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Former president Néstor Kirchner will soon begin to mould the Partido Justicialista (PJ) in his own image after receiving the support of the party's congress to become its new leader on 7 March. Some 86% of the 913 PJ delegates gathered in a convention centre in Buenos Aires. They unanimously approved Kirchner's decision to stand for leader of the PJ. Potential challengers have until 18 April to register for internal elections on 18 May. Otherwise, Kirchner will be rubberstamped as leader.

The congress lasted no more than an hour and contained neither political nor doctrinal debate. Kirchner did not attend but his influence was omnipresent. The night before PJ bigwigs had met to thrash out the composition of the party authorities. They designated a new five-member electoral authority and chose the governor of Formosa, Gildo Insfrán - an ultrakirchnerista - as president of the congress, which legislates within the party. Insfrán was one of the first people to support Kirchner in the PJ before 2003. They also agreed that the new party council, the executive organ of the PJ, would be cut in half from 146 members to 75: the president; five vice-presidents; 23 councillors; and 46 secretaries.

Kirchner's principal political rivals within the Peronist sphere, former presidents Carlos Menem and Adolfo Rodrí­guez Saá, did not attend the congress, a strong indication that for all their tough talk Kirchner has successfully marginalised them and they are powerless to stop him. Kirchner will handpick his vice-presidents over the next month: the two favourites are Roberto Lavagna, his former economy minister who came third in October's presidential elections on an anti-Kirchner ticket but was reconciled with Kirchner in February [WR-08-05]; and Hugo Moyano, the leader of Argentina's umbrella trade union organisation, the CGT.

Moyano throws weight behind Kirchner

The day before the PJ congress, Kirchner participated in a big public event along with his wife, President Cristina Fernández, and Moyano, which underscored the alliance between the government and Moyano. Fernández publicly thanked Moyano for "sustaining the economic, social and cultural model" of the country, a reference to his decision to moderate the CGT's salary demands, asking for a 19.5% increase, less than the 20% ceiling favoured by the government.

Moyano said Fernández had demonstrated that she would "never vote against the workers". He said he was confident that she "will make the country Perón and Evita dreamed about". This completed a remarkable turn around for a man who only last November threatened to "cross to the other side of the road" if the government failed to respect workers' rights. It was an important endorsement for Fernández coming after her upbeat assessment of the economy to a joint session of congress on 1 March [WR-08-09] which was criticised by opposition figures who claim she has nothing to show for nearly 100 days in power.

Separately, Kirchner received a major fillip last week when a judge decided to archive an investigation into him for fraud. This was related to his decision, while governor of Santa Cruz, to deposit some US$500m of provincial funds abroad in mid 2001 to avoid the financial crisis. Kirchner announced the repatriation of the money in August 2005 but it remains in a trust fund administered by Banco Santa Cruz in a Swiss bank.

On 18 June Rio's Federal Justice ordered the Brazilian army out the central Rio favela of Morro de la Providencia, following the death of three young men over the weekend of 13-15 June after being handed over to a rival gang by a group of soldiers. The case has shocked Brazil and brings to the fore the tensions between the government and local authorities over the role of the armed forces in urban security.

Judge Regina Coeli Medeiros de Carvalho ruled that army troops should leave Providencia, although military technical personnel involved in social projects will be allowed to remain. The judge based her ruling on the fact the constitution does not allow the use of the army as a police force. Curiously, only last week the defence minister, Nelson Jobim, said he intended to send to congress by the end of the year a proposed new legal statute sanctioning the use of the armed forces for 'urban conflicts', such as drug trafficking in the favelas. The proposal falls under the ministry's new National Strategic Defence Plan.

Seven soldiers, three sergeants and one officer were involved in the incident, which took place on 14 June. The officers caught three adolescents (another two may have escaped), and allegedly took them to a local army barracks before transporting them in a military truck to a nearby favela, Morro da Mineira, run by a rival drugs gang. The bodies of the three were found early on 15 June on a dump: they had all been tortured and mutilated before being shot in the face.

According to some press reports, the soldiers “sold" the three to the rival gang. According to their own leaked statements, they wanted to teach the three a lesson for disobeying army orders and, somewhat disingenuously, did not expect them to be killed. Rio's civil police force has detained the 11 officers, three of whom have allegedly confessed to the crime. They face prosecution for kidnapping and may also face homicide charges. Rio's state governor, Sergio Cabral, categorised the acts as criminal.

While police officers have long been known to be corrupt and heavily involved with local drug trafficking gangs, this is the first time the army has been exposed in this manner. The army has been stationed in Providencia since the end of 2007, ostensibly in order to provide security for various social investment and infrastructure projects run by the Cities Ministry.

• Lula reacts

President Lula da Silva said on 18 June that the act was “abominable". He called for justice and said the state would have to compensate the families of the victims for their losses. However, the president stopped short of saying the army should be pulled out of the favelas, saying that it would be pre-emptive to allow one “very serious error" to dictate any decision.

ARGENTINA | Gas price rise. The planning minister, Julio De Vido, increased gas prices by between 10% and 30% last week, the second utility rate increase in as many months. In late July, he raised electricity prices by a similar amount. On both occasions he focused on the government's efforts to redistribute wealth: consumers of mains gas, predominantly wealthier households, will bear the brunt of the increases, subsidising the cost of gas cylinders, more commonly used by those on lower incomes, which will be reduced by more than half from Arg$40 (US$12.9) to Arg$16. De Vido said the extra revenue would also fund energy-investment plans to improve services. He hinted that there would be further increases, arguing that gas prices were still lower than in neighbouring countries.

PARAGUAY | Colorado rift. The divisions that the Partido Colorado struggled to keep in check while in power are sharpening now that it is in opposition. The faction of the party that supports former president Nicanor Duarte appointed Senator Lilian Samaniego as party president last week. The trouble is Osvaldo Domí­nguez Dibb, a wealthy businessman and inveterate opponent of Duarte, has been acting as party president since 31 July after a party tribunal ruled in his favour. Domí­nguez had come second to Duarte in internal elections in 2006. Duarte was forced to step aside because of a legal impediment to holding two public positions (President of the Republic and party president) simultaneously.

Domí­nguez denounced Samaniego's appointment as illegitimate because it did not take place in party headquarters and vowed to remain in the post himself. He claims that Duarte is conspiring to install a puppet to take control of the party after the defeat of his aspirations to become an elected senator. Samaniego had been the senate leader of the dissident Movimiento Vanguardia Colorada (MVC) bloc. The MVC, which promptly jettisoned her, accuses her of taping a conversation between Luis Castiglioni, the leader of the MVC, and President Fernando Lugo about a possible pact. The internal convulsions have put paid to hopes that the Partido Colorado would provide a constructive opposition.

ARGENTINA | Inflation. Inflation amounted to 0.3% in December, bringing the annual figure to 7.2% in 2008, according to the national statistics institute, Indec. This falls neatly within the central bank's projection of 7% to 11% inflation in 2008. Private analysts accuse the government of manipulating the figures. They claim the real figure is three times that released by Indec.

BRAZIL | MST funds. Government funds awarded to Brazil's largest landless movement, the MST, have fallen to their lowest level since President Lula da Silva came to power. In 2008 the MST received only R$1.4m (US$580,000), 10 times less than in 2004. That year congress challenged the MST's lack of juridical status, which prevented its leaders from being prosecuted for illegal actions, such as land invasions, carried out by the movement. Congress then demanded thorough checks on the MST accounts, which led the ombudsman to block the payment of government funds to most MST projects. The MST turns 25 in February. It plans to mark the anniversary with a series of protests.

CHILE | Interest rates slashed. The central bank cut interest rates by a full percentage point to 7.25% last week, and predicted they could fall to 4% by the third quarter depending upon inflation. It made the cut because of a “drastic change in the macroeconomic scenario". The economy grew by just 0.1% in November, while inflation (-1.2% in December) is no longer such a threat. Meanwhile the government announced a 12.7% increase in the salaries of members of the armed forces and military police, Carabineros, to make up for pretty static wages over the last 12 years. The increase, which amounts to some US$96m, will be implemented in two stages: the first immediately after approval by congress; the second, on 1 January 2010.

The presidents of the executive, legislature and judiciary signed a national “security and justice" agreement last week in the latest attempt by the government of President Alvaro Colom to tackle Guatemala's ongoing security problems. Colom was quick to hail as “historic" the declared commitment by all three branches of government to address the issue. However, it is arguably the pledge to extend the mandate of the UN-backed International Commission against Impunity in Guatemala (Cicig), tasked with investigating links between organised crime and clandestine “security" groups within the state apparatus, which will have the most impact.

In a ceremony staged at the national theatre, Colom signed the 101-point agreement along with the president of congress, Roberto Alejos, and the interim president of the supreme court, Eliú Higüeros, together with attorney general Amí­lcar Velásquez.

Based on recommendations by the Roman Catholic and Evangelical Churches; the human rights ombudsman and the University of San Carlos (Usac), all of which will oversee its implementation, the accord covers ten broad areas including police reform; arms control; the prison service; judicial reform and security policy. Key provisions include the creation of a public security ministry and the extension of Cicig's two-year mandate (which was due to expire in September).

The government is yet to reveal how Colom's latest security initiative will be financed. Héctor Rosada, a negotiator for the 1996 peace accords, described the agreement as nothing more than a “letter to Father Christmas". He also flagged up concerns over the lack of clarity surrounding the proposals, as well as the government's failure to provide a time frame or to prioritise the implementation of the measures. Helen Mack, a prominent human rights activist, questioned how the accord would be funded and expressed scepticism over whether there genuinely existed the political will among all three branches of government to turn the signed pledges into reality.

The declared commitment to Cicig is a step forward. The efforts by the UN-backed committee are beginning to bear fruit: two weeks after the approval of a long-awaited arms law at the end of March [WR-09-14], congress approved amendments to the penal code, both the result of lobbying by Cicig. This includes measures to strengthen witness protection, including the use of video-conferencing as well as widening the definition of extortion, a crime punishable with a 6-12 year prison sentence.

The approval of the two pieces of legislation follows the announcement that Cicig is beginning investigations into 32 military officials, including four former defence ministers as well as ex President Alfonso Portillo (2000-2004). The latter, who is accused of the disappearance of some US$15m earmarked for the now-defunct presidential general staff as well as other crimes, returned to Guatemala from Mexico last October to be tried for corruption, only to be released on bail of some US$130,000 within hours of his return, a move which provoked a public outcry at the time [WR-08-40].

BOLIVIA | Iran. Iran's top diplomat in Bolivia, Masoud Edrisi told reporters that Iran had approved a US$280m low-interest loan for the government of President Evo Morales to use “as it sees fit". The move, which has reportedly attracted criticism from Iranian legislators who claim the decision was made without the Majlis's [parliament's] approval, is the latest sign of the growing Iranian presence both in Bolivia and the region. Iran established diplomatic ties with Bolivia in late 2007, which was followed by a visit by Iran's President, Mahmoud Ahmadinejad to Bolivia last year [WR-08-15].
Countering Iran's influence in the region was the reason why Israel's foreign minister, Avigdor Lieberman, recently conducted a 10-day visit to Latin America - the first by an Israeli foreign minister for 20 years. Lieberman's mini tour, which took in Brazil, Argentina, Peru and Colombia, concluded on 30 July. He did not get what he had sought: unequivocal condemnation of Iran's nuclear programme. “Iran claims that it is developing nuclear power for peaceful purposes and until there is proof to the contrary, we have no problem with it," Brazil's President Lula da Silva said.

PERU | Mining. The mining company, Doe Run, owned by a US multi-billionaire, Ira Rennert, declared itself insolvent this week and requested that Peru's state regulatory agency, Indecopi, assist in a restructuring process. Doe Run operates a multi-metal smelter, La Oroya, which has been paralysed since June after banks cut its credit lines on fears over falling metals prices. Doe Run owes US$110m to its suppliers and US$150m to cover the cost of an environmental cleanup plan, which it is obliged to carry out by the end of October.
Indecopi will have its work cut out ensuring that operations continue and safeguarding 3,500 jobs. President Alan Garcí­a said in April that if La Oroya was allowed to close definitively it would create “a snowball effect" with serious social implications. Then prime minister, Jorge del Castillo, said that the repercussions of La Oroya's collapse would be of Lehman-like proportions - the implication being that the government could not afford to stand by and watch Doe Run fold as the US government had the merchant bank, Lehman Brothers, because of the repercussions for Peru's whole mining sector [WR-09-13].

Against a backdrop of tension over the US-Colombia military bases deal, the rightwing government of President Ricardo Martinelli has triggered fresh concerns about increased US presence in the region, with the announcement of plans to build several new aerial-maritime bases in Panama. The government strenuously denies US involvement, stressing that the new stations, which are intended to combat organised crime, are a “completely Panamanian initiative". However, earlier remarks by government officials coupled with a recent visit to Washington by Martinelli, have left civil society groups suspicious and, on 11 November, university students clashed with police in Panama City during protests over the proposed bases.

Panama's deputy interior minister, Alejandro Garuz, confirmed on 2 November that the government was planning to open four air and sea monitoring stations to crack down on organised crime. Panama remains an important hub for the transit and distribution of South American cocaine and heroin, with local intelligence estimating that there are over 2,000 hideouts on the Pacific coast as trans-shipment bases for narcotics. The proposed bases will be located on the Pacific coast, in Bahí­a Piña near the border with Colombia, and Punta Coca in the Veraguas province. Garuz told reporters that the sites would be manned by the national police, border agents and other government agencies and that the US would not be involved. US bases in Panama were closed and US military forces left the country at the end of 1999, in line with the Panama Canal treaties which outlaws foreign military presence on national soil.

Garuz's denial of US involvement followed remarks by interior and justice minister, José Raúl Mulino splashed across the local media at the end of September, regarding an “international cooperation agreement" (widely interpreted to mean with the US) to establish two naval bases on Panamanian territory. Mulino had formed part of a Panamanian delegation to Washington which met US Secretary of State Hillary Clinton to discuss “bilateral" issues - including anti-drug efforts. While Mulino's suggestion that the planned bases were anything more than a domestic initiative was immediately contradicted by the vice president Juan Carlos Varela, the spectre of renewed US military presence has provoked a strong reaction from civil society groups which warn that such a move would “violate human rights and international law".

VENEZUELA | GDP contracts sharply. The economy contracted by 3.3% in 2009, after five straight years of growth, according to the central bank. In the final quarter of 2009 GDP fell by 5.8% compared with the same period a year earlier. Oil-related GDP fell 7.2%. Non-oil GDP was down by 4% in the fourth quarter and 2% for the year: retailing fell by 13.9% and manufacturing by 6.9% in 2009, while non-tradables grew.With oil prices still low, the government is only predicting growth of 0.5% in 2010. There was a balance of payments deficit of US$10.26bn in 2009 after a surplus of US$9.28bn in 2008, showing how reliant Venezuela remains on high oil prices and the failure of the government, despite claims to the contrary, to diversify the export economy. Oil exports (90% of total exports) were down from US$87.44bn in 2008 to US$54.20bn in 2009. Inflation finished 2009 on 25.1% and, with January's devaluation, will remain high this year.

President-elect Juan Manuel Santos announced that Marí­a Ángela Holguí­n, a former ambassador to the UN and Venezuela, will serve as foreign minister when he takes office on 7 August. This is the most important position in the cabinet as, on the one hand, Colombia needs to restore full diplomatic relations with Ecuador and mend ties with Venezuela, while on the other hand, preserve its special relations with the US and ensure it does not become isolated in Latin America. Santos will have a dearth of ideological allies in the region as he indirectly acknowledged by saying in a press interview last week that he felt “close" to Chile's President Sebastián Piñera and Peru's President Alan Garcí­a (whose term ends next year).

Santos had hinted last week, after naming Juan Carlos Echeverry as his finance minister, that he would not reveal his cabinet until he takes office [WR-10-25]. Since then, however, he has also named a transport minister, Germán Cardona, and designated Juan Meza, part of his campaign team, as head of strategic communications, dealing with the press and public relations. Meza was private secretary to former president Ernesto Samper (1994-1998). But Holguí­n is indubitably the key appointment. Holguí­n, who has worked in the public sector for the last decade, studied political science at the Universidad de los Andes in Bogotá, before completing postgraduate studies at the Centre d'Etudes Diplomatiques et Strategiques (CEDS) in Paris, and the Sorbonne. She held a senior position in the Colombian embassy in Paris in the 1990s.

Holguí­n's knowledge of French, and France, could be important. French President Nicolas Sarkozy might not be as interested in helping to resolve Colombia's internal conflict now that the Franco-Colombian politician Ingrid Betancourt has been rescued from the clutches of the Fuerzas Armadas Revolucionarias de Colombia (Farc) but President Alvaro Uribe is intent on keeping him involved: he sought Sarkozy's assistance this week in recapturing the Farc's 'foreign minister', Rodrigo Granda, who Sarkozy had persuaded him to release in 2007 to facilitate a “humanitarian exchange" with the Farc.

It remains to be seen exactly how much clout Holguí­n will have as foreign minister - Uribe tended to act as a super minister, assuming control over key decisions and leaving much of his cabinet, with the notable exception of Santos, with peripheral roles. Her appointment, however, is very shrewd - and not just because of the French connection.

Holguí­n has Venezuela experience, having served as ambassador there between 2002 and 2004, although relations with Caracas are very much dependent on domestic politics in Venezuela, which she cannot control. She should also help to ameliorate ties with Ecuador, which severed diplomatic relations after the Colombian military's cross-border raid on a Farc camp in March 2008. Ecuador's President Rafael Correa has filled his cabinet with females and seems to develop a much closer rapport with women than men. The manner in which the US Secretary of State, Hillary Clinton, managed to charm Correa during a visit to Quito in early June will not have been lost on Santos [WR-10-23].

Spying operation?
Holguí­n might have her work cut out in August, however, pacifying Correa who reacted with indignation this week to claims that the Colombian intelligence service, the Departamento Administrativo de Seguridad (DAS), had been spying on him. On 28 June the Ecuadorean daily El Universo published allegations from an anonymous source it claims was a former DAS agent, based in Quito, in charge of a surveillance operation codenamed 'Salomón'. The source claimed that the DAS had tapped phones in Correa's presidential office and those of other Ecuadorean authorities, and that the operation started after the March 2008 raid, presumably to attempt to discover whether Correa knew about Farc activities in Ecuador or even to uncover any complicity with the Farc.

Correa announced that his government would investigate the allegations. He said that if they were found to be true, Ecuador would have to break diplomatic relations with Colombia again (they do not currently exist at ambassadorial level but the countries exchanged chargés d'affaires last November). The attorney general, Washington Pesántez, also promised to follow up the allegations.

The DAS vehemently denied the allegations and it received the full backing of the Colombian government. The defence minister, Gabriel Silva, said that “some people" were intent on sabotaging the normalisation of diplomatic relations between the two countries. Despite Silva's remonstrations, it is not altogether surprising that the allegations caused disquiet across the border: the DAS has an egregious reputation for spying on all and sundry in Colombia - from journalists to opposition politicians to supreme court judges. That said, it all seems a bit tenuous, and the timing of the allegations, just over a month before Santos' investiture, lends some credence to Silva's claim that “some people" are intent on thwarting attempts to thaw relations.

It is worth noting, however, that the timing of the allegations could play into Santos' hands. In February 2009, after revelations by the Colombian weekly current affairs magazine Semana about the extent of illegal wiretapping by the DAS, Santos, then defence minister, said the DAS needed “intensive surgery […] the patient is too ill and it would be better to give a Christian burial." Uribe at first blanched at the prospect, but last September called for the DAS to be dismantled and replaced by a new streamlined agency with fewer responsibilities. Little has happened in practice. If Santos came in and showed the political will to break up the DAS it would play very well to Ecuador.

• Correa

President Correa said that he would accept the denials of both the DAS and the Colombian government that the allegations in the El Universo report were not true, until proven otherwise. There are already signs that the story will not hold together. The head of the Ecuadorean police force, Freddy Martí­nez, told El Universo on 30 June that sergeant number 6406, who appears in the report, does not exist and that police officers are not identified in this way in Ecuador. Martí­nez added, however, that a special investigations unit within the police would look into the rest of the claims.

It did not take long. Some two weeks after the police uprising on 30 September, President Rafael Correa showed his determination to drive through some of the more radical reforms envisioned in his “citizens' revolution". Undeterred by the uprising, Correa made use of his increased popularity, and a more pliant national assembly, to push through a key piece of legislation which empowers him to increase public spending significantly. Other legislation aimed at boosting local production by increasing trade protectionism is pending.

The public finance law was sent to the national assembly before the police uprising as an “urgent" economic proposal, which meant deputies had just 30 days to approve it or it would become law by decree. Support, therefore, was not necessary, but would increase the law's legitimacy. In the event on 14 October, the bill was approved decisively by 73 of the 116 deputies present in the national assembly. Its speed and ease of passage owed not just to the time constraints on debate but also because deputies from the ruling Acuerdo Paí­s (AP), and other assorted left-wingers, preferred to remain silent rather than object. Dissidents have denied the government a majority in recent months, prompting Correa to moot disbanding the national assembly and stage fresh elections, but they appear to have been cowed by the uprising. Not so Correa, who scotched any suggestion that the uprising might prompt him to withdraw the bill and seek greater political consensus for major reforms.

The stated aim of the new law is “to redefine the concept of public debt" to increase government “flexibility". The president of the national assembly, Fernando Cordero, said the law increased transparency and committed the government to greater decentralization. Paco Fierro, a deputy for the opposition Partido Sociedad Patriótica (PSP), said the law “should be renamed the code of protection for compulsive government spending". His extreme reaction was motivated by two articles in the new law: one states that public debt may not exceed 50% of Ecuador's GDP (up from the current limit of 40%); the other stipulates that the government will be able to increase or reduce the budget by 15% without needing modification to be legislatively approved.

Both articles suggest that the government is desperate for cash to fund public investment. Since its 'selective default' in 2008 it has been unable to tap the markets for a planned US$1.5bn bond issue and forced to negotiate a credit agreement with China for oil exports to fund infrastructure projects, despite Correa's initial objection to the terms. The new law includes an article allowing the issuance of short-term treasury notes, known as Cetes, to obtain quick financing for public investment projects, and exempting classification of these as public debt. There are no restrictions on how many Cetes can be issued. Correa, it should be noted, had fiercely criticised Cetes, ordering that they be outlawed - until access to alternative financing dried up.

The Cetes are unlikely to prove too attractive and there is a strong suggestion that the social security institute will buy the bulk of the debt, not least an article in the law permitting 75% of its funds to be held in bonds, and allowing pensions and compensation to be paid in bonds. Private-sector banks will also be allowed to hold 75% of their reserves in as central bank bonds. Diego Borja, the president of the central bank, which lost its autonomy under the 2008 constitution, was fiercely critical of the new law. He said that by definition reserves to guarantee deposits had to be liquid and not investments or else they guaranteed nothing.

The public finance law is just part of what the coordinator of economic policy minister, Katiuska King, described during a visit to Washington earlier this month as a “profound restructuring" of economic policy promoting social justice. King said that reactionary “economic groups" were hiding behind the police uprising, intent on thwarting these changes. King quipped that “Ecuador is looking for a society with a market, not a society for the market". In a meeting with the IMF, she said that prioritising human capital had allowed Ecuador to grow by 3% in the last three years and brought poverty down from 37.6% in December 2006 to 33% in June 2010.

No amount of gloss can really hide the facts though. Correa would not be performing a U-turn on Cetes if Ecuador's finances were in a healthy state; the central bank announced 2.7% growth in the second quarter, one of the lowest in the region, when the budget was predicated on 6.8% annual growth; and remittances were down 5% to US$1.1bn in the first half of the year.

On the plus side, efforts to crack down on tax evasion are having some effect: the tax take reached US$5.97bn in the first nine months of the year, 15.7% up on the same period last year, according to the state tax agency (SRI). The tax take increased by 8% to US$6.69bn for the whole of 2009 on the previous year, and 20.4% to US$6.2bn in 2008 on 2007. Oil prices, which must recover for Correa's ambitious plans to be sustainable, are also climbing. Exports of crude increased in September by 31% to 9.1m barrels on the same month a year earlier, the state oil company Petroecuador reported. These exports generated US$615.6m for Petroecuador, an increase of 38% on the US$447m obtained in September 2009. Ecuador earned US$3.6bn from oil exports in the first half of 2010, up 80% on the same period last year.

Ghost of Raúl Prebisch is stirring - in Ecuador
One of the most interesting announcements King made in the US is that Correa would shortly push through legislation allowing “the selective substitution of imports as part of an endogenous development strategy". In other words, the government is poised to embrace the import substitution industrialisation (ISI) popularised by Raúl Prebisch in the 1950s, which advocates state intervention to stimulate industrialisation.

King was not especially long on detail but she said that tariffs would be used to improve the production and productivity of determined sectors: she said that the auto industry, textiles, shoes and paper are imported in large quantities because local industry cannot meet the demand or compete with imports (for price or quality).

King said that while imports are being restricted, industry must be supported, receiving incentives, technology transfer, technical assistance and credits. There are inherent flaws with ISI, however, which the opposition, not just political but business, were quick to point out. Protection of industries, through tariff barriers and handouts, causes dependency. The lack of competition often leads to inefficient industries producing more expensive lower quality products, as the sudden shortage pushes prices up, and inputs are still required from abroad.  

If these policy proposals demonstrate that the global financial crisis and economic slowdown reinforced in the government's mind the need for far greater state intervention in the economy, the police uprising underlined the need to move swiftly. At least, that is, according to René Ramí­rez, the national secretary of planning and development (see sidebar). “The public came out to topple presidents in the past: this is the first time in history they came out to defend a president, to defend a political project," Ramí­rez said, adding that the government could not let them down.

• Land reform

René Ramí­rez, the national secretary of planning and development, said that the government would now move to accelerate land reform by handing out idle state land, expropriating unproductive private estates or increasing taxes to force reluctant owners to sell.

REGION | Food security. The Central American Integration System (Sica) will coordinate two three-year programmes aimed at improving food security in the region, at a cost of US$38.68m, most of which will come from the European Union (EU). The announcement comes as governments across the region grapple with sharp price rises for beans, corn and other food staples, following local shortages due to climate change as well as a general rise in global food prices. Last month Honduras extended a two-month price freeze on 33 basic goods by 20 days. This was introduced last November after food price inflation hit 6.8% year-on-year in October, the highest since May 2009. In El Salvador, where the price of red beans, a key staple, increased 138% over the year, from US$0.52 to US$1.24 per pound, the government announced that, as of next month, it will begin importing some nine million pounds of beans from China at a cost of US$5m. Meanwhile in Guatemala, where chronic malnutrition is particularly acute, affecting 43% of the population, President Alvaro Colom announced on 10 February a waiver on tariffs on imports of 82,000t of maize and 25,000t of wheat flour imports; since the start of 2011, flour prices have increased 18% while in the final week of January maize prices increased 15%.          
Overall, Nicaragua registered the highest inflation for 2010 (9.2%), followed by Honduras (6.5%); Guatemala (5.4%); Costa Rica (4.8%), and Panama (3.5%).

NICARAGUA | Remittances. Remittances reached US$823m in 2010, 7% up on 2009, the central bank reported. It is forecasting a further 5.1% increase in 2011 in remittances, most of which come from the US and Costa Rica.

The key political questions for the region are:
Will President Lula da Silva win a second term in Brazil in 2006?
Who will win the Mexican presidential elections in 2006?
What will happen in Venezuela?

Our view is that President Lula will win a second term in Brazil. He is squaring up to the country's social and economic problems and has not plumped for magic or easy solutions. The steadiness of his government's economic policymaking indicates that his government is there for the long term and wants to be able to enjoy the benefits of its abstinence.

If Lula does win a second term, those Latin American countries that allow re-election are likely to have more reforming governments. Instead of scratching at the surface of the dauntingly steep income-distribution pyramid, the region's governments will be more likely to make the far-reaching, but slow-to-appear reforms that will reduce income inequalities and poverty levels.

A successful, left-leaning Brazil is likely to have a magnetic effect on the rest of South America. In Uruguay, Tabaré Vázquez looks certain to win this year's presidential election and in both Argentina and Paraguay, the new governments are very definitely left-of-centre. Bolivia is flirting with the radical option of the coca growers' leader Evo Morales, who came a close second in the last presidential election; admittedly none of the candidates managed more than a 25% share of the vote. Peru and Ecuador could both shift to the left. Chile is more likely to continue with Concertación than appeared likely a year ago. Only Colombia looks likely to pursue right-of-centre policies.

Our answer to the second question, who will win in Mexico in 2006, is more guarded. In 1998, two years before the 2000 elections, Vicente Fox did not look like a winner. He was lucky in lots of ways. The ruling Partido Revolucionario Institucional made things easier for him by running its first ever national primary; this was both divisive and dull. The uninspiring winner, Francisco Labastida, was unable to rally the party behind him. On top of this, the economy started to grow strongly, creating a feel-good factor which emboldened Mexicans to take a chance on Fox. The desire to do this was compounded by widespread feeling that the PRI should be punished for the disastrous devaluation of 1994/1995. Thanks to the devaluation Mexico slid back from being on the verge of joining the industrialised world to being, once again, a less developed country.

This time around, Andrés Manuel López Obrador, the mayor of Mexico City is the obvious frontrunner for the presidency. Already the smears and dirty tricks designed to thwart his progress have started. These tricks serve at least three other candidates' interest: The first is López Obrador's longtime rival in Tabasco, Roberto Madrazo, now leader of the PRI. The second is Madrazo's rival, and number two in the PRI, Elba Esther Gordillo. Both politicians have been close to Carlos Salinas de Gortari, the sinister and ambitious former President (1988 to 1994). The third is Marta Sahagún, President Fox's wife and, unless congress manages to prevent her by changing the rules, the only strong Partido Acción Nacional candidate for 2006.

It is not even clear that Mexico will continue to have a three-party system. After all, this only came into effect in 1988. Previously there was the PRI and the Partido Acción Nacional, which was not allowed to win major elections, and a host of weak fringe parties. Now, all three of the major parties look in danger of splitting.

Our guess is that López Obrador will win the presidency in 2006 and that the congress elected that year will contain twice as many parties (so at least 12) as the current congress. Paradoxically, this political fission may make it easier for López Obrador, (or whoever) to assemble a coalition in congress.

In Venezuela, even though the opposition has scraped together enough votes to trigger a recall referendum, we doubt that it will get enough votes in the referendum to force Chávez from office. Under the constitution, the opposition needs to get one more vote than Chávez did in 2000 to force him out. He won 3.7m votes (59%) of the votes cast in an election in which 6.27m voters turned out. In theory, 12m people could vote. Given that the opposition has had difficulty assembling signatures from 20% of the electorate, (or 2.4m people) it is hard to see them getting to 3.7m. 

Although Chávez is likely to remain in power for the rest of his mandate, the increasingly desperate state of the economy, compounded by the fall in oil prices, will mean that he will lose the 2006 elections. The probability is that the winner will be some charismatic unknown, who will be independent of the current opposition to Chávez . Such an outcome is likely to mean that the unrest in Venezuela will resume in 2005 after a lull in the second half of this year.

Paraguay has become the focus of attention for many of those concerned with Latin American strategic affairs. This is because of the fallout from a mid August visit by US Secretary of Defense Donald Rumsfeld at a time when US military exercises were prompting speculation about purported US intentions of establishing a military base [SSR-05-07]. The fallout included the unveiling of the Pentagon's current perceptions of strategic threats in the region, and Brazil's decision to raise the profile of its own simultaneous military exercises in the area.

Few if any of those who spread the rumours about US plans to set up a military base in Paraguay are still sticking to the story - but many still feel that Washington is up to something sinister. The Servicio Paz y Justicia (Serpaj), the human rights NGO led by Argentine Nobel peace prize winner Adolfo Pérez Esquivel, has taken to claiming that the US military exercises are 'just a smokescreen' for the introduction of a 'Plan Paraguay' somehow analogous to 'Plan Colombia'.  

Serpaj is vague about details, beyond noting close coordination between Paraguayan prosecutors and police and Colombian 'agents', what they describe as a 'permanent US military presence', the installation of an FBI office and the presence of the DEA plus 'some loose CIA agents'. Such imaginings would normally merit little attention, but President Nicanor Duarte felt compelled to deny publicly that any 'Plan Paraguay' was in the works.

What attracted surprisingly little attention was the strategic scenario conveyed in background briefings for the press by members of Rumsfeld's entourage who can only be identified as US officials. In tight précis, this went as follows:

Last year the US began to see clearly the return of an aggressive Cuban foreign policy. The Cubans have started playing hardball again. With Venezuelan funding, Cuba has reactivated its underground networks throughout the region, particularly in Bolivia. Havana has been providing political guidance [to Evo Morales], encouraging violent protests and seeking to discredit Bolivia's democratic institutions. Venezuela supplies the funds and moral support. The US fears that this could spread to other countries, as there is a huge indigenous population distributed over the entire Andean region and even into Paraguay. The US has reappraised the role of Venezuelan President Hugo Chávez ; while a year ago he was seen as a comical figure, he has now emerged as a real strategic threat. A multilateral approach is needed to counter the Cuban and Venezuelan moves; the US cannot respond on its own. Hence, Rumsfeld's past and current trips to the region have the purpose of sounding out friendly governments and seeking to formulate as multilateral a strategy as possible.

President Duarte felt it necessary, after Rumsfeld's departure, to restate that Paraguay's relations with Cuba and Venezuela were good, that Cuba had its commendable points, such as its engagement in 'true solidarity' despite its lack of resources, and that Venezuela had signed an energy agreement which represented great savings for Paraguay. He did, however, mark some distance from Chávez . 'We do not share,' he said, 'an international policy based on the exclusion and demonisation of the United States.'

This said, at least one official in Duarte's government took up the message that the Cubans were again a threat. Migrations director Carlos Liseras announced that he had asked the public prosecution service to look into the fact that this year large numbers of Cubans ('at least 200 a month') who had entered Paraguay on tourist visas had overstayed them and vanished into thin air. He suggested that the same was happening with Venezuelans and Colombians.

Brazilian display of force
The Rumsfeld visit drew media attention towards an event which had actually taken place a fortnight before his arrival. On 27 July the Brazilian military set in motion a spectacular display of military readiness, codenamed Operação Relí¢mpago (Operation Lightning).  

About 250 paratroopers of the Rio-based Brigada de Infantaria Pára-Quedista were airlifted to a spot close to the huge binational Itaipú hydroelectric complex, on the Brazilian-Paraguayan border. There they joined forces with 180 mobile infantry troops from the 34 º Batalhão de Infantaria Motorizado, based in Foz do Iguaçu, on the Triple Border.  

Their target was the substation of the power utility Furnas, node point for the distribution of a quarter of Brazil's electricity, assumed to be under threat from violent protesters. It took these units, part of the Força de Ação Rápida Estratégica, 11 hours to complete a 140-kilometre deployment and secure the Furnas installations, which greatly pleased the planners. The action took place only 20 kilometres from where a team of US army medics was conducting a health-provision exercise in the border locality of Villa Ygatimí­.

The commander of the paratroop brigade, General João Francisco Ferreira, denied that the simultaneity was anything but coincidence. 'Our exercise,' he said, 'was planned last year. The American presence in Paraguay is more a matter of national policy.' He failed to note that the series of US exercises was also planned well in advance, and that the Brazilian army is very selective about which exercises get full media exposure. As most other countries, its exercises are, apart from training, about sending messages.

How close to the US?
Duarte's post-visit statements suggest that, for all his willingness to host US military exercises, he is not minded to joint in a 'multilateral' strategy to counter the perceived threat from Cuba and Venezuela. One Paraguayan political analyst and rights activist, Alfredo Boccia, has a somewhat conspiratorial theory about current relations between Asunción and Washington: that the one who has been promoting a closer alliance is not Duarte but his vice-president, Luis Castiglioni.  

This seems to be based chiefly on the fact that, when he visited Washington in July, Castiglioni was received by US Vice-President Dick Cheney and assistant secretary of state for western hemisphere affairs Roger Noriega - and that it was Castiglioni who announced afterwards that the FBI would be establishing an office in Asunción in late 2006. Duarte's personality does not seem to stretch to tolerating a vice-president conducting an independent foreign policy.

Argentina has rejoined the US-organised Unitas naval exercises after a four-year absence. Ecuador has pulled out of Unitas in a temper over what it perceives as US disregard for its sovereignty. Several analysts have seen this as confirming a drift towards improved relations between Washington and Buenos Aires, and increasingly frostier relations with Quito. The two headline events distracted attention from the strategic framework in which the US is now casting Unitas - the 'thousand-ship navy' (TSN).

Unitas 2007-Atlantic got underway on 4 May with the participation of three ships from the US, five from Argentina, four from Brazil, and one apiece from Chile and Spain. The novelty that made local headlines was Argentina's return to the Unitas exercises after a four-year absence. In 2003 Argentina decided not to take part when the US demanded full immunity from prosecution for it's military personnel, in line with its refusal to sign a bilateral immunity agreement (BIA) shielding US personnel from surrender to the International Criminal Court (ICC).

Unlike other Latin American governments which refused to sign BIAs, Argentina was spared the suspension of military aid due to its status as a 'major non-Nato ally' of the US. By the time this year's Unitas exercises came around, the US was ready to accept what the Argentine congress called 'functional' immunity, that is, immunity from prosecution for acts committed while engaged in the exercises, rather than blanket immunity. The Argentine senate approved the grant of 'functional' immunity the same day the nine-day-long exercises began.

When two hoots matter

With a month to go to the launch of Unitas 2007-Pacific Phase, the government of Ecuador announced that it was withdrawing from the exercises, which it had intended to host, in protest at the US decision to take the hosting into its own hands (from Mayport, Florida).  

Two -not necessarily contradictory- explanations have been provided for this turn of events. The US embassy in Quito said that lengthy discussions had failed to find a formula to reconcile Ecuador's claim to sovereignty over 200 miles of sea and the US position of recognising only 12 miles of territorial waters (which had not been a problem in previous Unitas exercises). Ecuadorean president Rafael Correa said that the problem had arisen over the protocol to be followed by Peruvian warships when they entered Ecuadorean waters from the south. The protocol, he said, would have been a 'salute' by way of sounding the fog horn.

Correa muddied the waters by adding, 'Regrettably, certain sectors in Peru - not the government or democratic sectors - want to create conflict where there is none, and they have come up with the notion that the maritime border is not the parallel we have always used but a bisection which they are trying to impose on us and also Chile.'

The US embassy said the decision to shift the hosting had been taken because time was running out for the scheduled launch of the exercises in June. Correa said this decision was taken without consultation and reflected disregard for Ecuador's sovereignty. "I don't know," he said, "if the chief of the US Southern Command believed we are a colony of the US and that our navy was just one more unit of the US Navy." Foreign minister Marí­a Fernanda Espinosa said that diplomatic protest notes would be sent to the governments of the US and Peru.

Twelve countries were invited to take part in Unitas 2007-Pacific Phase. So far it is known that Chile, Colombia and Peru will be participants.

'A thousand ships'

This years Unitas exercises have been defined by the US as "aimed at improving inter-operability between the participating navies." The objective of the exercise is to allow participants to organise and conduct combined tasks as a multinational force and promote theatre security cooperation through enhanced joint planning, execution, command and control and logistics. On 6 June the US Navy's NNS service quoted the operations officer of the destroyer squadron taking part in the Atlantic Phase of Unitas, Lieutenant-Commander Donald Voebel describing the exercises in the following terms, "This is an excellent opportunity for partner nations to operate as a coalition task group. Any time we can come together and execute precise military manoeuvres and tactics is beneficial to meeting the CNO's vision of a 1,000-ship navy."

The notion of the TSN is virtually unknown in Latin America. It is the brainchild of US Admiral Mike Mullen, chief of naval operations (CNO). He put it to President George Bush Jr in August last year, and in December disseminated it more widely through an article in The Honolulu Advertiser. Mullen defines it as “a global maritime partnership that unites maritime forces, port operators, commercial shippers, and international, governmental and nongovernmental agencies to address mutual concerns."

In this context, the concerns roughly match the list of threats to the US enumerated in mid-2006 by Vice-Admiral John Morgan, the US deputy chief of naval operations for information, plans and strategy: nuclear, chemical and biological terrorism, the proliferation of ballistic missiles, the creation of regional instability, threats to the global economy and 'the rise of evil genius'.

In Mullen's blueprint for the TSN, "Membership in this 'navy' is purely voluntary and would have no legal or encumbering ties. It would be a free-form, self-organising network of maritime partners - good neighbours interested in using the power of the sea to unite, rather than to divide. The barriers for entry are low. Respect for sovereignty is high."

Writing on the on the TSN in a recent article in the [US] Armed Forces Journal Christopher Cavas writes: "The Thousand-Ship Navy is one of three overlapping strategy initiatives now in development. In 2006, Mullen called for the navy to develop a new Global Maritime Strategy to guide its concepts of naval operations and proposed a concept called Global Fleet Stations to build relationships and support forward presence in countries around the globe.

Taken together, the efforts are aimed at positioning the navy to operate against a range of concentrated or diffuse threats ranging from major international competitors to individual terrorists."

It does not require much imagination to predict how such a definition of the strategies might go down in a sovereignty-conscious region which is already touchy about even the wildest rumours about the establishment of US military bases.

Eliciting reactions to the TSN, Cavas came across a retired US military officer who advised against a close association between the initiative and the US in favour of an appeal to broader international needs. He quotes him as saying, "If TSN is perceived as American, it is dead in the water. For it to work, explicit and implicit references to US security concerns have to go."

Bolivia's interior minister Alfredo Rada admitted on 9 February that coca eradication efforts had been suspended since the beginning of the year, but blamed this on the lack of cooperation from the Narcotics Affairs Section (NAS) of the US embassy, which hitherto had been providing assistance specifically for eradication. The US denies any suspension of assistance and says that eradication will continue with the funding unchanged.

Last September, following the expulsion from Bolivia of US ambassador Philip Goldberg; the United States Agency for International Development (USAID)  and US Drug Enforcement Agency (DEA), then-President George W Bush accused Bolivia of 'failing demonstrably over the past 12 months to adhere to its obligations under international counternarcotics agreements' and suspended the benefits it enjoyed under the Andean Trade Preference Act (ATPA) and the Andean Trade Promotion and Drug Eradication Act (ATPDEA).

In 2008 Bolivia met its legally mandated target of eradicating 5,000 hectares of coca plantations, down from 6,269ha in 2007. The US contribution to Bolivia's antidrugs effort in the financial year 2007-08 was US$25m.

Rada demanded the support of the US and the European Union in Bolivia's fight against drugs 'because both are the biggest international consumer markets.' He went on to say, however, that Bolivia would resume coca eradication with its own resources, in line with its policy of 'nationalising' its anti-drugs efforts. This, he explained, means that 'the strategies, objectives, means and methods will be defined by the Bolivians.'

Bolivia's deputy minister of social defence, Felipe Cáceres, who is responsible for the antidrugs effort, added that the government would move to eradicate all coca plantations found in national parks. He said that according to intelligence reports, new plantations had been established in these parks. He made special mention of 18ha devoted to coca growing in the Madidi national park, an important tourism attraction in the north of La Paz department, as well as  existing plantations in the Carrasco and Isiboro Secure parks in Cochabamba.

On 13 February, President Evo Morales said that he would ask Russia to help in the antidrugs efforts during a scheduled visit later in the month. He said he would buy helicopters for this purpose immediately, and would request other aircraft on loan. That same day US embassy spokesman Kris Urs told the media that the US had not suspended its assistance for coca eradication and that the campaign would resume within days, with the same amount of assistance as before. He added, though, that conversations were under way with the government to find ways 'to make the eradicators' work more effective while minimising costs.'

• CIA blamed for corruption in YPFB

On 21 February, President Evo Morales accused the US Central Intelligence Agency (CIA) of infiltrating Bolivia's state oil company Yacimientos Fiscales Petrolí­feros de Bolivia (YBFB) and contributing to the corruption scandal which saw the departure and subsequent imprisonment of its president Santos Ramí­rez. Morales named Ramiro Carrasco, a former marketing director for the state oil company, as a CIA spy and lamented the fact that the ex YPFB chief, founder of his ruling Movimiento al Socialismo (MAS) and a key ally, had “fallen into the trap" laid by Carrasco.

Peruvian president Alan Garcí­a has launched a new, slimmed-down but more ambitious version of the 'Pacific Arc' initiative he championed four years ago. He is proposing what he describes as an 'in-depth integration agreement' with Chile, Colombia, Ecuador and Panama and an alternative to the 'doomed' existing integration mechanisms. As with his previous initiative, Garcí­a is seeking partners among the governments that are closest to the US. Brazil, meanwhile has signalled that it intends to press ahead with Mercosur (and with other 'variable geometry' initiatives).

What Garcí­a means as 'in-depth integration' is the free movement of goods, services, capital and people. Achieving this, he said when he announced the scheme on 18 October in Lima, 'would be the most daring step our continent could take nowadays.' He has already set the same targets for his proposed free-trade agreement with Panama, dreamt up when Panamanian president Ricardo Martinelli visited him last August which, according to Garcí­a, is already on track for finalisation by the end of this year (a first step was the signing of a bilateral agricultural cooperation agreement in mid-October).

This approach, he says, will be all the more effective if adopted together by the four prospective partners he has approached, in whom he sees a common interest in their position on the rim of the Pacific and the possibility of taking advantage of 'new universal systems such as Apec'.

Garcí­a says that the existing Andean integration scheme, the Andean Community of Nations (CAN) has been unable to meet its targets in the 41 years since its inception, based as it was 'on other criteria, other theories and a different world'. The region's other integration mechanisms, he reckons, are 'doomed to permanent litigation'.

Back in 2006 Garcí­a had proposed the formation of a 'Frente del Pací­fico' (Pacific Front) with the 'pro-market, pro-investment' (and implicitly anti-Chávez ) countries of Latin America's Pacific seaboard: Peru, Chile, Colombia and Mexico. The media gave this scheme a new name, 'Arco del Pací­fico' (Pacific Arc), which was promptly taken up by Garcí­a and by Luis Ernesto Derbez, then Mexico's foreign minister -both of whom claimed leadership of the project. Garcí­a went as far as to describe the Pacific Arc as the lynchpin of Peru's foreign policy.

After Chilean president Michelle Bachelet endorsed the initiative, the Pacific Arc came into being ostensibly as an informal forum, which incorporated Central America. It held two ministerial meetings a year in 2007 and 2008, and a summit in the latter year. Then it began to lose steam, holding only one ministerial meeting a year in 2009 and 2010.

For now, Garcí­a will have to await the response of his prospective partners (he wrote them a letter outlining the idea just before his mid-October announcement). In the mean time, a neighbour not included in the scheme, Brazil, has made it clear that it still believes in the existing mechanisms.

As Garcí­a was announcing his new initiative, Brazilian foreign minister Celso Amorim was telling the Mercosur parliament, Parlasur that Brasí­lia intended to devote its pro-tempore presidency of Mercosur to two objectives: consolidating the customs union (by sorting out exceptions to the common external tariff) and resuming negotiations on the trade in services within the bloc. He also threw Brazil's weight behind the agreement whereby the Mercosur council, the bloc's highest political organ, adopted proportional representation for Parlasur and the direct election of representatives.

At present each country has 18 representatives, designated by their legislatures. From 2011, Brazil will have 37 representatives, Argentina 26 and Paraguay and Uruguay 18 each. The mechanism for direct election of Parlasur representatives has not yet been decided, nor the timetable for its introduction. Brazil will preside over Mercosur until the end of this year.

Brazil's announced decision to move ahead with Mercosur has been given greater credibility by the victory of Dilma Rousseff, Lula da Silva's chosen successor, in the presidential runoff held on 31 October. Her rival, José Serra, had been openly sceptical of Mercosur's usefulness to Brazil and had advocated changing its rules so that Brazil could negotiate separate trade agreements with third countries.

Brazil also signalled that in South America as on the broader international scene it will continue to enter what its diplomats call 'variable geometry' arrangements — arrangements with different groups of countries for different purposes. On 21 October it reached a military border cooperation agreement with Colombia and Peru. The scope of this agreement was defined by the military commanders of the three countries in Leticia, Colombia.

Its two main tracks involve the exchange of intelligence, on illegal crossborder flights by drug traffickers and gunrunners, and on the movements across borders by Colombian guerrillas. The commanders agreed to programme periodical joint exercises to hone their ability to curb these crossborder movements.

General Francisco Contreras Rivas, chief of the joint command of Peru's armed forces, stated publicly after the meeting that, though not frequent, crossings by Colombian guerrillas into Peru are a fact of life along the border department of Putumayo. 'The guerrillas cross the border to rest and to escape persecution by the Colombian military,' he said.

The three commanders also took advantage of the occasion to state that they were not concerned by the news of Venezuela's nuclear cooperation agreement with Russia.

Peru engaged in some 'variable geometry' of its own by holding its first-ever '2+2' bilateral meeting with Bolivia. Foreign and defence ministers from both countries started outlining an agenda of cooperation in areas such as efforts to combat drug-trafficking, smuggling and people trafficking, and the exchange of military experience in such matters as peacekeeping and de-mining operations.

While other commodity prices have recovered from their 2008 collapse, Liquefied Natural Gas (LNG) has not. The current price of LNG is only just over a third of the peak it hit in July 2008 of US$13.69 per million British thermal units (but). The weakness of the gas market has tilted the balance of power in the region's energy markets towards buyers and big users of gas (such as Chile and Brazil) and away from sellers (such as Bolivia and Venezuela).

Around the world, rising supplies of LNG have created a glut of gas, according to the International Energy Agency. Qatar, the world's biggest exporter of LNG, is the main reason for the glut and it reckons that it may last until 2012. Qatar boasts that it can produced gas at a cost of just US$0.15 per million British thermal units (but), though turning the gas into LNG costs another US$2.85 per   but.

The financial markets, and energy policymakers, have yet to wake up to the consequences of this over supply. The futures market is forecasting average gas prices of US$6 per but in 2010, but this looks ambitious. Some gas market watchers, such as the Schork Group Inc, forecast that the price will edge down to US$4 per mbtu. The current LNG spot price is US$5 per mbtu.

The reason the market may have failed to realise that there is a glut is that US demand for gas is surging. In 2009, US imports of LNG increased by a third (34%) to 470bn cubic feet. And that was despite the economic slowdown. The US Energy Department is forecasting that US demand for gas will rise by another 40% in 2010.

The glut is good news for end users. Supply is more than keeping pace with demand as more LNG projects, from Qatar to Peru, come on stream. The dash for gas was powered by fears about global warming. Gas emits about half the carbon dioxide of oil when it is burnt. LNG is the easiest way to ship gas from production centres to places where it is needed.

Qatar has the world's third-largest gas reserves and is a major global LNG player. As gas prices tripled between 2002 and 2008, Qatar increased investments but failed to fix long term prices for about half its output, gambling that prices would continue to rise. Instead the price tanked. Some gas analysts reckon that Qatar is now shipping gas for little or no return.

Qatar's gamble is that it can continue to increase its annual LNG production so that when prices recover it will dominate the market. It plans to increase its output of LNG to 77m t by the end of 2010. Qatar guesses that demand will start to recover in 2012 or 2013. “By 2013, 2012, the world will see more demand than supply", Qatar's energy minister, Abdullah al-Attiyah said at a conference in Doha at the beginning of November.

The danger for producers like Qatar is that the the rising demand (and prices) for gas in the US has prompted companies to investigate new technologies for extracting gas from shale, among other efforts.

Qatar is not the only country with a big stake in the global gas market. Russia and Iran are equally important. In early December 2009, Qatar hosted a meeting of the Gas Exporting Countries Forum (GECF) of 11 nations to discuss the sagging world market for gas.

The members of the GECF, including three from Latin America and the Caribbean, are: Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad & Tobago and Venezuela. Essentially, the GECF controls the majority of the world's reserves of gas but is a marginal player in the global gas trade.

Russia and Iran, which have the world's largest gas reserves, competed to name the first secretary-general of the group, which may come to rival the price-setting clout that the Organization of Petroleum Exporting Countries (Opec) has in crude oil markets. Russia won the race for the secretary general's position, which went to Leonid Bokhanovsky. Russia's energy minister expects the Gaspec to start to flex its muscles in 2010.

The GECF holds nearly 70% of the world's 6,254 trillion cubic feet of proven gas reserves in 2009. BP, an international energy company, calculated that at the end of 2008 the world's proven reserves would allow production to continue at its current level for 63 more years.

Venezuela has by far the biggest gas reserves in Latin America: 170.9 trillion cubic feet (4.84 trillion cubic metres). Bolivia comes next with 25.1 trillion cubic feet, followed by Mexico with 17.6 trillion cubic feet. Trinidad & Tobago has 17 trillion cubic feet, while Argentina has 15.6 trillion cubic feet.

What is interesting is that only Venezuela (with over 100 years of potential production) and Peru (with 99 years) have reserves to production ratios above the global average of 63 years. Russia's reserve-to-production ratio is 71.8 years, but Saudi Arabia, Qatar, Iran and Iraq all have ratios of over 100 years.

The GECF members' exports of gas amount to less than 44% of the world total. The three largest reserve holders are Russia, Iran and Qatar. Russia's state-owned gas monopoly, Gazprom, is the world's largest gas exporter. Qatar is the world's largest exporter of LNG, which is gas chilled or compressed into a liquid for transporting on ships. Iran is still a net gas importer, but has ambitious plans to become a LNG exporter.

Russia expects the GECF to play a key role in coordinating activity in the LNG market, as GECF members dominate LNG production: the big absentees are Australia, Canada, and Indonesia, Kazakhstan and Norway. Bokhanovsky said that Canada and Australia could become members of the GECF, while Norway and Kazakhstan, currently observers, could be upgraded. It is not clear how the world's other big gas exporters, such as Brunei, Indonesia, Malaysia and the United Arab Emirates, relate to the GECF.

Russia is providing most of the GECF's secretariat, at least in the initial stage. Bokhanovsky said that once the organization was up and running its secretariat would become more internationalised.

Gas is a key export commodity for several Latin American countries, notably Bolivia and Trinidad & Tobago. Venezuela, too is aiming to become a major gas exporter. Trinidad & Tobago is the only major LNG exporter in the region, though Peru is just beginning to become a player in the market.

What is particularly interesting about Latin America is that it is starting to become a player on both sides of the LNG market. July 2009 saw a discreet, almost ignored race between Chile and Brazil to become the first country in South America to receive a shipment of LNG. Both countries were rushing to put the finishing touches to re-gasification plants, which allow them to import LNG from anywhere in the world and them pump the gas around their conventional pipeline systems.

Brazil probably just won the race, but the Brazilian energy company, Petrobras, then paid a huge complement to the Chilean importer by declaring that it would like to use the Chilean terminals, although initially only to meet its needs in the domestic Chilean market.

Chile is building two re-gasification plants: the first is at Quintero, which will serve central Chile. The other one, at Mejillones in northern Chile, will provide gas to fuel the power stations for the country's mines and smelters which are mostly in the north.

Chile's gas pipeline network is built to take gas from Argentina. Theoretically reversible valves could pump the gas the other way and so on to Brazil's big urban centres on the eastern side of the continent. Vilson Reichemback, the country manager for Petrobras in Chile, said that Petrobras was initially   interested in finding out whether the two Chilean terminals could supply Petrobras's recently acquired 230 petrol stations in Chile (brought from ExxonMobil for US$400m) with gas for vehicles.

Why are Brazil and Chile so convinced that they should build the capacity to import LNG rather than tap into the region's huge deposits of gas in Bolivia, Peru, Argentina and Venezuela? Both Brazil and Chile have learnt the hard way that over-reliance on a single supplier is a sign of economic vulnerability. Chile had depended on Argentina and Brazil invested heavily in Bolivia. Both countries have proved themselves to be unreliable suppliers.

What is not clear is whether the new LNG plants are intended to be prime energy sources or back-up energy sources. For historic reasons, neither Bolivia nor Chile wants to rely too much on the other. The Bolivians believe that if there was to be a problem with gas supplies to Chile, as there inevitably will be, Chile would use the difficulty as an excuse to bully Bolivia. The wilder fear, on the Bolivian side, that Chile would march in and seize the gas is highly unlikely: Tarija, where Bolivia's gas is located, is a long way from Chile and in a part of Bolivia that has been claimed by Argentina. The Argentines would be unlikely to stand idly by if Chile tried to seize such a strategic asset on Argentina's borders.

On the Chile side, the experience of depending on Argentina has prompted policy markers to say that they will never do something similar again.

Chile's key re-gasification facility is GNL Quintero in central Chile. The plant is coming on stream a year ahead of schedule. The actual re-gasification facility is offshore and feeds the gas to 150,000 cubic metre storage tanks. GNL Quintero opened for an initial delivery in mid-July. Its first vessel brought 145,000 cubic metres of LNG from Trinidad & Tobago. Other supplies will come from Russia, Nigeria and Indonesia. The Chilean terminal is scheduled to be fully operational in August.

The Quintero terminal uses a ship as an offshore terminal and therefore gets around local construction permit problems, though there will be two onshore storage tanks that will allow the terminal to supply up to 6.5m cubic metres a day. The gas will be used in central Chile. British Gas has a 40% stake in the Quintero terminal and a 21 year contract to supply the terminal with up to 1.7m t of gas a year.

Brazil's first re-gasification plant is at Pecem port terminal in the northeastern state of Ceará. The facility is operated by Petrobras and it took delivery of the gas from Royal Dutch Shell. The Shell delivery was of 135,000 cubic metres. Shell said that the delivery was the first to South America. The delivery is part of an agreement between Shell and Petrobras signed in 2008, aimed at raising Petrobras' gas importing capacity as well as supplying power plants.

Chile and Brazil's move into LNG poses a major problem for Bolivia. The country's hardline policies over gas, espoused by President Evo Morales, have transformed the economy's position and the national accounts, but they have also infuriated foreign investors. Petrobras is one of Bolivia's biggest foreign investors.

Brazil's heavy investment in its own oil and gas reserves and now its commissioning of LNG re-gasification facilities has clearly signaled that it does not want to increase its dependence on Bolivian natural gas. This strategic change, and the slowdown in the Brazilian economy, has meant that Brazil is cutting back on its imports of gas from Bolivia. It is now importing only the minimum 24m cubic metres specified in its contract. When it can, Brazil imports less.

The Brazilian and Chilean thumbs down for Bolivian gas means that Bolivia will either have to increase exports to Argentina or it will have to consider shipping gas out to Peru's gas-liquefaction plant in Lima. The problem with this is that Bolivia will once again be left as a commodity supplier and the gas liquefaction plant owners will pick up the main benefits of the trade.

Amid a stuttering economy, Argentina has also cut back on its imports of gas from Bolivia. The pipeline can handle 7m cubic metres a day (cmpd) but currently Argentina is taking only about 6m cmpd.

Prices
Currently Bolivia is charging Brazil US$7.8 per 1,000 cubic feet of gas shipped to Brazil. Bolivia's price for gas shipped to Argentina is US$5.7 per 1,000 cubic feet. Chile is apparently going to pay US$8.23 per 1,000 cubic feet for the LNG it imports at Quintero. This is half the price it had been paying for the gas it imported from Argentina.

In North America, gas prices vary. The benchmark is the Henry Hub, but this is the price of gas close to the production areas in the southern US. In the consuming markets in the north of the country, the prices tend to be significantly higher. Currently, the Henry Hub price is US$5.9 per 1,000 cubic feet.

Some stats
Oilmen and traders reckon that the relationship in price between oil and gas should be 6:1. This is because a barrel of crude oil produces 5.8m British Thermal Units (BTUs) of energy. The burning of 1,000 cubic feet of natural produces just over 1m BTUs.  
Some traders believe that the relationship also holds on a value basis. So if oil gets over the 6:1 ratio, then the prices must be about to turn. The problem with this reasoning is that energy systems cannot easily switch between the two fuels so they cannot arbitrage the prices. In the US, only about 10% of energy users can do this and in Latin America the proportion is even lower.

The general assumption now in the global market is that world gas prices are going to stay comparatively low for some time. The problem for gas producers is that the expansion of LNG facilities has come just at a time when demand for all sorts of energy, apart from in China, is falling. This means, traders say, that there is now a race to the bottom. The assumption is that a lot of the builders of these LNG facilities to liquefy the gas may find it hard to find markets.

One area where President Fox has delivered on his election promises is human rights. Unlike his predecessors, he is allowing the courts to settle the terms under which dirty war warriors should be prosecuted. The supreme court is currently considering an appeal lodged by the Procuradurí­a General de la República, to bring former president Luis Echeverria to justice for the massacres that occurred during his administration.

Echeverrí­a is accused of ordering genocide when hundreds of students were killed on 10 June 1971. Echeverrí­a was also interior minister when another, probably larger massacre occurred at Tlatelolco in 1968. While the supreme court is considering what to do about Echeverria, the government is going after other officials who carried out orders. Luis de la Barreda Moreno, a former head of federal security, now faces another charge over a disappeared person. The latest charge concerns José Barrón Caldera who disappeared in 1976; the other two cases involved Jesús Piedra Ibarra and Ignacio Salas Obregón. Ironically, Barreda's son, Luis de la Barreda Solórzano, was president of Mexico City's human rights commission: he is defending his father against the charges being brought. 

The most infamous accusation against Barreda Moreno is that he presided over the torture of villagers at El Quemado in Guerrero in 1972. The army was looking for sympathisers who supported Lucio Cabañas and his Partido de los Pobres guerrilla group. It is not clear exactly what happened or when it happened. The villagers say that the army came into the village at the end of August: they say that in the first sweep the soldiers planted incriminating evidence. After that the army established itself in the villages torturing whole families. Eight people were disappeared.

• The Procuradurí­a is also investigating whether the authorities used mental hospitals to house suspects during the dirty war. The health minister, Julio Frenk said that he had opened health ministry records to the Fiscalia Especial para Movimientos Sociales y Polí­ticos del Pasado. This agency is investigating what went on during the dirty war, which was fought mostly in the 1970s.
• The Mexican government said on 7 September that it would publish some of the background to the diplomatic row with Cuba which led to the government expelling Cuba's ambassador and withdrawing its own from Cuba in May. Traditionally, Mexican governments have been loathe to publish information about problems they have had. The decision to release the documents came after pressure from the newly created Instituto Federal de Acceso a la Información (IFAI). This agency was set up in 2002 to make Mexican government more open.

The IFAI said that it had received 17 applications for information about the spat with Cuba over Carlos Ahumada, a construction magnate close to the opposition Partido de la Revolución Democrática. Mexico accused Cuba of dabbling in Mexican affairs after Ahumada fled to Cuba and claimed that he had been inveigled by the federal government into a campaign to smear the mayor of Mexico City, Andrés Manuel López Obrador. It is not clear which documents the IFAI wants to see published, though it appears to know about a 32-page briefing prepared for the interior ministry (gobernación) by the Centro de Información y Seguridad Nacional (Cisen). The IFAI stressed that it does not want information published which could reveal confidential or secret sources.

President-elect Felipe Calderón Hinojosa has had a good couple of months since he was confirmed as the winner of the 2006 presidential election at the beginning of September. The best news probably came on 29 October when the weak government of President Vicente Fox finally stirred itself to end the anarchy in the southern state of Oaxaca, rather than leaving that problem to fester for Calderón.

Even the bad news in the past month, the decision by the US President, George W Bush to build walls along the border with Mexico, is not necessarily bad news for Calderón. The US decision is a clear failure for President Vicente Fox's policy towards the US. As the US decision came in the last six weeks of his term, President Calderón can take the credit for any improvement. Weary realists doubt that there will be any improvement for at least a couple of years until a new US president takes office. Optimists hope that a setback for the Republicans in the mid-term elections may lead to more constructive, if less construction-heavy, US policies towards Mexico.

Besides Oaxaca (see p5 and following) Calderón has also benefited from the progressive marginalisation of Andrés Manuel López Obrador, the leftwinger who still cannot believe that he lost the presidential election in July. López Obrador's candidate lost heavily in the gubernatorial elections in López Obrador's home state of Tabasco. López Obrador has seen middle of the roaders, such as Juan Sabines, the Partido de la Revolución Democrática (PRD) governor-elect of Chiapas spurn him and accept Calderón as the legitimate president-elect. 

Gallingly for López Obrador, even his allies in the PRD accept that they cannot prevent established perredista figures from establishing working relationships with Calderón. The most interesting rapprochement is between Calderón and Lázaro Cárdenas Batel, the governor of Calderón's home state of Michoacán. The PRD president, Leonel Cota, a long time supporter of Cárdenas's father, Cuauhtémoc, the man who was almost certainly cheated of the presidency in 1998 by rampant electoral fraud, said that PRD governors could not be disciplined by the party for recognising Calderón. Cota said that the governors' roles as representatives of their states had to take precedence over their party affiliation. Besides Cárdenas, Zeferino Torreblanca, the new governor of Guerrero, and Amalia Garcia of Zacatecas have accepted Calderón. 

Calderón problems are obvious and unavoidable: the state of the US economy and the Mexican government's over-dependence on oil revenues. Calderón's only (virtual) cabinet appointment so far, Agustí­n Carstens, has already identified these two issues as the biggest economic issues facing the new government. Calderón and Carstens both seem confident about finding a way through these difficulties. Fox failed in an identical situation.

Two senior US policymakers have spoken out about the threat to the US posed by the Mexican government's war against drug gangs. The first policymaker to speak out was a retired General, Barry McCaffrey, formerly President Bill Clinton's anti-drugs czar. He made some outspoken comments about the security situation in Mexico at what was supposed to be a confidential, top-level, seminar in Mexico City on 6 and 7 December. McCaffrey's comments were widely leaked, and effectively endorsed on 7 January, when Stephen Hadley, President George W Bush's National Security Adviser, gave a public briefing on security issues facing the US as the Bush administration hands over to the incoming Barack Obama team.

A third indication of US worries about Mexico was the announcement on 7 January that it had handed over another US$99m in military aid under the Iniciativa Mérida package. This money will be spent on helicopters and scanners and sensors for the army. The US had previously provided US$197m of the US$400m promised for 2009 under the Iniciativa Mérida.

Hadley's formal tour d'horizon speech, given at the Center for Strategic and International Studies (CSIS) in Washington, barely touched on Mexico (or, indeed, the Western Hemisphere), but dwelt on the situation in Europe, the Middle East, Iran and North Korea. In reply to a question from the floor, however, Hadley was highly revealing about US thinking on Mexico.

Hadley said: “I think [the threat from organised crime in Mexico] is a real challenge for the new [US foreign policy and security] team_if you talk to Mexican authorities, they feel very much under threat. _The way to understate it is to say it is a terrorism_[or] narco-trafficking problem. I think a better way to see it is that it is a potential threat to the future of a democratic Mexico. And I think if you listen to President Calderón, that's how he sees it. It is very much the kind of threat that President Uribe faced in Colombia". “There are things we can do," Hadley continued in his answer, “and the Mérida Initiative has a long list of training, equipment, and other things we can provide to make Mexican authorities more effective in dealing with this problem."

Hadley hinted, however, that US policymakers were not sure that Calderón's strategy of using the army as an auxiliary police force was the correct one. In Colombia, the war against the Fuerzas Armadas Revolucionarias de Colombia (Farc) was waged by the army, with heavy US support. What is significant is that both Hadley and McCaffrey indicated that they understood that Calderón did not have a mandate to introduce a Mexican version of Plan Colombia.

Hadley said: “The real question for the Mexican authorities and for their politics[is]: Is the level of effort and commitment they are making proportional to the threat that the problem_poses to the future of that government? And then the question for us is, are we doing all we can to support them, to make them more capable and more effective? That in itself is a difficult issue for Mexico, given the history between the US and Mexico. And I think they have been quite courageous, and it's an indication of the measure of seriousness with which they view the problem is that they are willing to consider a kind of cooperation with the US that would have been unthinkable 10 years ago."

Hadley's suggestion is that Mexico and the US should do what President Bill Clinton started in Colombia and was continued under Presidents Bush and Alvaro Uribe of Colombia. “Democratic societies do not need to give in to these narco-terrorists, “ Hadley said. “It's a long fight. It requires a commitment. It requires help. But I think the lesson from Colombia is that these fights can be won, and we need to then help Mexico to win its fight, as well."

Hadley's comments about the threat to the US from gangsters in Mexico were trailed by the National Drug Intelligence Center (NDIC) annual report, published on 15 December [WR-08-50]. The NDIC, which is part of the US Department of Justice, claimed that Mexican Drug Trafficking Organisations (DTOs) were the main criminal threat to the US.  

A former Mexican foreign minister, Jorge Castañeda, writing in one of Mexico City's main newspapers, Reforma, just before Hadley's comments at the CSIS, argued that the NDIC report had already had an effect on US perceptions of Mexico because so many US media outlets had begun to report sensationally on the bloody war against drug gangs in Mexico. Castañeda also drew attention to comments made by McCaffrey (now an adjunct professor of International Affairs at West Point, the US's Army's officer training college) at a recent, ostensibly private, seminar in Mexico on 7 and 8 December. McCaffrey's ominous comments (“Mexico is somewhat unstable, extremely violent_on the edge of an abyss") and conclusions from the seminar have leaked to the press.

McCaffrey argued that “the stakes [in the government's war against the gangs] in Mexico are enormous. We cannot afford to have a narco state as a neighbour. The incoming administration must immediately focus on the dangerous and worsening problems in Mexico which fundamentally threaten US national security. Before the next eight years are past the violent, warring collection of criminal drug cartels could overwhelm the institutions of the state and establish defacto control over broad regions of Mexico. A failure by the Mexican political system to curtail lawlessness and violence could result in a surge of millions of refugees crossing the US border to escape_Mexico is not confronting dangerous criminality: it is fighting for survival against narco-terrorism."

Castañeda's comment on McCaffrey's suggestion that the US should step up its aid to Mexico under Obama, is that Calderón does not have the political authority to accept such enhanced assistance unless Mexican voters' traditional suspicion of the US changes.

The difficulty for policymakers on both sides of the border is that the mid-term congressional elections in July 2009 may weaken President Calderón's position in congress. Although the ruling PAN narrowly retained the presidency, through Calderón, in July 2006, it has lost all but one of the important state and municipal elections held since then. In the run up to the mid-terms, the PAN is facing a nasty series of rows and potential splits. The polls point to a resurgence in support for the PRI, which is currently the third force (with 106 seats) in the 500-seat lower house of congress, even though it still runs 18 of the country's 32 states. The PRI's tradition has been to find common ground with all but its most committed enemies: a PRI win in July could open the way to negotiations with the gangs.

Weapons
Jeff Bingaman, a US Democrat senator from New Mexico, has tabled a bill in partnership with Kay Bailey Hutchinson, Republican senator from Texas, which authorises the government to spend US$30m on efforts to halt the flow of weapons from the US to Mexican gangs. The US Bureau of Alcohol, Tobacco and Firearms (ATF) admits that over 90% of the gangs' weapons come from the US.