 12 May, Sarkozy said: “France wants to retain the Common Agricultural Policy’s budget to the very last euro...and if people don’t want to understand that, France will block it.”  Sarkozy faces a tough re-election battle in 2012.

*** Russia to reinforce Kurile defences.  Russia’s chief of the General Staff, General Nikolay Makarov, has said that the defences of the disputed Kurile Islands (taken from Japan at the end of World War II) are to be upgraded by 2015 at the latest.  Speaking in Moscow last week, the general said: “By 2014, or by 2015 at the latest, the Kurile Islands grouping will have a completely new look with modern armaments and combat equipment.”  Makarov later backtracked somewhat saying that the plan was not yet final and “will be submitted for approval to the country’s leadership in the very near future”.

In March, Japan issued a rebuke to Russia over its plans to deploy anti-ship cruise missiles on the islands, with former Japanese defence minister Shigeru Ishiba calling the move “extremely problematic...[with] significant political implications”.  Russia was unimpressed by that rebuke, and Makarov’s statement last week seems to confirm that it has no intention of backing off.

*** Warning of Kashmiri escalation.  On 8 April, Pakistan’s President Asif Ali Zardari visited India’s Prime Minister Manmohan Singh in New Delhi for talks, the first visit to India by a Pakistani head of state for seven years.  As we reported at the time, the talks came against a background of improved security in Kashmir.  According to the Director-General of Police Kuldeep Khoda, there was a 45% decrease in militancy-related incidents in the first three months of 2012 compared with last year (26 versus 48).  Moreover, there was a 47% fall in militancy-related issues during the first three months of 2011 compared with 2010.

On 24 April, however, the chairman of the Jammu and Kashmir Liberation Front (JKLF), Mohammad Yasin Malik, warned that the group would start the armed struggle again if a solution was not soon agreed between India and Pakistan.  He said that freezing the Kashmiri issue was not acceptable and that “the Kashmiris should be allowed to decide whether they wanted to merge with Pakistan or India or they wanted a sovereign state".

Speaking in Lahore, he said that since the Kashmiris had given up their armed struggle and begun a peaceful movement, India had started “their genocide” in a bid to crush the freedom movement.  Malik said the Kashmiris were being arrested and tortured, and he warned that the Kashmiris would be forced to begin their armed struggle again.

Alongside Malik at the press conference was Jamaat-i-Islami (JI) chief Syed Munawar Hasan, who was critical of Pakistan as much as India.  He said: "The Pakistani government, political parties and even the media are ignoring the Kashmir issue.”

*** France mocked by internet.  The first round of the French presidential election (see this week’s main briefing) also provided a nice illustration of the impotence of governments in the face of determined internet users.  There is a French electoral regulation banning the publication of exit polls.  Twitter users, however, found ingenuous ways of getting round this.  President Nicolas Sarkozy, whose father came from Hungary, was referred to as the Hungarian Tokaji wine, while socialist challenger Francois Hollande was referred to as the Dutch cheese gouda.  French Twitter users then broadcast exit polls published abroad by using devices like: “Dutch cheese at 27 euros, Tokaji wine at 25 euros”.

*** South Korea warns of 3rd North Korean nuclear test.  On 24 April, a South Korean Defence Ministry spokesman said that North Korea is ready to conduct a third underground nuclear test.  He said: "Substantial preparations have been made.  We have information that all that remains is a political choice.”

Syrian-Kurdish sources say that attempts to unify Kurdish forces in Syria are being intensified.  The aim, according to one local source, is “to establish a popular army as an alternative to the armed militias”.  The spur is the need to confront the Salafi groups that have been challenging the Kurdish Democratic Union Party (DYP) in Syria’s Kurdish cities.  The new force will combine those elements that were previously loyal to the DYP with “650 young Syrians who were previously trained in Iraqi Kurdistan”.

The plan was agreed at a recent meeting in the Iraqi Kurdish city of Irbil and drew on the work of the earlier meeting in Irbil in the second week of July at which it was agreed to set up a Kurdish Supreme Committee and to form “popular defence forces” to control the Kurdish regions of Syria.  The leader of Iraq’s Kurdistan Regional Government (KRG) Masoud Barzani played an important part in bridging the differences between the PYD and the Kurdish National Council (KNC), much to the concern of Turkey.

At the latest meeting in Irbil, it was agreed that the activities of the radical Salafi forces in Syria required an accelerated implementation of the earlier Irbil agreement.  The new force, it is said, will “fill the vacuum that is left after the fall of the ruling regime in Damascus”.

A source at the meeting, quoted by the Saudi-owned daily Al-Sharq al-Awsat, added: “The latest Irbil meeting raised democratic slogans for an independent Syria and for federalism in West Kurdistan.  Furthermore, the Kurdish Supreme Committee, consisting of the People’s Council of West Kurdistan, the Kurdish National Council, and local coordinating bodies should be the sole legitimate representative of the Kurdish people in Syria.”

Meanwhile, back in Iraq the complications are intensifying.  There is a suspicion that the pro-Iranian Shia government of Prime Minister Nuri al-Maliki is trying to ratchet up tension with the Kurds of the KRG in order to break the Sunni Arab-Kurdish alignment.  Notwithstanding the recent agreement for both sides to withdraw their forces in the disputed areas to their former positions, Al-Maliki appears to believe that it is in his interests to foment Arab-Kurdish rivalry as this might bring the Sunni Arabs more into alignment with Baghdad.  The Kurdish-Arab fault-line is mostly one between Kurds and Sunni Arabs not the Shia Arabs.  Al-Maliki would prefer an ethnic conflict to a sectarian one.

But an indication of how complex the situation is becoming is provided by the increased Iranian support for the anti-Turkey Kurdish rebels of the Kurdistan Workers’ Party (PKK).  On 26 November, Turkey’s Interior Minister Idris Naim Sahin confirmed these fears, saying: “We are quite aware of Iran’s support for the PKK.  We know that PKK members that are wounded during clashes against the Turkish army are treated in Iranian hospitals.”  This is something that has been expected given that Iran is so at odds with Turkey over Syria.

The campaign for Belize’s 4 November general election acquired an unexpected additional element with the victory on 25 October of Jimmy Morales in the second round of Guatemala’s presidential election. Morales, of the small right-wing Frente de Convergencia Nacional (FCN-Nación), had made a number of provocative statements concerning the longstanding Guatemala-Belize territorial dispute during his election campaign.

Belize was settled by assorted English buccaneers, pirates, and shipwrecked sailors in the mid-17^th century in contravention of the Vatican-endorsed division of the New World between Spain and Portugal. Theoretically, this exception was accepted by Spain in a treaty of 1670, but the treaty was ambiguous and its effects remained disputed by Spain and then Guatemala despite the subsequent recognition of Belize by Guatemala in the Anglo-Guatemalan Treaty of 1859; the establishment of Belize (as British Honduras) as a Crown Colony in 1862; and the recognition of Belize’s independence in 1981 by the United Nations.

Guatemala did recognize Belize’s independence in 1991 and established diplomatic relations, but before the end of the decade Guatemala had renewed its claims to roughly half the country. In 2008, Belize’s Prime Minister, Dean Barrow, proposed referring the dispute to the International Court of Justice (ICJ) following the holding of referenda in both countries asking voters to support such a referral. But neither country has yet held a referendum on the subject, and now Guatemala has a new leader who appears to take a hard line on the dispute.

Asked during his campaign by a Guatemalan journalist what he considered to be Guatemala’s most deplorable historical event, Morales replied: “The most deplorable event – among all the things that have happened in Guatemala, there are certain things that are not spoken about and which I believe we should. Everything that goes contrary to national unity and territorial integrity are things that should hurt us. Something is happening right now, we are about to lose Belize. We have not lost it yet. We still have the possibility of going to the International Court of Justice where we can fight for that territory or part of that territory…I think that it is worth anything that is natural resources and of benefit to the nation.”

Barrow responded relatively mildly to this outburst, possibly because he did not expect Morales to win the election. He said: “Let’s wait and see…Look, he’s made at least one statement that is troubling but I am hoping that if he does win, the Guatemalan foreign policy establishment, the Guatemalan political elite, and certainly the international community will make absolutely clear to that gentleman that any notion of pursuing their claim in a way that is disruptive of the good relations between Belize and Guatemala, that is threatening to Belize, simply will not be tolerated.”

With a general election looming, this was a sensitive issue for Barrow, not least because his United Democratic Party (UDP) has a slightly suspect history on the Guatemalan dispute. One of the parties that came together to form the UDP in 1973, the National Independence Party (NIP), was notably tough on the Guatemala question, but there is a perception that following the formation of the UDP the new party disassociated itself from the NIP’s historical position under pressure from the US. More recently, Barrow has been accused of being soft on Guatemala in the face of provocative incidents and statements, particularly with regard to the serious incidents along the Sarstoon River border in February and May of this year.

Certainly the main opposition People’s United Party (PUP) seized on the Guatemala dispute as a potential weakness for the UDP during the election campaign. Its manifesto began not with a critique of UDP domestic policy but with a fierce attack on its attitude towards Guatemala. The manifesto asserted: “The hard work of the previous PUP administrations that consolidated our security and achieved Guatemalan recognition of our sovereignty has been jeopardized by the UDP government. Their irresponsible actions of appeasement in the face of aggression at the Sarstoon River has created an unacceptable appearance of land cession in the south of our country.”

On the face of it this seemed to be good politics by the PUP faced with a seemingly inevitable UDP surge towards a third consecutive term in power on the back of strong domestic economic growth and a resounding win in the March municipal elections. Having notched up growth of 3.6% in 2014, Belize seems set fair to outperform the projected average growth rate for the Caribbean in 2015 and 2016 of 1.6% and 1.8% respectively. The Economic Commission for Latin America and the Caribbean (Eclac) is forecasting 2.5% growth for Belize in 2015 and 2016.

But it seems that Prime Minister Barrow was more than alert to the weakness of his Guatemalan flank, and with just a week to go to the election it was announced that Britain is to restore its training and support mission to Belize back to its pre-2011 level. The announcement that the annual deployment of the British Army Training and Support Unit (Batsub) would be raised back to around 2,000 soldiers, from its current level of 900, was made on 28 October during a visit to Belize by the Commander of British Land Forces, Lieutenant General James Everard.

Everard also hinted that the new deployment would involve more than just training. He told the Belizean media: “As you know, we’ve had about nine hundred soldiers here this year. I think we’ll be just over two thousand next year, and I think that will establish a pattern of activity that we hope to maintain over a prolonged period. It’s not just training benefit for ourselves, but this time doing much more in concert with your own defence force to help develop our lessons to mutual advantage.” To put this British deployment in perspective, the Belize army has just 1,156 enlisted soldiers.

Apart from the Guatemala question, the PUP focused its campaign on the alleged nepotism and corruption of the UDP government, and on crime. In its manifesto, the PUP said: “For the past eight years one man wields absolute power in Belize. His family, friends, cronies and fellow ministers have sucked the life blood out of Belize.” The PUP proposed reactivating the Integrity Commission and restructuring the Public Accounts Committee. On crime, the PUP made much of the fact that Belize’s homicide rate is averaging around 40 homicides per 100,000 residents, ranking it among the top ten countries with the highest homicide rates in the world. While the total number of homicides for the country (current population estimate 341,900) fell to 99 in 2013, down from an all-time record of 145 in 2012, the number of murders rose again to 121 in 2014.

The centre-right UDP went into the 4 November contest defending a 19-12 majority over PUP. (The UDP won 17 seats in the March 2012 general election but supplemented these with two by-election victories in 2015.) The PUP, now led by Francis Fonseca, is traditionally supported by the poorer classes, but more recently it has been seen as in thrall to a small political elite. This alienation of the PUP from some sections of the working class has been a key factor in its inability to claw back support from the UDP, although the UDP’s US$150m three-year splurge of Venezuelan aid on infrastructure projects has helped. At the time of going to press, with 29 out of 31 seats counted, the UDP had secured a resounding 19-10 lead over the PUP. The challenge now will be how to build on this victory without the same level of Venezuelan largesse.

Uruguay’s political opposition reacted furiously this week to the announcement by President Tabaré Vázquez that there will be a “modest” increase in personal income tax (IRPF) from 1 January 2017. All three opposition parties – Partido Nacional (PN, Blancos), Partido Colorado (PC, Colorados), and Partido Independiente (PI) – accused Vázquez of “lying” during his 2014 electoral campaign when he assured voters that “there will be no increase in the tax burden”.

“Those who have most will pay the most,” President Vázquez said during a visit to Battle y Ordoñez in the central department of Lavalleja on 23 May. Vázquez said that 60% of the population, earning less than Ur$27,000 (US$840) per month, would continue to be exempt from the IRPF, and that 80% of the additional tax take would be provided by 10% of the population (see sidebar).

Speaking later in the day, the economy & finance minister, Danilo Astori, explained that the measures would be presented to congress at the end of June. Astori said the measures are designed to improve the fiscal deficit, which stands at 3.6% of GDP. He said that unless this was addressed it would create greater debt; make access to markets and financial resources more expensive; and could lead to a credit downgrade, which he said Uruguay had to “zealously protect” against. Astori, who justified the tax increase on the grounds that “the economic context has changed”, revised the GDP growth forecast for this year down to just 0.5% from 2.5% in the budget presented last July. The economy grew by 3.5% in 2014 and 1% in 2015. Astori predicted that it would recover to 1% in 2017 and 2% in 2018 (down from projections of 2.7% and 3% respectively in the last budget).

Astori also said there would be (unspecified) changes to the tax on economic activity (Irae) and that, as part of the “countercyclical measures”, 10% of the proposed spending increases for 2017 would be delayed until 2018. He maintained that the cuts would not affect health, education or public security spending. Astori said there would be a reform to the military pension fund, Caja Militar, currently costing US$400m a year. He also said that for every three public sector workers who retire or resign only two would be replaced until the end of the present term in 2019 as the government seeks to streamline the state.

In a bid to encourage more domestic consumption and reactivate the economy, Astori announced that value added tax (VAT) would be reduced by 2% for debit card purchases and other electronic payments to 18%. In doing so the treasury will forego an estimated US$50m a year. In total Astori calculated that the government would raise US$500m (US$350m from the tax changes and US$150m from spending cuts) with the objective of reducing the fiscal deficit to 2.5% of GDP by 2019.

The oft-divided moderate and radical wings of the ruling left-wing coalition Frente Amplio (FA) closed ranks behind the government as the political opposition accused Vázquez of “lying” during his 2014 electoral campaign. PC Senator Pedro Bordaberry said the government would face a crisis of credibility. “Will the minister [Astori] be believed now when he promises something after having so flagrantly broken his promise?” he asked rhetorically. PI Senator Pablo Mieres accused the government of “deceiving and defrauding the country”: “They said not once but 100 times that there would be no tax increases”. The country’s main trade union, Plenario Intersindical de Trabajadores – Convención Nacional de Trabajadores (Pit-Cnt), was also unimpressed, promising strike action. The president of the Pit-Cnt, Fernando Pereira, said that the increase to the IRPF should not apply for any worker earning less than Ur$90,000.

• Tax increases

Some 400,000 Uruguayans will pay more income tax (IRPF) under the proposed increases. The increases will be applied in three distinct stages, with the smallest increases for some 275,000 Uruguayans who earn between Ur$30,000 and Ur$60,000 per month; larger increases for the 100,000 who earn between Ur$60,000 and Ur$120,000; and the largest increases for the 32,000 who earn in excess of Ur$120,000. The IRPF supplies 15% of Uruguay’s total tax revenue, more than any other tax except value added tax (over 50%).

An incident on 30 May in which Venezuelan troops allegedly fired at officials from the Guyana Geology and Mines Commission (GGMC), who were in a boat on the Cuyuni River, has revived fears of a possible attempt by Venezuela to grab disputed territory from Guyana. The possibility still seems remote, but not out of the question given Venezuela’s ever-deepening domestic crisis and the discovery last year of significant oil reserves by Exxon-Mobil in Guyanese territorial waters that are claimed by Venezuela.

For Guyana, the 30 May incident was significant not just because shots were fired by Venezuelan soldiers but because of the implied claim to Venezuelan jurisdiction over the Cuyuni River. Guyana’s Ministry of Foreign Affairs said that Guyanese military investigators had spoken to the Venezuelan corporal-in-charge about the incident and that he had provided the investigators “with an explanation which the government of Guyana believes and which it has found to involve unacceptable behaviour because it assumed they had rights of policing the river which is in Guyana’s territory”.

In some senses, therefore, it was comforting that the Venezuelan authorities denied that the incident had taken place at all rather than using it as an opportunity to restate its territorial claim. The Venezuelan government claimed that the allegations were part of an “international media campaign” and “an international effort to destabilise Venezuela”.

A slightly more alarming interpretation is that the incident could have been deliberate and could have been deliberately timed to coincide with Guyana’s 50^th independence anniversary. It was on Independence Day (26 May) last year that Venezuela’s President Nicolas Maduro issued a decree restating Venezuela’s claim to the Essequibo Region and adjacent territorial waters, including the waters in which Exxon-Mobil is exploring. Last year, Exxon-Mobil announced that it had discovered an oil reservoir in these waters that could hold 700m barrels of oil or more. Production could begin by 2020.

The territorial dispute dates back to the colonial era. It appeared to have been settled by the decision of an arbitration panel in 1899. The panel consisted of two US judges and two British judges, with a Russian diplomat holding the casting vote. Fifty years after the panel set the borders that have been observed ever since, a letter emerged from an American lawyer involved in the 1899 arbitration proceedings in which it was claimed that the British judges had used undue influence on the Russian diplomat to get the result Britain desired. This gave Venezuela the excuse to declare the 1899 award invalid and to restate its claim to the Essequibo Region, which makes up 40% of Guyana’s territory.

Guyana’s main disadvantage in the dispute is that it is no match for Venezuela’s militarily. It has a population of under 800,000 and a GDP of around US$3bn, compared with Venezuela’s population of 30m and GDP of over US$430bn. On the other hand, it does have international support. At the early-June meeting of the 79-member Africa, Caribbean and Pacific (ACP) group of nations in Port Moresby, Papua New Guinea, a declaration was issued deploring “the adverse impact of the controversy and its escalating territorial and maritime claims on Guyana’s development and the welfare and well-being of its people”.

Guyana’s President Granger has said that Guyana is seeking a final resolution of the dispute by way of the International Court of Justice (ICJ) and with the assistance of the United Nations.

ARGENTINA | Odebrecht excluded from government suppliers’ list. The government led by President Mauricio Macri announced last week that the Brazilian construction and engineering firm Odebrecht would be excluded from the list of companies qualified to bid for public works contracts for a 12-month period.

The ban was enforced after Odebrecht, which is currently being investigated in various Latin American countries for allegedly paying bribes to government officials to secure state contracts, admitted to paying some US$35m in bribes in Argentina between 2007 and 2014 (see sidebar).

• Odebrecht

Between 2007 and 2014 Odebrecht was involved in several major infrastructure development projects in Argentina including the expansion of gas pipelines (2006-2008); the building of a water treatment plant (2006); and the extending of the Sarmiento railway line (awarded in 2006 and still under construction).

ARGENTINA | Maintaining exchange rate stability. On 22 July Argentina’s central bank (BCRA) announced the adoption of a series of new monetary policy measures designed to maintain exchange rate stability and contain inflation ahead of any potential volatility deriving from the 11 August party primaries leading up to October’s general election. An official BCRA statement said that its monetary policy committee (Copom) had agreed on several changes to the policy actions that it has been taking since last year in support of the peso and to reduce inflation.

As a first change, the Copom agreed that it will no longer set a monetary base target every month but that this will now be set on a bi-monthly basis. The statement explained that while the monthly monetary base targets have helped to rein in inflation, the monetary base usually contracts in August due to seasonal factors.

Copom also agreed to keep the Leliq benchmark interest rate at 58% for another month despite the signs that inflation is starting to fall. The Leliq rate was reduced from 62.5% to 58% at the last Copom meeting after the committee said that there was evidence that inflation was starting to subside. This sparked speculation that there would be another rate cut. But according to the statement, Copom has decided to wait until the July inflation figures are released on 15 August to review the Leliq rate.

• Interest rate

Copom said it would wait until the July inflation figures are released on 15 August to review the Leliq rate stating that, “Then the Leliq benchmark rate could be revised depending on the evolution of inflation, inflation expectations, internal and external financial conditions, and other macroeconomic variables”.

In contrast, the Copom decided to slightly reduce the reserve requirements on term bank deposits in pesos, allowing banks to invest these funds and also offer higher interest rates to savers in order to attract more deposits.

The changes in monetary policy announced by BCRA were quickly backed by the International Monetary Fund (IMF), which has been working closely with the Argentine authorities in the development of monetary policy following the signing of a Stand-By Arrangement (SBA) last year. IMF spokesperson Gerry Rice said that “the IMF supports the central bank of Argentina’s technical adjustments to its monetary policy framework… These changes will ensure that monetary policy will remain geared towards ensuring a continued path of declining inflation and a smooth functioning of the financial system”.

CHILE | Osorno water cuts resolved but questions remain. On 21 July, the Chilean water utilities company Essal revealed that water provision in the southern city of Osorno in Los Lagos region had been fully re-established. Osorno had been suffering from severe cuts to its water supply since 11 July, when an oil spill contaminated Essal’s Caipulli drinking water processing plant. It appears that the spill happened after an employee forgot to cut off the fuel supply to an electricity generator at the plant.

The severity of the ensuing water shortages led President Sebastián Piñera to cancel a planned trip to the US last week and attend instead a meeting of an operational committee for emergencies on 17 July, during which he said that he expected Essal voluntarily to compensate the Osorno population for the damages incurred.

Piñera also mooted plans to review security norms at water processing plants as well as update rules and regulations on the provision of drinking water in all Chilean cities. The head of the government’s sanitation services superintendence (SISS), Jorge Rivas, declared Essal’s explanations for the continued interruption to the water supply as “unacceptable” that same day. Essal begun partially restoring the drinking water supply on 17 July, but it took a further four days for the regular supply to be re-established in full.

Essal has said that it will not charge its 48,000 clients who were affected by the Osorno cuts for water supply and sanitation services for two months, and has also agreed to take part in a voluntary collective procedure mediated by Chile’s consumer protection agency (Sernac) to establish further compensation measures. An investigation has been opened into Essal’s responsibility for the petrol spill (which ran into the Río Rahue river) and Piñera has noted that the company could be fined.

As this issue went to press Alberto Fernández had just been sworn in as Argentina’s new president. Fernández had delayed naming his full ministerial team until 6 December, a mere four days before taking over the presidency, a move which had Argentina’s creditors nervous in light of the major foreign debt renegotiation that is on the cards.

For most of the election campaign this year, the working assumption had been that Fernández would be a president with populist centre-left policies. This was because his election would be the result of a coalition between former president Cristina Fernández (2007-2015), now his vice president, and who was seen as more of a nationalist-leftist in her policy positions, and various centrist Peronist forces including provincial governors and those loyal to a faction led by Sergio Massa. The difficulty has been in working out what this political alliance would actually mean in economic policy terms.

Alberto Fernández spent much of his time as president-elect negotiating who would do what in his government team. Much of those negotiations seemed to have been with his vice president. The Argentine media can’t quite decide what the real division of power between the two halves of the Fernández-Fernández coalition is. The speculation has been that Cristina is getting some of her nominees into key positions in congress (her son, Máximo Kirchner, will lead the governing Frente de Todos bloc in the chamber of deputies) while Alberto has a free hand in forming his economic team.

Speculation about the next economy minister had been intense and shifting. Many analysts tipped Guillermo Nielsen, a former finance secretary during the presidency of Néstor Kirchner (2003-2007) who has experience of foreign debt negotiations. Nielsen was on the government transition team and had been involved in preliminary contacts with creditors, but there were other candidates. There was talk of a comeback for former economy minister and presidential election rival Roberto Lavagna (2002-2005). This too has been discarded although his son, Marco, has been appointed head of the national statistics institute Indec. Other names in play included Matías Kulfas (who has a reputation for heterodoxy), Cecilia Todesca (a former International Monetary Fund staffer), and Martín Redrado (a former and long-serving central bank president).

In the end Fernández named academic and sovereign public debt expert Martín Guzmán as his economy minister when he unveiled his full cabinet on 6 December with Kulfas named as the head of a new productive development ministry. Guzmán and Kulfas will be jointly in charge of setting economic policy although it is not clear how they will work this out in practice.

What is clear is that debt rescheduling is unavoidable and will have to be the top priority. As of last September, Argentina’s total debt stood at US$315bn, with US$39.3bn, or an amount equivalent to 14% of GDP, due for repayment during the course of 2020. Meanwhile, gross foreign currency reserves, depleted by attempts to stabilise the peso, stand at around US$43bn. Reserves net of short-term debt are dangerously low at US$10bn.

Opinion among creditors is reportedly divided, with investment manager Gramercy said to be favouring a five-year extension of debts which would avoid any ‘hair cut’ or write-down of principal. The IMF in turn has to decide whether its US$57bn Stand-by arrangement is still viable. Alejandro Werner, head of the Western Hemisphere department at the IMF, has said: “In the absence of the whole macroeconomic strategy it is very hard to judge how their operation would lead to a sustainable debt position”.

Agricultural exports to China: On 23 January Mexico’s agriculture minister Víctor Villalobos said that the Mexican government hopes to increase Mexico's agricultural exports to China after signing new export protocols and successfully completing the first exports of plantains to the Asian country. Villalobos said that a first shipment of 39 tonnes of plantains left the Mexican port of Manzanillo bound for China this week following the signing of a bilateral export protocol back in May 2019. Villalobos added that Mexico and China signed a protocol for the export of balckberries in December 2019 and there are plans to sign another for the export of sorghum in February. Meanwhile Villalobos said that he has also held discussions with Chinese officials regarding the possibility of exporting beef, pork, and chicken meat. Mexico’s agricultural exports to China reached US$34.6bn in the first 11 months of 2019, an 8.61% year-on-year increase. Villalobos said that the export of plantains alone would increase agricultural exports by US$280m a year.    

Trade surplus: On 28 January Mexico’s national statistics institute (Inegi) released new figures which show the country registered a trade surplus of US$5.8bn in 2019. This compares with the US$13.6bn deficit reported in 2018. This change stemmed from a higher surplus of the non-oil trade balance which totalled US$27bn in 2019, up from US$9.54bn in 2018, as well as a reduction in the deficit of the oil trade balance which totalled US$21bn in 2019, up from a US$23bn deficit in 2018. Mexico’s exports in 2019 totalled US$461bn, up 2.3% on 2018 while imports totalled US$455bn, down 1.9% on the previous year.

Tourism: On 10 February Mexico’s national statistics institute (Inegi) released its latest report on international entries to the country, which shows that foreign tourism increased in 2019 for the seventh consecutive year, despite concerns about the negative impact of factors such as the sargassum micro-algae invasion on Caribbean beaches and the bad press surrounding the country’s public security situation. The number of international tourists to Mexico increased 9% year-on-year in 2019, to over 45m, and they spent 9.7% more in the country than in 2018, with total spending amounting to US$22.34bn. On average, each international tourist spent US$496 last year (a figure which increases to US$1,000 when only considering tourists arriving via air). In December 2019, the number of international tourists totalled 4.71m, up 11.2% on December 2018, bringing in US$2.28bn. Including day visitors, Mexico received a total 97.4m international visitors in 2019, bringing in a total US$24.56bn. Meanwhile the head of Mexico’s tourism ministry (Sectur), Miguel Torruco Marqués, has estimated that tourism will generate US$26.7bn in revenue this year, up 8.7% on 2019. Torruco said that based on current projections, Sectur estimates that the country can expect 46.2m tourists this year, a 2.7% increase of foreign tourists. Such trade, he added, will also create 95,000 jobs, bringing the total jobs in tourism to 4.5m, up 2.1% on 2019.  In total tourism accounts for 8.7% of Mexico’s GDP, according to government figures.

Mexico: GDP Growth
Percentage variation (year-on-year)

Mexico: Unemployment Rate
Econimically active population

Mexico: Inflation Rate
Percentage variation (year-on-year)

Source: National Statistics Institute (Inegi)

Paraguay’s President Mario Abdo Benítez delivered his second annual state-of-the-nation address to congress on 1 July. The main thrust of the 90-minute address, delivered virtually from the central bank, was the confirmation of a US$2.51bn economic recovery plan, revealed two days earlier. Abdo Benítez claimed that Paraguay was emerging from an economic crisis in the second half of 2019 and had been exhibiting positive signs before the coronavirus (Covid-19) pandemic struck. He argued that while this was unfortunate in one sense, it did mean that the domestic economy was in good shape to rebound quickly (unlike other economies in the region), especially if given a helping hand.

The largest tranche of the economic recovery plan, dubbed ‘Ñapu’a Paraguay’ (‘Let’s rise up’ in Guaraní), is a US$1.37bn fund to be assigned for infrastructure development to drive economic growth in the second half of 2020. This will include a series of public works, such as US$360m for sewerage works and wastewater treatment plants in the two most populous cities of Asunción and Ciudad del Este, as well as in other cities such as Lambaré and Presidente Franco, and new road infrastructure, including a US$16m road linking Asunción’s international airport to the capital, and a US$13m underpass near the city’s principal bus terminal.

A further US$679m will be allocated for business development loans and job creation, accompanied by a (frequently promised) state reform to cut red tape and reduce bureaucracy and waste. One end in sight is to try and formalise Paraguay’s increasing numbers of small and medium sized enterprises (SMEs).

The Covid-19 pandemic has driven home the difficulty of imposing a lockdown in countries with large informal sectors, with many people having no alternative but to leave home in order to make a living. The government is aiming to formalise some 770,000 workers who have no health and pension provisions (and do not pay taxes).

A further US$465.3m will be sunk into social protection measures, retraining schemes, and support for border trade, President Abdo Benítez said. Some US$250m of this sum will be used to offset income loss in the second half of the year, including US$80m for the Pytyvõ subsidy to some 770,000 people, focused on informal workers. The finance minister, Benigno López, said the government was also poised to unveil an unemployment insurance project in the country, which he said would be the first of its kind.

Abdo Benítez said that most of the spending would be covered through budget reallocations, but that the government would seek to raise a further US$350m in the form of a loan or bond issuance to fund part of the economic recovery plan. He also revealed that a total of US$497m of the US$1.6bn rescue package approved by congress at the outset of the pandemic [WR-20-12] had yet to be disbursed.

During his address to congress, Abdo Benítez extolled several of his government’s achievements, noting in particular the successful containment of Covid-19. So far there have been only around 2,000 confirmed cases of the virus in Paraguay, with 15 fatalities. He also said his government was committed to combating corruption, “an endemic and historic evil”, and improving transparency and accountability. But he made no mention of recent allegations of corruption in the public procurement of medical equipment and supplies to combat Covid-19.

Corruption

The health minister, Julio Mazzoleni, on 5 June announced the cancellation of all public procurement of medical equipment to combat Covid-19, after a series of irregularities. Two Paraguayan government officials resigned in as many weeks in April over irregularities in the purchase of facemasks and bottles of tonic water: the head of the national civil aviation authority (Dinac), Édgar Melgarejo, and the president of the state-owned oil firm Petropar, Patricia Samudio [WR-20-17].

President Rodrigo Chaves has made initial moves to deliver on his campaign promises, but he faces a tough task implementing reforms to cut the cost of living while addressing worsening public finances.

Sworn in on 8 May for a four-year term [EB-22-05], Chaves inherited a country that had suffered a raft of corruption scandals, worsening inequality, high rates of unemployment, and social unrest which increasingly threatened its image as a safe and prosperous nation. The new leader promised that he would deal with the soaring cost of living, as well as improving the terms of an International Monetary Fund (IMF) loan agreed by his predecessor that had sparked street protests. However, he is also facing soaring inflation, which was running at an annual rate of 11.48% in July 2022 – the highest annual rate in a decade, increasing energy costs and slowing GDP growth, which is causing further damage to public finances badly affected by the coronavirus (Covid-19) pandemic.

Among his first moves designed to fight poverty, Chaves cut taxes on imported rice from 36% to 4%, he said in a report on his first 100 days in office published in local media outlet El País. He also signed a decree stating that Costa Rica would recognise regulatory approvals for medicines and agrochemicals from other nations, with the aim of facilitating imports and therefore reducing prices. Other measures include a bill to cap the price of fuel, presented on 24 August, and electricity prices are set to fall in October, said Chaves, who also announced a food programme worth ¢20bn (US$31m) for those living in poverty.

In the longer term, Chaves plans to fight tax avoidance by digitalising the finance ministry and simplifying the tax regime. He also wants Costa Rica to join both the Pacific Alliance trade bloc (comprising Chile, Mexico, Colombia, and Peru) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which launched in March 2018, as well as to deepen relations with Israel and sign a free trade deal with Ecuador. Chaves announced plans to bolster state coffers by selling off assets such as the state-owned banks Banco Internacional de Costa Rica (BICSA) and the Banco de Costa Rica (BCR), which he says will raise ¢1.2trn, the equivalent of 2.8% of GDP, as well as auctioning the 5G mobile internet spectrum. He plans to reform the pension system; seek to issue Eurobonds, or external bonds, which Chaves said would improve borrowing conditions; and sell 49% of shares in the state-owned insurance company Instituto Nacional de Seguros (INS), which would raise ¢595bn. Other plans include continued investment in infrastructure, such as improvements to the road and railway network; reforms to the law governing public contracts to combat corruption; and bringing the national telecommunications fund (Fonatel) under the ministry of science, with the aim of improving internet connectivity throughout the country.

Unfortunately for Chaves, the Costa Rican economy is forecast to slow for the rest of this year and into next. Central bank forecasts published at the end of July predict that economic activity will grow 3.4% in 2022 and 3.2% in 2023, and inflation is predicted to remain high. According to a survey published 24 August by local pollster Universidad de Costa Rica’s Centro de Investigación y Estudios Políticos (Ciep), the cost of living is the biggest concern for Costa Ricans, cited by 42% of respondents. This could make life difficult for Chaves given his limited wiggle room, but he should be encouraged by the fact that 79% of survey respondents think he is doing a good job so far. Renegotiating the US$1.78bn agreement with the IMF could give Chaves more breathing space, but there have been no recent announcements in that regard.

•  2023 budget proposal

On 1 September Costa Rica’s finance ministry presented its proposed 2023 budget proposal for ¢12.3trn (US$19.26bn), up 6.5% on the previous year. Finance Minister Nogui Acosta said that the increase owed principally to servicing the country’s debt and interest payments, and that when this was excluded, the increase was just ¢383.9m compared with the 2022 budget proposal. He said that 59.1% of the budget would be financed with taxes and 40.9% with more debt, and that 47% of the proposed budget would go on servicing the country’s debt. The budget proposal now goes to the finance commission before being sent to the 57-member unicameral legislature, which has until 30 November to approve it.