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The past month has produced some hideous economic statistics. On 20 May the national statistics agency, Inegi, reported that the country's GDP contracted 8.2% year-on-year in the first quarter. This was slightly worse than most local economists had forecast and is the biggest fall for 14 years. On 27 May Inegi reported that the official unemployment rate for April was 5.25%. Although this was slightly better than February's 5.3%, both are the worst since the 1995Tequila crisis. On 1 June the central bank reported that the latest consensus amongst independent economists was for a contraction of 5.8% year-on-year in 2009.

The only hope for Mexico is that the US economic recovery is sharp. Optimists point out that the US Bureau of Economic Analyss, which is part of the Commerce Department, revised its estimate of the first quarter contraction to 5.7%, up from an initial 6.3%.The same source also reported that US consumer spending rose by 1.5% in the first quarter of 2009 after two consecutive quarters of falls. There was also a 9.6% increase in sales of consumer durables: this was the first rise since 2007 and the biggest since 2006.

These pieces of data, plus the absence of any evidence that Mexican migrants are giving up on the US and returning home, suggest that the US slump may have bottomed.

What is not clear is how the bankruptcies of Chrysler and now General Motors (GM) will play out. Our view is that the bankruptcies will have a marginally beneficial effect on the companies' Mexican operations, and may lead to more investment in Mexico. The bigger question is how the bankruptcies effect the US supply chain and the wider economy in the US.

One faintly alarming statistic is that the US Federal Reserve reported that credit card financing in the US increased by US$15bn in the third week of January. Optimists see this as a sign of returning US consumer confidence. Pessimists say that the increase suggests that expensive credit cards are the only source of finance left to hard-pressed consumers.

What is undeniably bad news for Mexico is that US import demand is continuing to fall. In the first quarter, the US import bill fell11.8% year-on-year. Lower oil prices contributed, but so did the dire state of US consumer demand.

What should happen now is that there should be some month-on-month and quarter-on-quarter improvement in the US indicators, though the year-on-year comparisons will continue to look ghastly. It is worth remembering that the IMF remains gloomy about the US economy. It still expects a 0.5% contraction in the 2010, after a 2.8% decline in 2009.

The US dominates the Mexican economy, accounting for 80% of its exports, which are a key component in the overall Mexican economy thanks to successive government's espousal of freer trade. Exports in Mexico are probably worth about 30% of GDP.

Like Germany, there are few economic levers Mexican policyakers can pull when exports are such a key part of GDP. The federal government's overreliance on oil revenues (which accounted for 37% of total government revenues in 2008) means that it cannot afford to take too many fiscal risks. This makes Mexico different from Brazil, where fiscal revenues are broader and better balanced. Arguably Venezuela, which is even more dependent on oil revenues, built up more of a rainy day fund. Chile, which is just as dependent on copper revenues, was far more prudent than both oil producers.

The Banco de México had sensed that the economy was in a bad way on 15 May when it cut the benchmark interest rate by another 0.75 of a percentage point to 5.25%. The Inegi figures prompted a scramble by economists and the government to downgrade GDP growth forecasts for the whole year: the government is now forecasting a contraction of 5.5% for 2009.

The bigger question is what will happen in 2010. Agustí­n Carstens, the finance minister, said that although it was unwise to revise forecasts in uncertain times the current occasion was an exception. On 7 May he confidently forecast that the economy would contract by at most 4.1% in 2009; within weeks he changed this forecast decline to “about 5.5%" in 2009. Worryingly, Carstens is cautious about predicting a bounce in 2010, arguing that it would be silly to start forecasting a recovery until it was clear that the economy had touched bottom.

The IMF is also still cautious about 2010. It expects the global economy to recover and grow by 1.9% in 2010. What the Fund does not highlight is that, apart from this year, when it expects the first global economic contraction since the Second World War, this would be the feeblest world growth rate since 1991.

The rule of thumb for economists in Mexico is that for each percentage point the US contracts, Mexico contracts by 1.4 percentage points. The IMF forecasts respective annual falls of 2.8% and 0.5% in 2009 and 2010 for the US. Perversely, the Fund believes that the Mexican economy will contract 3.7% in 2009 but grow 1% in 2010.

These forecasts matter because Mexico's oil revenues, which have provided successive governments with up to 40% of their total revenues, are now declining. Oil production is falling and although Mexico has hedged against falling oil prices for 2009, it does not have such coverage for 2010. A contracting economy, which will produce lower tax revenues, and a depressed contribution from oil, will mean that the government will either have to borrow a lot more or take an axe to public spending. As 90% of public spending in Mexico goes on wages and pensions, any cuts are likely to have major political and social consequences.

Local economists say that the government and central bank have been far too slow in responding to the current crisis. The government's anti-crisis fiscal package, launched in January, was worth only about 1% of GDP. Carstens protested that the government was doing its best to counteract the effects of the contraction, without taking a major risk with public sector finances. He stressed that public-sector investment had increased by 33% in the first quarter of 2009 compared with the same period of 2008.

The Banco de México only started to chop interest rates in April and May (when it cut rates by 0.75 of a percentage point both times). At their current level of 5.25%, interest rates are now probably negative in real terms: the lagging 12 month inflation rate was 6.17% to the end of April.

The poor first quarter figures, which brought back memories of the 1995 Tequila Crisis, when the economy contracted 6.2% (and 9.2% in the second quarter of that year), were dominated by the collapse in manufacturing. Manufacturing output was down 13.8% year-on-year as US consumer demand fell off a cliff. Even construction, which is more closely tied to the domestic economy contracted 7.7% year-on-year. Oil production was down 4.5% year-on-year.

• Seasonally adjusted data is also a concern
  What should be worrying policymakers is the quarter-on-quarter fall. In the first quarter of 2009 the economy produced 5.88% less than it did in the fourth quarter of 2008. Another couple of quarters of these sorts of declines and 1995 will become a pleasant memory. Arguably the first quarter figures were flattered by the lateness of Holy Week (in April this year, but in March in 2008). Holy Week is still a public holiday in Mexico and means that March 2008 had significantly fewer working days than March 2009. The effect of the later Easter on the second quarter 2009 figures will depress the year-on-year comparison.

• Swine flu impact
  The second quarter figures will also bear the brunt of the effects of the recent swine flu (AH1N1) outbreak, which the government estimates cost 0.5 of a percentage point of GDP. The only comfort for the government is that these horrible figures will not come out until well after the mid-term congressional elections on 5 July.
  

Official figures show that the economy is not growing as fast as the government expected. Year-on-year growth in January was 3.63%, compared to a consensus forecast of 5.5%.

The main reason for the undershoot was a poor performance by manufacturing, with year-on-year growth of just 0.24%. Even mining, which should have been bolstered by the recovery in metal prices, was up by just 0.57%. This was, however, the first year-on-year increase since May 2009.

In 2009, the economy slowed sharply. Real GDP rose by just 0.9% year-on-year, after growth of almost 10% in 2008.

The strongest economic sector in January 2010 was construction, which grew 10.2% year-on-year. Credit demand was also strong, rising 10% year-on-year. Agriculture also did well, rising 6%. On the other hand fishing, which is highly volatile, saw a 27% year-on-year drop in output.

The government expects the economy to grow by at least 5% this year, but this looks optimistic to us.

Unemployment: The official statistics agency, Inei, said that the unemployment rate in Lima, which is used as a proxy for national unemployment, rose to 9.6% in February. In February 2009 the rate was 9.3%.

The export promotion agency, Centro de Trámite de las Exportaciones (Cetrex), claims that the country recorded record export receipts of US$1.92bn in 2010. Even so, the country is still the smallest exporter in Central America, apart from Belize. Even Honduras, whose exports have been falling in recent years, still exported US$2.4bn in 2010.

Opposition economists sniff that the country is still mostly exporting unprocessed commodities with little value added. The export sector is also highly concentrated: 10 companies account for 40% of the country's total exports.

On the other hand export receipts were up by 32% compared with 2009. They are now twice what the country managed in 2005. Coffee is still the country's most important export, brining in US$340m in 2010. Beef comes next at US$311m, followed by gold at US$222m, dairy products at US$135m and sugar at US$132m.

Five big companies account for the bulk of these exports. Nicaragua Sugar Estates accounted for US$105m; Cisa Exportadora US$104m; Matadero San Martí­n US$100m ;Minera Desminic de La Libertad, Chontales US$87m; and Nuevo Carnic US$82m.

The Cetrex noted that 60% of the country's exports are primary products. The bulk of these are produced by inefficient small producers who sell their crops or animals to big companies who handle the exports. A fair criticism from local economists is that the 50 or so companies who handle the bulk of the country's exports have not really diversified their offering in the past 60 years. Even Honduras has moved into new commodity exports such as palm oil.

One thing that has changed in the past few years is Venezuela's appetite for Nicaraguan food. A good chunk of the country's beef, dairy and bean exports now go to Venezuela.

The target for 2011 is to push exports up to US$2.5bn.

Inflation: In 2010 consumer prices rose by 9.23%. Consumer prices rose by 0.64% in December. The 2010 figure was 10 times higher than the 2009 rate but lower than the 13.8% rate recorded in 2008. The December inflation figure was reduced by falling prices for food & drink.

GDP: The central bank expects inflation of 7% in 2011 with annual GDP growth of 4%. The World Bank expects the economy to grow 3% in 2011.

Colombia's industrial sector, which accounts for almost 24% of GDP, put in a strong performance over the first half of the year. However, this was not reflected either in wage or employment figures.

In the January to June period, industrial production increased by 4.31%, while sales were up 4.4% and productivity rose 5.83%. Employment in the sector, however, was down 1.4% between December 2002 and June 2003, and it fell 2.6% from July last year. Wages for permanent employees in the sector fell 0.46% in real terms over the first half of the year, while their social security benefits were down 2.19%. Wages for the sector's temporary workers fell 3.73% over the same period.

Although Bogotá might be concerned by the falling employment, the fall in wages and benefit payments will be of much less concern as the government attempts to cut down on its expenditure. Indeed, finance minister Alberto Carrasquilla has announced that salaries in the public sector will be frozen until the end of 2004 and perhaps beyond, a measure the government hopes will boost its coffers by around Col$7bn (US$250m). Bogotá's efforts at bringing down the fiscal deficit yesterday earned the approval of an IMF team visiting Colombia ahead of the next formal negotiations with the multilateral, due in October or November.

Colombia will give details of its second-quarter economic performance tomorrow (Thursday), with the markets expecting the government to announce growth of 2.6% year-on-year.

The central bank sees the economy doing well in 2004. The bank's director of economic policy, Alfonso Bevilaqua, and the international director, Alexandre Schwartsman, both delivered upbeat assessments to the economic affairs committee of the senate yesterday.

Bevilaqua said that there were already signs that the economy was starting to pick up. The most obvious was the jump in credit in the first three weeks of September: demand from individuals was up by 3.3% (compared with August), while business demand was up by 5.4%. These figures implied that there would be a pick-up in industrial investment from its current low level of just 17.9% of GDP.

Bevilaqua argued that more spending by households would pull this figure up. He argued that the slackness of the economy meant that consumption could increase quite substantially without triggering inflation. The government yesterday cut its inflation forecast for both this year and the next. It is now reckoning that inflation this year will be around 8.9%.

Previously it had feared a rate of 10.2%. Schwartsman defended the government's economic strategy and claimed that next year the level of interest rates would not be a brake on economic growth. He said that the economy was definitely over the worst.

Schwartsman compared the putative deal with the IMF to both health and car insurance. He said that the economy had no health problems, but health insurance could still help if something unexpected turned up. He added that even though he was a good driver he would not drive a car without car insurance. The IMF deal, he implied, was like the insurance: only needed if things went badly wrong.

The supreme court ruled yesterday that illegal deprivation of liberty which results in murder (even if the body is never found) is a crime for which the statute of limitations does not apply. This historic decision opens the way to the prosecution of the soldiers and policemen who were involved in the dirty war against left-wingers in the 1960s and 1970s.

The ground-breaking decision was made on the details of the case of Jesús Piedra Ibarra, who was kidnapped in 1975. The supreme court's decision overturned a ruling by a lower court which struck out the warrants ordering the arrest of the senior officials from the (now disbanded) Dirección Federal de Seguridad (DFS) who had been responsible for Ibarra's arrest. The lower court judge had ruled that the crimes were subject to the statute of limitations and were thus time-expired.

The appeal against the lower court's decision was made by Ignacio Carrillo, the special investigator of the dirty war, who was appointed by President Fox. Ibarra himself came from a politically active family (his mother has run for the presidency twice). He commanded a guerrilla group before he was picked up and disappeared. The main events in the dirty war investigation are likely to involve the two great massacres of recent Mexican history: Tlatelolco on 2 October 1968 and Corpus Cristi on 10 June 1971.

Ibarra's mother, Rosario, said yesterday that she drew no pleasure from the decision by the supreme court. She said it had come terribly late.

Tension is beginning to rise in Venezuela as the referendum process moves towards a moment of truth. This week, the Consejo Nacional Electoral (CNE) should receive the completed petition papers from both the government's supporters and the opposition. The CNE will then have 30 days to verify and count the signatures and rule whether there should be recall referendums on President Hugo Chavez and 33 of his supporters in congress and, separately, on 37 opposition deputies.

The president of the CNE, Francisco Carrasquero, said yesterday that it would be a national catastrophe if either the government or the opposition ignored the CNE's decision on whether the recall referenda should go ahead. Carrasquero denied that Chávez was putting pressure on the CNE: he told an opposition-supporting daily that the President had been in touch, but only to congratulate him on what the CNE had achieved so far.

The opposition to Chávez claims that the President will do everything he can to avoid a recall referendum. Chávez denied in his weekly radio and TV show Aló, Presidente yesterday that he would declare martial law and cling on to power if there was a recall referendum. The opposition alleged that Chávez 's tour last week of military bases was part of the ground work for martial law. Chávez dismissed this accusation as simply silly.

Chávez landed at least a couple of verbal hits on the opposition. He claims that the opposition failed to get the 2.4m signatures it needs to force a recall referendum on him. He points out that there is something odd about the opposition's failure to hand over its petitions to the CNE. "They said that they would hand over the petitions in the same week as the signature gathering process ended (1 December) but here we are on 14 December and nothing has happened," he said. "They are trying to set up their fraud."

Chávez added that a tape recording of a telephone call between a former attorney general, Ramón Escovar Salom, now an opposition leader, and one of his [Escovar's] sons showed that the opposition had failed to get to 2.4m signatures it needs. In the call Escovar apparently admitted that the opposition had only got 1.9m signatures.

Mário Calixto Filho, chosen to substitute Senator Amir Lando in the senate, is being accused of electoral malpractice and corruption, and might lose his post. Amir Lando took up his new position as pension minister in the government of President Lula da Silva earlier this week following the reshuffle in the cabinet, in which the PMDB got two ministries.

Senator Calixto, from the Amazonian state of Rondônia, should not have taken office because he had his political rights suspended. In 1998, his O Estadão do Norte newspaper published a misleading article against his opponent Odacir Soares. Calixto was condemned by the Electoral Tribunal of Rondônia on the grounds of electoral malpractice, but appealed. Late last year his appeal was rejected, but a delay in the communication of the sentence to the senate allowed the embarrassment of having Calixto sworn into the position left vacant by Amir Lando.

The senate has given Calixto five days to defend himself against the accusation. The leader of the PMDB in the senate, Renan Calheiros, said the party does not intend to back Calixto if the case is proven. Calixto's name has also appeared several times in a special commission conducted by the senate to investigate irregularities in the Banestado Bank. According to the commission, Calixto received US$700.000 that he promptly sent to bank accounts in Miami. Although Calixto is being accused in 146 lawsuits, his parliamentary immunity protects him from prosecution. Calixto says the accusations are false and the product of the 'lack of freedom' in the Brazilian press.

Next Tuesday (3 February) there will be a vote deciding Calixto's future in the house. If he is forced to resign, the post will be left open to Elifas Paulo da Silva. However, Silva himself is also accused in 17 lawsuits. Meanwhile, in the lower chamber of congress the deputy José Borba was chosen to substitute Euní­cio Oliveira, now communications minister, for the leadership of the party. Borba had his mandate suspended in 1998 for having been caught by the senate TV voting three times in the place of the absent deputy Valdomiro Meger. Borba has also been accused of using money embezzled from the town of Maringá in the state of Paraná for his electoral campaign.

Argentina is on the brink of entering into default with the IMF. If the Fund does not approve its second review of Argentina's current loan programme by tomorrow (9 March) the government will be obliged to pay out US$3.15bn, but Argentina's President Néstor Kirchner has already made it clear this payment (equivalent to 20% of Argentina's reserves) will not be met without a guarantee from the Fund that the money will be reimbursed.

As Argentina had feared, the arrival of renowned hardliner Anne Krueger as acting head of the Fund, following the surprise resignation of Horst Köhler last week, has had an immediate impact. She called Argentina on Friday (5 March) to demand four things: that Argentina's proposed commercial debt deal is accepted by 80% of bondholders rather than the 50%-66% originally targeted; that the deal is reached in September; that priority in negotiations is given to the Global Committee of Argentina Bondholders (GCAB); and that Argentina confirm in legally binding terms that the banks it has chosen to oversee the debt restructuring - Merrill Lynch, UBS, Barclays, Nación, BBVA, and Galicia - will not pull out of the process.

With less than five days to fulfil these demands, the ultimatum is a particularly harsh one for Argentina. Sources within the Fund suggest it is a deliberate tactic, that Krueger wants Argentina to default in order to jolt it into moving ahead with its private-debt deal. A default will not spell the end of relations between Argentina and the IMF, but will make dealings all the more tense.

The government has reacted defiantly to the prospect; Kirchner has rejected Krueger's demands and declared yesterday he remains 'firm' in his belief that Argentina has done enough to warrant IMF approval. Cabinet chief Alberto Fernández said that 'no one wants to default, but it is the IMF that is not keeping its side of the bargain, not Argentina'. The government has also said that it has a 'Plan B' for dealing with life outside the global financial community.

An IMF mission yesterday gave its approval to Colombia's economic management. Robert Rennhack, who is heading the mission to assess Colombia's progress under a stand-by loan agreement reached in January 2003, said that Colombia was 'complying with the programme'.

Specifically, Rennhack praised the government's success in keeping down inflation last year despite the stronger-than-expected growth of the economy. GDP expanded 3.74% in 2003, and treasury minister Alberto Carrasquilla has estimated that it grew by 3.8% in the first quarter of 2004. Regarding the economy as a whole, Rennhack said that 'the risks have diminished a lot compared with the previous year_We see the situation here as very positive'.

Rennhack reiterated the IMF's opposition to government proposals to use foreign-exchange reserves to pay off its debts ahead of schedule, after the central bank recently gave the government US$500m to do so. He said the current level of reserves - at US$10.9bn - should be maintained.

The head of the IMF mission also said the government's planned pension reforms were very important, although he said they would not have an impact until 2008 as the government tries to bring down its fiscal deficit to 2.5% of GDP this year from 2.8% in 2003. Carrasquilla yesterday said that the government had postponed introducing the reforms until June so that they stand a better chance of approval.

The Chilean government's proposed application of royalties on copper mining and its supposed preference for thermal, rather than hydroelectric, power has been sharply criticised by business leaders.

Business leaders in both sectors have criticised the government's aim of changing the rules governing their operations as likely to reduce international investor confidence in the transparency of Chilean regulation. The managing director of Chile's largest electricity company, the Spanish-owned Endesa Chile, Héctor López, has warned the Chilean government of the dangers of 'Argentinizing' Chile's regulatory framework.

And the head of Chile's Mining Council, William Hayes, who has criticised the government's plans to introduce royalty payments on top of the current mining taxation regime. The mining boss claims that the sector contributed seven times more to the Chilean exchequer in the first quarter of 2004 than in 2003, even without new taxes. 'Changing the rules and adding a royalty is not fair play,' he said. 'There is a tremendous surge in tax yield, the model is working and has worked, so my question is why change it?'

But the Chilean government has dismissed the business sector's criticisms, arguing that Chile has some of the clearest regulation in the world. Economy minister Jorge Rodrí­guez said Chile is ranked in the top 10% of countries for regulation, well above Endesa's home country of Spain. And in the case of Endesa, the minister also argued that the change in business conditions suffered by the electricity generators is more the result of the crisis of Argentinean gas supply rather than any perceived change in emphasis by the Chilean government.

Development: The Partido Revolucionario Institucional (PRI) went after Marta Sahagún, the wife of President Vicente Fox, on 28 June. A group of PRI senators formally accused Sahagún of financial irregularities in the way her charity, Vamos México, was run and in its links to the national lottery.

Significance: The PRI accusation, lodged with the civil service ministry, presents the government with a tricky choice. If the government refuses to investigate the accusation, or to take it to court, it risks opening a flank: it has argued in its controversial prosecution of the mayor of Mexico City, Andrés Manuel López Obrador that no one should be above the law. If the government does take up the accusation, it risks knocking the president's wife out of the race to succeed him in 2006. She is currently running second in the opinion polls, behind López Obrador.

Sahagún has responded furiously to the accusation. She issued an open letter saying that she had always acted openly and honestly. She said the fact that the director of the national lottery, Laura Valdés, had consulted her about moving public money from the lottery to social projects did not mean that either she or Vamos México was influencing where national lottery projects (specifically a trust, Transforma a México) should spend public money, and even less that public money had gone to projects managed by Vamos México.

Development: The cardinal archbishop of Tegucigalpa, Oscar Andrés Rodrí­guez Maradiaga, has spoken out against the increase in drug-trafficking and related crime in Honduras. On 4 August Rodrí­guez demanded that the government take measures to address the problem, which, he said, was the biggest threat to peace in the whole of Latin America.

Significance: When Rodrí­guez speaks people tend to listen to him. Although he was only made a cardinal in 2001, he is a serious contender for the top job in the Vatican when the current Pope dies. He plays an active role in public life in Honduras. He is chairman of the Consejo Nacional Anticorrupción and has chaired a forum on strengthening democracy. He has never shied away from advising the government on political or economic policy, most recently arguing that Honduras should stop making principal payments on its foreign debt to the multilaterals if it failed to qualify for debt relief under the IMF's Highly Indebted Poor Countries programme.

Rodrí­guez's latest admonition to the government - to clamp down on drug-trafficking or risk the proliferation of organised crime - comes after his visit to Bogotá in his capacity of secretary-general of the Consejo Episcopal Latinoamericano. He said it was sobering to discover just how many judges involved with drug-trafficking cases are murdered in Colombia. 'This cannot be allowed to be repeated in Honduras', he said. On 29 July, appeals judge Francisco Sánchez Agurcia was murdered in his home in Tocoa in the eastern department of Colón.

Earlier this week, the US announced that it had earmarked US$749,142 to Honduras for anti-drug initiatives. The US embassy in Honduras said that the financial support was in recognition of Tegucigalpa's impressive efforts to clamp down on drug-trafficking. Honduras confiscated 6 t of cocaine in 2003 and has confiscated 4 t of cocaine so far this year.

Development: On 8 September the opposition announced that it had 61 of the 67 votes it needs to begin an impeachment process against President Lucio Gutiérrez.

Significance: A serious, co-ordinated attempt to remove President Gutiérrez is starting to take shape. The will to oust him has been around for a while, but the means to do so, at least constitutionally, remained elusive until the return to the political scene of exiled former president, Abdalá Bucaram. Gutiérrez's strategy of shoring up political support ahead of October's local elections by flirting with the idea of allowing Bucaram, the figurehead of the third-largest party in congress, the Partido Roldosista Ecuadoriano (PRE), to return to Ecuador has proved a risky move. Although it is likely Gutiérrez will escape impeachment this time, the number and ideological variety of his enemies demonstrates a worrying capacity for unity amongst his opponents.

The official reasons given by the opposition for the impeachment process are 'the misuse of public funds and betrayal of the country'. More precisely however, the process was triggered by Gutiérrez's promise to Bucaram, whom he met at the inauguration of Panamanian President Martí­n Torrijos on 1 September, to set up a commission of lawyers to look into whether any legal loopholes might allow him to return. Bucaram is currently in exile in Panama, accused of the misappropriation of US$90m of public funds after congress decreed he was 'mentally unfit to govern' in early 1997.

Of the 61 votes the opposition claim (out of a total of 100), 25 of them come from the largest party in congress, the rightwing Partido Social Cristiano (PSC), which voted en masse to initiate proceedings against the president. The opposition to Gutiérrez, however, comes from across the political spectrum, including members of the far left MPD, the indigenous party Pachakutik, socialists, social democrats and the centre-right DP party. Some of these parties were once allies of Gutiérrez's beleaguered Partido Sociedad Patriótica (PSP), who have only 6 seats in congress and are at risk of failing to win the 5% necessary to stay on the electoral register in October's elections.

Equally pertinent is who backed the government and why, and for how much longer will they continue doing so? The parties most notable by their absence on the opposition's list were the PRE, the second-largest party with 15 seats, and the Prian, the third-largest with 10. Indeed, it is the PRE's very absence that supports the theory that Gutiérrez has struck a deal with Bucaram. Another suspicion among the opposition is that the Prian's support is linked to the government's decision to fire the head of the tax office, Elsa De Mena, who was preparing to fine Alvaro Noboa, a banana magnate and head of the Prian, US$12m for unpaid taxes. The vice-president of the Prian, Vicente Taiano, insisted that De Mena's refusal had nothing to do with the investigation into Noboa.

Bucaram, meanwhile, has stated categorically that there can be no deal with Gutiérrez. 'I cannot support President Gutiérrez in an alliance between my party and the government because the government has been kidnapped by the Ecuadorean right wing - my political enemies. It's practically a PSC government,' he said. 'I only support the president with respect to democratic stability in the country'. The ex-president has also said that he will return to Ecuador 'whatever the circumstances' before 17 October, the date of the local elections.

Despite the 61 votes the opposition claim, however, no party or individual has yet to set impeachment proceedings in motion. Even though Gutiérrez looks set to escape this time, his fraternising with Bucaram has landed him within touching distance of the former president's own fate.

Significance: Barros has long been wanted by authorities for his role in trafficking illegal narcotics from the department of La Guajira, where he controls some 150 natural ports used to smuggle drugs to the US and the Caribbean. However, the search against him was stepped up when he carried out a number of massacres against the indigenous Wayúu population in La Guajira.

Despite being part Wayúu himself, Barros's ties to the people have been strained since the 1990s. The fragile peace was shattered when Barros called in the Bloque Norte of the Autodefensas Unidas de Colombia (AUC) to protect his drug-trafficking business in 2002. The paramilitaries have since been responsible for the deaths of 76 members of the Wayúu. Hundreds more Wayúu have also been forced to leave their homes.

An interesting footnote to Operation Patria 67, which captured Barros and 31 other alleged members of the AUC, is the suggestion that the arrest took place over the border in Venezuela, which borders La Guajira. Barros has Venezuelan nationality, and his family is saying his rights have been violated. Irrespective of the legal ramifications, the Venezuelan government will have viewed the incident with interest as it has persistently accused Colombian paramilitaries of crossing into Venezuela.

Development: The government announced in the 12 November edition of the Diário Oficial that it will pay, by the end of the week, the first instalment of the R$600m (US$215m) it promised to finance congressmen's pet projects.

Significance: The pay out was a precondition set by congressmen to resume work in congress, which has been at a standstill since August. The result should be that crucial legislation, notably the public-private partnerships (PPP's) bill, will again start to wind through congress. Congressmen complained the government had not provided the R$874m (US$312m) set aside in this year's budget to fund their projects. In a meeting last week, congressmen made it clear to the government they would block votes in the lower chamber unless the money was paid out.

Congressmen are now preparing to start voting on 16 November on the first of the 21 presidential decrees, which are currently delaying the lower chamber's schedule. In the senate, things have been moving faster: as soon as the presidential decrees are approved in the lower chamber, they have to be approved by the senate. Consequently, the decrees halt work in the upper house, since under Brazilian law decrees take priority over all other legislation.

The senate expects to have the wide-ranging judicial reform bill approved early next week and then move to vote on the PPP bill, which has been stuck in the upper house for over nine months. The PPP bill regulates the partnership between public sector and commercial companies in financing investments in infrastructure and is integral to the government's investment policy.

The government sealed an agreement with senators last week allowing the state to make up 70% of the total cost of infrastructure projects when developed in partnership with the private sector. On 17 November a draft of the PPP bill will be voted on by the two commissions set up by the senate to analyse the government's proposal and a final vote on the PPP is expected to be held by 26 November.

Development: The government announced on 16 December that the IMF decided to delay the signing of a standby deal until January.

Significance: The decision will delay the disbursement not only of US$111m in IMF loans, but also of support from other multilaterals, such as the World Bank, the IDB and the Corporación Andina de Fomento. The Fund told the government that it wanted to see what final form the new hydrocarbons law took and what the government's policy on fuel subsidies will be.

The delay in inflows from multilaterals will be serious if it lasts very long into 2005. Around 70% of the budget deficit is financed by international loans and aid. The budget deficit in 2004 was around 8% of GDP: in 2005 the government is aiming for a fiscal deficit of 5.5% of GDP.

The fuel subsidy has become quite a drain on the treasury: it will be about US$80m this year. The hydrocarbons law is highly controversial: the prosperous east of the country fears that the highlands will push for a nationalistic law that will deter foreign investment.

Development: On 27 January the court of appeals in Temuco, in Region IX, stripped Jorge Lavandero, a senator belonging to Democracia Cristiana (DC), of his parliamentary privileges. This means he will now stand trial for charges relating to the sexual abuse of minors.

Significance: Accusations of paedophilia have dogged Chile's political class for the past 18 months. In 2004 an alleged paedophile ring involving a well-connected businessman and two senators from the opposition Unión Demócrata Independiente not only sullied the reputation of those accused but also discredited the Catholic Church and brought down the editor of the state-owned newspaper, 'La Nación', even though the case eventually collapsed. The charges against Lavandero, a key architect of the government's plans to create a royalty for copper mining, have turned the spotlight on the conduct of governing politicians.

The president of the court in Temuco read a statement in which he explained that the court had found the charges to be of a sufficiently serious and plausible nature to merit further investigation. At present, the statement continued, the court saw no reason to detain the senator. Lavandero's defence lawyer, Camilo Salvo, said that he would appeal to the supreme court. The prosecutor, Xavier Armendáriz, explained that his next move would depend on the supreme court's decision, but he did not rule out the possibility of asking for preventative detention.

The DC senator faces three accusations. Two of them allegedly occurred a decade ago and the other, two years ago. The testimony against him comes from former supporters and people who worked in his political campaign, as well as workers from his extensive properties in the south. In 2001, Lavandero was the only senator who was against the mining agreement with Argentina, saying it would endanger Chile's sovereignty.

Chile is the world's most important copper producer and copper accounts for about 40% of the nation's exports. Lavandero has often noted that in the mining business there is more money flowing back and forth than in drug trafficking, and he has stated that disgruntled mining interests may be behind the effort to sully his name.

Development: The state council ruled on 2 March that the government cannot send militiamen and peasant soldiers to combat zones.

Significance: There are some 20,000 militiamen and 10,000 peasant soldiers in Colombia's armed forces, which totals 367,000 men. They are crucial to President Alvaro Uribe's democratic security policy because they can be left to protect local communities while the fully-fledged military chases the Fuerzas Armadas Revolucionarias de Colombia (Farc) and other rebel groups around the country.

However, the state council decided that these militiamen and peasant fighters are not sufficiently well-trained to take part in combat operations. Its ruling follows an investigation into the death of a young militiaman who was killed by militants in 1996 during an anti-drugs operation.

The head of the military, General Carlos Alberto Ospina, said that the defence ministry would have to assess the ruling fully before making a decision. He limited his own comments to saying that "it is very difficult to protect Colombia and its civilian population".

The ruling could prove even more serious for the government if the peace process with the Autodefensas Unidas de Colombia (AUC) goes according to plan. The 20,000-strong paramilitary force has been fighting the Farc and other groups for the last 20 years, but is set to give up its struggle by the end of this year if a deal is reached with the government.

Talks between the government and the AUC are currently stalled while the government tries to establish a legal framework for the disarmament process. However, the El Tiempo newspaper suggested on 2 March that the government and its majority in congress have finally agreed on a bill to be presented to the legislature. Insiders suggest the bill will be considered acceptable by the AUC, which has made it very clear it will not make paramilitaries hand over their weapons in exchange for lengthy jail terms.