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Bolivia has the second-largest gas reserves in South America after Venezuela. Unlike Venezuela, gas is crucial to what happens to the country's economy. The past year, 2009, shows that the industry is resilient, although hydrocarbons was the only the sector of the economy that was still contracting in the third quarter. Output of oil and gas in the third quarter fell 12.8% year-on-year due to reduced Brazilian demand. The sector has also been affected by weaker oil and gas prices.

Bolivia's planning and development minister, Noel Aguirre, argued that despite the problems with the hydrocarbons sector, the economy was growing “satisfactorily". The government is confident that demand for gas from Brazil and Argentina will have increased in the final quarter of 2009, so the overall growth rate for 2009 will be a bit higher.

The finance minister, Luis Arce, is also bullishly arguing that the worst of the fall in gas revenues is now over. He said that gas exports would be down by 6% in 2009, much less than the 17% drop the ministry had forecast at the start of 2009. In cash terms, the drop will be less than US$100m, Arce said. 

The Cámara de Hidrocarburos de Bolivia (CBH) disagrees. It says that gas exports in 2009 will be around US$2bn, well down on the US$3.16bn earned in 2008. The CBH's figures seem to better reflect what is happening in international gas markets.

What is clear is how substantially Bolivia has benefited from the dash for gas. The foreign minister, David Choquehuanca, recently pointed out that export revenues have risen by 131% since President Evo Morales took office at the beginning of 2006. In 2005, exports came to US$ 2.948bn; in 2008 they were around US$7bn. Gas exports now account for about 40% of the country's total export revenues. Currently, the country is producing about 38m cubic metres of gas a day (cmd), down from the 40m-plus cmd it was producing when Brazilian demand was stronger.

What is interesting is that investment is beginning to pick up again after a pause following the nationalisation of the industry in 2006. Recently, the two big foreign investors in the gas exploration and production industry,  Repsol YPF from Spain and Petrobras from Brazil, announced major investments. In early December 2009, Repsol YPF announced that it would  invest US$1.5bn  over five years to boost natural gas production in Bolivia.

On 21 December Carlos Villegas, the president of Bolivia's state energy company, Yacimientos Petrolí­feros Fiscales Bolivianos (YPFB), announced that gas companies had invested US$576m in 2009, a 65% increase on 2008. Villegas's announcement is the latest illustration that the government's nationalisation policy has failed to deter foreign investment. A dozen transnationals are currently operating in Bolivia, in partnership with YPFB, but the big two are  Repsol and Petrobras.

Villegas also announced the government was planning to invest more than US$11bn between 2010-2015 across all areas of the sector, in order to “consolidate the nationalisation and industrialisation process". Of this, US$1.5bn is earmarked for 2010, of which US$750m would come from transnationals.

Hydrocarbons, however, is the one sector of the economy that is still contracting (-12.8% year-on-year in the third quarter of 2009). The government's main priority is boosting gas production, ostensibly in order to increase exports to Argentina, its second largest customer. Brazil has made it clear that it will not increase its purchases of gas from Bolivia. 

The big question then is what will happen to this new gas production. The government claims that Argentina will buy more gas and that more gas will be used domestically. Repsol aims to boost production on the Margarita and Huacaya fields in the south of Bolivia from 2m to 8m cmd by 2012 and to14m cmd by 2013. The increased production levels would be used to boost exports to Argentina and to supply Bolivia's domestic market, officials said.

The investment will give Bolivia "additional gas volume that will allow the country to meet commitments to the internal market and for export, mainly to the market in Argentina," Carlos Villegas said.

Months after President Morales nationalised Bolivia's gas industry in 2006, La Paz signed a deal with Buenos Aires aimed at generating at least US$17bn  in Bolivian gas exports over a decade. Under the accord, Argentina's state-owned energy company ENARSA would explore for and exploit gas, oil and other hydrocarbons in Bolivia. The two countries also agreed under the deal to build a pipeline to carry gas from Bolivia to northeastern Argentina.

Bolivia was to have stepped up gas exports to Argentina to 7m cmd  in 2008, rising to 14m cmd when the pipeline came on stream in 2011. But the project has met with delays and other setbacks, and Bolivia currently pumps between only between 2m and 5m cmd to Argentina.

With regards to Brazil, Bolivia accepts that it will not be able to sell much more in volume terms but it believes it may be able to push up the price. On 18 December 2009, Brazil's Petrobras agreed to pay at least US$1.2bn  more for natural gas from YPFB. The deal will run until 2019. Petrobras will, however, only take the current average volume of 24m cmd. The new schedule starts with a US$100m back payment for 2007 and an amount yet to be agreed for 2008 and 2009.  In the final quarter of 2009, Bolivian gas sales to Brazil were fluctuating between 19m cmd and 27m cmd. Brazil can take up to 31m cmd.

The public security minister, Alejando Gertz, resigned on 13 August. Gertz, who made his name as the law and order chief in Mexico City, under leftwing Partido de la Revolución Democrática (PRD) administrations, had been in Fox's government since it took office on 1 December 2000. Gertz went only days before the expiration of a deadline, imposed by President Fox. Fox appeased the organisers of a major demonstration of law and order in June by promising to have taken steps to improve the law and order situation within 60 days. 

Fox appointed Ramón Martí­n Huerta, who had worked with Fox when he was governor of Guanajuato, to take over from Gertz. Huerta had previously been a deputy minister at the interior ministry. Gertz seems to have paid for the price for growing public perceptions that the law and order situation was deteriorating. The big political parties used Gertz's departure to score political points. The main opposition party, the Partido Revolucionbario Institucional (PRI), said that his departure was needed because the government had failed to do anything to improve law and order. 

Fox's Partido Acción Nacional (PAN) was delighted that Fox had replaced a Perredista with a Panista. Surprisingly, Diego Fernández de Cevallos, a maverick senator who is now chairing the senate, refused to criticise Gertz directly. He said that he wished Gertz every success in his future career. 

The PRD put the boot into Gertz: a Perredista deputy and member of the national security committee of congress, Eliana Garcí­a, said that Gertz had shown that he was incapable of doing anything to combat crime. She said that for this reason alone the PRD was happy that he had gone.

A PRD senator, Pablo Gómez argued that Fox had made a mistake in setting up a special public security ministry. He said that it would be better if the Policia Federal Preventativa (PFP) were answerable directly to the interior ministry. The PFP is the police force that deals with serious and organised crime. 

President Fox said that Gertz was taking early retirement, adding that Gertz had asked to go so that he could pick up his academic career. Gertz said that he had always wanted to end his public service career after six years: he had now fulfilled those terms. Gertz said that he had achieved various things and met various targets that had been set. He said that his big achievement was to have overhauled the national police system. 

• The Roman Catholic church is annoyed with the government for having recognised the cult of Santa Muerte as a religious group. The image of Santa Muerte, which is venerated by its adherents, who are mostly on the margins of society, is of the Grim Reaper: a skeleton with a scythe. The president of the bishops' conference, José Guadalupe Martí­n Rábago, said that nothing good would come of the registration. The cult is believed to have connections to the drug trade: it has spread from the north and is now big in Mexico City. Cultural commentators claim that the cult is a throwback to the syncretism which evangelists used to graft Christianity on to traditional religions. Unlike most conventional Catholicism, Santa Muerte glorifies violent death. A newspaper, Reforma, reckons that Santa Muerte has about 1m adherents across Mexico. 
• President Vicente Fox earns less than most diplomats, the press reported on 22 August. He gets M$158,000 (US$13,862) a month, Mexico's ambassador to Japan gets US$2,000 a month more and even the consul in Hong Kong is better paid.

President-elect Felipe Calderón Hinojosa delivered a major snub to his former campaign manager, Josefina Vázquez Mota, on the evening of 25 October, by announcing that she would not come with him on his trip to Canada. The snub reverberated around Mexico City's political salons. The political gossipers had already had already been speculating on rumours of a major split between Juan Camilo Mouriño, Calderón's unimpressive chief of staff, and Vázquez Mota. The buzz is that Mouriño has been plotting, rather successfully, against Váquez Mota, the architect of Calderón's election triumph in July. 

Mexico City's morning newspapers of 25 October had hailed the fact that Vázquez Mota was going to Canada as proof that the differences between the two had been exaggerated. Mouriño is a long time Calderonista while Vázquez Mota is a much more recent convert. She joined Calderón's campaign at its lowest point, in January 2006, when he could barely attract two men and a dog to his rallies. The campaign, up to that point, had been run by Mouriño. 

She shook up the campaign, and crucially, mobilised the contacts she had developed as minister for social development under President Vicente Fox. The social development ministry organises anti-poverty programmes in Mexico and creates networks of dependencies. Mouriño has not forgiven nor forgotten his humiliation. Mouriño has some powerful allies. Manuel Espino, the president of the Partido Acción Nacional has cool relations with Calderón and Vázquez Mota. 

So far, Calderón has only made one move in appointing his cabinet, which will take office on 1 December. He summoned Agustí­n Carstens back from the IMF to work on his economic policies. Carstens, almost certainly, will be Calderón's finance minister. Carstens had been second deputy managing dircetor, effectively number three at the IMF. 

Carstens is a technocrat; before moving to the IMF in 2003 he was deputy minister of finance. Almost all his career has been at the Banco de México and the finance ministry. He served in the first three years of President Vicente Fox's administration. He is well known on Wall Street and was the obvious choice for the key job of finance minister.

Carstens said that when he moved to the IMF as second deputy managing director, he expected to serve five years. In his resignation statement he said that he was sorry that he could not fulfil this goal but his country needed him. Calderón said that Carstens would be responsible for designing his government's economic programme, which would have the priority of increasing competitiveness, thus speeding up economic growth and increasing employment. Carstens's first job will be to draw up the budget for 2007. His resignation from the IMF on 16 October took immediate effect. The budget should go to congress in mid-November for approval before the end of this year.

The other significant move Calderón has made is to appoint Jorge Alcocer, a former member of the Partido Revolucionario Institucional (PRI) and a deputy interior minister under President Ernesto Zedillo, to join his transition team. Alcocer was a prominent supporter of Francisco Labastida, the PRI candidate defeated by President Vicente Fox in 2000. Alcocer will be responsible for Calderón's negotiations with Congress. This was a job that Vázquez Mota had been doing. 

Before Alcocer joined the PRI he had been active on the Mexican left, notably in the pure-minded (ie politically hopeless) Partido Socialista Unificado de México, which was one of the precursors of the Partido de la Revolución Democrática. 

Alcocer has good relations with the anti-Roberto Madrazo wing of the PRI. Madrazo competed with Labastida for the presidential nomination in 2000 and then became party president before winning the PRI's presidential nomination for this year's elections where he came a poor third. The anti-Madrazo faction of the PRI is led by people such as Enrique Jackson and Emilio Gamboa, now the PRI leader in the lower house of congress. The only other likely cabinet appointment is that of Arturo Sarukhán as foreign minister. He is handling foreign affairs for the transition team. He has, however, started to speak out on foreign policy issues facing Mexico so authoritatively that he clearly feels that he will get the ministerial job.

On 7 January President Felipe Calderón Hinojosa announced a M$60bn (US$4.4bn) economic stimulus package. The key elements in the package are a cut in the price of cooking gas and a freezing of petrol prices. The package also contains measures aimed at preserving jobs.

The finance ministry claims that the package, formally known as the Acuerdo Nacional en Favor de la Economí­a Familiar y el Empleo, will boost GDP by about 1% (or M$120bn). The main elements are the freezing of petrol prices and the 10% cut in cooking gas prices. These moves will inject M$45.4bn into consumers' pockets, according to the finance ministry.

The bulk of the money for the package is coming from the M$100bn windfall produced in 2008 by higher-than-budgeted oil prices. The package has been endorsed (grudgingly) by the business sector, most trade unions and local governments.

The finance ministry admits that the best the economy can hope for in 2009 is annual GDP growth of 0.2%-0.3%. Most independent economists say that, in effect, the package may stop the economy from plunging into recession. Macro-economists sniff that spending so much money for so paltry a result is almost counterproductive.

Some tax economists argue that the government's switch from a conventional income tax (ISR) to the new Impuesto Empresarial a Tasa Unica (Ietu, which came into force in 2008), which is calculated more on sales than profits, will have a depressing effect on business.

The Ietu was initially set at 16.5% (in 2008) and was due to rise to 17% in 2009 and 17.5% thereafter. The finance minister, Agustí­n Carstens, argued that the government would be wrong to cut the Ietu, given that Mexico's tax take is already low as a percentage of GDP. (Stripping out oil revenues, which account for almost 40% of the government's fiscal income, Mexico's tax take is barely in double digits as a percentage of GDP).

The key element in the package is a freezing of petrol prices. Mexico's petrol prices have been rising because of the weakness of the peso against the dollar: Petrol in Mexico retails at the equivalent of US$2.66 a gallon. In the US, it retails at around US$1.75 a gallon.

Mexico imports most of the fuel it uses, while exporting lower-value crude oil. Mexicans grumble that they had to pay more for fuel when oil prices were rising (in 2007 and the first half of 2008), but saw no relief when oil prices halved in the second half of 2008. This was because the peso promptly started to slide against the US dollar.

Altogether, the package has 25 elements. Besides the moves to reduce energy costs, the government is offering companies support to avoid redundancies. The plan envisages a fund of M$2bn to help companies retain staff they would otherwise sack because of the effects of the global economic crisis and another M$2.2bn to support companies taking on temporary workers.

The employers organisation argues that the package could have been better and clearer. Ricardo González Sada, the president of the Confederación Patronal de la República Mexicana (COPARMEX), said that the big omission was the absence of a fiscal stimulus, as has been introduced by the US, China, Japan and Spain. He noted that even the IMF is recommending that governments throw a minimum of 2% of GDP into the economy. He pointed out that even the government itself admits that its package will not stimulate the economy by more than 1.4% of GDP.

Sada argues that the government should do more to prevent the Ietu deterring business investment. He suggested that it should only levy the Ietu after investment, wages and interest payments have been made.

The central bank (Banco de México) is forecasting that real annual growth this year will be between 0.5% and 1.5%, as against a probable 2% in 2008. Most independent economists think that that the bank is erring on the side of optimism. The current consensus amongst independent economists is that the economy will actually contract by between 1% and 2% in 2009.

Mexican economists warn that the end result could be even worse. They claim that the US has actually done very little, except make proposals (and cut interest rates) since the scale of the crisis became apparent in October 2008. On 8 January Carstens admitted that the economy would not grow at all in 2009. The government had already cut its GDP growth forecast from 3% when the budget was originally drafted in September to 1.8% by the time congress approved it in late October.

Economic confidence in Mexico is plummeting as the effects of the US economic crisis start to bite. On 8 January the national statistics agency, Inegi, and the Banco de México published the consumer confidence index for December: the index stood at 84.1 (100 was the level of consumer confidence in 2003), a staggering 20.4 points down on the December 2007 level.

The main reason for the plummet in consumer confidence is the outlook for jobs. In December, according to the national social security agency, the IMSS, the number of people working in the formal (social security paying) economy dropped by 327,136.  This meant that there was a net loss of 29,589 formal jobs in calendar 2008 as a whole.

This reversed Mexico's previously decent employment data. While the US lost 553,000 jobs in November 2008, Mexico managed to create 375,000 in the first 11 months of 2008. There was some evidence that the economy may have bottomed in November. Usually November is a banner month for job creation as the Christmas rush starts: in November 2008, however, only 38,000 jobs were created. In April 2008, 80,000 new jobs were created. The Asociación Mexicana en Dirección de Recursos Humanos fears that Mexico will only create between 200,000 and 250,000 jobs in 2009. Mexico currently has 1.98m unemployed people, or 4.2% of the workforce.

Other depressing data comes from the Instituto Mexicano de Ejecutivos de Finanzas (Imef) on the state of Mexico's manufacturing sector. The Imef's manufacturing index tumbled by almost five percentage points between October and November 2008. The manufacturing index stood at 43.6 in December, the lowest level since the Imef launched the index in 2004. The only encouraging point is that the index fell by only one percentage point between November and December. However, the December 2008 level was 4.7 points below the December 2007 level. The Imef points out, moreover, that the rolling trend (over the past four months) indicates a further contraction in manufacturing moving forward. According to the Imef, its trend indicator has been pointing downwards since July 2008.

The Imef reported that Mexico's manufacturing sector was being badly affected by events in the US. It believes that the US is now facing its worst economic crisis since 1929. On 3 December the US Federal Reserve Board published its Beige Book which showed that the economy had deteriorated significantly in October. The Fed said that inflationary pressures had dissipated and labour markets had weakened.

The Organization of Economic Cooperation and Development (OECD) was the first international body to turn bearish on Mexico. It has been forecasting growth of just 0.4% in 2009 for the past three months.

The big worry in Mexico is that the OECD may still be too optimistic. Although the OECD is forecasting that the US recession will be long, it estimated that US unemployment rate at the end of 2009 would be 7.3%. Yet after the OECD made that forecast, the US published some ghastly unemployment figures for December 2008 which put the rate already at 7.2%.  US unemployment in October 2008 was 6.5%. Even the big bears of the US economy had not expected the US to lose so many jobs so quickly: few of them expected US unemployment to get much above 8.5% in 2009.

What is not clear is what will happen to unemployment in Mexico. In 2006, for example, the economy grew by 4.9% and unemployment was 3.2%. Currently, (October) unemployment is 4.11%, up from 3.9% in October 2007.

The big question for Mexican policymakers is whether the recession in the US will prompt Mexican migrants who have been working in the US to return home. So far this has not happened, but some immigration watchers claim that there are ominous signs.

If there is a flood of migrants back from the US to Mexico, pressure on schools, hospitals and the labour market will increase. Furthermore, as the government is unlikely to have the resources to respond to the increased demands made on it, social unrest may also be a risk. 

Besides evaporating consumer confidence, the Calderón government is also facing rising inflation. In December, consumer prices rose 0.69% on a monthly basis, bringing the annual inflation rate to 6.53%, the highest in eight years. In 2007 the annual inflation rate was 3.76%.

Tequila: Tequila production in Mexico increased 10% in 2008, to reach a record volume of 312m litres. Meanwhile tequila exports grew 1.7% in 2008.

The motor industry: The motor industry had a surprisingly decent 2008. Production was up 4% annually (at 2.102m vehicles), and exports rose 3% (at 1.661m vehicles). The only problem is that domestic sales, which include imports, fell 6.8% to 1.025m vehicles.

There must be some doubt that the decent performance will carry on into 2009. In December, production was down 3.5% year-on-year and exports crashed by 10%. Even worse, sales of new cars in the domestic market fell by 19.8%, according to the Asociación Mexicana de la Industria de Automotriz.

The motor industry is unhappy at the economy ministry's decree, issued on Christmas Eve, which allows any vehicle over 10 years old to be imported, free of tariffs, from the US or Canada, provided it has not been stolen and has a certificate from its manufacturer proving that it was built in either the US or Canada. The only sop to the new car industry is the provision that a Mexican can import only one of these used cars every year. Used cars which are less than 10 years old have to pay a 10% tariff, as they have done since 2005. These vehicles are known as autos chocolates. In April 2008 the government banned the importation of all vehicles over 10 years old.

Oil prices: The government can still afford to ignore the slide in oil prices thanks to its astute deal in July, at the top of the market, to fix the export price for 66% of its exports at US$70 a barrel for 2009. On 12 January, the price of the Latin American benchmark oil basket, West Texas Intermediate (WTI), fell by 8% in a day to US$37.6 a barrel.

• Reserves Surprise
  The US Energy Department is reporting that its reserves of crude oil, natural gas and petrol are rising. Traders had not expected this and thus are pulling back from buying because if reserves are rising final demand from big consumers, such as China, must be weakening.

• US Budget Gap
  Based on US congress figures, the deficit for the 2009 fiscal year (1 October 2008- 30 September 2009) will be US$1.186 trillion. This is equivalent of 8.3% of GDP. Most countries have problems financing fiscal deficits above 4% of GDP. With such a deficit it is hard to see the US dollar remaining so strong against the peso - the Mexican deficit is negligible in GDP terms.

• Crude output down
  Mexico's crude oil output in the first 11 months of 2008 was 2.8m bpd, down 9.3% on the same period of 2007. Exports were down by 17% at 1.4m bpd. Export receipts rose 22% annually in the first 11 months of 2008 to reach US$42bn. The average per barrel price was US$89.

The senate's justice and legislative studies committee interviewed the three shortlisted candidates nominated by President Felipe Calderón for a seat on the supreme court on 8 February. This latest shortlist was entirely male, while the first shortlist, from which the senate failed to make a selection, was all female.

The senate picked Jorge Mario Pardo Rebolledo. He had been up for the supreme court twice before, most recently in November 2009, but failed to win the senate's approval. Interestingly, his area of legal expertise is the role of the supreme court. His most significant legal case was his successful defence of Othón Cortes, who had been accused of firing the second shot which killed the Partido Revolucionario Institucional's presidential candidate, Luis Donaldo Colosio, in March 1994. Pardo Rebolledo also produced the official report in what happened at San Salvador Atenco in May 2006, when state police moved in on flower sellers. At least two people were killed and dozens of women raped. The report detailed what had happened but did not lead to prosecution of senior officials.

If the senate had not chosen Pardo Rebolledo, President Calderón could have nominated a new candidate, without any senate vetting, to the supreme court.

Costa Rica's largest opposition party, the Partido Liberal Nacional (PLN), is coming to terms with its own public disgrace. The party's hope that the scandals convulsing the ruling Partido Unidad Social Cristiano (PUSC) would boost its standing among the electorate has been dented by accusations levelled at one of the PLN's, and Costa Rica's, former presidents: José Marí­a Figueres. On 27 October Figueres admitted receiving US$900,000 from Alcatel, the French telecoms giant at the centre of the scandal that brought down Miguel Angel Rodrí­guez from his post as secretary-general of the Organization of American States (OAS) to his current position in a cell-block of a San José prison.

Figueres maintains that he did nothing wrong. He claims he earned the money legitimately from 2000-2003 through offering advice on the telecoms industry to H.F. Desarrollos Interdisciplinarios and that he had no idea that this company was contracted by Alcatel. Currently residing in Switzerland, where until these recent revelations he worked as managing director of the World Economic Forum, Figueres gave an interview with Le Temps newspaper on 29 October in which he expressed his willingness to hand over all his bank details to the appropriate authorities. Although he has been forced to quit his job, he has made no mention of returning to Costa Rica, as both his supporters and detractors would like him to do, in order to explain himself. There is no chance that he will be forced to do so either: Costa Rica has no extradition treaty with Switzerland.

In order to appear tough on corruption, the PLN immediately expelled Figueres from the party. The writing was on the wall for Figueres when the party's leader, former president and Nobel peace prize winner Oscar Arias Sanchez, described his actions as 'a betrayal of the ideals and inheritance of Don Pepe [José Marí­a Figueres Ferrer]'. 'Don Pepe', the father of Figueres, defeated the father of Rafael Angel Calderón (another former president currently imprisoned on corruption charges) following the civil war of 1948 and later became one of Costa Rica's most influential leaders, as head of the founding junta of the Second Republic of Costa Rica.

On 12 November four PLN members resigned rather than face the party's 'ethical tribunal'. Former general secretary Carmen Valverde, ex-head of the state telecoms firm ICE, Joaquí­n Fernández, ex-minister Mario Carvajal and businessman José Antonio Herrero quit following allegations of corruption.

The attorney general said on 7 March that his office had launched 487 probes into corruption in the past three years. The statement came in the form of an article in the party newspaper, Granma. Under Cuban law, the government can seize any property that it believes is the product of corruption or some other illegal activity. The attorney general's office said that 182 people had been processed by the courts while a further 305 people (mostly relations or friends) were considered to have benefited from their corruption. It is not clear whether the courts will also deal with them.

China: President Fidel Castro dismissed suggestions that Cuba was having trouble paying for imports from China. He said that the government would easily clear any arrears from the US$1bn in savings it would make through its reform of the energy sector. China is Cuba's second biggest trading partner after Venezuela. Trade between China and Cuba came to US$775m in 2005, up from US$551m in 2004. China sells Cuba locomotives, buses and telecoms equipment while Cuba exports commodities such as nickel and sugar. Cuba also claims to export biotech products and medical equipment to China.

Menchú's main problem is that her international profile, gained through her fight for human rights and recognised with a Nobel Peace Prize, is not matched by an equally impressive domestic reputation. Firstly, she is a female indigenous candidate in a society which, despite some steady improvements, remains sexist and racist. Secondly, she has not been able to harness the full support of Guatemala's large indigenous population. She alienated some of her potential support base in late March when she snubbed the organisers of the continental summit of indigenous peoples and nationalities of Abya Yala, held in Iximché, a sacred Maya site and main city of the Kaqchikel Maya people.  

Not only did Menchú fail to make an appearance at the summit, she did not even send a message. When it was proposed by one delegate that the final summit declaration of Iximché include support for her presidential aspirations, he was shouted down. Her candidacy was the most divisive issue at the summit.

Many indigenous people accuse Menchú of embracing neoliberalism because of her decision to go into alliance with the EG and select as her running mate Luis Fernando Montenegro, a former president of Guatemala's national coffee association (ANACAFE) and a respected businessman.

Menchú argues that Montenegro embodied the social development vision that motivated her to seek the presidency. Her indigenous detractors argue that he embodies the neoliberal agenda that has failed to address the problems of Guatemalans, and especially indigenous Guatemalans, for decades. They claim that she deliberately chose not to appear at the summit in order to keep "the oligarchy" on side. Instead, the thousands of indigenous peoples from 24 countries who did attend the summit nominated Bolivia's President Evo Morales for a Nobel Peace Prize.

Indigenous division

The Iximché declaration underlined the need to "fortify the organisational processes and struggle of the Indigenous Peoples with the full participation of our women, children and young people." Indigenous communities have managed to make an impact on local politics: 119 of the 332 mayoralties are considered indigenous (although not exclusively so). They have not made an impact at a national level, however, because of divisions within the indigenous movement.  

Menchú has not managed to bridge these and, unless she manages to do so, the division will undermine her bid. It also goes a long way to explaining why she is still languishing in single figures in the polls.

Menchú has not addressed the issue of indigenous support. Instead, she is determined to galvanise the millions of Guatemalans she claims are disenchanted with the party-political system which has "deteriorated so much due to corruption and promises that are repeatedly reneged upon, that the population is completely disillusioned." She believes that it is likely that abstention could be more than 50%.

This seems incredibly high, even by Guatemala's traditionally high rates of abstention, but there is little doubt that Guatemalans are apathetic about the elections. Menchú might not have made much of an impact on the polls but other candidates have not fared much better. Even Alvaro Colom, the current frontrunner, is slipping in the polls and is now well adrift of the 50% threshold required to win in the first round of the elections.  

Colom, who is running for the centre-left Unidad Nacional de la Esperanza (UNE), is now on 25.9% support, down nearly nine percentage points since January, according to a poll by Borge & Asociados this month. Retired General Otto Pérez Molina, of the right-wing Partido Patriota, moved up slightly to 15.3% in the poll while Alejandro Giammattei, of the ruling Gran Alianza Nacional (GANA), is in single figures with Menchú.

Security

The big problem confronting all of the candidates is how to address the dreadful security situation. Pérez and Giammatei are promising to break up organised crime, reduce the number of members of the mara gangs, enlarge the Policí­a Nacional Civil (PNC) from 22,000 to 30,000 and guarantee security in order to attract investment and create employment. This is obviously easier said than done as the incumbent President, Oscar Berger, has discovered to his cost.

Colom advocates a different tack. "Guatemala is tired of 'mano dura' initiatives, of bellicose rhetoric, and actions on the margin of the law," he said. Instead, Colom is promising to improve security by providing more resources for the public prosecutor's office and the judiciary so that they can fulfil their duties and "attack the economic and social causes of crime". In a television debate with Pérez earlier this month, he said he would hold a broad social dialogue process before tackling the security situation. He said it was necessary to regain control of the state, which "is in the hands of different mafias". He spoke about revamping the PNC by bringing in better trained recruits and reducing by more than half, during his mandate, the number of murders under Berger - some 20,000. He did not provide substantial details of initiatives to achieve these goals.

• Rí­os Montt gains immunity
  Retired general and former president Efraí­n Rí­os Montt will run for a seat in the legislative assembly in elections on 9 September. The supreme electoral tribunal (TSE) registered Rí­os Montt's candidacy this month despite remonstrations from NGOs and to the consternation of the Spanish judge, Santiago Pedraz, who ordered an arrest warrant for Rí­os Montt last July for genocide, torture and state terrorism. Rí­os Montt will now be able to hide behind immunity from prosecution even though he is only a candidate.

• Telephone tapping
  The government introduced a controversial new measure to try and improve security this month. The "law against organised crime" legalises telephone tapping, in specific cases, to obtain evidence and using undercover agents to infiltrate gangs of drug-traffickers, kidnappers and extortionists. The interior minister, Adela Torrebiarte, said the police and the attorney general's office would need to seek permission for telephone tapping from a judge. Human rights groups said the law was open to abuse and could lead to spying. They want clear legal parameters to be put in place.  
  
  

EL SALVADOR

As a dollarised economy, the country could have been badly affected by the rise in fuel and food prices which are denominated in dollars. In fact, inflation is comparatively low, with the 12 month rate to the end of June, reaching 9.02%. Although this was the highest rate for the past 10 years, according to central bank figures, it is also the lowest rate in Central America. Only the other completely dollarised economy, Panama, at 9.6%, is comparable. According to the Dirección General de Estadí­sticas y Censos (DIGESTYC), higher food and oil prices are the main reasons for rising inflation. In June alone consumer prices rose by 1.24%. This was almost twice the rate of inflation for June 2007. The accumulated rate for the first six months of the year was 5.94%. In the first half of 2007 the rate had been 1.89%.

HONDURAS

Consumer price inflation eased slightly in June to 1.2%. In May consumer prices had risen by 1.8%. The June figure brought the accumulated inflation rate for the first six months of 2008 to 6.8%. While the past 12 months rate (June to June) is 12.2%, the central bank (BCH) prefers to use an average, which puts the 12 month rate at 8.9%. According to the BCH, the stability of the Lempira against the dollar is one factor keeping a lid on inflation (although even so, it estimates that imported inflation in May was running at 3.1%, up 0.8 of a percentage point on the previous month). The government's policy of maintaining fuel subsidies is also keeping inflation down although the cost of doing so is clearly high and one reason why President Manuel Zelaya is interested in gaining more support from President Hugo Chávez of Venezuela.

Honduras has already signed up to Venezuelan oil initiative, Petrocaribe and, in mid-July, according to Chávez , Honduras was on the point of announcing that it would join the Alternativa Bolivariana para las Américas (Alba) although Zelaya has neither confirmed nor denied this. The Honduras business sector is deeply opposed to this idea. arguing that full membership of Alba would mean losing the benefits of Cafta, the free trade agreement with the US. This is unlikely: Nicaragua is a member of both Cafta and Alba.

GUATEMALA

Guatemala's central bank (Banguat) is forecasting that economic growth this year will come in at 4.8%, down from 5.7% in 2007 and 5.3% in 2006. This will be in line with Central America's overall growth rate which is set to be 4.8% in 2008 down from 6.3% in 2007. Banguat estimates that for every one percentage point fall in US GDP, Guatemala's GDP will be 0.35 of a percentage point lower. By far the biggest effect of the fall in US GDP will be on remittances: the effect of a one percentage fall in US output will be the equivalent of 0.24 of a GDP percentage point drop in Guatemalan GDP, the central bank calculates. The next most vulnerable sector is exports (0.10 of a GDP percentage point) and the least affected is tourism (0.01 of a GDP percentage point). 

Inflation: The rate in June was 1.63%. This brought the accumulated rate for the first six months to 7.54% and the rate for the year to June to 13.56%.

PANAMA

Panama has become Costa Rica's most important trading partner in the first half of this year. Traditionally Guatemala and Nicaragua are Costa Rica's main markets. In the first half of 2008, Costa Rica exported US$210m of goods to Panama, up 34% on the same period of 2007. Panama buys a wide range of Costa Rican products; 482 Costa Rica companies sell over 1,500 different products to Panama.

Costa Rican exporters say that they are benefiting from the economic boom in Panama. The main beneficiaries are construction companies and companies producing consumer goods. Exports of construction goods from Costa Rica to Panama were up by 79% compared with the same period of 2007, at US$43m. Consumer good sales were up by 16% at US$85m. Overall, exports of raw materials from Costa Rica to Panama were up by 50% at US$96m.

Inflation: In the 12 months to June, consumer price inflation was 9.6%. Businesses are taking a hit to their margins because wholesale price inflation was 17.1% in the same period.

NICARAGUA

Humberto Arbulú, the IMF's representative in Managua forecasts that growth in 2008 will be between 3% and 4%. This is slightly below the 4% to 4.5% rate the government is forecasting. The government is more optimistic about exports and construction which it claims will get a boost from government spending at the end of the year. In the first half of 2008 export receipts were up by 30.5% compared with the same period of 2007. Exports came to US$835.3m, up from US$640m in the same period of 2007. Arbulú argued that 4% growth was nothing to be ashamed of, and conceded that the rate could even be a bit higher because the crucial agricultural sector seemed to be having a good year. The stronger prices of coffee, beans, peanuts and dairy products had already had an effect. The government also claims that agricultural productivity is rising and notes that the tax contribution from agricultural exports has increased in the first half of the year. In 2007 the economy grew by 3.8%, but inflation came in at 16.88%

CUBA

On 14 July the economy and planning minister, José Luis Rodrí­guez, officially warned Cubans that there would have to be “inevitable adjustments and restrictions" in the government's budget for 2009. He said that these were result of high food and fuel prices. Food prices have risen nastily even though fuel prices are still cheap by international standards. A litre of petrol sells for 0.95 convertible pesos. The cost of most non-subsidised foods sold in state shops jumped by 18% in May. Nevertheless, Rodrí­guez claimed that the economy would grow by 8% this year. In 2007 Rodrí­guez said that the economy grew by 7.5%. The 8% forecast looks heroic, given that one of the country's most important exports, nickel, has seen its price fall by 38% so far this year. Nickel probably accounts for about half the country's total exports. Oil production, however, is up by 6% at 2.1m tonnes for the first half of 2008. The target for oil production in 2008 is 4m t (around 69,000 barrels per day). A lot of the extra production seems to be gas. The country is meeting just over 43% of its energy consumption (of about 158,000bpd), from its own resources. By contrast, Cuba has to import 85% of its food and has become reliant on cheap supplies from the US. The rise in international food prices means that the government has had to find an extra US$2.6bn to buy in the same volume of food. This year Cuba is on course for a trade deficit of US$6bn.

DOMINICAN REPUBLIC

President Leonel Fernández announced a package of emergency economic measures on 17 July. The economy is reeling from the effects of the rises in food and energy prices. The heart of the plan is a 20% reduction in public spending in the second half of this year, representing a cut of around RD$20bn (US$590m).

As well as increasing borrowing from Venezuela, the government also announced plans to shake up the electricity and agricultural sectors. Fernández said that the government will try to hold the fiscal deficit to 2% of GDP. Since Fernández took office in 2003, following a devastating banking scandal, the country's GDP has almost doubled from US$1.9bn to US$3.8bn. In the same period unemployment has fallen from 19.3% of the workforce to 15.9%.

The government also revealed plans to cut back on investment spending by around US$100m as well as cancelling 25% of its publicity budget and freezing spending on office equipment and vehicles. Senior civil servants will also see a cut in their pay, with those earning between RD$151,000 (US$4,422) and RD$200,000 (US$5,885) a month facing a 5% reduction while those earning over RD$200,000 will receive a 10% pay cut. The lower paid civil servants (ie those getting less than RD$30,000) however will get a 15% pay rise. Over 97.6% of the public sector is in this category. Inflation:?Inflation in the first half of the year was 7.6%, according to the central bank.

The children of foreign parents born in the Dominican Republic will not be granted citizenship, according to the country's new constitution. At the end of September, the national assembly voted by 132 votes to 20 to drop a proposed reform awarding ius soli nationality which had been approved during the first round of voting on the draft constitution in August.

Crucially, the article in question would have offered an amnesty of sorts to the children of the country's Haitian immigrants. The congressional vote was accompanied by cries for the government to crack down on illegal immigration from its poorer neighbour. Several assembly members argued that Haitian immigrants, who make up some 80% of the population in border towns, are pushing Dominicans out of the border area. The secretary general of the Partido Reformista Social Cristiano (PRSC), and deputy for the south-western province of Bahoruco, Luis José González, called for a wall to be erected between Haiti and the Dominican Republic, and for all illegal Haitian immigrants to be expelled. NGOs estimate that there are around 1m people of Haitian descent living in the Dominican Republic [pop. estimated at 10m], of which up to 500,000 are there illegally.

Border security push
At the beginning of October, the head of the army, Major General Joaquí­n Virgilio Pérez Féliz, announced that 600 extra troops would be dispatched to help patrol the 390km border with Haiti.  This came on the back of the launch by the national police of a pilot scheme that will send some 120 officers to the area, with the aim of strengthening border security. Until now, this has solely been the remit of the armed forces.

The government has also announced r that it intends to relocate soldiers and their families to live in border communities that have been largely abandoned by Dominican residents and since repopulated by thousands of illegal Haitian immigrants. The soldiers' remit will be to reforest the area, repair run-down homes and teach locals how to read and write, as well as, presumably, to displace the growing Haitian community.

• Presidential re-election

On 6 October the national assembly voted in the second and final reading of the new constitution to outlaw consecutive presidential re-election. This ban is part of a deal struck between President Leonel Fernández and his chief rival, Miguel Vargas, of the opposition Partido Revolucionario Dominicano (PRD) [RC-09-06].  Under the congressional deal, Fernández agreed not to seek re-election in 2012 in exchange for approval by PRD assembly members of seven points of the new constitution. These include key two clauses: the first will re-synchronise legislative and presidential elections; the second paves the way for Fernández to stand for re-election in 2016, after a term out of office.

The IMF warned the government of President Leonel Fernández that rising food and oil prices were looming risks to the economy. The IMF, which has just made its fifth visit to the country to monitor a standby agreement which began in November 2009, said that it was basically optimistic about the economic outlook.
The IMF endorsed forecasts from the economy minister, Temí­stocles Montás, who reckons that the economy will grow by between 5.5% and 6% in 2011, one of the highest growth rates in the region. In 2010 the economy grew by an estimated 7.8% and inflation was 6.2%. This year inflation is likely to be between 5% and 6%, the government forecast.
The IMF did warn that the balance of payments would come under pressure from rising food prices and rising oil prices. It advised the government to prepare for “shocks" and to work out how to deal with them. The IMF noted that even in 2010 the balance of payments was in deficit to the tune of 8.5% of GDP.
Once the IMF board has approved the findings of the mission, which was in the country in the first part of February, the IMF will advance the country another US$150m. The IMF supported the government's plan to tighten fiscal policy by the equivalent of 1% of GDP by increasing taxes and reducing subsidies on electricity. The IMF said that discussions about these two issues, tax rises and electricity subsidies would continue at a series of meetings with Dominican officials in Washington.

Most political commentators are hedging their bets over the outcome of the presidential election to be held in Uruguay on 31 October. And with good reason: although the majority of polls show that the leader of the leftwing Encuentro Progresista-Frente Amplio (EP-FA), Tabaré Vázquez, has a commanding lead, he has lost the previous two elections from a strong position. As seasoned followers of Uruguayan elections will know, the EP-FA traditionally approaches the first round with a sizeable advantage only to be taken to a second round, at which point the right rallies behind one candidate.

Will Vázquez stumble before the finishing line again? This publication has chosen to tip Vázquez on the strength of two recent developments. Firstly, the electorate has not rallied behind either candidate from the right as election day gets closer. Guillermo Stirling is anathema to all but diehard Colorados after the incumbent Colorado president Jorge Batlle's disastrous mishandling of the economy. He is completely out of contention on about 14%. Jorge Larrañaga, the standard-bearer for the Blancos, has been falling away in the polls. He is hovering around the 32% mark.

Secondly, while Vázquez has been handling himself with calm assurance in recent weeks, some of the actions of the right smack of desperation. Uruguay's former Colorado president, Julio Sanguinetti, has been trying to stir up fears that former guerrillas that form part of the leftwing coalition 'have not turned their back on violence and are using democracy as a tactical stage'. The Tupamaros were subsumed into the Movimiento de Participación Popular (MPP), an umbrella movement within the broader EP-FA coalition.

Sanguinetti's comments are calculated to lure about 3%-4% of voters away from the EP-FA, which would leave Vázquez short of the 50% plus one threshold required for victory in the first round. He was referring to excerpts from a German documentary in which a number of prominent Tupamaros, recorded in 1996, displayed somewhat dubious democratic credentials. Tupamaro Senator José Mujica, for instance, said that 'just because you participate in the game of liberal democracy does not mean that you agree with it'. Eleuterio Fernández Huidobro said 'The Uruguayan system of democracy, what confidence can we have in that?'

Vázquez has refused to be drawn on the issue and, interestingly, Larrañaga has also distanced himself from Sanguinetti's scare tactics. He said that the country was fed up with dwelling on the past. However, some former Tupamaros seized the bait. Fernández Huidobro accused Sanguinetti of having been linked to the death squads. Ordinary Uruguayans seem unmoved. Paradoxically, this is bad for Vázquez. He has been out front in the polls for over two years. With the right failing to make any impression on his lead, he should sneak home in the first round provided that voter turnout is good. This is, however, a fairly big proviso. The electorate appears bored. Flags that would normally be draped from the balconies of apartments around Montevideo have been conspicuous by their absence.

It is to these people - the apathetic and the undecided - that Larrañaga must turn. He has been doing his best. On 11 October, he presented a list of 38 names from both within the party and outside it that would feature in his government if he wins. The names on his list include prominent figures from across the political spectrum, including (cheekily) Walter Cancela, an advisor to Vázquez, as well as Alejandro Atchugarry, a widely respected former economy minister in the Batlle administration who belongs to the Colorados. Abreu said that the Blancos wanted a government that sought national unity over party political rivalries.

It is a clever political ploy. The Blancos will need to shore up support from the Colorados in the event of a run-off between Vázquez and Larrañaga and there is no better way to do this than to offer positions to politicians from within the party. Larrañaga's mooted government of national unity is a clear attempt to woo Uruguay's undecided voters.

Larrañaga has also been trying everything he can to unsettle Vázquez. A day later, on 12 October, he accused his opponent of stealing his policies. He said that Vázquez's manifesto was just 'a bad copy' of his own programme, only 'without paying royalty fees'. He claimed that he had stood by the same policies - including giving emergency assistance to the 100,000 poorest Uruguayans, the dedollarisation of the economy, and a refocusing on the manufacturing sector - throughout his campaign. 'Where is the [EP-FA] manifesto? It doesn't exist,' he said.

This is unfair. Like Brazil's President Lula da Silva, who lost three elections in a row, Vázquez has made a point of appeasing the private sector by promising to adhere to the rules for investors, fiscal discipline, and a tight monetary policy based on inflation-targeting. If he wins, he will inherit an economy whose recovery is in decent shape (see below) although unemployment is creeping up. Vázquez will be under pressure to address this, while he will also need to work hard to improve the public perception of officialdom.

The US dollar and the Brazilian risk premium shot up in the week beginning 22 May following the markets' jumpiness about the direction of US inflation and interest rates. The finance minister, Guido Mantega, was relieved at the markets' change of direction: he had been promising that the government would take action to reverse the rise in the Real against the dollar.

Mantega had announced, before the crash on 22 May, after a tense meeting with the country's main industrial lobbying group, the Federação das Indústrias do Estado de São Paulo, that he was working on a package on measures to help exporters by lowering the Real against the dollar. The strength of the Real had been causing difficulties for agribusinesses, the shoe industry and, crucially, the motor industry. Mantega stressed that Brazil "is well-equipped to face global turbulences". He pointed out that most of the investment in the country is non-speculative and that the prospects for capital flight from Brazil will be marginal. Mantega argues that the current international volatility will give renewed impetus to the export sector which has been driving growth for the past two years. Indeed, because of the strong Real, imports have been growing at a staggering rate while exports have lost steam. In the third week of May, for example, imports were 43% higher than in the second week while exports rose only 4.09%.

What is clear is that the central bank's monetary policy committee still has plenty of scope to cut interest rates further. In April inflation was 0.2%, half the rate in March (0.4%) and was the lowest rate for nine months. In the first four months inflation has been 1.65% and the 12 month rate was 4.6%, pretty close to the government's target of 4.5% inflation for 2006. In 2005, the inflation rate was 5.7% and the target was 5.1%. This year the harvest has produced an increase in the availability of ethanol, distilled from sugar. Earlier in the year, shortages of ethanol had driven up fuel prices. Ethanol is added to petrol in Brazil, helping to keep blunt the effect of the surge in international oil prices. In April, the price of a litre of ethanol fell: in March ethanol prices had risen 13%.

The right is trying to allege that there is something fishy about the country's inflation figures, even though the rate in August was the highest for four months. The central bank president, Martí­n Redrado, was the first to give the issue a stir, by saying that the bank was deeply concerned about inflation. What concerns economists and politicians is not so much the rate of inflation but whether the rate is being calculated honestly. The official rate, for Buenos Aires in August, was 0.6%. This meant that consumer prices had risen by 5% in the first eight months of the year and 8.7% in the past 12 months. 

What does not seem to add up is that although government revenues and spending are surging, and domestic consumption is booming, none of this demand is feeding through into higher prices, even though most economists agree that there has been little investment in new capacity. 

2008 budget: The government sent a draft budget to congress in mid September. The budget sets an exchange rate of Arg$3.20 and calls from GDP growth of 4%. This is likely to be another low estimate: the Kirchner government has developed the habit of picking a low growth figure and then using the windfall revenues produced by faster growth as it likes as the revenues are beyond congressional scrutiny.

According to the central bank, imports fell 33% year-on-year in January, amid the slide in global oil prices. Uruguay imports all the oil and fuel it consumes.  Excluding oil, the import bill was down 15% year-on-year. The January figures show a massive turnaround from the trend in 2008.

Over 2008 as a whole, imports rose strongly, especially capital goods, which grew 50% overall. In November and December, there was a small but significant fall in the cost of purchases of intermediate goods, the largest import category, which are mostly used by industry to produce consumer goods. In both months, the fall in this category was between 2% and 4% year-on-year. Even so, in December 2008, the total import bill was still up 11% annually. 

The January figure suggests plummeting business and consumer confidence. Imports of consumer goods were down 15.6% year-on-year in the month. The main fall was in big ticket items such as cars and washing machines, dishwashers and other white goods.  Equally sobering was a 9% fall in imports of food and drink. This suggests that the middle-class is cutting back on spending.

Despite the ebullient reaction of the financial markets to the news of the death of Néstor Kirchner, Argentina's economic policy is unlikely to change much.

After Kirchner's death was confirmed on the morning of 27 October, the prices of Argentine debt soared on traders' hopes that Kirchner's isolationist (anti- globalisation) and populist economic policies would be dumped. Sovereign bonds rose sharply as the risk premium on JPMorgan's Emerging Market Bond Index for Argentina shrank nearly 10%. Argentine ADRs soared 7.9%. Energy stocks, which had wilted under Kirchner's policy of trying to control inflation by capping utility prices, rose even more. The biggest riser on 27 October, however, was Grupo Clarí­n, a media company, which rocketed 22%. The government and Clarí­n have been locked in an series of bitter rows since the media conglomerate took the side of agricultural producers in row over export tax increases in 2008; in 2009, the government ended Clarí­n's lucrative and semi-exclusive deal to broadcast football five years before the contract was due to end in 2014. 

The bull argument for Argentina is that with successful neighbours such as Brazil and Chile, it was only Kirchner's (and Cristina Fernández's) perverse populist economic policies which were preventing business from booming. The drawback to this argument is that Argentina is, in fact, booming. The central bank is now forecasting that the economy will grow by 9% in 2010, thanks to a record 55m t soya crop. It had previously been forecasting 7.5% GDP growth for 2010. Under Kirchner the economy grew by an average of 8% a year. Even when the rest of the world (including Brazil and Chile) went into recession in 2009, Argentina still managed GDP growth of 0.9%.

Kirchner's economic policy innovation was to substitute Argentines' savings for foreign savings to finance government spending. The Fernández government renationalised the private pension system in 2009 to feed its need for other people's cash. It also periodically swipes reserves from the central bank.

Convinced Kirchneristas, such as Guillermo Moreno, the secretary for domestic trade, argue that there is no sign of the cash running out. In a bizarre academic lecture on 2 November, Moreno claimed that Argentina had US$40bn in “physical" dollars and that the country did not need [an inflow] of more than US$7bn or US$8bn to achieve an investment rate of 28% which would, in turn, guarantee 8% annual GDP growth.  It is far from clear what Moreno means by the “US$7bn to US$8bn". He probably means the annual trade surplus. In 2009 the country ran trade surplus of almost US$17bn. In the first nine months of this year the surplus was US$10.5bn on exports of US$51bn.

What is likely to happen, at least in the short term, is the Kirchner's left-wing populism is likely to mutate into corporatism, which is another aspect of the Peronist tradition. Héctor Méndez, the president of the Unión Industrial Argentina, the lobby for big business, said on 30 October that he did not see much changing on economic policymaking. The key figure is likely to remain Julio de Vido, the current planning minister, who held the same position in Kirchner's own government (2003-2007). Méndez said that he had already held meetings with the controversial trade union leader, Hugo Moyano, the head of the general confederation of labour (CGT). The two agreed to work for social peace, reduce confrontation and negotiate deals where possible.

What will change is that power will become more diffused. Kirchner, frequently took part in eight policymaking meetings simultaneously. Such a prodigious workload may have contributed to his relatively early death but it also demonstrated how central he was to the running of the Fernández government. 

• Inflation: In September, the consumer price index rose 0.7%. This brought the 12 month inflation rate to 11.1%.  Interestingly, the price of goods rose by 0.9% while the price of services (less tradable and therefore often a better indicator whether consumers are losing their sense of relative prices) was up by 0.5%.

Ecuador's new supreme court is divided over what to do with exiled former president Abdalá Bucaram. On 3 February at least 14 supreme court magistrates filed a petition with the president of the court, Guillermo Castro, asking him to excuse himself from the review of Bucaram's case. 

The leader of the government-allied Partido Roldosista Ecuatoriano (PRE), Bucaram is currently residing in Panama, and has been charged in Ecuador on two counts of embezzlement. It is likely that Gutiérrez restructured the supreme court to facilitate Bucaram's return in order to shore up the support of the PRE, arguably the second-most important party in congress.

Ramón Rodrí­guez, the first supreme court president following the replacement of 27 of the court's 31 judges in December 2004, resigned in mid January, ostensibly over a lack of transparency over certain appointments within the judiciary, but in reality probably because of his failure to speed up Bucaram's return. This theory was lent credence by the fact his successor, Guillermo Castro, has been a friend of Bucaram since childhood, has close links with the PRE and was Ecuador's attorney general when 'El Loco', as Bucaram is popularly known, was president. 

The magistrates who signed the petition want Castro to absent himself from the review of Bucaram's case. Its status is uncertain due to the fact that his conviction for embezzlement has been overturned but by a judge who was later dismissed for corruption. Their petition clearly ruffled Castro: "If they interfere in justice then what's going to happen is this court will collapse before the cock crows. What they are trying to do is destabilise the supreme court," he said.

• Bucaram asks his followers to be patient 
  On 6 February Abdalá Bucaram told his supporters in both Panama and Ecuador to wait patiently for his return since too much agitation might bring down the government. Speaking to guests at his 53rd birthday, Bucaram insisted that he would return to the country within "the next few months", but stressed the need to act "rationally". During the party Bucaram briefly donned his presidential sash while an indigenous dancer presented him with an autochthonic crown.

Things are looking good for President Alan Garcí­a; according to an opinion poll conducted by Apoyo, which puts his October approval rating at a healthy 57%, Peruvians from Tumbes to Tacna think that he is doing a good job. However, he faces a real test of his popularity in the regional elections on 19 November.

Up for grabs are 195 provincial mayoralties, 23 regional presidencies and the prestigious mayoralty of Lima. Although Garcí­a's Apra party won 12 of the 25 regional presidencies in 2002, his rival candidate for the presidency, Ollanta Humala, got the most votes in 15 of the 25 regions in this year's presidential elections.

The regional balloting will be a good gauge of whether the president is succeeding in a delicate balancing act, that of appeasing people on all sides of the deep ethnic and socio-economic divisions in Peruvian society. Garcí­a's victory in the presidential run-off was generally attributed to him gaining the support of "anyone-but-Humala" middle-class voters in Lima and the coast, but according to the recent poll by Apoyo he has managed to retain this support. His approval rating in Lima is at 62%, and at 63% in the Costa Norte.

Humala's troubles

In areas where support for Humala was strong during the presidential elections, approval ratings for Garcí­a are still markedly lower, at 47% in the poor southern Andean region and 48% in the Amazonian provinces. However, this time around Humala faces challenges even in previous strongholds and Apra has a chance of making some gains in these areas. The charges brought against Humala for murder and kidnapping in August have significantly dented his support base and with a trial pending it is unlikely that he will be allowed to travel widely outside Lima to boost the campaigns of his candidates. 

The Unión Por el Perú (UPP), which formed a coalition with Humala's Partido Nacionalista Peruano (PNP) in the presidential elections, will put forward its own candidates in the regional elections. To counteract the abandonment of the UPP-PNP coalition by many legislators who got into congress on the back of his success in the first round of the presidential elections, Humala has formed a new political alliance called the Gran Alianza Nacionalista Peruana-Gana Perú which brings together all the regional movements that supported his candidacy, many of which won regional presidencies in 2002 (see table below). 

However, the president of the UPP, Aldo Estrada, has warned that this could actually lessen his support, as up to 10 legislators from the PNP have threatened to leave and join the UPP over disagreements about the formation of Gana Perú. 

Apra marks out its battleground

Garcí­a is making a concerted effort to focus on the regions where, despite Apra holding regional presidencies, support for him was disappointingly low in the presidential elections. Apra's secretary general, Mauricio Mulder, said that in regions where the party performed poorly its grassroots organisation faced a comprehensive overhaul. This includes the purging of regional leaders who, in Mulder's words, "unfortunately are not up to the job of campaigning or being in the governing party." The regions which are being targeted include Arequipa, Cajamarca, Loreto and Ayacucho. 

Perhaps Garcí­a's keenness to win support in these regions goes some way to explaining his decision to send a bill to congress asking for the death penalty for terrorists. Ayacucho is the region where the Sendero Luminoso was formed and its population was severely affected by their actions. The recent trials of leaders of the terrorist organisation has brought the issue back into public consciousness. Many people complained that some of the punishments meted out were too lenient, and Garcí­a's hard line is sure to be a vote-winner in his target provinces.

The Ecuadorean minister for Internal and External Security, Gustavo Larrea, admitted on 3 March that he had met a delegate of the Fuerzas Armadas Revolucionarias de Colombia (Farc). He insisted that this was solely to try and secure the release of Franco-Colombian former presidential candidate, Ingrid Betancourt, and eleven other hostages including one Ecuadorean, Marcelino Arriaga, three US citizens, Thomas Howes, Marc Gonsalves and Keith Stansell, and several other high-profile hostages.

The announcement came after Larrea was accused by Óscar Naranjo, head of the Colombian national police, of having "links" with the Farc according to documents found on Raúl Reyes' computer. First Larrea had denied these claims, passing them off as slander and "a lie". He changed tack on 3 March, though maintaining that Naranjo's allegations were "totally false" and "a smoke screen" to distract attention from Colombia's "injustifiable_ violation of our national sovereignty."

Larrea qualified that he had indeed met a Farc delegate in early January - a meeting which took place "outside Ecuador". "As is obvious, these conversations were not public," he admitted, but he added that the Colombian government had been informed of them.

He explained that negotiations were at an "advanced" stage, adding that the hostages' release could have been expected in the next few weeks. Larrea had been part of the humanitarian mission which secured the release of hostages Clara Rojas and Consuelo González in January, and had offered Ecuador's help in mediating negotiations for a possible prisoner swap.

Larrea confirmed what President Rafael Correa had asserted previously - that the raid on the Farc camp in Ecuador by the Colombian armed forces on 1 March has dashed hopes of Betancourt being liberated any time soon.

Though Ecuador claims that Colombia was aware of Larrea's negotiations with the Farc, Colombia denies this, saying that it knew nothing about them. However, one of the documents found on Reyes' computer dated 28 February mentions that the US was involved. If this is true, it would be difficult to believe that Colombia was uninformed of what was going on.

The Farc communiqué reads: "The gringos will ask for a meeting with the minister to ask him to communicate to us that they are interested in discussing various issues." If the minister in question is Larrea, this would suggest that the US had been trying to get Ecuador to substitute Venezuela in negotiating a prisoner swap. (Colombia's President Álvaro Uribe sacked his Venezuelan counterpart, Hugo Chávez , last November from his role as mediator.)

By contrast, Naranjo claims that Correa's government has been looking to formalise relations with the Farc and even replace the commanders of its security forces near the border with Farc-sympathisers. Larrea insisted that "we were negotiating absolutely nothing with the Farc other than the liberation of the hostages and principally Ingrid Betancourt."

It is as yet unclear how Naranjo's accusations will reflect on Larrea - and on Correa's government - in the perceptions of the international community. It would certainly not look good for Correa and his party's majority bloc in the Constituent Assembly, Acuerdo Paí­s (AP), if it were proven that his interior minister had been striking under-the-table deals with senior Farc leadership. This is far from being proven, however.

• Social tensions

Colombia's violent incursion into Ecuadorean territory is likely to fuel anti-Colombian sentiment among Ecuadoreans, leading to social as well as military and political tensions. Roughly 50,000 Colombians live in Ecuador, both legally and illegally, though estimates vary. Most are recent refugees who have fled the conflict. Feelings about this mass immigration already run high, and the hostile diplomatic climate between the two countries may see itself reflected in increasing discrimination against Colombians living in Ecuador.

President Hugo Chávez 's reaction to the new US-Colombia military bases deal (and to a perceived “pattern of aggression" against him by rightwing elements in Colombia, the US and elsewhere) was entirely predictable - on 28 July, only six months after ambassadorial relations between Caracas and Bogotá had been restored, he recalled his ambassador once again and announced the freezing of trade relations.   Chávez is clearly threatened by the prospect of sophisticated US military installations across the border, however his bellicose rhetoric (“the winds of war are blowing across the region") may belie a deeper fear: the gradual erosion of his sphere of influence in the region.

Arguably, Colombia's President Alvaro Uribe has played his cards rather better than Chávez in this latest row. Although the Colombians initially acted clumsily by springing news of the deal on the region - its failure to talk to Brazil was a particular miscalculation - Uribe's hastily arranged regional tour to explain the deal to the major powers that matter, Brazil and Chile, helped ensure that the 12-member Union of South American Nations (Unasur) did not issue an outright condemnation of the deal at a presidential summit in Quito, Ecuador on 10 August, much to Chávez 's chagrin. Uribe also agreed to attend a special Unasur summit in Argentina on 28 August to clarify the deal. With the tacit support of Brazil, Uribe will likely try to broaden the agenda at that meeting to discuss all regional military pacts, which would allow Brazil (and others) to use Unasur to find out exactly what Venezuela has agreed with allies in Russia, China and Iran.

Chávez 's reaction to Uribe's 15 August diplomatic overtures to Ecuador's Rafael Correa (which was also preceded by apparent US overtures to the Ecuadorean leader, with praise for his efforts against the Colombian guerrilla group, the Fuerzas Armadas Revolucionarias de Colombia) was also telling: on 16 August he accused Uribe of “cynicism without limits", and said it would be “impossible" for him to consider restoring relations with Colombia. On 18 August, in the wake of a Washington meeting between   Colombia's foreign minister, Jaime Bermúdez, and the US Secretary of State, Hillary Clinton, he vowed to lead the regional movement against the 'done-deal' on the bases.

Some analysts see in the Colombian/US overtures to Ecuador an effort to try and prise the leftist Correa, who has always kept a subtle distance from Chávez , away from his radicalising influence and, with the quiet endorsement of other regional powers like Brazil and Chile, to continue to 'contain' (if not isolate) Chávez , whose main ally in the Southern Cone region remains Bolivia's Evo Morales.

However, if this is the tactic, it's surely coming a little late; after a lengthy period on the fence, Ecuador finally signed up to Venezuela's regional trade and integration initiative, Alba, last year, and Correa has appeared to tack further to the radical left since his recent re-election under a new 'Bolivarian' constitution. Personally, Correa is also ambivalent towards the US.

Meanwhile, bilateral trade between Colombia and Venezuela, which has previously been resilient to the recurring diplomatic conflict between the two governments, appears to be in some jeopardy. On 18 August the president of Venezuela's leading private sector association, Fedecámeras, Noel Alvarez, called on the Chávez government to carefully consider the ramifications of the trade freeze, warning of imminent shortages. Alvarez was dismissive of a new US$1.1bn bilateral trade deal signed by Chávez and Argentina's Cristina Fernández on 11 August, aimed at substituting Colombian imports, suggesting it was unrealistic. He warned that the sudden imposition of stricter border controls and increased bureaucracy in the previous week, which he suggested was purely politically motivated, had already had a crippling impact on imports of essential raw materials and intermediary goods from Colombia.

The reality is that the loss of Colombian imports will likely cause more of a headache for Venezuela than Chávez admits to. Aside from industrial inputs, Venezuela sources most of its food and agricultural imports from Colombia - basic goods that it simply cannot do without. At the same time, Uribe would also quickly come under pressure from Colombian business sectors if export flows were to slow dramatically. Venezuela is Colombia's second biggest export market after the US, and the bilateral trade balance is heavily skewed in Colombia's favour (US$6.0bn of a total US$7.29bn in 2008).

• Trade breakdown

Colombian exports to Venezuela are dominated by industrial products (accounting for 78% of the total in 2008) including autos, machinery and equipment and basic inputs (metallurgy, chemicals and paper), as well as light industrial items like textiles and clothing, leathers, plastics, soap and cosmetics. Primary products, led by agri and livestock products, including foods, make up 22% of the export basket. Colombia sources some oil derivatives from Venezuela (5.9% of the 2008 total), but its import basket is dominated by basic industrial inputs (92.4% of the total), which are likely then re-exported back to Venezuela in finished goods.