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Minimum wage increase: At the end of 2011, Colom decreed a minimum wage increase of 5.73% (and 6.75% for those working in the textiles sector), bringing the daily minimum wage to Q$62.5 (US$7.95) and Q$68(US$8.65) respectively. The rise, which Colom said was in line with inflation (which closed at 6.2% in 2011), was slammed as “miserable” by unionists such as José Pinzón of the national Central General de Trabajadores de Guatemala (CGTG) given that more than 53% of Guatemala's 14.3m inhabitants live in poverty and 13% in extreme poverty.

Inflation: According to the national statistics institute (INE), the cost of a basic food basket reached Q$2,440 (US$310) in December 2011, an increase of Q$291(US$37) on the same month the previous year. According to local economists, factors driving up food costs include the effects of climate change, which have had a negative impact on harvests, and high transport costs caused by the poor state of infrastructure.

Colombia: Body parts in Bogotá

In recent years the Tren de Aragua has grown rapidly across South America. One of the most important opportunities for expansion has been Colombia, its immediate western neighbour. The two counties share a porous, 2,200 km-long border, and because of the Venezuelan crisis nearly 3m Venezuelan expatriates now live in Colombia. The Tren de Aragua began its local activities charging tolls for those wishing to cross the border through the informal pathways or trochas. The rate was set at US$10 per crossing and US$125 for passenger buses. TdA cells were also established in several Colombian border towns with the Tren beginning to branch out, taking a share in other smuggling and people trafficking businesses.

The TdA stepped up its presence in various townships in Norte de Santander department, such as its capital Cúcuta, La Parada, and the municipality of Villa del Rosario. Until 2022 the Simón Bolívar International Bridge, the main legal crossing point in the area, was closed, in effect forcing cross-border travellers to follow the illegal TdA pathways and pay the crossing fee. The organisation moved beyond charging cross-border travellers to demanding protection money from small businesses and running prostitution and retail drug sales (known as narcomenudeo).

There have also been signs of fragmentation. The AK-47 gang, originally part of Tren de Aragua, became independent at the local level, and has been linked to around 50 murders in Cúcuta. Attempts by the Tren to gain control of illicit business in the Colombian department of Arauca were largely fended off by the ELN, the Colombian guerrilla movement which dominates the border area.  

The TdA also sought to muscle in on the capital, Bogotá, with mixed results. In 2022 and subsequent years dismembered corpses wrapped in black plastic rubbish bags began appearing in public places in the capital in neighbourhoods such as Kennedy, Bosa, and Los Mártires. The gruesome discoveries were seen as a public warning from the Tren that rival criminal groups should stand down. According to the Bogotá secretary for security Aníbal Fernández: “The Tren de Aragua organisation is the main group responsible for homicides in which bodies have left in bags in public spaces in several areas of the city.” Yet, it has been difficult for the Tren to expand to other Bogotá neighbourhoods where incumbent gangs are refusing to cede control. The same is true of Medellín, Colombia’s second largest city, where a local group, the Oficina de Envigado, remains dominant.

Peru: beware the junior partners

The Tren’s arrival in Peru, around 2018, was similar in various respects to what happened in Colombia. The cartel initially focused on exploiting the Venezuelan diaspora in the country, which more than tripled to 1.5m by mid-2023. Its initial focus was on extorting sex workers and offering Venezuelan women and girls jobs as restaurant waitresses – a way of tricking them into debt bondage and prostitution. Other Venezuelan migrants were also targeted for extortion.

Where local Peruvian crime groups were established the Tren adopted a policy of infiltration, offering their services as non-threatening junior partners in various criminal enterprises. This however was a trick, with the new arrivals quickly pivoting into a hyper-violent takeover. As in Bogotá, dismembered body parts in rubbish bags began appearing in public places as a macabre warning to existing gangs. The Tren also circulated videos of rival gang members being tortured and murdered.

In Peru, as in Colombia, the Tren found itself unable to push aside some long-standing indigenous criminal structures. So, for example, it was unable to dislodge the Tota family in San Miguel, or to penetrate the city and port of Callao, a key drug trafficking hub. Perhaps more so than in Colombia, various Tren de Aragua splinter groups have emerged. Police say there are at least four main factions: the Gallegos, the Hijos de Dios, Dinastía Alayón, and PHS. There are also a few smaller breakaway groups, sometimes being characterised as anti-Tren. One is Carro Azul, which has challenged the Gallegos. Factions normally have a degree of autonomy in their territories and business lines, but the fragmentation may also reflect something of a leadership vacuum since the Venezuelan government’s raid on Tocorón prison in 2023.

Crime and security have become major issues in Peruvian politics and are likely to remain an important theme in next year’s general election. Data from lobby group Ojo Público indicates 219 individuals linked to the Tren de Aragua were arrested between 2015 and October 2023, with large-scale arrests continuing in 2024 and 2025. In June 2024, 17,000 police were involved in a nationwide sweep which reportedly led to the arrest of 520 suspected Tren de Aragua suspects. As in other countries, it is at times difficult to discern clear trends. In February this year for example, police general Aldo Ávila Novoa said the Tren was “completely broken up”. This contrasts with last year’s statement by the then prime minister, Gustavo Adrianzén, that the Tren de Argua is Peru’s “enemy number one”.

Chile: land of criminal opportunity

Many of the factors that helped the expansion of the Tren de Aragua in Colombia and Peru were also present in Chile. They include a large Venezuelan diaspora, many of whom entered the country illegally through the northern border with Bolivia and settled in nearby towns. As in the other two countries the Tren’s first victims were Venezuelan migrants who were forced into prostitution, while other low-income migrants were extorted or subject to loansharking. Interestingly the Tren was less attracted to retail drug sales or trafficking, showing little interest in the country’s ports. There were also some important differences with Peru and Colombia.

First, many Chilean territories and business lines were unexploited by local criminal groups, creating opportunities for the Tren to move in relatively easily. Second, Chile is a comparatively wealthy country, with a high GDP per capita. This means that the proceeds of crime are higher than otherwise would be the case. Third, and of great importance, is that Chile is one of the most peaceful countries in the region, as measured by the homicide rate. This can be seen as both an advantage and a problem. It is an advantage because Chile has a history of stability, efficiently organised law enforcement, and a well-resourced criminal justice system, which should enable it to move forward in the fight against crime. But it is also a problem because Chile is unaccustomed to the extremely high levels of violence employed by the Tren. It therefore has to react and reorganise amid intense political scrutiny (general elections are due this November).

It is known that Larry Álvarez Núñez, aka Larry Changa, a Venezuelan national and former inmate of Tocorón prison, arrived in Chile in 2018 and adopted an extremely low profile running a food truck business in central Santiago selling arepas (a corn-based flatbread popular in Venezuela). With the benefit of hindsight, it appears he was assessing the ‘lie of the land’ for the TdA to gain a foothold on the way to seizing the Chilean market. By the time Chilean police had realised he was not just a street food seller, but a major cartel kingpin, Changa had moved on to Colombia, where he was arrested in 2024. He is facing extradition to Chile.

Changa is thought to have set up the first TdA cell in Chile, in the northern region of Tarapacá, based in the city of Iquique and taking charge of the border crossing business. Another cell was set up in Arica, close to Chile’s border with Peru. Run by Los Gallegos, a TdA faction based in Peru, it developed integrated crime schemes, trafficking women into prostitution while at the same time organising smuggling and extorting family members. In Arica this cell took ruthless control of Cerro Chuño, a temporary tent-city settlement of some 3,000 migrants. Those who resisted its leadership were forced to leave at gunpoint.

As in the neighbouring countries, in Chile the TdA has also suffered from fragmentation and factionalism. Tren del Coro, a splinter group, broke off from Los Gallegos in 2022, sparking a war which elevated Arica to become Chile’s murder capital that year. Both factions remain present and inter-gang rivalry is reportedly once more raising crime levels in the city. In Chile the TdA has developed new criminal techniques, such as extortive kidnapping where victims who fail to pay protection money then get abducted and made to hand over larger quantities of cash or valuables. The organisation is also innovating - police say they have identified one cell which used shell companies and crypto currencies to send US$13.5m abroad for the purpose of money laundering.      

Foreign cooperation: On 2 April Nicaragua’s Central Bank (BCN) released its report on foreign cooperation in 2011, which revealed that cooperation from Venezuela (which remains outside the State budget) reached US$609m, up 14% from the US$533m received in 2010. According to the report: US$557.4m was via petrol cooperation through Albanisa (the bi-national state oil company set up in 2007, 51% of which is owned by Venezuela's Petróleos de Venezuela (Pdvsa) and the remainder by Nicaragua's Petronic); US$6.7m in bilateral cooperation; and US$45m through foreign direct investment (FDI).  This signifies a change from the previous year, when US$337m came from petrol funds, US$163m via bilateral cooperation and US$11m in FDI. Overall, foreign cooperation totalled US$1.4bn in 2011, up 4.7% from the previous year. Of this, 76.9% corresponded to loans and the rest to donations.

FDI: At the end of March, Nicaragua’s official investment promotion agency, Pronicaragua, revealed that foreign direct investment (FDI) reached US$967.9m during 2011, up 91% on 2010 and a new record for the country. According to Pronicaragua, FDI received in 2011 went mainly on the energy, telecommunications and free zones sectors, which together accounted for 52% of total FDI. Highlighting that Nicaragua attracted a total of 284 foreign investment projects in 2011, up 57% on 2010, the promotion agency also pointed out that the origin of FDI has diversified slightly, growing from 38 countries in 2010 to 41 in 2011.

Some sources are increasingly convinced that Washington is preparing airstrikes against selected targets in the Islamic Republic, particularly after the decision was made to list Tehran’s elite Sepah-e Pasdaran (Islamic Revolutionary Guard Corps or IRCG) as a ‘terrorist organisation’. Our own assessment is that this would be a grave error as there remain good reasons to believe that the consequences of such a policy would be to put Coalition forces in Iraq in even greater jeopardy, while also bolstering the position of the Iranian ultra-hardliners led by President Mahmoud Ahmadinejad and risking a potentially disastrous impact on global oil prices.

The following are our reasons for this assessment:

- Ahmadinejad is currently facing rising criticism and discontent at home, but a US (or Israeli) attack is likely to result in a majority of Iranians rallying round the country’s leadership, thus strengthening the ultra-hardliners

- Pragmatists, presently gathered around former president Ali Akbar Hashemi Rafsanjani, will be forced to throw their weight behind Ahmadinejad

- Following a military strike against Iranian targets, what remains of the Iranian movement for moderate reform is likely to be silenced and Iranians with real or perceived links to the West will be placed at serious risk

- Many Iraqi Shia would see an attack on Iran as an attack against their co-religionists, boosting support for militant factions within Iraq and increasing the level of threat to Coalition forces

- Iran may retaliate by providing Shia militants in Iraq with far more sophisticated weaponry than is presently available

- Tehran could activate ‘sleeper’ cells across the world to target US interests worldwide, thus opening a new front in global terrorism

- There would be a risk of a major impact on the global oil market, particularly if Iran halted or restricted exports or blocked access to and from the Gulf

As we have pointed out in our recent analysis, Ahmadinejad’s position is far from secure (see SIR 9 August). Domestic unrest and rising discontent over economic mismanagement are presenting a significant challenge to his regime. Moreover, he is in danger of losing ground to pragmatic conservatives such as his key rival Rafsanjani.

Amid the current controversy over fuel rationing, Iran’s gathering internal crisis was highlighted earlier this week by the country’s recently sacked oil minister, Kazem Vaziri-Hamaneh, who warned that "I am ready to prove that if the fuel situation continues along current trends we will face an energy crisis in the future…The current pattern of consumption is a disaster for the country."

It is clear to see that Ahmadinejad’s domestic policies are in deep trouble. However, that could all easily change if Iran comes under military attack from the US or, much less likely, from Israel. Confronted by a belligerent external enemy, Iranians can be expected to rally round an administration that will not hesitate to play the nationalist card. Moderates who favour dialogue and improved relations with the West will be silenced amid the inevitable patriotic frenzy.

Although there are some voices within the White House who appear to believe that the Islamic Republic will totter and fall if elite units such as the IRGC come under attack, few experienced regional analysts share this view. Pointing to the popular Iranian reaction to the Iraqi attack in September 1980 which triggered the eight-year Iran-Iraq War, they warn that a US air campaign would not dislodge Ahmadinejad.

And unlike Iraq before the ill-fated US-led invasion in 2003, Tehran does have a substantial arsenal which includes biological, chemical, and, in all likelihood, some form of radiological weapons. The IRCG may appear to some Washington hawks as a tempting target in terms of payback for alleged interference in the Iraqi insurgency, but the Islamic Republic has teeth and can be expected to bite back. At the lowest level, this might involve providing more sophisticated weaponry to Shia militants operating on the ground in Iraq.

One of the key charges laid against the IRCG by the US administration is the alleged supply of improvised explosive devices (IEDs) – including some which have the capacity to strike tanks – to Iraqi insurgents. Last week, a US commander in Iraq, Maj-Gen Rick Lynch, claimed in media interviews that a unit of 50 IRCG personnel are active inside the country providing training for Shia militia members. However, when pressed, Lynch conceded that no Iranians had yet been captured in the region for which he has responsibility. He also acknowledged that some Iranian weapons may be entering Iraq via the blackmarket.

Hard evidence of direct Iranian involvement appears hard to come by. And even if Tehran is supplying low-level weaponry there can be no doubt that Ahmadinejad’s regime – which is dominated by former IRCG personnel – could opt to provide a far greater range of military hardware, including much more sophisticated surface-to-air missiles, should it choose to do so.

Moreover, the IRCG is a multi-faceted force – believed to have a strength of around 125,000 – of whom an estimated 5,000 are trained to be deployed on ‘unconventional’ missions at home and abroad, including the Al-Quds Brigade which supports Hamas and Hezbollah. In theory, these elite, ideologically committed forces could be unleashed across the region and beyond with a brief to strike against the interests of the US and its allies. There are also believed to be a number of Iranian ‘sleeper cells’ located around the world which could be activated with similar objectives. Against this background, it can be seen that military action against Iran would not be a low-risk strategy

There are also wider geopolitical issues, and it is far from certain that Washington would be able to carry any of its key regional allies should it opt to launch an air campaign against Iran. As US analyst Anthony H Cordesman of the Center for Strategic and International Studies observed in a recent article in The New York Times: "Washington cannot — and should not — try to bring security to the Gulf without allies, and Saudi Arabia is the only meaningful military power there that can help deter and contain a steadily more aggressive Iran."

Whatever Riyahd’s concerns over the growth of Iranian regional influence and the threat posed by the so-called ‘Shia Crescent’ there appears to be little or no appetite in the Kingdom for any expansion of US military activity across the Gulf. Indeed, as we have pointed out to subscribers, one of the key concerns across the Islamic world is escalating tensions between Sunni Muslims and Shias. Any hint of approval or collusion in a US strike against Iranian targets from the Saudis would inevitably fuel those flames of sectarian division (see SIR 2 August).

And then there is the wider economic impact of an attack to consider. According to figures provided by the Iran National Oil Company (NIOC) the country produces between 3.5m and 4m barrels of crude oil per day. Disrupting this supply could be expected to lead to rocketing international prices with a knock-on economic impact across the industrialised world.

Tehran also has the strategic muscle to close, or at least severely restrict shipping in the Gulf as the so-called "Tanker War" during the Iran-Iraq War demonstrated. It is estimated that around 546 vessels were damaged in these waters during the conflict in the 1980s, and there is no evidence to suggest that the Iranian leadership is not capable of taking similar action again. Since around 40% of the world’s crude oil shipments pass through the Straits of Hormuz, this is not a threat to be taken lightly.

Iran is well aware of its strategic advantage. Back in March 2005, Iranian Expediency Council secretary Mohsen Rezai – himself a former IRCG commander – warned that "An attack on Iran will be tantamount to endangering Saudi Arabia, Kuwait, and – in a word – the entire Middle East oil."

Another stark warning was given last week when Major-Gen Yahya Rahim Safavi, commander-in-chief of the IRGC, asserted that "Our coast-to-sea missile systems can now reach the length and breadth of the Gulf and the Sea of Oman and no warships can pass in the Gulf without being in range of our coast-to-sea missiles." Even if US strikes succeed in degrading some of these offensive capabilities, Iran’s ability to cause havoc for international shipping will remain one of Tehran’s principal weapons against its enemies.

There is still room to hope that Washington’s increasingly hardline stance towards the IRCG is merely a tactic designed to increase pressure on Tehran, rather than a precursor to some form of direct military action. However, if not, the potential consequences could prove extremely far-reaching. Far from discouraging Iranian support for the Shia insurgency in Iraq, we fear that US strikes against targets in Iran would strengthen Ahmadinejad’s grip on power, destabilise the region further, and trigger an international oil crisis. SIR.

On 7 August a new president of Colombia will move in to the Palacio de Nariño, the seat of government, planning to stay for at least the next four years. It will either be right winger Iván Duque (the current favourite) or left-winger Gustavo Petro – the choice is to be decided in a second-round run-off ballot due to be held on 17 June. What type of economy will the next president inherit, and what would the Colombian business community like him to do?

The next president will have to “peddle very hard” to try to cover a big fiscal deficit, says Sergio Clavijo, head of financial lobby group Asociación Nacional de Instituciones Financieras (Anif). For him, the headline story facing Colombia is still how it finds a way to recover from the collapse of international oil prices in 2015-2016. That cost the country an estimated US$25bn in lost revenues and is a major reason why the fiscal deficit is currently running at around 2.5% of GDP. Current finance minister Mauricio Cárdenas insists “the worst is over”. While that may be the case, the new president will face a big challenge: getting GDP growth back up to the 4%-5% average of recent years. In reality, growth averaged 4.5% in the six years to 2015, but slumped to 2.0% in 2016 and to 1.8% last year.

Colombia’s economic growth rate

There are indeed signs that the economy is on the mend. The year-on-year GDP growth rate in Q118 was 2.2%, up from 1.8% in Q417. Performance may have been even better: on 28 May President Juan Carlos Santos said first-quarter growth was really 2.8% because statistics institute DANE had not taken full account of the number of working days. However calculated, growth in the first quarter was helped by retail sales (shops have now absorbed last year’s VAT increase) and professional services. Construction and mining continued weak: however the improvement in international oil prices should inject some dynamism into the mining sector over the coming months. Recent interest rate cuts and low inflation should also play a part.

A return to ‘business as usual’ will be welcome but some look to the next president to do more than just administer a recovery. Alejandro Reyes, economist at BBVA Colombia says the next government should change its “computer chip” and pay much greater attention to the need “to grow through competitiveness and productivity, so that we end up better linked to the global and digital economy”. For that to happen he wants action to reduce labour-sector informality (around 60% of the work force is outside the tax and benefits system). He also wants to see a fall in unemployment (which stood at 9.9% in the quarter to April). President of the Cali Chamber of Commerce Esteban Piedrahita agrees that the biggest challenge for the next government is to achieve GDP growth rates of 4% or higher, as it did during the last oil boom, so as to increase household income and reduce poverty. The problem, as he puts it, is that this time there won’t be a helpful oil boom: Colombia will have to find other, productivity-led ways of growing.

That will mean getting the best value for money out of public investment and, through tax reform, finding a way to reduce the dependence of government income on the ups and downs of the mining sector. The tax burden currently represents only 15% of GDP, one of the lowest levels in Latin America. A number of analysts say one of the biggest issues in public-sector finances is how to manage and contain the cost of the pension system. There are also calls to do more to diversify exports. Here too there are signs of a cyclical up-turn. Javier Díaz, president of exporters’ association Analdex forecasts a significant export surge this year, which could take total value up to US$45bn (which would represent an increase of 19% on the US$30.77bn exported last year).

An upbeat assessment of the tasks facing the next president came from Diálogo a Fondo, a blog published by the IMF in early June, which stated, “After recovering from the large oil shock of 2015-2016 that put a break on high growth, pushed up inflation, and widened the current account deficit, Colombia is at a turning point towards a favourable outlook.” As with the local economists, the IMF also highlighted a long to-do list for the next president. It includes increasing infrastructure investment, reducing red tape, reducing labour market informality, improving education quality and coverage, and lowering barriers to trade.

The business community clearly favours Duque as the more market-friendly of the two remaining contenders in the presidential race. However, his economic policy platform does not elicit unanimous approval, just as Petro’s does not bring forth 100% opposition. Duque proposes a big corporate tax cut, six ‘VAT free’ shopping days a year, and spending cuts equivalent to around 1% of GDP. This would clearly help the cyclical recovery, but will fail to tackle the problem of a low tax base that is highlighted by many economists. On the downside his pledge to review and toughen the terms of the peace settlement with rebel guerrillas could put it at risk, limiting the so-called peace-dividend for the economy. Petro, on the other hand, has spoken of moving away from an “extractive economy” to one more focused on renewable energy and production: yet many of those in the business community who agree with the need for diversification have doubts over the fiscal impact of the left-wing candidate’s plans to expand public sector spending.

Colombia joins OECD

Colombian President Juan Manuel Santos said he had received a telephone call on 25 May (two days before the first round of the presidential elections) to say Colombia had been admitted to the Organisation for Economic Cooperation and Development (OECD), the group representing some of the world’s most developed economies. The accession document was signed on 30 May in Paris. The country becomes the 37^th member of the organisation and the third from Latin America (the other two are Mexico and Chile). Membership came despite opposition from the United States which has been critical of what it says is Colombia’s insufficient commitment to protecting copyright and intellectual property (IP). As part of membership requirements Colombia has agreed to meet OECD standards in a wide range of areas including the justice system, the management of state-owned enterprises, anti-bribery standards, and trade. President Santos said he hoped OECD membership would bring greater investment more funding for infrastructure, and a better credit profile.

The government celebrated the first day for almost three years without any murders at all on 14 April. The dramatic fall in violence in El Salvador owes to a truce struck between the mara gangs Barrio 18 and Mara Salvatrucha in March in somewhat murky circumstances [RC-12-04], although the government insists it did not strike a deal with the gangs. One statistic the government has not been able to alter is the very low rate of economic growth afflicting El Salvador, although it argues that this could be reversed if violence could be brought under control.
  The news of the first murder-free day since he took office in June 2009 was gratefully seized upon by President Mauricio Funes who delivered a special statement the very next day. “After years when the number of murders reached alarming levels of up to 18 per day, we saw not one homicide in the country,” he said. When Funes came to power the murder rate stood at 12 per day, but it had reached 18 per day by early 2012.
  Funes was less keen to dwell on the latest growth figures released by the Instituto Centroamericano de Estudios Fiscales (Icefi), showing that once again El Salvador is languishing at the bottom of the pile for GDP growth in Central America. According to Icefi, El Salvador’s economy grew by just 1.5% in 2011 compared with 2.6% growth in Guatemala; 3.5% growth in Honduras; 4.2% in Costa Rica; 4.7% in Nicaragua; and 10.6% in Panama. Icefi predicted that growth rates would fall in the sub-region in 2012 due to the global economic crisis, especially in the European Union, to an average growth of 4%, with El Salvador looking at growth of between 2.2% and 3.5%.

Remittances: Remittances reached US$946.2m in the first quarter, up 9.5% year-on-year, according to El Salvador’s central reserve bank (BCR). The monthly inflow in March was US$364m, up 8.5% year-on-year and the highest inflow for a single month in the past decade. In 2011 remittances came to US$3.64bn, up 6.4% on 2010, accounting for roughly 16% of total GDP.

After a two-month delay, the Banco Central de Venezuela (BCV, central bank) has finally implemented changes to its complex exchange-rate system that essentially encompass a maxi-devaluation. The changes were initially unveiled in March and were supposed to have been launched immediately, but with massive anti-government protests spreading across the country, the government’s focus has been elsewhere.

The left-wing government led by President Nicolás Maduro has retained the two-tier currency system, with one fixed rate (known as ‘Dipro’ and used by the public sector for imports) remaining unchanged at BsF10:US$1. The latest changes are in relation to the other rate, which is known as ‘Dicom’ (and also still referred as ‘Simadi’, as per its previous incarnation). This secondary rate is used by the private sector. The Dicom rate has devalued steadily in recent years, going from BsF170:US$1 upon its launch in February 2015 to around BsF700:US$1 in mid-May.

The ‘new’ aspect of the Dicom system means that the government is selling US dollars in BCV regular auctions that it hopes will occur twice-weekly (this was previously trialled in mid 2015, only to be abandoned as dollar scarcity intensified). Two auctions have so far taken place, on 30 May and 2 June, with the BCV selling US$24.1m and US$22.9m respectively, at a rate of BsF2010:US$1, implying a massive devaluation from the prior rate.

After the second sale, Vice President Tareck El-Aissami emphasised the large number of firms (776) that had received foreign currency, implying that these new auctions are primarily designed to respond to the corporate demand for US dollars, rather than to individual requests (just 3,054 individuals received funds in the second auction, of a total population of over 31m).

System will encourage corruption

However, business operating conditions will remain extremely weak. The (illegal but widely used) black-market exchange rate is around three times weaker than the newly-devalued Dicom rate. In early June, it was trading at around BsF6300:US$1, according to websites that publish the rate. This means that there is still huge scope for corruption, as anyone with access to US dollars – either at the Dipro or the Dicom rate – can make large amounts of money selling their dollars on the black market.

Secondly, the reinstated BCV auction process still lacks transparency, with little information as to how many people and businesses have requested US dollars, or how the government has made decisions as to how to allocate funds and/or for how much.

In addition, the quantities sold are tiny in comparison to the significant pent-up demand for US dollars. When the BCV last dabbled with auctions back in 2015, it made much larger amounts available (often over US$400m each time). Since then, however, foreign companies have found it very difficult to remit profits, which remain stuck in the local banking system, while other firms owe suppliers hefty amounts in for unpaid bills. Demand is therefore significant, while the supply appears paltry (despite some recovery in oil prices this year). In this context, the new auction system is unlikely to have much effect on reducing the black-market exchange rate, while the maxi-devaluation will lift inflation, which is already well into triple-digits (the Venezuelan economist Francisco Rodríguez, of the New-York based Torino Capital, estimated an annual inflation rate of 517% in April). Neither will this auction system have much impact on the widespread shortages of basic consumer goods, including food and medicines.

Debate over morality of buying Venezuelan bonds

The paltry amounts of foreign exchange available in the latest BCV auctions is a symptom of the ongoing liquidity crisis facing the Caracas government. In recent years, it has addressed these problems by tapping China for credit, as well as coming up with innovative ways of raising money – including gold swap agreements. However, with China apparently more reticent about additional lending, and the government running out of other options to secure finance, it has latterly resorted to selling off some previously-issued bonds from the state oil company, PDVSA, to the US investment bank Goldman Sachs. But the fact that the bonds were sold at a heavy discount, with the US bank paying a reported US$865m for instruments worth US$2.8bn (at full value), has generated a controversy over the morality of providing financial assistance to a government that many regard as repressive.

Goldman Sachs has defended itself by insisting that this was a secondary-market transaction by its asset management arm arranged, arranged through a broker and with no direct dealings with the Venezuelan government. However, this has not prevented an outpouring of criticism from opposition politicians within Venezuela, as well as by prominent commentators outside the country. The head of the opposition controlled National Assembly, Julio Borges, accused Goldman Sachs of trying to make “a quick buck” from the suffering Venezuelan population, while Ricardo Hausmann – a Venezuelan economist at Harvard University – said the US bank was dealing in “hunger bonds” and called on international banks to withdraw Venezuela from their bond indices.

Borges has pledged an investigation by the Venezuelan legislature and also urged the US Congress to investigate the Goldman Sachs purchase. In reality, there is little to suggest that the US bank has broken any law in purchasing the bonds. Investors routinely trade debt instruments from governments deemed not-entirely-democratic, with so-called ‘exotic debt’ from high-risk issuers now constituting an asset class in its own right. Moreover, Goldman Sachs is not the only international financial institution holding Venezuelan debt. Many of the large international asset management firms also hold bonds issued either by the sovereign or PDVSA. The high yields for Venezuelan debt, which range from 20% for 20-year bonds to nearly 50% for 1-year instruments, make Venezuela an attractive market for investors prepared to take on the considerable risk of default.

The transaction helped stem the steep slide in the BCV’s international reserves, at least temporarily. Reserve levels had fallen from US$11bn at the start of the year to US$10.1bn in mid- to late-May, before recovering to US$10.6bn in early June. It remains unclear whether the authorities will manage to stabilise reserves, but the fact that oil prices remain well above year-earlier levels will help. Venezuela’s average oil export price stood at US$44.8/b in the first quarter, compared with US$24.7/b in January-March 2016, with prices remaining at around US$42-44/b since then. Combined with a likely continued compression in import spending, on current trends the government looks to be in a position to continue servicing its debt during the remainder of 2017.

*** EASTERN CARIBBEAN GROWTH REVISED DOWN.  On 21 October, a meeting of the Eastern Caribbean Currency Union (ECCU) was told that growth in 2011 is now expected to be just 0.4% after two consecutive years of negative growth in 2009 and 2010.  According to the Eastern Caribbean Central Bank (ECCB), there was a further contraction of 0.2% in the first quarter of 2011, followed by a small recovery in the second quarter.

 The most positive factor was a 6.5% increase in tourist arrivals in the second quarter year-on-year.  The ECCB added: “In addition, a recorded increase in imports of building and construction materials, coupled with an increase in commercial bank credit for home construction and renovation, suggests that construction activity was at a higher level relative to the second quarter of the previous year.”  The main drag on ECCU economies is the continuing economic difficulties in the world’s advanced economies which will hold back tourism recovery.

*** GEARING UP FOR GUYANA ELECTIONS.  Guyana will hold its general election on 28 November.  The ruling People’s Progressive Party/Civic (PPP/Civic), under its new presidential candidate Donald Ramotar, is seeking a fifth successive term (it came to power in 1992 after 24 years of People’s National Congress (PNC) rule).  The PNC-Reform (PNCR) is bidding for power with the Alliance for Change (AFC) under the banner of A Partnership for National Unity (APNU).  In the August 2006 election, PPP/Civic won 36 seats out of 65, with the PNC taking 22 and the AFC five. 

   The PPP/Civic is running its campaign on a safety-first basis, trying to overcome the disadvantages of long incumbency by arguing that this is not a time to rock the boat.  It is helped in this by a good recent economic record, with 2010 being its fifth consecutive year of robust growth (3.4%)  There were some concerns in the IMF’s June report, for instance about inflation which picked up to 4.4% in 2010 from 3.7% in 2009; about the external current account deficit (11.4% in 2010 from 8.8% in 2009); and a fiscal deficit of 4.3% of GDP against a budget of 3.2% and a 2009 figure of 3.4%.  However the IMF says that growth levels should stay “above the long-run trend of 3%, to around 5% over the medium term” – partly due to the government’s Low Carbon Development Strategy (LCDS) and private sector investments in gold, oil, and gas sectors.  The IMF’s growth projections for 2011 and 2012 are, respectively, 4.8% and 6.0%.

   At the launch of the PPP/Civic’s manifesto, outgoing President Bharrat Jagdeo said: “Donald Ramotar has the skills…he is one of the key generators of ideas, and he is very receptive to new ideas, two skills that are very much absent in his competitors.” Jagdeo also sought to play up the past failures of APNU candidates, saying that many were “the architects of the economic ruins that this country has witnessed”.  David Granger, of the PNCR, is the coalition’s presidential candidate who Jagdeo has accused of being involved in the theft of ballot boxes during “the era of oppression” (see sidebar). 

  Although 19 years of power, and a new presidential candidate might count against the PPP/C, it does have advantages.  In addition to its decent economic record, it has numbers on its side.  It is supported principally by Guyanese of East Indian extraction, who make up 43.5% of the population against the Afro-Guayanese 30.2% (16.7% are mixed race, 9.1% Amerindian, and 0.5% Other).

• Granger

 In July last, Jagdeo said: “Granger still has his record to answer for...Lots of bad things happened [when he was in the military].” According to Jagdeo, Granger “wasn’t a regular soldier, he was someone sent from the office of the president to get the army to move in a particular direction and you know what that direction was, to subvert the constitution and the laws...”

The supreme electoral court (TSE) officially called the scheduled 2013 general election on 23 May, six months before polling day on 24 November. Latest polls put the left-wing newcomer Xiomara Castro ahead, but the only certainty is that this contest promises to be unusual compared with the country’s recent democratic history, in which the two traditional parties have alternated in power.

Nine parties will compete in the 2013 election, four of which have emerged in the aftermath of the June 2009 coup d’état. Along with the ruling Partido Nacional  (PN), the other main traditional Partido Liberal (PL), and the smaller parties Unificación Democrática (UD), Partido Innovación y Unidad (PINU) and Democracia Cristiana (DC); the 2013 list includes four new outfits: Partido Libertad y Refundación (Libre), Frente Amplio Político Electoral en Resistenica (Faper), Partido Anticorrupción (PAC) and Alianza Patriótica Hondureña (Alianza).

Libre, the new political outfit of ousted president Manuel Zelaya (2006-2009), has been ahead in the polls all year with its presidential candidate, Zelaya’s wife Xiomara Castro. Castro ran as Libre’s consensus candidate in the 18 November 2012 open national primaries and won more votes (over 500,000) than any other candidate, taking 22% at the national level. The turnout for the primaries was a high 2.3m, or 56% of the local electorate of 4.1m (a further 1.0m voters live abroad, mostly in the US). Impressively, that almost matched the turnout in the previous November 2009 general election - 2.5m - itself a new record in Honduras.

The latest Cid/Gallup poll, published on 16 May shows Castro remains the current favourite, with 28% of voting intentions. In second place with 21% was the TV personality and sports commentator, Salvador Nasralla, who is running the PAC. The ruling PN’s candidate, congress president Juan Orlando Hernández, is third with 18%, followed by the PL’s Mauricio Villeda, the son of ex president Ramón Villeda (1957-1963), on 14%.  Notably, 19% of the 1,200 respondents surveyed in 16 of the country’s 18 departments were undecided/didn’t answer. The survey also had a high margin of error - 5%.

The big question is whether the support expressed for the new parties will translate into votes on the day. Despite Castro’s performance in the primaries, Libre has never contested an election and lacks the resources and established party machinery of the two traditional parties. For this reason on paper Castro is still considered an outside bet by some local political analysts. For instance, between them the PN and the PL still accounted for two thirds of the valid vote in the primaries, with the PN, despite fielding seven candidates in all, taking just over 40% overall.

Between now and November both parties will avail of their strong local provincial networks and their well-established electoral machinery. The PN administers 17 of the 18 departments, giving it a big advantage. Mauricio Villeda, the winning PL candidate, put in a strong showing in the primaries in those very rural areas Libre is targeting, taking up to nine departments. Villeda is currently touring the country, proffering a ‘sensible’ alternative to the current PN administration. Although the PL, formerly Zelaya’s party, was badly damaged in the aftermath of the 2009 coup and lost some support to Libre, since anointing Villeda as its 2013 candidate the PL has sought to recover itself and coalesce around its candidate, to little effect to date if the polls are to be believed.  

In stark contrast the presumptive frontrunner Xiomara Castro is nowhere to be seen, having been laid up for over a month following a recent knee operation. In her absence, her husband Mel has been the face of the campaign, but his radical and polarising rhetoric may remind some Hondurans just how divisive he was as president. Zelaya was a fairly unpopular figure at the time of his removal and his radical left-wing politics may alienate moderate voters disaffected with the PN and the PL. While the majority of Hondurans (disenfranchised and impoverished) clearly want change, this is by nature a conservative country; Bolivarian Socialism, which looks to be crumbling in the wake of the death of its founder, the late Hugo Chávez (1999-2013), may not have the shiny appeal it once did. Hernández was clear in a tour of his native Lempira on 9 June that the Left  - i.e. Libre - “doesn’t even believe in God”.  For good measure, he added that the PL was now in the hands of Libre, hinting that the two would eventually forge an electoral alliance dominated by Libre. This has been mooted for a while and arguably the two parties need each other – Libre could do with the PL’s party machinery and resources across the country; while despite Villeda’s best efforts, the PL needs a stronger candidate.

Given that Hernández has the support of President Porfirio Lobo and all the advantages of the incumbency, it seems surprising that he has polled weakly to date. There are a few potential reasons for this. First, his association with the unpopular Lobo may do him no favours. Second, his bullish performance as congress leader has raised questions as to his democratic credentials. Some critics would say his tendencies lean towards the autocratic. Third – and this is key  – he still lacks the full support of the PN, which remains badly riven between a top faction backing Hernández and a base faction (Salvemos Honduras), which includes many of the party’s provincial leaders, united around Ricardo Álvarez, the mayor of Tegucigalpa. Álvarez, who alleged fraud in the primaries, is seeking a ruling by the TSE allowing him to run as the PN’s ‘presidential designate’ in November. This worsening split in the PN has partially prevented the party from getting its campaign underway.

• Electoral alliance

Unificación Democrática (UD) and Frente Amplio Político Electoral en Resistenica (Faper) have formed an electoral alliance for the November race, fielding Andrés Pavón as their presidential candidate. Pavón is trailing way back in the polls. César Ham, the UD’s 2009 presidential candidate (he came third and was put in charge of the national agrarian institute by President Lobo), will run for the senate in November.

• Insecurity

In the Cid/Gallup poll, 26% of respondents cited insecurity and crime as their main concern, while 27% cited unemployment, which currently afflicts 1.8m Hondurans, up from 1.1m when Lobo took office in January 2010. On 3 June Security Minister Arturo Corrales announced the intervention of the two main anti-crime and investigative units run by the national police, Dirección Nacional de Investigación Criminal (DNIC) and Dirección Nacional de Servicios Especiales de Investigación (DNSEI). The two will be merged into a new Fuerza de Tarea Policial de Investigacion (FTPI), under the helm of Police Commissioner Alex Villanueva Meza, the current DNSEI head. Corrales alleged that the DNIC was institutionally corrupt and filtering information to organised crime. The US embassy signalled its support for the controversial move.

The economy barely seems to be slowing down. In June year-on-year growth in industrial output was 3.5% (or 2.6%, if the refinery and the UPM pulp mill are excluded). Although this is a fall on May, when industrial output rose 5% year-on-year, taking the second quarter as a whole industrial output was around 4.2% higher than in the same period of 2010 (again excluding the refinery and UPM, which are by far the biggest industrial units in the country and thus have a disproportionate effect on the index as a whole). Quarter-on-quarter industrial growth was 1%, pretty much in line with the annual figure.

Some of the country’s export industries are running into little local difficulties, while others are booking. Meatpackers are suffering from the lack of meat, the result of a drought 18 months ago, which prompted farmers to send stock to slaughter early. Another problem is the financial difficulties of a big textile company, Paylana, which is looking for foreign investors (probably from the US and Argentina) to bail it out. Paylana’s problems have had a major effect on textile exports. These two problems have been offset by strong performances in the dairy sector, led by Conaprole, and the rice industry, which is benefiting from this year’s record harvest.

Consumer demand looks robust, with imports of consumer goods still rising at a 20% annual clip, while household credit demand also remains strong. Clear evidence of this is the strong demand for new cars. In the second quarter of 2011, sales of new cars (all imported) rose 32%, bringing total sales in the first half of 2011 to 23,800 units. In all likelihood this year will set a new record for new car sales. Local economists estimated second quarter growth at 1.5%, quarter-on-quarter, which points to overall GDP growth for the year of about 6%.

Inflation: In July consumer prices rose by 0.75%, more than twice the monthly rate of the three previous months, bringing the annual rate to 8.3%.

The underlying rate of economic growth is an important element in the wider equation covering poverty and inequality. In both political and economic terms it is easier to redistribute and help the poor at a time when the general rate of growth is strong. There is often greater social harmony when everyone’s income is on the rise. In this respect, however, there is a paradox in the performance of the Northern Triangle countries over the last four decades.

At first glance these economies have performed relatively well in the headline growth stakes, and certainly on a par with the rest of Latin America and the Caribbean. The chart below shows five-year average annual GDP growth rates for the region as a whole and for each of the three Northern Triangle economies. Two or three things stand out. One is that the impact of the civil wars in El Salvador and Guatemala was massively negative for those two economies in the 1980s. In the early 1980s El Salvador’s five-year growth average was a negative 5%-6%. In the mid-1980s Guatemala’s average growth rate dropped to -1.2%. In contrast, throughout that period, Honduras retained positive if relatively low growth. Going forward into the 1990s and the noughties, all three economies seem to have managed to keep fairly strong growth, broadly in a 2%-4% range and occasionally higher. In 2007 and 2008 the five-year average growth rate in Honduras was almost 6%. An important conclusion is that on average in the last ten years all three economies have been oscillating around 3% annual growth. In general terms this is a good performance: in the last couple of years it has been higher than the average for the region as a whole. The Northern Triangle countries can therefore make a credible claim to have achieved macro-economic stability, a combination of reasonable growth and low inflation.

Northern Triangle economies: Stuck on 3%?
5-year GDP growth averages %

Source: World Bank

But the moment we begin to look at what this does for the poor and the excluded, it quickly becomes evident that 3% annual growth is simply not enough. Macro-economic stability has co-existed with unacceptably high rates of poverty and social and political exclusion. Because these countries still have significant underlying population growth rates, per-capita incomes are expanding much more slowly. The World Bank compiles per-capita gross national income (GNI) data for Guatemala and Honduras (no comparable data is available for El Salvador). In the five years to 2017 growth in GNI per-capita averaged a much lower 1.8% in Honduras and 1.6% in Guatemala. And we know that even this much lower per-capita growth is unequally distributed. A related point is that a relatively small divergence in annual GNI per-capita growth rates over time has a much larger cumulative effect. To illustrate this we have built a weighted GNI per-capita index for two groups of countries: Guatemala and Honduras on the one hand, and Uruguay and Panama on the other (the latter two chosen as examples of the better performers with the region). Between 1985 and 2015, a period of 30 years, the Uruguay/Panama GNI index rose to 227.7, while the Guatemala/Honduras GNI index only rose to 141.5. In other words, after 30 years of relatively small differences in annual growth, the better performing countries ended up with per-capita incomes that were 1.6 times greater than in Guatemala and Honduras.

Not growing fast enough
Index of GNI per capita, 1985=100

Source: World Bank, LatinNews calculations

Another factor preventing more equal distribution of the benefits of growth is the persistence of extremely high levels of informal employment. Informal workers are those who make no tax or social security payments and who at the same time receive no formal state benefits (such as the right to a pension). They also work in an unregulated manner – meaning they are not adequately protected in terms of enforcing maximum working hours, safety, non-discrimination, and other rights and duties. According to the International Labour Organisation (ILO) informality, as a proportion of total non-agricultural employment in 2016, was 73.8% in Honduras, 73.5% in Guatemala, and 63.1% in El Salvador. These are some of the highest rates in Latin America. High informality creates a vicious circle. It erodes government tax revenue and simultaneously reduces the power of the state to ensure minimum levels of welfare for a large part of the working population.

The challenge facing Brazil over the next ten years can be described as taking shape on two distinct levels. The first can be described as coming up with solutions to Brazil’s problems in the ‘old world’ – in effect, much of the world as we now understand it, with current levels of agricultural, manufacturing, and service-based technology and business models. Yet, superimposed on this comes a second level: solving Brazil’s problems in the emerging ‘new world’ of the global fourth industrial revolution (4IR).

According to the taxonomy used by Klaus Schwab of the World Economic Forum (WEF), the first industrial revolution took place in the 18^th and 19^th centuries in Europe and America and was based on the emergence of factories, iron and textiles, urbanisation, and the steam engine. The second industrial revolution came in 1870-1914 and saw the expansion of steel, oil and electricity- based activities, including the development of the internal combustion engine. The third industrial revolution was a digital revolution starting in the 1980s which saw the arrival of the personal computer, the internet, and information and communications technology. It is argued that the fourth industrial revolution, now underway, takes digital systems a step further, embedding them in society, with multiple breakthroughs in the fields of robotics, artificial intelligence, nanotechnology, the Internet of Things (IoT), 3D printing, and autonomous vehicles.

The impact of 4IR across the world – and in Brazil in particular – is hard to quantify, but it is clear that it will be deeply disruptive and create a combination of new opportunities in some areas, coupled with the destruction of older industries and employment in others. According to a report by the InterAmerican Development Bank (IDB), ‘Robotlution: The future of work in Latin American Integration 4.0’, estimates for the proportion of existing jobs that robots will replace range from 5% at the low end to 47% at the high end. On the other hand, each new high-tech job created could generate 4.9 other additional indirect jobs as part of a ‘spillover effect’. Either way, an upheaval in the labour market looks like a probable outcome. Studies suggest that job automation could be highest in agriculture and transport, and have greatest impact among those with lower levels of formal education, among the young (those aged 15-30), and among men.

Switzerland, Germany, Japan, and South Korea currently have the highest number of robots per industrial worker (more than 20 per thousand). In China the use of robots has grown by 67% over the last two years. In Latin America and the Caribbean, Mexico and Brazil are the most advanced in the use of robots, but with one to two robots per thousand industrial workers, they still lag behind. Automation is particularly significant for the automobile industry, an important sector in Brazil. Some fear it may lead to a reshoring process with assembly plants moving back to the more developed economies such as the US and Europe. However, there is also evidence that automation may boost the output of plants now located in emerging economies like Brazil. It has been calculated that for every 10% increase in robot numbers there is a 2% increase in bilateral automotive exports.

At a World Economic Forum (WEF) seminar on 4IR held in São Paulo in March 2018, some participants argued that manufacturing in the country will become much less labour intensive and will require more tasks relating to control and oversight. This will require heavy investment in education and training to ensure that the workforce has the new skills required; it will also be necessary to encourage the next generations of young people to choose careers relating to science, technology, and innovation. According to Angel Melguizo, chief economist for Latin America at the OECD, “Current and future generations of Latin American workers need to be equipped with social skills such as emotional intelligence, problem solving, and the ability to reason logically, among others. You don’t get these skills from textbooks; firms aren’t finding these skills in the region’s workforce at present,” he said.

A survey by Manpower Group in Latin America found that 50% of companies said they couldn’t find candidates with required social skills such as communication, analysis, and critical thinking, compared with 36% of companies reporting the same problem in the OECD countries. Brazil, along with Peru and Mexico, was identified as one of the countries with the largest skill gap. The survey also found that around 55% of the Latin American labour force is informal, which is both an old-world and a new-world problem. It is an old-world problem because such a larger proportion of the population remains outside the tax and benefits system, leading to poor employment conditions, low productivity, and fiscal imbalance. It is a new world problem because at least half of the labour force is being denied access to the type of education and training needed to develop careers in the emerging digital industries of the future.

Melguizo sees the large informal sector as contributing to the “middle-income trap”, the possibility that economic development in a country like Brazil will get “stuck” and stagnate at the middle-income level, failing to joint the ranks of the higher income countries. He said “This contrasts with what happened in most European and Asian countries, which have achieved sustained increases in per capita income and escaped the middle-income trap by investing in the quality of education, in the development of their workers’ skills, and in an innovation-friendly environment. We’ve seen this in Portugal, Ireland, and South Korea, for example.”

It is not that Brazil and other Latin American countries are not adopting new technologies. They are avid consumers of new technology. Brazil, for example, has the third-largest number of Facebook users in the world and is one of the leaders in using Waze, a traffic navigation app developed in Israel and bought by Google in 2013. The region’s countries need to convert this interest into more innovations, according to participants at the WEF event.

To increase the level of innovation in the region, they said, access by young Latin Americans to university courses relating mainly to science, robotics, engineering, mathematics, arts, and design must increase. “Science and technology are key drivers of innovation in Latin America. We can continue producing our commodities, but we must use part of the raw-material export dividend to invest in science and technology. In Colombia, for example, we spend 10% of our oil royalties on science and technology,” said Mauricio Cárdenas, who at the time was Colombia’s finance minister.

A potentially positive point is that the Brazilian business community seems to be aware of the challenges posed by 4IR. A survey of 826 companies done in November 2018 by consultancy Deloittes, ‘Brazil’s ‘Agenda 2019’ Survey’, carried out after the election of the new government found, as might be expected, that tax and social security reform, corruption, and the need for fiscal adjustment were among the top issues worrying the business community. But it also noted that “Employee qualification and digital transformation are emerging as concerns for business competitiveness.” Nearly half the respondents – 48% – said they were looking for the government to support digital transformation, as well as to back research and innovation. Among companies saying they might have to lay off workers in 2019, 46% attributed the potential losses to factors such as robotisation, process automation, or replacement by more skilled employees. An overwhelming 90% said they were planning to increase investment in training and skills next year.

On 3 September Venezuela experienced one of the biggest power cuts seen in any Latin American country in the last decade. The capital Caracas and 23 states suddenly found themselves with partial or zero electricity supply. About 70% of the country was affected by the outage, forcing much of the economy to grind to a halt and incurring economic losses estimated at up to US$1bn.  What caused it? Here we look at some of the claims and counter-claims.

President Nicolás Maduro and other government ministers were quick to point the finger at right-wing and US-inspired sabotage. Maduro tweeted that the country was witnessing an attempted “electricity coup”. Using the military language much favoured by the government, Interior Minister Miguel Rodríguez said the domestic intelligence agency, Servicio Bolivariano de Inteligencia (Sebin), had been “deployed across the nation to protect the population”.  Maduro also described the blackout as part of a “low-level war” being waged against the Venezuelan revolution. Electrical Energy minister Jesse Chacón backed the sabotage theory, but gave a little more detail, acknowledging that the problem had occurred because of a failure in the transmission “backbone” which connects the Bajo Caroni region, where 60% of the country’s power is generated, to the rest of the country.

The political conspiracy theme resurfaced again on 30 September, when President Maduro expelled three US diplomats in Caracas (including the chargé d’affaires, the most senior ranking embassy official on the ground), accusing them of conspiring with the extreme right to sabotage the economy and the power grid. Washington responded in early October by expelling three Venezuelan diplomats. The US rejected the sabotage claims as preposterous. The Venezuelan side presented no hard evidence of the conspiracy, although some officials claimed it was significant that the US diplomats had visited states in the country where power plants are located. It was suggested, including by Maduro, that they may have in some way bribed officials or other third parties to cause the blackout.

Unsurprisingly, Venezuela’s opposition parties ridiculed the sabotage claims. The Associated Press (AP) quoted a Caracas housewife saying: “I don’t believe this tale of sabotage. We all know who is to blame”.  In the midst of the blackout a leading opposition politician, Leopoldo López, made fun of officials who had attributed earlier outages to thunderstorms or iguanas climbing on power lines. “We already know what you are going to say: that it was an iguana, a lightning bolt, or sabotage” he tweeted. Henrique Capriles, who ran for the presidency against Maduro in April, stated: “it is just a smokescreen to cover up their inability to manage the country.”

To understand some of the context, a quick look at the Venezuelan power generation sector may help. The industry was dominated by the private sector, but nationalised in 2007 by Maduro’s predecessor, the late Hugo Chávez (1999-2013). The newly state-controlled industry had a bumpy ride. The Sistema Eléctrico Nacional (SEN) was already facing such severe capacity, maintenance and planning problems that President Chávez declared it to be in a state of emergency in February 2009. Again in April this year, Maduro declared a new 90-day “emergency” in the electricity sector (the previous one had ended in 2010).  Under state of emergency regulations, power plants are ‘militarised’ – placed under army control and protection. During the 2009-10 state of emergency officials were encouraged to invest heavily to resolve the problems in the power grid.

According to a study by two independent experts, José Aguilar and Víctor Poleo, money was indeed spent on a massive scale in 2009-10, but most if it was wasted. They say contracts were allocated with no competitive bidding, creating scope for corruption. Analysing 40 generation projects started since 2003, they estimate that there has been systematic overpricing. According to their numbers, the government paid US$23.0bn for projects intended to add 17,513 MW of generating capacity. This implies a capital cost per kilowatt of installed capacity of US$1,315, no less than 57% higher than the international average, which they say is US$837 per kilowatt.  Worse, of the total of 17,513 MW of capacity promised, only 4,360 MW are actually operational at present.

Various investigative journalists say the biggest contracts have been awarded to a Venezuelan-controlled but US-based company called Derwick Associates. Leopoldo Betancourt and Pedro Trebbau, who have no known experience in the power sector, but are well connected to various top officials in the Caracas government, run Derwick. The company was awarded 12 major Venezuelan government contracts in a 14-month period. Derwick’s way of operating appears to be to win the deals and then sub-contract the work to big US and international engineering firms such as General Electric and Pratt & Whitney. On one of Derwick’s projects, the capital cost was US$2,340 per kilowatt of capacity, almost three times the international average.

Another company that has benefited is Argentina’s IMPSA, controlled by Enrique Pescarmona, who is close to the Buenos Aires government of President Cristina Fernández. In 2007, IMPSA won a contract to build a 2,050MW generating plant at Tocoma in the Caroní basin, for which to date it is reported to have received US$10.4bn worth of payments: however six years later, the plant is still not operational. Despite these delays, IMPSA has also been awarded the Guri II hydroelectric project in Venezuela.

Government officials including Minister Chacón say the important thing is that they have been making efforts to boost power generation. Chacón says that in his first 100 days in the ministry generating capacity was increased by 1,379 MW. If the country has enough generating capacity, it has been suggested, then only sabotage or some other external factor could explain such a massive outage.

Indeed, Venezuela’s official generating capacity is regularly estimated at 25,000 MW or higher, against demand of around 18,000 MW (since 2010 the government has stopped publishing detailed electricity production and usage statistics). But actual capacity has recently been dropping below demand because some thermal generators have been off-line, while hydroelectric plants have been affected by drought. About 70% of Venezuela’s electricity comes from hydroelectric projects, particularly the 10,200 MW Guri dam on the Caroní River. Meanwhile the 2,000 MW fossil-fuel generator at Planta Centro has operated well below its nameplate capacity for years, troubled by a series of mechanical problems. Units 2 and 5 there, with 400 MW worth of generating capacity each, have been out of service since 2008/09. A planned US$400m overhaul has been repeatedly postponed.

Aguilar argues, however, that the really acute problem does not lie with generating capacity at all, but with antiquated and inadequately maintained transmission lines. He says poor maintenance is “the Achilles’ heel of the state-run power companies”. Poleo agrees, noting, “they have attempted to send more electricity through lines that don’t have any more capacity”.  Other analysts have described the country’s transmission and distribution (T&D) system as “crumbling and derelict”.  One estimate is that T&D energy losses are running as high as 27%.

Winston Cabas, director of the electricity committee at the Colegio de Ingenieros de Venezuela, also highlights the power line problem. “They say they are boosting electricity generation, but the energy cannot be transported because of a lack of investment and a lack of preventive maintenance planning”, he says, adding that “the companies that have been contracted are not getting paid, the ministry doesn’t get the resources it needs on time, and what happened on Tuesday [blackout day on 3 September] indicates that Minister Jesse Chacón’s 100-day emergency plan is a failure.” Cabas adds that according to official information in 2012 the equivalent of US$1.3bn was put in the budget to improve the electricity transmission system, but only 36% of that was actually spent.

Days after announcing various investigations into the outage, Chacón said the immediate cause had been identified as a metal grill that had fallen from a tower onto a 765-kV transmission line. He kept open the possibility of sabotage, saying the last round of maintenance work at that sub-station had been recorded in April, but that there could have been “manipulation of the grill connection mechanisms”. It was clear from his statement, however, that the evidence could also be consistent with a less dramatic explanation such as poor maintenance or ageing equipment. The idea that dangerously dilapidated power lines might be the root cause of the problem facing the system also gains some support from subsequent events. On 25 September another rash of power failures hit five states. In Falcón state in the northwest, a power cable explosion knocked out the Josefa Camejo generating plant. In Monagas state, the Furrial-Jusepín transmission line also failed.

“The tiger is crouching”, declared a left-wing deputy ahead of the approval in congress of new executive-proposed measures to give the Honduran military broad policing powers. President Porfirio Lobo is putting the military on the streets under a 18-month state of emergency in order to combat the rising tide of violent crime in the country, which now has one of the highest homicide rates of anywhere in the world. Despite strong concerns about the move locally, the president is not for turning and, ahead of the congressional vote, he proudly touted figures showing a marked drop in crime in the main cities of Tegucigalpa and San Pedro Sula following a recent joint military-police deployment known as Operation Lightning Strike. Critics warn that Lobo might do well to look north towards Mexico, where President Felipe Calderón’s military security strategy has led to a massive upsurge in domestic violence and is largely considered a failure. Indeed, in late November, a Mexican lawyer lumped President Calderón and several members of his government in together with the (alleged) local drug kingpin Joaquín ‘El Chapo’ Guzmán in a complaint filed at the International Criminal Court in The Hague alleging “systematic human rights abuses and crimes against humanity”.

Sergio Castellanos, a member of the government-allied Unificación Democrática (UD), expressed fears that the measures would result in a repeat of the human rights violations that took place in the 1980s when, he said, at least 182 people were ‘disappeared’ and 200 murdered in extra judicial military activities. “These are very real concerns based on real events”, he stressed, underlining the need to ensure that the new measures are explicitly temporary and exceptional in nature. Castellanos reminded the plenary that in 2010 it had also approved the enlargement of the Honduran army to include an additional 2,000 members. (According to the UK-based International Institute for Strategic Studies, the Honduran army numbered 8,300 active members in 2010 (with a further 1,400 in the navy and 2,300 in the air force).

The inference is that Honduras is taking a major step backwards in putting military boots back on the streets in large numbers, a strategy President Lobo first adopted on a small scale in mid-2010 and one that is being also being rolled out anew in neighbouring Central American countries such as El Salvador and potentially also in Guatemala, where authorities are besieged by the spread of Mexican drug trafficking gangs across the region.

Lobo’s decision to draw more heavily upon the military also comes in the midst of very damming corruption scandals in the national police force, which despite intense official pressure has been hostile to a purge and internal reform. The president claimed on 19 November that Operation Lightning Strike (Operación Relámpago), which deployed 2,000 soldiers alongside some 14,000 police officers, had succeeded in lowering the number of violent crimes in the central district (which includes the capital) by 90%, and in San Pedro Sula by 60%.

Under Article 274 of the 1982 constitution (written by a retreating military regime), Honduran troops are allowed to work with police officers “in a supportive capacity”, including in the fight against narco-trafficking. The executive petitioned congress to vote in favour of a broad interpretation of Article 274 so as to give the military more explicit policing powers under the temporary state of emergency, such as the right to issue and carry out arrest orders, undertake search and seizure activities and direct street operations.  Just as police are not trained for war scenarios, the military has no training in civil policing. Lobo said on 28 November that the United Nations Development Programme (UNDP) may assist in policing training schemes for the military.

Typically under a state of emergency, public gatherings are banned and other civil liberties restricted. The government could also impose a curfew. Given that Honduras is entering an election period in 2012-2013, there are concerns that a military presence could interfere in the process.

Controversially, Lobo is also ‘fusing’ the ministries of defence and security, which oversee the military and the police respectively. The idea is to establish a single civilian ministry to coordinate both, with three vice ministries to separately oversee the police, the military and a proposed new investigative force. Critics accuse the president of overstepping the mark. He counters that desperate times require strong measures.

• Honduran women endure terrible violence

On 25 November to coincide with the United Nation’s International Day for the Elimination of Violence Against Women, Grissel Amaya, the special prosecutor for women at the public ministry, reported that over 1,500 women were murdered in Honduras between 2008 and 2011, on official estimates. The real figure is probably higher. Amaya said that the ministry now receives some 20,000 reports of domestic violence a year, while reports of sexual violence exceeded 11,000 in the three year period to 2011.  The crime of femicide, where women are killed on the sole grounds of their gender, is prevalent throughout Central America.

PARAGUAY | Fiscal deficit creeps up. On 15 April Paraguay’s finance ministry released its latest financial figures, which showed that the central government’s fiscal deficit stood at 0.8% of GDP (or US$296m) in the first quarter of the year, and 3.1% of GDP on an annual basis.

According to a ministerial report, the deficit is the result of a 2.7% fall in revenue and an 8.2% increase in spending in the first quarter. This compares with an 18% increase in revenue in the first quarter of 2019. Breaking down the fall in revenue, the report notes that there has been a 7% year-on-year decline in tax revenues in the first quarter, attributing this to the general quarantine imposed by the government since 20 March in order to contain the spread of the coronavirus (Covid-19) in the country.

The government led by President Mario Abdo Benítez has also announced the implementation of various emergency measures to mitigate the economic impact of the quarantine which include emergency public spending measures for around US$945m, increasing healthcare spending, and providing financial relief to households and businesses.

In order to fund these initiatives, the Abdo Benítez administration has secured approval from the national congress to contract up to US$1.6bn in debt through bonds and international financial institutions. Finance ministry officials estimate that as a result of this increased emergency spending and lower levels of revenue, the fiscal deficit may rise to 5% of GDP by the end of the year.

This deficit projection is well above the 1.5% limit set in Paraguay’s fiscal responsibility law (LRF). The imposition of the LRF fiscal deficit limit has been relaxed for the next four years under legislation approved by congress as part of the economic emergency package.

But there are warnings that if spending is not kept under control the country will struggle to bring the deficit back down to the LRF limit by 2024. The leftist political opposition has already called for a new tax reform that increases taxes on sectors such as tobacco and agricultural production in order to help restore fiscal balance in the coming years.

Abundant natural gas has enabled Trinidad and Tobago to become not only a major liquefied natural gas (LNG) exporter, but also the largest hydrogen producer in Latin America, accounting for roughly 44% of the regional total, with production of 1.8m tonnes of H2 in 2019, and 50% of this being pure hydrogen.

Hydrogen is mostly the feedstock for the production and export of large volumes of ammonia, methanol, and urea. The chemical industry uses 97% of the country’s hydrogen to make these products. All that generates in the order of 15m tonnes of CO2 per year from more than 10 plants, making Trinidad and Tobago one of the world’s largest carbon emitters on a per-capita basis. As a result, industry and politicians are looking at low carbon hydrogen technologies to help reduce emissions. Its target under the Paris Agreement is an emissions reduction of 15% by 2030.

The process of getting there has started relatively late. Project Lara, the first utility-scale solar photovoltaic (PV) installation, was only launched in 2022. The 112-megawatt facility will be built by oil companies Shell and BP, two of the biggest oil companies operating in the country.

Also in 2022 Hydrogène de France (HdF) in April acquired a 70% stake in a production facility at a cost of over US$200m that will meet 20% of the hydrogen requirements of an existing ammonia plant in the petrochemical hub of Point Lisas, Trinidad. A “combination of solar and energy efficiency-sourced power” is to generate carbon-free hydrogen, said HdF. Kenesjay Green Ltd, the project developer, will retain the remaining 30% of the share capital.

Fisterra, a portfolio company of funds managed by Blackstone Energy Partners, also showed interest in the project that is to produce 27,200 tonnes per year by 2024. On 29 November 2022, the government presented a Roadmap for a Green Hydrogen Economy in Trinidad and Tobago, the result of a collaboration between the National Energy Corporation of Trinidad and Tobago Limited (National Energy), the Inter-American Development Bank (IDB), and Texas-based KBR Inc.

The studies underlying the roadmap showed potential areas available for offshore wind parks with a potential of up to 25 GW in average energy output. If all that were to be used for electrolysers that would amount to around 4m tonnes per year of green hydrogen, more than double the 1.7m tonnes/year demand for grey hydrogen the country currently has. That not only allows Trinidad and Tobago to decarbonise the entire petrochemical industry but leaves room for significant growth through additional export potential.

“The Government recognises the importance of creating the right enablers through regulations, policies, and incentives, that will support the development of this green hydrogen economy,” according to Energy Minister Stuart Young.

While the ministry of energy is working on a draft policy proposal to implement the road map, National Energy intends to work with the IDB to secure funding for the development of green hydrogen demonstration pilot projects that are expected to commence in 2023. “We can transition our entire industrial sector, transportation sector, our power-generation sector into low-carbon clean fuels, using hydrogen,” said Vernon Paltoo, head of National Energy.

Indeed, as a regional ammonia and methanol trading, storage, and production hub, Trinidad and Tobago has a comparative advantage over other nations in that it already has much of the necessary infrastructure and experience. That includes decades of experience injecting CO2 to enhance oil recovery (EOR), a practice that could equally be applied in the production of grey hydrogen to make it blue. Currently capture projects have been reduced to a small-scale project injecting between 10 and 20 tonnes per day into an onshore oil and gas field. But the government roadmap foresees blue hydrogen as a transition technology until sufficient renewable energy infrastructure is built up.

With carbon capture technology retrofitted to existing ammonia and methanol plants, Trinidad and Tobago could position itself in the market for low carbon ammonia and methanol before fully transitioning to green products once renewable energy and green hydrogen developments are in place. In one scenario blue hydrogen production would peak in 2040 providing 80% of the hydrogen demand from industry, and gradually decline as green hydrogen production expands. 

Flowing into the decision-making process will be geological structures and existing CO2 capture facilities, the country’s long  term  natural gas availability, as well as the investment required for additional CO2 infrastructure that will be required. 

In February 2021, the government created a steering committee tasked with managing and implementing efforts to capture and sequester carbon in order to reduce overall emissions while increasing oil output. In January 2022, BP joined the CCS Storage Atlas project which is jointly led by the University of the West Indies and University of Trinidad and Tobago and seeks to map underground sites that can be used to store captured carbon dioxide. These include depleted hydrocarbon reservoirs both onshore and offshore.

In the first 11 months of 2011, the economy exported goods worth US$2.1bn. This is a new record and more than it managed in the whole of 2010.

In the whole of 2010, exports came to US$1.92bn, according to the Centro de Trámites de las Exportaciones (Cetrex). In the first 11 months of 2010 the export figure was US$1.72bn.

The main reason for the surge was higher prices. Export volumes were actually down by 3.9%. The country is benefiting from high prices for coffee, gold, peanuts, cane sugar, beef and seafood.

The US bought 29% of the country’s exports, followed by Venezuela (12%), Canada (11% and El Salvador (9%). The country’s biggest single export is coffee.

The government is forecasting that the economy will grow by between 3.5% and 4% in 2011 and that inflation will come in at between 8.5% and 9.5%. 

Inflation: Although the consumer price index jumped by 1.25% in November, the lagging 12 month rate stood at 7.3%. The central bank said that the main reason for the increase was a run up in food prices. In 2010 the annual inflation rate was 9.23%, the highest in Central America, but this was down from 13.8% in 2009.

The last month has seen a shake-up in the senior echelons of government, the Banco Central de Venezuela (BCV), and the state oil company Petróleos de Venezuela (Pdvsa), amid growing signs that the economic crisis is deepening. A leaked report from the central bank (BCV) contained data stating that GDP contracted by a huge 18.6% last year, with inflation spiralling to 800%. Yet there is little sign that President Nicolás Maduro’s new appointees are either capable or willing to address the crisis, raising questions about how much worse conditions are likely to get in 2017.

If the data is real, the leaked BCV report is a damning indictment of the current state of the Venezuelan economy. Most forecasters were projecting a third consecutive year of recession in 2016, but nobody expected the depth of contraction to be so marked. Both the International Monetary Fund (IMF) and World Bank were forecasting GDP to fall by around 10% year-on-year, but that was among the most pessimistic of economic projections. According to the leaked report, the oil sector shrank by 12.7%, while non-oil activity collapsed by 19.5%. Meanwhile, inflation reportedly jumped from 181% in 2015 to 800% in 2016.

Government silence is telling

The government has declined to comment on the veracity of the report, although the new economy vice minister, Ramón Lobo, stated that the leaked inflation figure was “totally crazy”. The authorities’ failure to publish most monthly and quarterly data series makes it impossible to assess whether the figures leaked to the press are unrealistically negative, but the government’s silence on the issue (and the fact that it has not come back with its own ballpark figures) suggests that the report is indeed credible.

One figure that has been confirmed is that of imports: President Maduro stated on 9 January that import spending had more than halved last year, to US$18bn. Moreover, this marked the fourth consecutive year of decline, from a peak of just under US$66bn in 2012. According to the president, this was mainly due to lower oil prices, with Venezuela’s oil export price plummeting from around US$105/b in 2012 to around one-third of that level in 2016. President Maduro also blamed a heavy debt repayment schedule, stating that the country was unable to prioritise imports of crucial consumer goods because of commitments to bondholders.

2017 prospects looking poor

With 2016’s apparently economic results coming in much worse than anyone expected, all bets for 2017 are off. The IMF’s inflation forecast, at an eye-watering 1,660%, had been widely viewed as unrealistically high, but if inflation did indeed average 800% last year, a move to quadruple-digit inflation is not out of the question, particularly when minimum wage hikes are becoming more frequent and larger.

This is substantiated by comments made by the labour minister, Francisco Torrealba, in early February, when he said that there would be as many minimum wage increases as necessary to protect purchasing power from the impact of “criminal” inflation. This is a direct reference to the government’s belief that inflation is being driven by private sector “speculators”, who are hoarding goods in order to drive up prices, rather than acknowledging that the BCV’s policy of printing money is the main driving factor behind hyperinflation.

Lending substance to the latter explanation, growth in monetary aggregates continues to accelerate, which will increase demand-side inflationary pressures. The amount of currency in circulation and instant-access deposits was rising by around 170% year-on-year in late January, up from around 125% in late November. Once all of the new larger-denomination bank notes have entered circulation, this figure is likely to accelerate further.

There is less consensus over the depth of the contraction in GDP likely in 2017. The IMF has not updated its forecast (which anticipates a 4.5% fall in GDP) since the leaked central bank report, but in any case, inflation of 1,660% would imply a sharper recession, since hyperinflation would sap purchasing power. The government has optimistically stated that the economy will grow again in 2017, referencing higher oil prices, but it is highly uncertain whether the mild increase in global oil prices will be in any way sufficient to reverse the recession. Although it appears that average oil prices will be higher this year, Venezuelan oil production is still slipping. Given reports of extensive corruption, there is a risk that any additional oil earnings might not be efficiently channelled towards productive economic activity. Meanwhile, the highly complex exchange rate system will continue to distort the economy and dissuade investment.

Cabinet reshuffle is unlikely to improve matters

Neither do the raft of personnel changes introduced in January provide much hope that the new appointees are capable, or willing, of addressing the root causes of the economic crisis. In a broad-based cabinet reshuffle at the beginning of the month, Ramón Lobo was appointed new vice president for the economy, while Nelson Martínez, of Pdvsa’s US subsidiary Citgo, was appointed energy minister, replacing Eulogio del Pino. Del Pino had combined the role with the presidency of Pdvsa, a position that he retained, despite ceding control of the energy ministry to Martínez.

Another raft of changes within Pdvsa later in the month provided another shake up, bringing in political and military people with little direct oil market experience. Among these, Maduro placed Rear Admiral Maribel Parra in a newly-created post of executive vice president. Parra already sits on the leadership of the military-run oil services company, Compañía Anónima Militar de Industrias Mineral, Petrolíferas y de Gas (Camimpeg), but apart from that is not an energy sector expert.

Maduro also placed a trusted member of his inner circle as the company’s new vice president for finance, Simón Zerpa Delgado. Since 2014, Zerpa has been at the helm of both the Venezuela-China fund (Fondo Chino), through which the left-wing Caracas government has borrowed upwards of US$10bn from Beijing in the past decade, as well as the off-budget (and very opaque) national development fund, Fondo de Desarrollo Nacional (Fonden). Incidentally, Zerpa’s father, Iván, is Venezuela’s ambassador to China.

Zerpa’s promotion suggests that Maduro is seeking to exercise tighter control over Pdvsa finances, while overall these latest appointments may also imply that Maduro is distributing ministries to a combination of close political allies and the military, most likely in order to retain army support and head off any threat of a coup.

Fitch warns on Pdvsa

Underlining the still-critical state of the economy, in late January the sovereign credit ratings agency Fitch Investors Service stated that the financial challenges facing Pdvsa were very serious and that default was “probable” this year. According to Fitch, this view reflects the company’s weak cash position, its relatively heavy amortisation schedule this year (even after a swap deal concluded in late 2016 eased repayments moderately) and falling oil production. However, that is not a view echoed more broadly by financial markets, with the implied default risk as calculated by credit default swaps (CDS) data falling to 44% in January, compared with 59% at the end of December. CDS data implied that default was highly likely within a 5-year horizon, however, with this probability standing at 89%.

The uncertainty highlights a broader difficulty with regard to Venezuela’s economic outlook. There appears a widely-held consensus that complete economic collapse, most likely accompanied (or caused by) a debt default, is likely at some point in the future, because the government’s distorted economic policy model is untenable in the long term. However, determining when this is most likely to happen is extremely difficult. Financial markets seem to believe that the recent partial recovery in oil prices will reduce the likelihood of a default this year, but this assumes that the government will continue to cut back drastically on import spending in order to continue making debt repayments. International reserves, at US$10.5bn in early February, are relatively low given that much of this is held in gold and that over US$9bn falls due this year. The public’s tolerance levels have so far proved surprisingly high, with many observers surprised that the government has managed to cling onto power given the depth of last year’s recession, but frustrations are likely to boil over at some point unless domestic conditions begin to improve.

Mexico currently stands out as a country that rejects the need for an energy transition and, instead, wants fossil fuels to remain at the centre of its energy mix. While many Mexicans have reservations about this approach, the policy is being driven forward by President Andrés Manuel López Obrador (Amlo) who took office in December 2018. Amlo comes from Tabasco, an oil and gas state, and spent much of his early political career in the 1970s and 1980s as a member of the Partido Revolucionario Institucional (PRI) which was at the time known for its energy nationalism and its defence of state monopolies in the sector, such as oil and gas company Pemex and electricity generator and distributor Comisión Federal de Eletricidad (CFE).

In subsequent decades the PRI ended up moving towards more centre-right energy positions while Amlo shifted further left. During the PRI presidency of Enrique Peña Nieto (2012-2018) major energy reforms were introduced, ending the Pemex/CFE monopolies, and opening the sector to private sector investment through regular auctions for oil and gas exploration blocks. The government also offered competition for long-term power purchase agreements (PPAs) to international renewable electricity suppliers such as wind and solar developers. Peña Nieto’s strategy implicitly recognised that after more than a decade of dwindling production, and with heavy levels of debt, Pemex lacked the financial capital and technical skills needed to reverse the fall in oil production. While his focus remained on attracting new investment from the oil majors into Mexican fossil fuels, he opened the door to greater diversification into renewables.

In contrast, Amlo has been described as “firmly committed to dirty energy”. He is pursuing new hydrocarbons projects to the detriment of wind and solar. He accuses Peña Nieto of using clean energy contracts as a pretext to hand out unwarranted subsidies to private companies. In February 2021 the president said: “We need to strengthen Pemex and the CFE, we need to rescue them, because deliberate moves have been taken to destroy them, so that the energy market could be left in the hands of private, national, and above all foreign companies.” Amlo passed two new laws through Congress, both designed to increase Pemex and CFE market shares. The electricity industry reform law, for example, specifically states that fossil-fuel and hydroelectric energy should be given priority in power despatches to the national power grid, a change in existing rules which prioritise the lowest priced power, and which therefore tend to favour renewable energy sources. However, both laws have been temporarily suspended by the courts, who have ruled that they may be in violation of constitutional rules on free competition. Following mid-term Congressional elections (June 2021) López Obrador is expected to redouble efforts to push through these pro-fossil fuel changes even though, in the electricity sector, renewables offer cleaner power at more competitive prices.

Despite the existence of cheaper alternatives, Amlo is supporting the construction of a major new refinery at Dos Bocas in his home state of Tabasco, at an initial cost of US$8.9bn (but already there are reports of budget overruns that could add US$3.5bn to the price tag). The emphasis on fossil fuels means that targets set out in the Energy Transition Law, approved in 2015 by Peña Nieto, are unlikely to be met. The law established that, by 2024, 35% of domestic electricity supply should come from renewables, including hydro and nuclear. In 2020, 24.5% of Mexican electricity came from clean sources, but as a result of Amlo’s policies the proportion is expected to drop over the next few years. Also at risk is Mexico’s Paris Agreement commitment to reduce CO2 emissions by 22% by 2030. Daniel Chacón of the Iniciativa Climatica de Mexico (ICM) lobby group told website Equal Times: “If you don’t at least have decarbonised electricity, it is going to be very difficult to decarbonise everything else.”

For historic and legal reasons, the Falkland Islands should rightfully be Uruguayan. That at least is the conclusion of a book, entitled ‘¿Las Malvinas: Son uruguayas?’ or ‘The Falkland Islands: Are They Uruguayan?’, published by a Uruguayan architect, Juan Ackermann, and an Argentine engineer, Alfredo Villegas Oromí. They claim that Uruguay, and not Argentina, formally inherited sovereignty over the Falklands from the Spanish Crown.

The book presents documents prior to the British occupation of the Falklands in 1833 in which the British recognise Spanish sovereignty, meaning that they were conscious that their presence there was illegal. Equally, the book claims, texts show that when the Spanish Empire folded, it never ceded sovereignty over the Falklands to Argentina, but awarded it to Uruguay in 1841 in a treaty ceding all of the territories of the Apostadero de Montevideo (Spain’s main naval base for the South Atlantic) to Uruguay. This included authority over the Falklands, and the islands of Annobón and Fernando Po (off the coast of West Africa and now part of Equatorial Guinea). Ackermann argues that Spain did the same with Argentina 17 years later “but it couldn’t give it something it had already given another. That is a very strong argument in favour of Uruguay.”

As such, the book argues, Argentina’s occupation of the Islands between 1820 and 1833 was also illegitimate, taking advantage of the internal strife in the Banda Oriental del Uruguay which was formally annexed by the Brazilian Empire in 1824, before modern Uruguay gained independence in 1828 following an insurrection by the so-called Treinta y Tres Orientales, led by Juan Antonio Lavalleja, and the subsequent Cisplatine war.

Ackermann told the Spanish news agency Efe that the book was not designed to cause controversy but “to tell the truth and to advance a very healthy solution to the problem.” “For me, as an Argentine, it was very difficult to come to terms with this,” Villegas said. The book points out that a 1972 international agreement on the Antarctic, based on the 1841 treaty, actually confirmed Uruguay as the rightful owner of the Falklands and that this was ratified by both the Uruguayan senate and then, remarkably, the Argentine senate, suggesting that not all documents are read with great assiduity by senators.

The authors put forward a number of arguments for action Uruguay could take: 1) Make no claim. 2) Begin talks with Britain and/or the Islanders. 3) Play a role in Anglo-Argentine co-sovereignty. 4) Use the legitimate claims of Uruguayan sovereignty over the Islands to exert diplomatic pressure on Argentina to carry out the long-delayed dredging of the Martín García canal.

The Falkland islanders are due to vote on sovereignty in a referendum on 10 and 11 March. During a visit to London on 6 February Argentina’s foreign minister, Héctor Timerman, said that his country would not recognise the result of the referendum. He said that “the United Nations does not recognise a third party in the conflict” and that as such “the Falkland islanders do not exist”. Ackermann and Villegas would maintain that Uruguay is in fact that third party.

Timerman also snubbed talks with his British counterpart William Hague at the British Foreign Office because he had invited representatives of the Islanders to attend. Timerman also claimed that the Falklands would be Argentine within 20 years and compared the British claim to Israel’s occupation of the West Bank. Hague lashed back: “To compare the islands to settlers in the West Bank, which is an occupied land, is absolutely ridiculous…There are families in the Falklands who are in their ninth generation. The Falklands have been there longer than Argentina has had its current boundaries or existed in its current form”.

• Mujica jests

President José Mujica actually joked in the Argentine embassy in Montevideo last May that Uruguay was not a disinterested bystander in the dispute between Britain and Argentina over the Falklands and that after Argentina won this particular sovereignty debate “we will discuss if they are Argentine or Uruguayan”.