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Before, during, and after Brazil’s World Cup, another game has been in play. The world may be familiar with names like Neymar, Oscar, Hulk, Fred and David Luiz. But does it recognise a different group of players, who go by names like Odebrecht, Camargo Corrêa, Andrade Gutierrez, OAS, and Queiroz Galvão? These have been involved in a different competition, with its own set of big prizes - and some yellow cards.

It is proving to be a dramatic year for Brazil’s big empreiteiros, the country’s large civil engineering and construction contractors. Their role in the World Cup infrastructure projects has brought them profitable business and negative press. But they are looking far beyond this particular event, with aggressive expansion plans in Latin America and further afield.

The 2014 FIFA World Cup opened at the new Itaquera stadium in São Paulo, and is set to close in Rio’s famous Maracaná. The former was built and the latter upgraded by Odebrecht, now the country’s second largest privately held non-financial company. For construction work on four stadiums, Odebrecht received various payments including BRL1.5bn (US$447m) in subsidised loans from BNDES, Brazil’s national development bank. Whether it did a good job or not is subject to ongoing controversy. The cost of building Itaquera increased to BRL1.0bn (US$449mn) as Odebrecht and Corinthians Football Club had a two-year argument over financial guarantees. On the same day that President Dilma Rousseff came to visit the nearly-ready Itaquera stadium, complete with a ‘mission accomplished’ banner, demonstrators protested at Odebrecht corporate headquarters in São Paulo, spraying graffiti that accusing the company of “making billions on the blood of the workers and the money of the people”.

Itaquera was delivered late and over budget, and was still suffering teething problems during the opening match on 12 June. In November 2013, a 1,500-ton crane lifting a section of the roof had collapsed, killing two workers. A third died in another accident in March. Odebrecht said it was not responsible for the accidents, which involved sub-contractors.

The company does have supporters. Peter Lannigan of brokers CRT Capital Group argues that “Odebrecht is one of those companies that gets the contracts and dominates the industry. But at the end of the day, they continue to do what they’ve always done, which is to get things done”.

Norberto Odebrecht set up the company in 1941, initially building shipyards, shopping centres, and a terminal for Salvador airport. At the age of 93, he is now estimated by Bloomberg to have asserts worth over US$4.0bn. His son, Emilio, chairs the board and his grandson, Marcelo, is the chief executive. Like many of its competitors, the company grew strongly by developing close links with the Brazilian military regime of 1964-1985. According to Pedro Campos of Universidade Federal Rural Rio de Janeiro, “Odebrecht was the most efficient of the builders at transitioning from the dictatorship to democracy, and now it is showing. The company may have been the biggest beneficiary of the World Cup”.

Odebrecht group revenue was up by 16% in 2013 to reach BRL96.9bn (US$43.4bn); it employs 175,000 people and has a pipeline of contracts worth around BRL30bn (US$13.4bn). It reported a BRL491m (US$220m) profit last year (after a loss in 2012). Because of a bunching of new projects, borrowing has, however, increased sharply, up 29% to BRL73.2bn (US$32.8bn).

The other companies in the sector are also significant. The number two slot is held by Camargo Corrêa, which operates in 18 countries and employs around 54,000 people. In Brazil, its main business units are active in cement production, energy concessions, highway concessions and big building projects. Founded in 1939, the company played an important role in the construction of Brasília, the country’s new capital, in the 1950s. Consolidated net revenues in 2012 were reported at BRL23.4bn (US$10.5bn), up 35% from the previous year. The family matriarch, Dirce Navarro de Camargo, died last April at the age of 100, leaving a family fortune worth a reported US$13.8bn. She is succeeded by her three daughters (Regina, Renata, and Rosana), who retain control of the company.

Camargo Corrêa also has had its share of controversy. In March 2009, some of its managers were arrested on money laundering and fraud charges. More recently, courts have investigated claims that Camargo Corrêa systematically overcharged the state oil company Petrobras for construction work on the Abreu e Lima refinery project – which is also at the centre of a separate congressional investigation into money laundering.

Critics and academics have drawn attention to the political campaign contributions made by the construction giants. According to data from the Brazilian electoral tribunal, Odebrecht campaign donations rose to BRL39.9m in 2012, sharply up from BRL8.1m ten years previously. Other empreiteiros such as OAS, Queiroz Galvão and UTC Engenharia were among the top ten contributors. Research by Daniel Hidalgo at the Massachusetts Institute of Technology in the US suggests that in the 2002, 2006 and 2010 elections, for every Real’s worth of political contributions by construction companies, they were assigned 14 to 39 Reais worth of government contracts in the ensuing three years.

Concerns over a perceived conflict of interests between companies making big contributions to the ruling Partido dos Trabalhadores (PT), and then getting big contracts back from a PT government, has led to attempts, channelled through the federal supreme court (STF), to ban corporate political donations. The outgoing STF president, Joaquim Barbosa, has stated that corporate campaign finance is having a “pernicious influence’ on Brazilian politics. Marcus Vinicius Coelho, president of the Brazilian lawyers’ association (Ordem dos Advogados do Brasil [OAB]), says that, “contributions are very concentrated in public works firms”. But Sergio Bourroul, an Odebrecht spokesman, has said “Odebrecht promotes its donations as part of a democratic vision and while respecting the law, without adopting any partisan position or ideology.”

The tendency for the industry to be dominated by a handful of large and powerful empreiteiros has raised eyebrows, but on the whole not caused them too many regulatory problems. That said, in May the Brazilian anti-trust regulator (Conselho Administrativo de Defesa Econômica [Cade]), singled out a group of six companies that were said to be running a “cement cartel” coordinating their bids and inflating costs in submissions for highway construction and other contracts. Cade said the six companies, including Holcim Brasil, Votorantim Cimentos, Camargo Corrêa Cimentos, Cimpor Cimentos do Brasil, Itabira Agro Industrial, and Companhia de Cimento Itambé, had together caused the state BRL28bn (US$12.7bn) of losses over the last 20 years. They have been fined a total of BRL3.1bn (US$1.4bn), and are being forced to divest 20% of their production capacity in cities where they own more than one cement plant, in an attempt to make the industry more competitive.

One of the most attractive markets for the Brazilian empreiteiros is the rest of Latin America, where there is a big infrastructure investment deficit. Odebrecht is strongly focused on opportunities in Peru, where it is involved in the Chaglla hydroelectric project, the Lima overhead railway, and the Belo Horizonte hydropower plant. It is also bidding for the US$3.6bn Southern Peruvian gas pipeline.

Elsewhere, the company in June won a 50-year concession to run the US$1.05bn Chan II power plant in Bocas del Toro, Panama. Mexico is expected to be a big growth market, given the current government’s ambitious plans to develop infrastructure and liberalise the energy sector. To date, Odebrecht has invested US$1.8bn of a planned US$8.1bn target in Mexico.

Odebrecht is also involved in bidding for the construction of the new US$546m Louis Armstrong International airport in New Orleans (although the contracting process has run into legal difficulties) and is making plans to increase its presence in Africa. With international partners, OAS recently won the contract to build a 2.6km bridge over the Chacao Canal in Chile (linking Chiloé island to the mainland). It is also involved in the US$4bn Inambari dam project in Peru. Camargo Corrêa is building Venezuela’s Tuy IV System, a massive hydroelectric complex and aqueduct.

Queiroz Galvão is involved in the US$1.1bn Tumarín hydro project in Nicaragua. Galvão is one of the newer companies in the sector. According to the company, “we are working on our strategic plan, but our board has already decided to consolidate our operations in Peru”. It notes that one of its drivers has been to compete against Spanish, Italian and Chinese civil engineering rivals that are hunting for business around Latin America. A company source noted that “China and Spain are offering zero percent financing. We have to compete on the quality of our engineering”.

While this may be so, a question sometimes raised is whether the Brazilian civil engineering companies, with strong backing and financial support from their government, have an unfair advantage in the battle for contracts in Latin America. Over the last five years, BNDES annual financial support for infrastructure projects in Latin America, usually tied to contracts for Brazilian companies, has doubled from US$726m to US$1.4bn.  The biggest beneficiaries have been Argentina, Venezuela, Cuba, the Dominican Republic and Peru.

Odebrecht has shown it is not afraid of political controversy around its business activities, and perhaps one of its most controversial projects is the expansion and modernisation of the port of Mariel in Cuba. The Mariel project was agreed in direct talks between the Brazilian and Cuban governments. The total value of the work is around US$1bn. Odebrecht has the lion’s share, but a total of 400 Brazilian companies are involved in the wider port works and associated new free zone. BNDES is financing no less than 70% of the total cost of the project, which is part of the Cuban government’s plans to create a special development zone. From various political perspectives, critics have expressed discomfort over what they see as a sweetheart deal linking big government, big business, and an undemocratic regime in Havana, almost entirely financed by Brazilian taxpayers. Even the leftist former environment minister like Marina Silva, the third placed presidential candidate in 2010 and presumptive vice presidential candidate for the Partido Socialista Brasileiro (PSB) in this October’s general election, has argued that Brazil should not be so closely involved with the Cuban regime.

The experience in other World Cup host countries has been for business to fall off after the competition ends. But the Brazilian construction companies are clearly trying to keep their revenues on an upward curve by diversifying and going after infrastructure projects elsewhere in the region. Odebrecht earns roughly 56% of its revenues from the home market, with the rest coming from operations in 26 other countries. At home, it seems close to entering a battle with rivals Camargo Corrêa and Andrade Gutierrez over airport concessions. Last year, Odebrecht won the BRL19bn (US$8.5bn) concession to run Rio’s Galeão International airport for 25 years, in partnership with the operator of Singapore’s Changi airport. But it is objecting to plans for a new BRL5.3bn (US$2.32bn) airport in Caieiras, just north of São Paulo, involving Camargo Corrêa and Andrade Gutierrez, on the grounds that they will have a negative effect on passenger numbers at the Rio hub. Camargo Corrêa executive Vítor Hallack has countered that the risk of a fall in passenger numbers caused by the emergence of new airport infrastructure should be shouldered by the concession holder.

PARAGUAY | Emitiendo más deuda. El Presidente de Paraguay, Horacio Cartes, anunció el 4 de agosto que su gobierno había emitido exitosamente bonos soberanos por un valor de US$1mm en los mercados financieros internacionales.

Esta es la segunda vez que el Paraguay emite bonos, después que el país colocó con éxito US$500m en bonos a 10 años en enero del año pasado. La última emisión vino después de que el 17 de Julio el congreso nacional aprobara un pedido hecho por el gobierno de Cartes para incrementar el nivel de la deuda soberana en el presupuesto nacional de este año por US$667m para un total de US$750m.

El pedido del gobierno para incrementar el nivel de la deuda soberana provocó controversia pues la oposición política y los medios locales se quejaron de que difícilmente había alguna justificación para endeudar aún más al país en esta ocasión, dado que la administración Cartes aún debe utilizar totalmente todos los fondos reunidos durante la emisión de bonos de enero del 2013.

En particular, la prensa local ha señalado que con la aprobación de la emisión de los nuevos bonos, la deuda de Paraguay bajo Cartes totalizará US$1,6mm, representando más de la mitad de la deuda externa total del país de US$2,6mm.

Sin embargo, el ministro de finanzas, Germán Rojas, defendió la decisión alegando que el actual nivel de deuda aún es comparativamente bajo en 12,8% del PIB y que el país tiene espacio para incrementar su nivel de deuda hasta el 22% del PIB. Rojas también dijo que los fondos reunidos por la emisión de bonos propuesta ayudarían a garantizar la continuidad de varios proyectos de desarrollo económico y social de largo plazo (ver más abajo).

Además, Carlos Fernández Valdovinos, el presidente del Banco Central del Paraguay (BCP) también defendió la decisión de recurrir a los mercados financieros internacionales una vez más alegando que las condiciones aún son favorables para hacerlo. Fernández explicó que como las tasas de interés globales permanecen relativamente bajas, como resultado de los bajos rendimientos ofrecidos por los bonos de EU, “el endeudamiento en estas circunstancias no es una mala cosa”.

Desde la última emisión de bonos de Paraguay, el perfil de riesgo del país también ha mejorado, pues en junio la agencia de ratings, Standard & Poor`s, elevó el grado de su rating de la deuda soberana a largo plazo de Paraguay de BB- a BB con un panorama estable. Esto siguió a la decisión de febrero de Moody’s de incrementar su rating de la deuda soberana de Paraguay de Ba3 a Ba2.

De hecho, al anunciar el éxito de la última emisión de bonos, Cartes dijo que había estado casi cinco veces sobre-suscrita, lo que permitió la colocación de los bonos con un rendimiento del 6,1%, menos de la tasa inicialmente ofrecida del 6,37%. El alto nivel de demanda también permitió al gobierno incrementar su oferta inicial por US$250m (sin haberse asegurado la aprobación previa del congreso).

Sin embargo, Cartes se mantuvo firme en que los fondos adicionales ayudarían a su gobierno a cumplir sus planes para “combatir la pobreza, crear empleos, y mejorar la infraestructura vial del país”.

• Destino de los fondos

Según el ministro de finanzas, Germán Rojas, los fondos reunidos con la emisión de bonos financiarán varios proyectos de inversión existentes y planeados por el ministerio de obras públicas & comunicaciones, el ministerio de agricultura, la Secretaría Nacional de la Vivienda (Senavitat), la compañía de eléctrica del estado (Ande), y la Industria Nacional del Cemento (INC) de propiedad estatal; y para apuntalar el Crédito Agrícola de Habilitación (CAH), un esquema de micro financiamiento rural del gobierno.

La Presidenta Cristina Fernández, lanzará el 1 de marzo su último discurso sobre el estado de la nación ante el congreso de Argentina. Se espera que sea un discurso más extenso que en años anteriores, pues reflejará no solamente su propio récord en el poder, sino también el de su fallecido esposo, Néstor Kirchner (2003-2007), en el periodo previo al de ella. Pero restándole sólo meses en el poder, sus recientes pronunciamientos sobre la masiva marcha del 18 de febrero (‘18F’) para conmemorar la muerte del fiscal federal, Alberto Nisman, muestran que la Presidenta, y su gobierno, aún prefieren la confrontación.

Aunque la Presidenta Fernández no lanzó ningún discurso en momentos en que cientos de miles de manifestantes salieron a las calles la semana pasada, ella prefirió referirse a la protesta en una ‘reflexión’ publicada durante el fin de semana. Pese a los intentos de los organizadores de hacer que la marcha del silencio se mantenga neutral (los políticos tenían prohibido lanzar discursos), Fernández describió el evento como el debut público del ‘Partido de la Justicia’. Fue, escribió ella, “una marcha de la oposición, convocada por fiscales y apoyada por jueces y todo el espectro de la oposición política”.

Miembros individuales del gobierno actualmente están enfrentando una impresionante serie de cargos. La misma Fernández afronta acusaciones de lavado de dinero sobre los intereses hoteleros de su familia, mientras que el ministro federal de planeamiento, Julio de Vido; el ministro de justicia y derechos humanos, Julio Alak; y el Vicepresidente Amado Boudou, todos ellos enfrentan cargos de enriquecimiento ilícito. Por otra parte, el fiscal federal quien reemplaza a Nisman, Gerardo Pollicita, ha decidido reinstalar los cargos de Nisman de encubrimiento agravado sobre el atentado sobre el centro mutual judío, Amia, en Buenos Aires, contra Fernández y el canciller, Héctor Timerman.

Las relaciones entre el poder ejecutivo y el poder judicial están por los suelos. Mientras que la oposición teme que la estrategia a largo plazo de los kirchneristas sea asegurar su control del poder post-Fernández, asumiendo el control de manera persistente sobre la justicia, aunque aún hay muchos jueces de mente independiente dispuestos a asumir los casos contra el gobierno. Como resultado, el gobierno acusa repetidamente a la justicia de estar controlada por la oposición, interesada solamente en desafiar a la administración de Fernández y no a las grandes corporaciones.

En su respuesta a los comentarios de Fernández, la Asociación de Magistrados y Funcionarios de la Justicia Nacional, afirmó que el único partido a la que pertenecen era el “partido de la constitución”. Y agregó: “La justicia no es un partido, sino un poder del Estado”.

Las encuestas de opinión

La aún no explicada muerte de Nisman ha tenido un pequeño, pero significativo efecto sobre las encuestas de opinión. Management & Fit ubica el rating de aprobación de Fernández en 30%, cayendo de 33% en enero. Aunque difícilmente pueda calificarse como un colapso, todas las firmas encuestadoras tenían el rating de aprobación de Fernández creciendo en diciembre. El incidente también ha tenido un pequeño, pero perceptible impacto en los ratings de aprobación de Daniel Scioli, actualmente el candidato kirchnerista favorito para las elecciones presidenciales de octubre.

Management & Fit ubica a Mauricio Macri, el alcalde de la ciudad de Buenos Aires por la opositora de centro-derecha Propuesta Republicana (PRO), en 28%, con Scioli con 24% y Sergio Massa, un ex kirchnerista que ahora compite como candidato presidencial por el disidente Peronista, Frente Renovador (FR), con 19%.

Una encuesta de González y Valladares aparece con una serie de números bastante diferentes: Massa con 31%; Scioli con 25%; y Macri con 23%. Durante el fin de semana, sin embargo, Macri recibió un significativo impulso cuando Carlos Reutemann, el influyente ex gobernador de la provincia de Santa Fe (1991-1995) y actual senador federal en representación de la provincia, cambió su apoyo de Massa a Macri. Explicando su decisión, Reutemann dijo que aunque Massa estaba mejor ubicado para vencer al candidato kirchnerista en las elecciones legislativas en Buenos Aires en el 2013, pero ahora era tiempo de poner en orden “el corazón y la cabeza”.

Lo que está claro es que muchos votantes aún deben poner en orden sus pensamientos para las elecciones generales de octubre. Pero para el gobierno, debe decidir si respalda totalmente a Scioli, a quien tiende alternativamente a abrazar o volverle la espalda, u optar por otro candidato, como Florencio Randazzo, el ministro del interior y transporte.

• Stiuso acusado de contrabando

Antonio “Jaime” Stiuso, el ex director de inteligencia, de quien se cree que fue el que había suministrado a Alberto Nisman con gran parte de la información que sirvieron de base a sus acusaciones contra el gobierno, fue acusado de contrabando por el jefe de seguridad el 25 de febrero. Oscar Parrilli, el nuevo jefe de la SI, la secretaría de inteligencia, dijo que Stiuso operaba efectivamente una institución paralela dentro de la agencia. Stiuso fue destituido de su cargo en una reorganización ordenada por el gobierno en diciembre. Su abogado dice que él ha abandonado el país tras recibir amenazas contra su vida.

President Sebastián Piñera is due to deliver his second state-of-the-nation speech over the weekend, on 1 June. The pressure is on for the centre-right leader to be at his most persuasive – he has faced widespread criticism and significant falls in popularity.

The day before the president’s speech, demonstrations are expected by labour unions and students in major cities across Chile, in opposition to Piñera’s pension reforms. Also looming in the background is the possibility of a strike at Chuquicamata, one of the country’s major copper mines. While the government is stable and in no way in crisis, after nearly 15 months of his second, four-year presidential term, Piñera is coming up against a significant degree of opposition. He has been criticised on a number of fronts, including claims of nepotism (levied because his two sons accompanied him on a state visit to China in April and sat in on business meetings; the president has acknowledged this was a mistake).

One problem is that his promised surge in economic growth is not materialising. GDP grew by 4% last year – a good result and an improvement on performance in the last years of the preceding centre-left government. But it now seems to be running out of puff. GDP grew by only 1.6% in the first quarter. Although the government insists that the economy will grow 3.5% in 2019, due to the negative impact of the US-China trade war on Chile’s copper exports, most other analysts are less optimistic. The Organisation for Economic Co-operation (OECD) has lowered its forecast to 3.3%, while Morgan Stanley expects lower growth of 3.1%.

Nevertheless, the government has an upbeat message. It says 2019 is a year of consolidation. Piñera stresses that his labour, tax, and pension reforms are designed to boost productivity and jobs (a view not shared by the opposition). Public works projects planned between now and 2023 are worth US$14.6bn and include a high-speed train service between Santiago and Valparaíso. Piñera also points to other success in a range of other initiatives.

• Clase Media Protegida

The ‘Clase Media Protegida’ programme tackles middle class concerns, aiming to improve security and combat crime, particularly drug trafficking. Piñera is expected to highlight progress across a range of initiatives. In his 2018 state-of-the-nation speech Piñera announced 108 commitments, of which 51 required administrative action and 57 required congressional approval of new laws.

Opponents say the government, which lacks a majority in congress, has been slow moving. According to Centro Democracia y Comunidad (CDC – a think tank linked to the opposition Democracia Cristiana party), the government has so far delivered only around 30% of its promised legislation. Meanwhile, only four of the 51 promised administrative measures have been completed. Members of congress from Piñera’s own party, Renovación Nacional (RN), complain that he does not consult or engage them sufficiently.

The sense of malaise is showing up in the opinion polls. A CADEM poll said Piñera’s approval rate has fallen to 33%, the lowest since he took office. The company says that the accusations of nepotism have played a part. According to another pollster, CERC-Mori, the president’s approval rating has fallen lower, to 27%, down from 44% just after the start of his second presidency in April last year. The president’s disapproval rating has, meanwhile, surged to 63%.

The company said Piñera’s core supporters are ‘aspirationals’ who hope for better economic times, but that more traditional right-wing voters are beginning to lose faith in him. It also notes a general loss of trust, not only in the government but also in the parties of the centre-left opposition, that can be traced back to scandals in the military police (Carabineros), the army, and the Catholic Church. Largely because of a series of sexual abuse scandals, the proportion of respondents trusting the Church has crashed from 31% down to 8%. Trust in the police has, meanwhile, fallen from 49% to 32%.

Amid Haiti’s continuing political and security crisis, the International Monetary Fund (IMF) has issued what it calls an “encouraging” review of its staff-monitored programme (SMP) conducted with the country’s authorities.

SMPs are informal agreements between the IMF and member governments to monitor economic performance and “build a track record of policy implementation” that could eventually pave the way for a more formal IMF programme and funding. The latest review was conducted in October as a “virtual mission”. It acknowledges that things are bad. In its words “economic conditions in Haiti remain fragile amid persistent domestic and external shocks and rising uncertainty”. It notes the economy is now contracting for the seventh consecutive year. Inflation is high by Caribbean standards, at 32%. The banking system is fragile with non-performing loans at 13%.

And yet there are what could be called bright spots in the gloom. Remittances sent home by expatriate Haitian workers have been increasing because of the security crisis and worries over US President Donald Trump’s migration policies. Because of these inflows, Haiti can expect a “moderate surplus” on the current account this year. The exchange rate has been stable. Gross international reserves are “adequate” at US$3.1bn (equivalent to seven months of imports). Although “constrained” by security challenges and limited policy space, the fiscal position this year is “broadly balanced”. Monetary financing of the fiscal deficit has been kept at zero. Public debt as a proportion of GDP is only 12.4%, the lowest ratio in Latin America and the Caribbean. The review notes that, looking ahead, there are major downside risks, including an intensification of gang warfare, and disruption from abrupt changes in migration and trade policies. However, it also suggests that if the political crisis is stabilised there may be some foundations for recovery and economic reform.

On 19 October the full supreme court ordered McDonald’s, the US based fast food company, to pay US$23.9m in damages to Servipronto, another fast food company. The dispute between the two companies has been going on for 14 years.

The supreme court struck out the injunction obtained by McDonald’s Corporation against rulings by the second chamber of the first section of the central civil court and a ruling by the civil chamber of the supreme court. McDonald’s had argued that the ruling by the civil chamber in 2005 that McDonald’s should pay damages to Servipronto reopened an issue which had been resolved earlier by the commercial court in San Salvador.

The supreme court rejected this argument, ruling that the issues were distinct and therefore the first judgment had no effect on the second. It said that the crucial issue was the breakdown in the commercial relationship between McDonald’s and Servipronto and damages McDonald’s should pay Servipronto as a result.

The two companies have been suing and counter-suing each other since 1997 when Servipronto first sued McDonald’s over the early cancellation of a franchise agreement McDonald’s had offered. Since then, the two companies have indulged in 40 lawsuits against each other.

The president of Servipronto, Roberto Bukele, said that the supreme court’s ruling showed that the local courts would stand up for Salvadorean companies against transnationals. Bukele said that the next move would be to go to the commercial court to get an order forcing McDonald’s to pay up.

Inflation: Although the consumer prices index dropped by 0.3% in September, the overall rate of inflation for the past 12 months remained high at 6.2%. This annual rate, however, was down on the 6.8% recorded in the year to August. Annual inflation in the year to April was 2.7%, but the rate has been over 6% ever since.

Remittances: The inflow of remittances in September jumped 10% year-on-year to US$287m. The total for the first nine months of 2011 is US$2.7bn up 5.3% on the same period of 2010.

Not since the return to democracy in 1979 has a single political party held a congressional majority in Ecuador. The weight of history is against President Rafael Correa as elections approach on 17 February 2013. But, if anyone can reverse this trend and secure the coveted but elusive majority, Correa can.

Correa is the overwhelming favourite to win presidential re-election. By doing so he would ensure himself 10 years at the helm, having taken office in January 2007, as long as his six predecessors put together. And he is fully focused on securing a majority in the national assembly for his ruling Alianza País (AP), which fell narrowly short in the last elections in 2009 with 59 of the 124 seats.

Correa conducted a mini cabinet reshuffle last week to replace ministers competing in the legislative elections for his AP (see box below). He has set them the challenge of winning a majority in the national assembly which he maintained had become a refuge for “traitors, ‘vende patrias’ (unpatriotic sell-outs), corrupt bankers and politicians in the service of foreign commerce”, who he said were determined “to block the changes which are underway.” 

The national assembly, while dominated by the AP, still reflects the political fragmentation which has always characterised Ecuadorean politics. The Partido de Sociedad Partriόtica (PSP) of former president Lucio Gutiérrez, who is running for president against Correa, controls 19 seats; the Partido Renovador Institucional de Acción Nacional (Prian) of Alvaro Noboa, the powerful banana magnate who never tires of running for president (this will be the fifth time), has seven seats; Movimiento Cívico Madera de Guerrero (MG), the party created in 2009 by the conservative mayor of Guayaquil, Jaime Nebot, also has seven seats The traditional parties Partido Social Cristiano (PSC) and Partido Roldosista Ecuatoriano (PRE) have a handful of seats as do various other outfits.

Juan Carlos Cassinelli, the current vice-president of the national assembly who is seeking re-election in the province of Guayas, urged the public this week to vote for a legislature more attuned to Correa in order to “drive forward the changes needed by the country more rapidly”.

These changes are envisioned within Correa’s endogenous-led development growth model. This aims to consolidate Ecuador as a cohesive plurinational state through major infrastructural spending, and further increases in social spending to combat poverty and improve health and education services. Correa will be racing against time if, as he says, he is not planning to seek a further term in office in 2017.

The opposition often accuses the Correa administration of mortgaging the country with debt to increase social spending, principally through a dramatic increase in indebtedness to China, but it is important to note that the social investment has also been rendered possible by a sharp increase in the tax take.

The tax take has more than doubled over the past five years from US$4.67bn in 2006 to US$9.56bn in 2011, according to Carlos Marx Carrasco, the head of the tax agency (SRI), and is on course to reach US$11bn this year. Most of this has been accomplished by cracking down on tax evasion rather than increasing taxes, although it is almost certainly in Correa’s plans to increase taxes (which only amount to 13% of GDP) if he wins re-election in order to make his citizens’ revolution more self-sustainable.

New defence minister

The most interesting aspect of President Correa’s latest mini cabinet reshuffle was the appointment of María Fernanda Espinosa as defence minister in place of Miguel Carvajal who is running for a congressional seat for the ruling AP next February.

    This is a fairly dramatic change of remit for Espinosa who had been serving as minister of natural and cultural heritage. Not that this was a low-key ministry: building Ecuador’s cultural identity is a key part of Correa’s citizens’ revolution. Espinosa coordinated the centennial celebrations of the death of Ecuador’s Liberal reformer, Eloy Alfaro, last January drawing direct parallels between Correa and Ecuador’s longest-serving and most emblematic former president, to whose legacy he lays claim.

    Espinosa, the third female to hold the post of defence minister, has previously served as foreign minister and ambassador to the UN. Correa, like many of his peers in Latin America, has presided over the steady militarisation of public security, although this is a particularly sensitive issue in Ecuador given the military’s crucial role in supporting him during the September 2010 police mutiny.

    Lorena Escudero, one of the two previous female defence ministers, takes over the reins of the migration ministry (Senami), a position she has previously held. Betty Tola takes over once more as minister for policy coordination, a position from which she unexpectedly resigned for personal reasons in August. She replaces Soledad Buendía who is seeking a congressional seat for the AP. Lorena Tapia picks up the environment portfolio from Marcela Aguinaga, while Rafael Poveda becomes the new minister of strategic sectors.

    Poveda replaces Jorge Glas, who was selected last month by the AP to run for Vice-President alongside Correa instead of the present incumbent Lenín Moreno.

• Tax

From 30 November all money transfers into Ecuador had to pass through the country’s central bank (BCE) before reaching their final destination. The aim of the measure is to control remittances and crack down on tax evasion.

• Correa honoured

President Rafael Correa courted controversy during a visit to Buenos Aires this week to receive the Rodolfo Walsh prize for defending free speech in Ecuador. Correa is one of the most steadfast critics of the private media in Latin America, which he describes as a bigger threat to freedom of expression than state controlled media. However, his most controversial comment during the visit was unrelated to the media. When asked about the 1994 bombing of the AMIA Jewish Center in Buenos Aires, in which 85 people were killed, Correa replied: “I am familiar with the case, which is a very painful part of Argentina’s history. But look at how many died in the NATO bombings of Libya. If we compare these two events, we can see where the true danger lies.”

PERU | Camisea royalties. On 10 June the Camisea gas consortium, comprised of six foreign firms (Spain’s Repsol, Argentina’s Pluspetrol and Tecpetrol, the US’s Hunt Oil, South Korea’s SK Energy, and Algeria’s Sonatrach) that operates the vast Camisea gas fields in central Peru, revealed that in the first five months of the year the Peruvian State received US$582.9m in royalties from the sale of natural gas.

A Camisea consortium statement explained that half of the royalties are paid to the central government and half to the Cusco regional government, which is in charge of distributing the funds to the local municipalities adjacent to the gas field. The statement added that since extraction of gas began at the Camisea site, which has some 8.7 trillion cubic feet of proven gas reserves (making it one of the largest natural gas reserves in Latin America), in 2004 the project has generated US$5.47bn in royalties for the Peruvian State.

The majority of the gas produced at Camisea is destined for export markets, an issue that has always been sensitive in Peru as it means that natural gas supplies for the domestic market are limited, driving up the price. After assuming office in 2011, President Ollanta Humala promised that he would make sure that the Peruvian people obtain more benefits from the exploitation of the Camisea fields. He announced that the government would be renegotiating the terms of the contract with the Camisea consortium, including the renegotiation of royalty levels in order to secure a larger proportion of natural gas supplies for the domestic market.

These renegotiations produced results in April last year when the government announced that it had recovered Camisea Lot 88, the largest bloc currently in production, entirely for domestic consumption. In this context, the Camisea consortium announcement will be carefully scrutinised by many in Peru as the country continues to consider whether it is getting its fair share of benefits from Camisea.

ECUADOR | Kinross pulls out. On 10 June Canadian mining firm, Kinross Gold, formally notified the government of President Rafael Correa that it was cancelling its US$1.2bn Fruta del Norte (FDN) gold mining project after failing to agree on contract terms with the government.

The announcement is a blow for President Correa, who in recent years has sought to develop Ecuador’s mining sector arguing that the exploitation of the country’s mining riches would help to drive Ecuador’s economic development. The FDN project, which is believed to contain 6.8m ounces of gold valued at US$10bn, is an important part of Correa’s development plans. In fact after winning re-election in February, Correa said he hoped to seal a deal over FDN this year. However, since first taking office in 2007, Correa has adopted various measures that have negatively affected Ecuador’s business environment deterring foreign investment particularly in the extractive sector.

Kinross’ decision shows that foreign investors continue to face significant challenges in Ecuador. Ever since the firm acquired the concession from Aurelian Resources in 2008, Kinross has sought to secure government guarantees for the project. In particular, Kinross requested an extension of the economic evaluation period for the project, which is set to expire in August at which point the firm would have to present a formal development plan or risk having the concession revert to the State. In addition the firm also tried to agree on a taxation scheme. Yet last year the then non-renewable resources minister, Wilson Pástor, said that the firm’s demands were “exaggerated”. In May Correa’s legal adviser, Alexis Mera, said that if Kinross did not like the current terms, “they can leave”.

Pointedly, Kinross’ announcement came as Ecuador’s national assembly is debating a new ‘mining and equitable tax reform’ bill that seeks to promote private investment in the mining sector by establishing a new framework for private sector concessions; but it also proposes a windfall tax of 70% on mining profits. A Kinross statement said that the company had decided not to pursue the FDN project after “failing to reach an agreement regarding certain fundamental economic and legal aspects, that would balance the interests of all those involved”. The statement added that the firm now hopes to work with the Ecuadorean government to “ensure the orderly transition of the project, so as to respect both parties’ interests”. Previously the Quito government rejected Kinross’ proposals to sell the concession on to a third party or find partners to help it develop FDN.

• Colombia-Israel FTA

On 10 June Colombia’s President Juan Manuel Santos announced the signing of a free trade agreement (FTA) with Israel after 15 months of negotiations. The agreement was signed during a ceremony at the official residency of Israel’s President Shimon Peres, during Santos’ visit to Jerusalem as part of a Middle East tour. As well as boosting the amount of bilateral trade, which currently totals US$680m, the Colombian government is hoping to diversify exports by increasing bilateral cooperation in areas such as agriculture, defence and information technology. Colombia’s exports to Israel are mainly coffee, coal and flowers, while Israel sells high-end manufactured products. The FTA agreement must now be ratified by both countries’ legislatures before it can go into effect (tentatively) by next year.

CHILE | ‘Solidarity pensions’ increased. On 28 November Chile’s President Michelle Bachelet promulgated into law a bill that increases the basic state pension payouts by 10% from January 2017. Flanked by her social development minister, Marcos Barraza, and her new labour & social security minister, Alejandra Krauss, Bachelet said that this was part of her government’s plan to introduce a pension reform, considered to be critical given that people in Chile are now living longer than ever before.

Bachelet said that the increase in this so-called ‘solidarity pension’ from Cl$93,543 (US$138.24) to Cl$10,897 (US$178.80) a month would help to improve the welfare of the 1.35m beneficiaries of these pensions. Noting that these pensions are exclusively funded by the central government and not by the national public-private pensions system, Bachelet said that these would come at a cost of Cl$135bn (US$200.68m). However, she justified this saying that ensuring that people live out their old age “with dignity” was a priority for her government. She also noted that the new law also sets 10% as the base for all pension payouts for all beneficiaries of the national pension system. Bachelet said that in this way all pensioners would benefit from the measure. However, this does not address the demands by civil-society groups who have been demonstrating since August calling for an end to the public-private pension system on the grounds that the payouts that they receive from the private pension administrators (AFP) are too low.

PARAGUAY | Minimum wage increase. On 29 November Paraguay’s President Horacio Cartes signed into law a bill establishing an automatic mechanism to increase the national minimum wage in line with inflation unless this is abnormally high (10% or more). Until now the government was not obliged to increase the minimum wage unless the inflation rate reached 10% or more. In a statement, the labour ministry said the minimum wage would be adjusted by the inflation rate every year in June. The minimum wage will increase by 7.7% to G$1.96m (US$336.10) from 1 December to reflect the increase in the cost of living since it was last increased in 2014.

The United Nations (UN) COP25 climate talks taking place under Chile’s leadership in Madrid, Spain, concluded with a two-day delay on 15 December. The failure, despite the extension, of the countries in attendance to reach a consensus on ambitious climate action was branded “disappointing” by UN Secretary General António Guterres. Such a sense of disappointment also prevailed amongst representatives from both the Brazilian government and civil society, although not for the same reasons.

The COP25 laid bare the chasm between the narrative on the environment favoured by Brazil’s President Jair Bolsonaro and those close to him, and the reality of climate change which most governments worldwide have at least nominally agreed to address. With representatives from Brazilian civil society and indigenous peoples denouncing the Bolsonaro government’s anti-environmental policy on the one hand, and Environment Minister Ricardo Salles arguing that Brazil is not an environmental ‘bad guy’ on the other, the country presented two very different sides at the fortnight-long talks in Madrid.

“COP25 came to nothing,” Environment Minister Salles tweeted on 15 December, after the negotiations had finally come to a close. Salles had been seeking financial commitments from wealthy nations to support Brazil’s environmental protection efforts, and he was particularly critical of developed nations’ “protectionism and hypocrisy” following the failed attempt to reach an agreement on the regulation of international carbon markets. 

In contrast, representatives from Brazilian civil society as well as seasoned international diplomats who have served as ministers in past administrations lamented that their country had become an obstacle in the negotiations, thwarting rather than advancing efforts to reach ambitious agreements. 

“They [the current Brazilian government] came to the COP to hinder much more than to contribute,” Marina Silva, a former environment minister (2003-2008), told El País Brasil in an interview published on 15 December. She described Brazil’s attitude in the negotiations as “mercenary”, as it presented its efforts to curb emissions and deforestation as conditional to receiving financial compensation from developed nations. 

The Brazilian delegation, a respected player in previous COPs, reportedly conducted negotiations this year in a confused and aggressive way. Representatives from civil society organisations were unable to obtain accreditation as part of the government delegation, as was the case in the past; yet Salles delivered his main speech on 10 December from the civil-society-managed ‘Brazil Climate Action Hub’ as Brazil had chosen not to have an official government booth in the pavilion of nations.

The COP’s discouraging outcome was not down to the Brazilian government’s feet-dragging alone, although the country was described as a “climate pariah” by the Climate Action Network civil society group, which presented Brazil with its symbolic ‘Colossal Fossil’ award. But many in Brazil, including former foreign minister Celso Amorim (1993-1994; 2004-2010) and former environment minister Rubens Ricupero (1993-1994) believe that Brazil’s credibility and agency in international negotiations have been severely damaged by its attitude at the COP25.

Despite continued indications that questions of climate action and indigenous rights are becoming increasingly important on the international stage, and that problems in these areas persist in Brazil, the Bolsonaro administration shows no sign of shifting its position, as it has on other issues such as foreign policy towards China. “It’s a commercial game,” Bolsonaro said of international pressure to do more on climate change. Salles, meanwhile, poked fun at environmentalism on Twitter. “To compensate our COP emissions, a veggie lunch!” he captioned a picture of a large platter of red meat.   

• More warnings

Brazil has seen a recent flurry of reminders of its failure to protect the environment and those who defend it. On 13 December, the Instituto Nacional de Pesquisas Espaciais (Inpe) released data from its real-time deforestation alert system (Deter), which shows that deforestation warnings increased by 103.7% in November, compared with November last year, to 573.03km². On 14 December, NGO Amnesty International (AI) condemned the escalation of violence against Brazil’s indigenous people and the government’s failure to contain it, after yet another indigenous member of the Guajajara tribe was found dead in the state of Maranhão, the fourth to be murdered in under two months [WR-19-49].

PERU | Bonds issue. On 24 November, the Peruvian government successfully issued US$4bn worth of US dollar-denominated bonds in three tranches: US$1bn of 12-year bonds maturing in 2032, US$2bn maturing in 2060, and US$1bn of a rare century bond, maturing in 2121 – the first time that Peru has issued such a long bond. The economy & finance ministry stated that the debt will be used to finance the government’s response to the coronavirus (Covid-19) pandemic, and the process of economic reactivation. “The bond issues show that investors trust the country’s sound economic policy and government leadership”, said Economy & Finance Minister Waldo Mendoza. The bonds were successfully placed despite the political and social turmoil of the preceding weeks, during which time Peru had three presidents within the space of eight days.

VENEZUELA | Seeking currency stabilisation. On 25 November, Venezuela’s vice president Delcy Rodríguez announced the adoption of various measures aimed at reverting the depreciation of the national currency, the bolívar soberano. The value of the bolívar had depreciated by a sharp 51% since the start of the month, with the official exchange rate, controlled by the central bank (BCV), reaching Bs.782,025/US$1. The value of the bolívar in the local black market fell even lower, with alternative exchange rates at around Bs.960,000/US$1. This depreciation has been attributed to the scarcity of US dollars in the domestic economy, stemming from the international economic sanctions imposed on the government led by Nicolás Maduro. In a series of tweets, Rodríguez announced that to reduce demand for dollars, and to promote the use of bolívares, the government will introduce a new tax on financial transactions carried out in foreign currency; “considerably” increase the current Bs.100m limit on electronic banking transactions and withdrawals at cash points; and allow more entities to act as bureaux de change, to give people “more options to exchange foreign currency for the national currency”.

Andean Countries: Inflation
Monthly year-on-year figures

COSTA RICA | Unemployment dips. On 8 April Costa Rica’s national statistics institute (Inec) released new figures which show that the national unemployment rate for the December 2020-February 2021 rolling quarter was 18.5%. This is a decrease of six percentage points on the previous rolling quarter (November 2020-January 2021) but represents a 6.3 percentage-point increase on the unemployment rate year-on-year, a rise which stems from the impact of the coronavirus (Covid-19) pandemic on Costa Rica’s economy. The figures for the December 2020-February 2021 quarter show that unemployment is higher among women (25.0%) than men (14.1%).

GUATEMALA | Exports up. On 29 April Guatemala’s central bank (Banguat) released a new report which showed that Guatemala’s total exports in the first two months of 2021 amounted to US$2.1bn, up 6.5% on the same period in 2020. According to the Banguat report, the country’s most main exports during the period were cardamom (US$295m), textiles (US$226m), sugar (US$147.6m), bananas (US$136.7m, and coffee (US$102.6m). Guatemala’s main export markets were the US (which accounted for 30.2% of total sales) followed by Central America (28.0%), Europe (7.7%), and Mexico (3.7%). Imports to Guatemala in the first two months totalled US$3.47bn, up 6.2% on the same period in 2021. The main source countries were the US (35.6% of all imports), China (13.9%), Central America (12.5%), and Mexico (10.6%).

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

El Salvador’s President Nayib Bukele launched the fourth phase of his government’s Plan Control Territorial (PCT) security initiative, codenamed ‘Incursion’, this week. The aim of this phase, Bukele said, was to double the size of the armed forces from some 20,000 to 40,000 to move into areas under the control of mara gangs.

President Bukele announced the incorporation of a contingent of 1,046 soldiers to the PCT after 15 weeks of training, with more than 10,000 members of the armed forces now deployed across El Salvador as part of the plan. He said that every 15 weeks the ranks of the armed forces would swell by another 1,000 until it reaches 40,000, which would take “five years to implement totally”. Bukele said the military would not just move into gang-controlled areas but also help support the national police force (PNC), improving security at bus stops and on buses, the frequent target of gang extortion. He announced the new phase of the plan after four people were massacred in the department of Ahuachapán on 15 July.

The rapid increase in the size of the armed forces and the ever-increasing militarisation of public security runs the risk of human rights violations. Bukele’s expansion of the armed forces, and constant championing of the military, has also raised concerns among the political opposition, which is fearful of his intentions given his authoritarian tendencies, as well as human rights organisations that have accused his government and the army of having “blocked investigations [into human rights abuses by the military during the 1980-1992 civil war] by denying access to military archives”. Human rights groups filed a criminal complaint against 25 Salvadorean soldiers and an officer on 16 July, accusing them of murdering four Dutch journalists during the civil war.

COLOMBIA | Unemployment approaches pre-pandemic levels. On 31 May Colombia’s national statistics department (Dane) released the latest employment figures, which showed unemployment falling to levels not seen since the onset of the coronavirus (Covid-19) pandemic. Unemployment in April stood at 11.2% (2.8m people), down 4.3 percentage points year-on-year. Dane’s director, Juan Daniel Oviedo, noted that the number of unemployed was at its lowest since February 2020, one month before the pandemic struck, when 2.7m people were out of work.

PERU | New IMF credit line approved. The International Monetary Fund (IMF) announced on 27 May that it has approved a successor two-year arrangement for Peru under the Flexible Credit Line (FCL), designed for crisis prevention, of about US$5.4bn. According to an IMF statement, Peru qualifies for the FCL by “virtue of its very strong economic fundamentals and institutional policy frameworks, a track record of implementing very strong policies, and commitment to maintaining such policies”. Established in 2009, the FCL allows its recipients to draw on the credit line at any time and is designed “to flexibly address both actual and potential balance of payments needs to help boost market confidence. Drawings under the FCL are not phased nor tied to ex-post conditionality as in regular IMF-supported programmes”, according to the IMF. It adds that this large, upfront access with no ex-post conditionality is justified by the very strong policy fundamentals and institutional policy frameworks and sustained track records of countries that qualify for the FCL. While the IMF notes that Peru meets these criteria, it adds that the “Peruvian economy remains exposed to elevated risks, including from renewed waves of the [coronavirus] Covid-19 pandemic, slowing economic activity in key trade partner countries, the war in Ukraine, tighter global financial conditions, and political uncertainty”.

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

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

*** Russia’s drug problem. In our 31 March issue we reported on possible moves by Russia to talk to the Taleban in Afghanistan. The suggestion, made on 28 March by Russia’s special presidential envoy to Afghanistan, Zamir Kabulov, was motivated by the increase in drug trafficking from Afghanistan. Under the Taleban from 2000-2001, there was a near cessation of poppy-growing in Taleban-controlled areas of Afghanistan.

The latest figures from the Russian Federal Drug Control Service indicate that there are up to 2m-2.5m drug addicts in Russia, or 2% of the population. The service estimates that 126,000 people aged between 15 and 34 die from drugs each year in Russia. Of the 2m-2.5m estimated drug addicts, there are 1.5m users of opiates, essentially heroin from Afghanistan. The life expectancy of those who begin to take heroin is 5-7 years.

*** Militants in North Caucasus. So far in 2011, some 94 militants have been killed in Russia’s North Caucasus Federal District (NCFD). A further 122 militants have been detained since the beginning of 2011. Some 40 law-enforcement and service personnel have also been killed, along with 30 civilians caught in crossfire.

*** France-China: A sign of the times. There has been much speculation that China’s financial help to Eurozone countries facing debt crises, particularly Spain, would have a diplomatic cost for the European Union. In what could be a sign of the times, on 17 April a Catholic mass for Hong Kong’s French-speaking Catholic community to be held on a visiting French frigate in Hong Kong was cancelled.

The official French explanation is that the cancellation was because of security considerations. However, Catholic church sources say that France cancelled the mass because of fears of upsetting Beijing. There has been a major cooling between China and the Vatican recently, and Armed Forces chaplain Father Bertrand Lorentz said that he had received an email saying that the service was being cancelled for “French-Chinese diplomatic reasons connected to the present day”.

*** Russian arms for Chavez. According to Russia’s state arms export monopoly, Rosoboronexport, Venezuela has signed arms contracts worth $11bn with Russia in the past four years, making it the largest buyer of Russian weapons in Latin America.

Although the federal congress is in recess until mid-February, ‘Operation Car Wash’, the official investigation into corruption at the state-owned oil firm Petrobras, rumbles on. On 7 January, the Brazilian daily O Estado de São Paulo published phone conversations and text messages from 2012 to 2014 in which the current cabinet chief, Jaques Wagner, asked for election campaign donations from the now-imprisoned former president of OAS, a major construction firm. This week, both former president Lula da Silva (2003-2011) and President Dilma Rousseff faced accusations of using top posts in BR Distribuidora, a subsidiary of the state oil company Petrobras, as rewards for political support. The fear in the presidential palace is that these accusations, though not criminal, may have some indirect bearing on the impeachment process when it resumes next month.

Wagner is one of President Rousseff’s closest allies. At the time of the exchange of messages with OAS president Leo Pinheiros (recently sentenced to 16 years in prison for corruption), Wagner was governor of Bahia, requesting campaign donations for the left-wing Partido dos Trabalhadores (PT) mayoral candidate for the state capital, Salvador. In return, Pinheiros asked for favours from Wagner, such as asking the transport minister to release funds for projects. Federal prosecutors are now reportedly investigating the material, which was leaked to the press. The justice minister, José Eduardo Cardoso, also ordered an inquiry into the leak, which should have been protected by legal confidentiality.

BR Distribuidora

On 13 January, Attorney General Rodrigo Janot described BR Distribuidora as “a criminal enterprise dedicated principally to diverting public funds to the corruption of public officials and money-laundering”. Janot’s declaration was part of the charges he has filed against Vander Loubet, a federal deputy from the PT. Although Lula has not been charged in the case, Janot’s document describes the former president as using BR Distribuidora “in exchange for political support in the federal congress”.

Testimony from Nestor Cerveró, the former director of international services at Petrobras, accused Rousseff of much the same thing. In his statement to prosecutors he said that Rousseff has effectively granted former president Fernando Collor, who resigned while facing impeachment for corruption in 1992 and now a senator, control over the distribution of jobs at the company, in return for his political support. Sources from the presidential palace told the media that Cerveró’s testimony was a selective “interpretation” and “exaggeration” of her conversations with Collor.

Blame on FHC

There is increasing concern within the president’s camp, however, that the selective leaking of information in ‘Operation Car Wash’ could have a bearing on the impeachment proceedings. As such, Rousseff and her allies would have been slightly cheered by the leaking of further testimony by Cerveró which implicated former president Fernando Henrique Cardoso (1995-2003), from the main opposition Partido da Social Democracia Brasileira (PSDB). The former Petrobras director told investigators that members of Cardoso’s government had taken up to US$100m in bribes from the firm, although he declined to name names. The sheer scale and longevity of the corruption scheme may help Rousseff to avoid accusations of direct responsibility.

• Christmas pardons

On Christmas Eve, President Dilma Rousseff signed a decree establishing a “Christmas Pardon” which could be used to benefit prisoners from the Partido dos Trabalhadores (PT) convicted over the mensalão, the cash-for-votes scandal that damaged the administration of former president Lula da Silva. Last week, the supreme court confirmed it would not decide on the eligibility of these prisoners for the pardon until after the judicial recess ends in mid-February.

For Cuba, 2016 hardly finished on an auspicious note, with the death of Fidel Castro, the looming inauguration of Donald Trump as US president and, in late December, the announcement that the economy had contracted sharply in the second half of the year. This raises significant uncertainty about the outlook for 2017. In President Raúl Castro’s (pledged) last year as president, he may struggle to return the economy to growth and stabilise relations with the US, which could complicate the transition to a new leadership in early 2018.

Cuba’s economic performance was disappointing in 2016. After growing by 4.4% in 2015, driven by a surge in fixed investment and private consumption, GDP slowed sharply. In July 2016, the authorities reported that GDP had risen by just 1% in the first half. In late December, President Castro said that full-year growth had shrunk by 0.9%, implying a contraction of around 2% in the second half. Detailed data are not yet available and Castro was vague about the factors explaining the slowdown, referring loosely to “cash restrictions” and “a reduction in fuel provision”. Reading between the lines, this implies that oil deliveries from Venezuela fell sharply during 2016, on the back of severe economic problems in that economy. The Cuban government, therefore, is likely to have had to source fuel imports from elsewhere, at market prices, which will have hampered the amount of funds available for other government spending.

Given that public consumption accounts for a hefty one-third of GDP – extremely high by international comparison – this knock-on effect highlights the extent to which the national accounts remain vulnerable to external developments. The government has not yet released fiscal data, but it is likely that the deficit topped the 5.8% of GDP shortfall recorded in 2015.

Venezuela and US outlook will be crucial

The economic outlook for 2017 will depend to a large extent on developments in Venezuela, as well as the evolution of US policy towards Cuba. In terms of Venezuela, it is difficult to envisage oil shipments to Cuba returning to previous levels. Not only does the Caracas government have to abide by a new production quota cut, agreed in November 2016 by the Organisation of Petroleum-Exporting Countries (OPEC), but continuing severe domestic foreign currency shortages mean that the Venezuelan government will more urgently need to secure market prices for its dwindling oil exports, rather than subsidising other countries’ consumption. The terms of the ‘oil-for-doctors’ swap between Venezuela and Cuba are extremely hazy, with no data available on the exact amount of oil being sent to Cuba, but nonetheless it is highly likely that shipment levels will continue to slip in 2017. This will constrain Cuban government and also private consumption growth this year, in turn making it difficult for the authorities to meet their GDP growth target of 2%.

Cuba’s economic performance will also be influenced by developments in the US. In late November, president-elect Donald Trump tweeted that “if Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the US as a whole, I will terminate deal”. This has raised speculation that Trump might look to roll back the measures introduced by President Barack Obama, which have essentially eased (although not removed) trade, investment and travel restrictions. Trump has not given any further details of his intended Cuba stance and the fact that most policy hints come via Twitter – which does not give scope for detail – means that much remains up in the air.

Risk of roll-back

If the recent détente is rolled back, the short-term impact on the Cuban economy would probably be relatively mild. This is because the measures introduced by Obama have had more symbolic importance than economic, chipping away at the raft of trade and investment restrictions. However, with sanctions still technically in place, many US businesses have remained wary of doing business in Cuba, and bilateral trade has actually fallen over the past two years.

If the measures are rolled back, the number of US tourists would fall, but given that US arrivals still account for only a very small percentage of the island’s overall tourist market, the impact would be minor. It is possible, however, that tourism could be affected indirectly. For example, in the event that Trump tightened up US travel restrictions again, the recent surge in non-US tourists keen to visit Cuba before it opens up entirely to the US market might wane a little. With services accounting for a growing share of the Cuban economy, this would hamper GDP growth and increase the current-account deficit, albeit not dramatically.

The medium- to long-term impact of a roll back of the Obama measures would be greater. Prior to the November US election, there was a growing consensus that the US economic embargo on Cuba would be lifted entirely, reflecting growing pressure from US businesses and a shift in broad US public sentiment. Estimates suggested that this could boost Cuba’s GDP growth significantly, possibly to 5-6% per year, amid a stimulus to external trade, fixed investment and private consumption. However, on the assumption that this possibility is all but discounted with Trump’s election, Cuba’s potential GDP growth outlook in the medium term may be lower.

Much will depend on the foreign-policy team appointed by the Trump administration. In early January, the US State Department confirmed that Trump had asked all politically-appointed US ambassadors to leave their posts before his 20 January inauguration. This is contrary to usual practice, which typically allows these a grace period to wrap up their affairs.

Obama’s pick for US ambassador to Cuba, Jeffrey DeLaurentis, currently chief of mission at the newly re-opened embassy (he was appointed chargé d’affaires at the-then US interests section in August 2014), is one of those diplomats likely to have to vacate their posts in the next two weeks. There is no sign of who might replace him as chief of mission, but on the assumption that Trump does not rescind the embassy of its status, the process of nominating and securing congressional support for Trump’s preferred choice for ambassador to Cuba is likely to take several months, with a diplomatic vacuum remaining in the interim. If a hardliner is appointed in DeLarentis’ place, almost inevitably that would bode poorly for Cuban-US relations.

In reality, not only would it be logistically difficult for Trump to reverse the Obama policy changes, given that many US businesses have already adjusted their investment positions with regard to Cuba (for example, airlines have already increased commercial flights to the island), but it is also unclear whether Trump would have the backing of his own Republican Party for a full reversal of the recent opening to Cuba.

As such, rather than completely drawing a red pen through the Obama measures, another scenario is that new Trump administration, under pressure from US business interests, simply leaves things as they are now, making no effort to improve bilateral relations, or to further ease any restrictions.

Treading water

President Raúl Castro has little more than a year left in office, having pledged to step down when his term ends in 2018. In theory, a handover should happen in the first quarter of 2018, with the president selected by a new National Assembly when it first meets after the scheduled February 2018 parliamentary elections. In this context, the challenges facing President Castro during his remaining months in power are diverse. In an ideal world, he would have liked to have boosted the island’s economic performance, setting a firm foundation for the first non-Castro president in Cuba in nearly sixty years. However, this does not seem likely. Instead, GDP growth is likely to remain subdued, dragged down by lower oil shipments from Venezuela, with little impetus from investment, trade or consumption. This will complicate the transition to a new Cuban leader, which in turn could raise political uncertainty.

“This is weakening the state’s capacity to combat crime, drug trafficking, organised crime, and terrorism,” president-elect Sebastián Piñera said this week in reference to the current spat between Chile’s militarised police (Carabineros) and the attorney general’s office (Fiscalía) over the ‘Operación Huracán’ case. The impact of the dispute over alleged tampering of criminal evidence by the Carabineros is such that Piñera has mooted promoting a major reform of the police body once he assumes office on 11 March. In the meantime, the concern is that the case will continue inflaming the Mapuche conflict.

Operación Huracán was a Carabineros operation targeting suspected members of radical indigenous Mapuche groups believed to be responsible for a recent series of arson attacks in Chile’s southern Araucanía area, where the Mapuche lay claim to ancestral lands. Based on intelligence gathered from intercepted electronic conversations (via text and mobile phone messaging services) in September 2017 Carabineros said that they were able to identify, track, and arrest eight individuals suspected of being involved in terrorist activities. However, when prosecutors from the Fiscalía began analysing the evidence provided by Carabineros they found inconsistencies.

Eventually prosecutors determined that some of the evidence had been tampered with. In particular, they determined that some of the message exchanges presented as evidence had been planted in the devices seized by the Carabineros. The Carabineros rejected any suggestion that its officers had tampered with the evidence. Nonetheless, the Fiscalía decided to drop the case against the Mapuche, a decision which was formalised by a judge on 9 February, resulting in the release of the detained Mapuche. The Fiscalía also announced the opening of an investigation into the Carabineros for the manipulation of evidence. This has not gone down well with the Carabineros, which refused to collaborate with the Fiscalía investigation.

Meanwhile, increasing the pressure on the Carabineros, lawyers for the suspected Mapuche filed a lawsuit against them for falsifying evidence and trying to frame their clients. Significantly, the lawyers have also called for the investigations into the case to be conducted by the civilian investigations police (PDI) to ensure their impartiality; and also for the PDI to look into whether evidence recently used to convict any other Mapuche community leaders had been manipulated.

On the other hand, the interior ministry has announced its intention to appeal the decision to drop the case against the Mapuche on procedural grounds, arguing that the Fiscalía’s decision had been too hasty. Amid this growing institutional crisis, Piñera has sought to provide reassurances that, once installed, his government will seek to address this head on.

In an 11 February interview, Piñera said that, in light of the crisis, “it is fundamental not to leave victims [of crimes] defenceless and criminals unpunished”. Piñera said that his incoming government would seek to reform Chile’s police forces and anti-terrorism legislation, which is often used to prosecute the crimes carried out by radical Mapuche groups.

“In this way we will seek to establish a true strategic alliance between the government, the police, prosecutors, judges, and citizens to better combat terrorism,” Piñera said. He added that this would involve reforming the intelligence units of police forces to ensure “better coordination between prosecutors, police and judges”.

• Larraín chimes in

After President-elect Sebastián Piñera’s vow to reform Chile’s police forces and improve the gathering and use of intelligence to help prevent and solve crimes, his designated justice minister, Hernán Larraín, chimed in saying that there is a lot of room for improvement. Speaking in a 12 February interview, Larraín stated that “I think that intelligence gathering in Chile is poor, [in particular] intelligence that allows for the anticipation of events seems to be non-existent and we have had this situation for years in the Araucanía area”. Larraín added that the ‘Operación Huracán’ scandal exposed “failures in the functioning of the police, the attorney general’s office…the entire system”.

Peru’s President Dina Boluarte reshuffled her ministerial cabinet on 13 February, replacing four key ministers including economy & finance minister Álex Contreras. The others who were fired in the reshuffle were the ministers for defence, energy & mining, and the environment. It seems unlikely that these changes will lead to an improvement in the government’s dismally low approval ratings, which risk sinking even further amid a gloomy economic outlook.

President Boluarte has sought to avoid the churn that characterised the government of her predecessor, Pedro Castillo (2021-2022), under whom she served as vice president. Whereas Castillo rattled through over 80 cabinet ministers during his 18 months in office, this was Boluarte’s third reshuffle since taking office in December 2022 – not exactly a sign of government stability, but an improvement nonetheless. But whilst she may have steadied the ship somewhat in comparison with the chaos of Castillo’s presidency, her government remains incredibly unpopular; in an 11 January analysis by the US think tank Americas Society/Council of the Americas (AS/COA), Boluarte was the least popular leader out of 16 countries surveyed in Latin America, with an approval rating of just 9%.

The latest reshuffle is unlikely to shift those figures, but it does enable Boluarte to argue that she is taking the initiative in the face of a stagnant economy and growing concerns about the power of organised crime. Before his replacement as finance minister, Contreras was under mounting pressure over the direction of the country’s economy, and he was facing an impeachment vote in congress once legislators return from their recess in March. Peru entered a recession after negative growth in the first two quarters of last year and has yet to recover despite congress approving a stimulus of nearly PEN5bn (US$1.3bn) in October.

Contreras’ replacement, José Arista Arbildo, is returning to a position that he previously held for just five days during the extremely brief presidency of Manuel Merino (2020). Prior to that, he served as agriculture minister for three months under former president Pedro Pablo Kuczynski (2016-2018). He was also governor of Amazonas region from 2011-2014.

Energising Peru’s all-important mining sector will be vital to getting the economy firing on all cylinders. There was good news on this front last week with the mining & energy ministry announcing that copper production in 2023 was up by 12.7% year-on-year, reaching a record total of 2.7m tonnes. Rómulo Mucho Mamani, who replaced Óscar Vera as mining & energy minister, will be under pressure to sustain this growth and avoid a resurgence of disruptive anti-mining protests, which severely impacted copper mining under Castillo but which have largely quietened down since early 2023.

The replacement of Jorge Chávez as defence minister indicated that Boluarte plans to continue her shakeup of security policy, which has seen the government take an increasingly militarised response to organised crime. This trend has intensified since last month’s gang uprising in Ecuador, with Boluarte declaring a state of emergency along Peru’s borders with Ecuador and Colombia which has seen troops deployed to prevent a possible crime spillover. On 12 February the north-western provinces of Trujillo and Pataz, in La Libertad region, became the latest to be placed under emergency security measures. The 60-day state of emergency will see the military step in to assist with policing in the two provinces. Military operations in Trujillo will focus on homicides and robberies, while those in Pataz will be targeted at illegal mining and associated crimes, such as sex trafficking and weapons smuggling.

Finally, the new environment minister, Juan Carlos Castro Vargas, who has replaced Albina Ruiz, can expect intensified scrutiny in light of a ‘Forests Law’ passed by Peru’s congress on 10 January, which loosens restrictions on deforestation for agriculture. The bill has not yet been promulgated by Boluarte, with Prime Minister Alberto Otárola saying that the government is considering its response. However, barring a dramatic change of course from Boluarte, the bill is likely to be signed into law; since taking office, the president has repeatedly bent to the will of the right-wing parties which control congress and allow her to remain in office, and which were the most vocal proponents of the forests bill.

Top prosecutor rails against Keiko Fujimori

The lead investigator in Peru’s Lava Jato corruption investigation, José Pérez, has launched a broadside against Keiko Fujimori, the three-time presidential candidate and leader of the right-wing Fuerza Popular (FP), into whom he is directing a money-laundering investigation. Pérez accused Fujimori of “taking control” of the attorney general’s office. He said that prosecutors are “scared of taking actions which could harm the interests of the person who took control of the attorney general’s office during the leadership of [suspended attorney general] Patricia Benavides – I’m referring to Keiko Fujimori and the party of the accused, Fuerza Popular”.