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At the time of press the contest for the leadership of the ruling Partido dos Trabalhadores (PT) was still undecided. The candidate of the pro-government Campo Majoritário, Ricardo Berzoini, was ahead of his rival, Raúl Pont, by less than three percentage points with more than 30,000 votes still to be tallied. This situation - plus the defections that have taken place, particularly since the first round of the PT's internal elections - leaves the government considerably weakened.

The outcome of the first round had misled many observers both without and within the PT. Berzoini attracted 42% of the vote, while Pont, his closest challenger, got only 15%. This prompted about 400 grassroots defections, plus several by prominent petistas. One of these, party co-founder Plí­nio de Arruda Sampaio, proclaimed that Berzoini's expected run-off victory would confirm the PT's swing towards the centre and prove that it had 'exhausted its role as an instrument for the transformation of Brazil's reality'.

It seems, though, that Berzoini had come close to his ceiling in that first round. In the run-off support for Pont shot up to 48.6% (with 15% of the vote still uncounted). Part of this is being attributed to a lower turnout: 29.3% compared with 40.7% in the first round - though it is still unclear which camp decided not to bother since a Berzoini victory was inevitable.

Floor-crossing in congress has confirmed the Partido do Movimento Democrático Brasileiro (PMDB) as the largest bloc with 87 seats, with the PT reduced to 84 (from the 91 it had won back in 2002). Together with its allies it still enjoys a majority, which has been put at 337 (out of 513) - somewhat misleadingly, as this counts the whole of the PMDB as pro-government, whereas the bloc also has an anti-government faction. On the same basis the opposition has increased its strength to 165 seats, a gain of 11.5% to the ruling coalition's 5.3% loss.

The lingering corruption scandal
Events of the recent weeks have shown that the commitment of the government's allies is shaky: the impact of the corruption scandal led many to withdraw their support and, when it came to electing new lower-chamber authorities, the government had to resort to pork-barrel tactics to muster the necessary votes for its candidate [WR-05-39].

The scandal has not yet played itself out. The congressional ethics committee has tried to tone it down by dumping the decision on proceeding against the censored legislators on the new lower-chamber president, Aldo Rebelo. The man at the heart of the allegations against the PT, José Dirceu, is trying hard to avoid cassação (expulsion). 

His latest ploy has been to appeal to the supreme court for an order to halt proceedings against him in the ethics committee on the grounds that the charges against him refer to a period when he was on leave from congress serving as Lula's chief of staff.

However, another action will soon land before the supreme court: the federal prosecution service will be filing charges against him for influence-peddling and embezzlement (related to the irregular logistical and financial support provided to Dirceu's son Zeca in his political activities in the northwest of Paraná state). Dirceu was on the list of Campo Majoritário candidates headed by Berzoini in the PT leadership elections and has rejected all calls to step aside for the sake of the party's public image.

It was a spectacle to thrill leftwingers and produce a frisson among rightwingers the region over: Venezuela's Hugo Chávez simultaneously hosting Bolivian president-elect Evo Morales and rising Peruvian candidate Ollanta Humala - though it remains hard to discern what it means beyond the rhetoric. The event did, however, have two immediate diplomatic repercussions in Peru and Brazil, the latter perhaps being the most significant.

Morales had announced that he would be visiting Caracas on 3 January, after calling on Fidel Castro. He did not disappoint those who were expecting to see this mark the launch of a more radical 'leftward tilt' in the region. Upon his arrival he proclaimed: 'We are joining the task of Fidel [Castro] in Cuba and of Hugo [Chávez ] in Venezuela to provide a response to the needs of the national majorities [...] This millennium will belong to the people, not to the empire.'

As in Cuba, Morales harvested a pre-inauguration bilateral agreement: a US$30m grant for social projects and an agreement to supply Bolivia will all the fuel it currently imports from third countries, valued at US$150m, payable in foodstuffs.

That Ollanta Humala should have turned up as well was explained as 'an extraordinary coincidence'. Humala harvested very fulsome praise from Chávez , who described him as 'a Quixote' for his armed rebellion against Peruvian autocrat Alberto Fujimori in October 2000. He described Humala's followers in that event as 'a group of soldiers in a gesture of rebellion [...] youths committed to the battle which joins us: for nationalism, the rescue of natural resources, sovereignty, and to confront the threat of the FTAA and demand respect for our peoples'.

This caused Peruvian President Alejandro Toledo to throw a fit and order the recall of the Peruvian ambassador to Venezuela due to what was described as an interference in Peru's internal affairs. Venezuela's foreign ministry informed Lima that Humala's visit had not been official, but that he had been invited by 'Venezuelan political parties' [the pro-government ones] and that Chávez 's remarks in no way entailed a wish to interfere in Peruvian politics. Chávez cracked only mild jokes when he echoed this; Humala, back in Peru, noted that nobody would have said a word if he had travelled abroad to meet 'the president of the US or of Colombia'. Within two days the Peruvian government had declared the incident overcome.

The meeting with Morales had given Chávez the opportunity to joke about the 'axis of evil' others perceived as developing around him, and to revive his notion that he was forming an 'axis for good'. Just before Morales's arrival he had said: 'You know who the axis of evil is. It is Washington and its allies, who threaten, who invade, who kill. We are putting together the axis of good.'

This did not draw a response, but it was picked up by Brazilian Foreign Minister Celso Amorim as a cue to deliver a message to Chávez - and the US. On 5 January he told the press: 'I don't believe in the axis of good or in the axis of evil. These are simplistic visions of reality. The idea of confrontation is old, ancient; it belongs to the 1970s and cannot exist in a globalised world. When one speaks of an axis of good, this presupposes that there an axis of evil on the other side. What is needed is to seek the good everywhere, even with those with whom we have differences.' Brazil, he added, is not willing to 'abandon our good relations with the US, or to set aside our friendship with Chávez and Morales'.

Morales did not only go to Venezuela. He travelled also to Madrid, Paris, Brussels and Beijing. In the first three destinations his prime concern was to reassure investors that they were not at risk of confiscation or expropriation. His Spanish and EU hosts declared themselves somewhat satisfied, but added that 'juridical security' was of the utmost importance. This is interpreted as code for not forcing changes in agreed contractual terms with the oil and gas companies. In Beijing, where Morales said he had been an admirer of Mao Zedong since reading his biography while still a youth, he invited Chinese firms to invest in Bolivian energy, mining and agriculture. His hosts did little more than welcome the invitation.

Political equation at home
The final result of the December elections, announced by CNE, the national electoral court, on 4 January, show Morales gaining a stronger support base in the lower chamber of congress than originally projected [WR-05-50]. Instead of falling one seat short of a majority of its own in the chamber, the Movimiento al Socialismo (MAS) won 72 of the 130 seats, a wholly unassailable majority for run-of-the-mill legislation. Jorge Quiroga's Poder Democrático Social (Podemos) won 43 seats, two fewer than anticipated (though still retaining blocking power over legislation requiring a two-third majority), and the same happened to Unidad Nacional (UN), which was left with eight seats. The Movimiento Nacionalista Revolucionario (MNR) was left with seven seats, two fewer than expected.

In the senate Podemos is just one seat short of an own majority, which means that it could achieve a working majority through an alliance with either UN or the MNR, who have one seat each. The MAS would have to strike a deal with both of these parties to achieve the same result. The final results have given Morales the pleasure of a first: the biggest overall congressional majority since the restoration of elected rule in 1982.

As the tally of murders in Nuevo Laredo since the beginning of the year reached 70 early last week, the government began to protest that this did not spell the failure of either México Seguro, the anticrime drive launched in mid-2005, or the more recent Frontera Norte campaign, launched on 13 March [WR-06-12;13]. By the end of the week the tally had increased by 10%, and Nuevo Laredo was accounting for 54% of the countrywide total. Impressive as these figures are, they seem to point to a decline over the past year.

Each new act of violence is being followed closely by the media both in Mexico and the US since President Vicente Fox promised his US peer George W Bush in Cancún that security along the border would be improved [WR-06-14]. Presidential spokesman Rubén Aguilar felt compelled to speak out on 3 April after four killings raised Nuevo Laredo's toll to 70 since the beginning of the year, prompting a string of doomsday headlines. He said that by no means did these figures signal that the two big anticrime drives of the past year were failing. He said: 'On the contrary, they have worked, and we will go on striking at organised crime, dismantling gangs and jailing criminals.'

The figures were to get worse. Between 6 and 7 April there were seven more killings in Nuevo Laredo, three of them committed within the local penitentiary. This raised the toll of supposed drug-related killings this year to 77. At this rate, the projected total for this year would be about a third higher than that of 2005.

Nuevo Laredo was not the only place in Mexico that has continued to feel the impact of the turf wars between the drug gangs. Indeed, some of the violence has been taking place far from the US border. On 7 April two killings assumed to be drug-related were reported in the southern state of Guerrero; one in Acapulco, the other in the nearby resort of Ixtapa-Zihuatanejo. A third killing was reported in Santa Elena de la Cruz, in the western state of Guadalajara.

According to calculations in the Mexican media, by 7 April the countrywide total of killings attributable to turf wars between drug gangs since the beginning of the year had risen to 130. The figure seems high, but it must be taken with caution. There is no systematic monitoring of drug-related homicides, among other things because there is no generally accepted set of assumptions on which a killing can be placed in that category.

The media have taken to citing a figure of 1,500 drug-related murders in 2005. If the criteria for this estimate roughly match those used for this year's tally, then the rate so far, projected on the year as a whole, suggests a decline of more than three-quarters, which would make Aguilar's claim more than plausible.

The 'ifs', however, must be kept in mind. Official countrywide statistics on homicide (of all types) tend to be late and very opaque. Those produced by NGOs try to correct these failings by relying on media reports and varying assumptions about under-reporting.

The most recent figures on homicide of all types in Mexico published by the Centro de Estudios de Justicia de las Américas date back to 2003. They put the total at 28,330 which is equivalent to a rate of about 28 per 100,000 inhabitants, which is not among the highest in Latin America. Worse off than Mexico are at least five countries: Jamaica, El Salvador, Guatemala, Colombia and Trinidad and Tobago (see page 13).

Andrés Manuel López Obrador is pursuing his campaign for a full recount of the 2 July vote along three tracks: cornering his rival Felipe Calderón into appearing as having something to hide by opposing the recount; discrediting the body which oversaw the first vote, the Instituto Federal Electoral (IFE); and keeping up the pressure on the streets, with broad hints that peaceful civil resistance would continue into an eventual Calderón administration if all else fails.

Over the past week López Obrador repeatedly announced that he might appeal directly to Calderón to endorse his call for a full recount. 'Refusing a recount,' he said in a radio interview, 'means acknowledging that things are not right and leaving alive the doubt of fraud.' He knows full well that Calderón has already adamantly ruled out a full recount unless the legal requirements for such action are met. 

On 17 July in an indirect response, Calderón said: 'I have no fear. I have said it and I repeat it: if the tribunal finds legal cause and sufficient motive to recount the votes, in those specific cases where it is justified, let it do so. It will do no more than corroborate the conclusive triumph we obtained on 2 July.'

Discrediting the IFE

The López Obrador camp has not abounded in details of the 231 specific challenges it has filed with the Tribunal Electoral del Poder Judicial de la Federación (TEPJF). This has not helped its case. On the other hand, however, the IFE has made the challenges more credible by failing to produce a purely factual report as demanded by the TEPJF, and editorialising on the PRD challenges. These, it said, 'are based on assumptions, without evidence or objective elements that may constitute legal truths'. 

It dismissed on such grounds all 21 irregularities cited in the PRD's 'mother dossier' which contains 231 challenges to the results in 52,000 polling tables.

The PRD had already accused the IFE of blatant partiality - for instance, in withholding electoral tally sheets which it had made available immediately to the ruling Partido Acción Nacional (PAN). When the IFE's report to the TEPJF was leaked to the newspaper El Universal, the PRD said: 'Amid the documentation requested from the IFE by the tribunal was a report in which, instead of justifying its own work, what the IFE does is enter a debate and raise controversy over the complaints of the opposition.' One PRD official said this made the IFE look like 'the ex officio lawyer for the PAN'.

Feasibility of the recount

López Obrador's party, the leftist Partido de la Revolución Democrática (PRD), has been hard at work trying to persuade the public that the request for a full recount is not only reasonable but quite feasible. On 19 July it made public calculations that a full recount would take only six days to complete, at a rate of 20 minutes for each of the 130,477 packets of ballots.

This, it said, would fit comfortably within the TEPJF's deadlines: ruling on all challenges by 31 August, proclamation of the winner by 6 September [last week we erroneously gave the first deadline as the one for the proclamation].

Hints of trouble to come

López Obrador has said that he would call off all street demonstrations if the TEPJF were to agree to a full recount. He has not expanded on what would happen if it does not, beyond calling into question the legitimacy of an eventual Calderón government. His lieutenants have not been so reticent.

The spokesman for the committee set up to coordinate the campaign of peaceful civil resistance, Gerardo Fernández, has already served notice that the campaign will start getting tougher this week. 'There will be absolutely strong actions which will leave no doubt that we will not allow an imposition to pass.' He predicts that some 2.5m people will attend the next big march, scheduled for 30 July. Since 22 July, pickets of López Obrador supporters have been distributing leaflets, pennants, white bow ties and stickers to cars held up at traffic lights.

'We do respect the institutions,' he said on 21 July, 'but we expect of those responsible for the institutions a behaviour in accordance with the enormous responsibility they have: the only way out right now - there is no other - is a vote-by-vote, table-by-table recount.' Should the TEPJF decide against a full recount, said Fernández, the demonstrations will continue, whether Calderón likes it or not.

This was a direct allusion to Calderón's public warning of a few days earlier: 'Let nobody try to win on the streets what he did not win in the ballot box.' Fernández links up his talk with López Obrador's more gentle pressure to wrongfoot Calderón. 'Now as never before,' he says, 'does the candidate of the right have in his hands the stability and tranquillity of the country.' He did not quite spell out the alternative, but several pro-PAN commentators recalled that on 9 July Fernández had said that, apart from a full recount, 'the other path is insurrection'.

One prominent Mexican who is taking the danger of violent confrontation seriously is the writer Carlos Fuentes. In the closing article of a series in the newspaper La Reforma, published on 21 July, Fuentes says that present-day Mexico is facing 'a double violence; one real and constant, the other only potential'. The real violence is that perpetrated by the street gangs known as maras, the drug gangs and enforcers such as Los Zetas. 'It would be very dangerous, he wrote, 'in this rude social environment, to add political violence to social violence.'

He sees this as a very real prospect: 'It is an hour for great caution: the violence of the country's political surface can mix an explosive cocktail with the social violence of its underground, which could lead us to an undesired military Bonapartism in the name of order and the resolution of differences by force.'

ANDEAN: CAN to strike deal with Venezuela. Members of the Andean Community (CAN) agreed on 16 October to define within 30 days the rules that are to govern their trade relations with Venezuela over the next five years. They agreed to set up five technical teams which will meet in Lima on 16 November for a second working meeting. Venezuela left CAN to join Mercosur in April in acrimonious circumstances after Peru and Colombia agreed to seek FTAs with the US. Exports from CAN to Venezuela exceeded US$2.04bn in the first eight months of 2006, an increase of 21% on the same period in the previous year.

COLOMBIA: Congress approves budget. Congress approved a Col$117.6tr (US$50.08bn) budget for 2007, an 11.3% increase on the 2006 budget. External debt payments account for one-third of the budget. Funds totalling US$3.79bn or 7.8% of the budget, were set aside for President Alvaro Uribe's "democratic security" plan in 2007, just over half of the funds allocated for education, health, water and sanitation. 

PERU: No pressure to push FTA deal through. Hernando de Soto, President Alan Garcí­a's pointman on the FTA in Washington, said that the US would extend the Andean Trade Promotion and Drug Eradication Act (Atpdea) with Peru if the US Congress failed to approve the FTA before the end of the year when Atpdea expires.

VENEZUELA: Inflation highest in region. The president of the central bank, Gastón Parra, predicts that inflation will end the year four percentage points higher than the bank's target of 12% because of increased government spending. Spending went up 67% in the first seven months of the year and is likely to increase further in the run-up to elections on 3 December. The annual inflation rate rose to 15.3% in September, the highest rate in Latin America.

President Hugo Chávez is no stranger to courting controversy but, even by his standards, the decision to celebrate the 15th anniversary of his failed coup attempt against the government of Carlos Andrés Pérez on 4 February will take some beating. On the new Day of Dignity Chávez issued a decree, under the enabling law, creating the "Order of the 4 February" for those who "fought with gallantry against the old paradigm of corrupt bipartisan democracy". His detractors, unsurprisingly, seized on his actions to accuse him of legitimising a coup, but even a prominent participant in the coup was uneasy enough to criticise him for setting a dangerous precedent.

Thousands of Venezuelans, dressed in red, marched through Caracas to a military base to hear Chávez praise "a just and patriotic rebellion" and "a day that split the history of Venezuela in two". Chávez 's decision to establish 4F, as it is commonly known, as a day of celebration, is a leaf straight out of Cuban leader Fidel Castro's book. Castro established a "national rebellion day" on 26 July to commemorate his failed attack on the Moncada army barracks at Santiago in an effort to overthrow the Batista regime on 26 July 1953. As if to cement the parallel, Chávez proclaimed that, "History will absolve us, the people will absolve us," echoing the words of Castro when he defended himself at his trial for the Moncada attack.

Opposition files a suit
Leaders of the opposition Comando Nacional de la Resistencia presented a suit to the attorney general's office against Chávez , defence minister General Raúl Isaí­as Baduel, communications minister William Lara, and members of the military high command for what it described as a day that served as "an apologia for crime", although it recognised that the suit would not prosper. 

Former Captain Carlos Buyón, who participated in the coup attempt, also criticised the celebrations for encouraging any disgruntled citizen to feel they were justified in overthrowing a democratically elected government. The secretary general of the opposition Copei, Luis Ignacio Planas, accused Chávez of trying to manipulate the history of the country by turning 4 February into a glorious day for Venezuelans when "the truth is that from that date there has been only deterioration and decadence".

Pérez himself issued a statement from Miami on 7 February accusing Chávez of trying to assassinate him and his family on what he branded "a day of cowardice". He said it was a sad day when the custodians of democracy - the armed forces - could celebrate a day that violated democracy.

US reaction
Speaking at the ceremony, the foreign minister, Nicolás Maduro, took the opportunity to accuse the US of opening "a new front against President Chávez and Venezuelan democracy_ to make the world believe that there is a dictatorship in this country". The US, which has been trying to give a more measured response to Venezuelan "provocations" even after the passage of the enabling law [WR-07-05], seemed to take the bait. 

"I do believe that the president of Venezuela is really, really destroying his own country, economically, politically," the US Secretary of State, Condoleezza Rice, said at a congressional hearing on 7 February. Rice claimed that she wanted to avoid getting into "a rhetorical contest" with Chávez but nothing could be more likely to incite a response.

Reaching out to opposition
The president of the national assembly, Cilia Flores, appealed to the opposition again, on 5 February, to "participate constructively" in President Hugo Chávez 's project of 21st century socialism. Flores said that the opposition needed to "change its attitude for the good of the nation" rather than constantly opposing everything that Chávez suggested. The opposition appears more interested in the rules for the recall referenda on elected officials approved this week by the Consejo Nacional Electoral (CNE), which it hopes to use against some Chavista mayors.

Former president Carlos Menem suffered a decisive defeat in the provincial elections in La Rioja, his former powerbase, on 19 August. Menem had hoped to use the La Rioja elections as a springboard to the presidency in October for the "PJ no K" grouping of dissident Peronists but his performance will have put paid to that. Victory went to Luis Beder Herrera, nominally a Kirchnerista. There was no surprise in the other provincial elections, in San Luis, which went to a prominent opponent of President Néstor Kirchner, Alberto Rodrí­guez Saá.

Menem, who lost even in his native town of Anillaco, managed to win just 22% of the vote, scarcely half that of Beder Herrera and five points less than the mayor of La Rioja, Ricardo Quintela, a fervent Kirchnerista. Beder Herrera has professed his allegiance to Kirchner although he is perceived as untrustworthy: a former acolyte of Menem, Beder precipitated an institutional crisis in La Rioja in March by ousting the former Governor, Angel Maza. Kirchner will have delighted in the defeat of Menem, however, the one man to beat him in an electoral contest (the first round of the 2003 presidential elections).

Rodrí­guez Saá won the San Luis election with a massive 82% of the vote, in what was more a triumph for political patronage than a resounding defeat for Kirchner. On paper, the victory, coupled with Menem's defeat, should consolidate the primacy of Rodrí­guez Saá in the "PJ no K", but he did not receive unanimous backing when he announced on 22 August that he would stand for the "PJ no K" against Senator Cristina Fernández in the presidential elections.

It is looking increasingly likely that Ricardo López Murphy could drop out of the race to throw his weight behind the bid of Elisa Carrió, the leader of the centre-left Coalición Cí­vica. López Murphy, who leads the centre-right Recrear, initiated talks with Carrió shortly after Mauricio Macri, the victor in the recent mayoral elections in the City of Buenos Aires (Capital Federal) and López Murphy's coalition partner, announced that his party would not be backing any presidential candidate. The implication is that Macri does not want to damage his own bid in 2011 by backing a losing cause now. 

Both López Murphy and Carrió originally hail from the Unión Cí­vica Radical (UCR) and their mooted alliance smacks of a desperate effort by the opposition to make an impact on the polls. The only other legitimate challenger to Fernández, former economy minister Roberto Lavagna, has ruled out an opposition coalition for the sole purpose of opposing Kirchnerismo.

Trouble at home
The Kirchners are unlikely to be having sleepless nights over the opposition but they will have been concerned at the recent turn of events in Kirchner's native province of Santa Cruz. Kirchner returned to the provincial capital, Rí­o Gallegos, on 17 August for the first time after months of unrest. It was an inauspicious return. Daniel Varizat, a former aide of Kirchner's, ploughed his car through a hostile crowd, hitting 17 people and seriously injuring five, an episode which led to the resignation of the chief of police in Santa Cruz, Wilfredo Roque. Thousands of protesters, including teachers, trade unionists and opposition parties, led by the city's bishop, Juan Carlos Romaní­n, reacted by staging a widely attended strike, demanding the prosecution of Varizat and "no more interference from Buenos Aires".

TRACKING TRENDS

MEXICO | Crime. On 14 November a group of gangsters raided a forensic services facility in the border city of Ensenada to rescue the body of a gangleader. On their way out they killed two policemen. The size and timing of the raid was impressive. The gangsters arrived in 14 vehicles on the evening of 14 November to retrieve the body of someone who had been following a motorcycle race, known as the Baja 1000, down the Baja California peninsular. The motorcycle enthusiast was killed when his helicopter crashed after hitting high voltage cables. The rumour is that he was a leading member of the Tijuana gang, which is run by the Arellano Félix family. Another person travelling with him in the helicopter was killed and two others were wounded. As the gangsters were leaving the forensic services facility they ran into two state policemen and simply gunned them down.

MEXICO | Unemployment. The official unemployment rate fell to 3.93% in October. In October 2006 the rate had been 4%.

Colombia's recent bombing in Ecuador of a camp of the Fuerzas Armadas Revolucionarias de Colombia (Farc) and the subsequent diplomatic fallout in the Andean region also had widespread repercussions in Brazil last week. The reason is the Farc's membership of the São Paulo Forum (FSP, in the Portuguese acronym). This is the conference of leftwing forces in Latin America, founded in 1990 by Brazil's President Lula da Silva and his Partido dos Trabalhadores (PT).

Lula and the PT launched the FSP with the objective of promoting a popular and democratic alternative to neoliberalism, at a time when this economic model dominated Latin America and the rest of the world after the fall of the Berlin Wall. This agenda united, and still unites, most Latin American leftwing groups, including political parties and grassroots movements whose leftwing positions vary across a wide spectrum. Still, some of these parties, or at least factions within them as in the PT's case, adopted many neoliberal policies once they came to power earlier this decade.

Despite its democratic rhetoric, the FSP also includes among its members the Partido Comunista Cubano as well as former and existing leftwing guerrillas. Among the active guerrilla groups with membership in the FSP is the Farc, which is considered by the US and the European Union (EU) to be a terrorist group, in part because it employs reprehensible tactics such as bombing civilian targets and kidnapping. Venezuela's President Hugo Chávez recently attempted to have it recognised as a "belligerent force".

The Farc and Lula's PT

The Andean crisis brought the PT's links with the Farc into the spotlight again in Brazil last week. Two years ago the party's relationship with the group came to light after the Brazilian press reported that the Brazilian Intelligence Agency (Abin) had discovered that the Farc had "donated" US$5m - money believed to have been obtained through the proceeds of drug trafficking - to PT candidates in the 2002 election [WR-05-11]. Since then, however, little else has been mentioned about it. The "donation" was made in cash and Abin could not trace back how the money had been spent.

"Neutral view" of Farc

Now, the local press is going back over old ground and pointing to the controversial link through the FSP after an interview given by Lula's special adviser for Latin American affairs, Marco Aurelio Garcia, to the French newspaper Le Figaro defending the Farc. As the Brazilian foreign office made efforts to reduce tension between the governments of Ecuador and Colombia, Garcia declared that Brazil does not recognise the Farc as a terrorist group but had a "neutral view" of the group. Garcia is the man behind the creation of the FSP.

For the current affairs magazine Veja Garcia's comments reveal "ambiguity" at the heart of Lula's foreign policy. It argues that Lula uses the FSP to play to the radical left, including sectors within the PT which accuse him of trading in his ideological convictions for political pragmatism. Sociologist Demetrio Magnoli, said that "although the FSP has lost most of its original rhetoric and is far from defining Brazilian foreign policy [it] leads to a duplicity in its orientation". He says this "duplicity" has led to "shameful omissions" on the PT government's part. Among these he lists the fact that although the government condemns the Farc's tactics, it has not declared the Farc "illegitimate".

• Communist corruption

Brazil's Communist Party (PCdoB, in the Portuguese acronym) has become embroiled in corruption, according to recent findings of a parliamentary investigation into the services provided to the government by NGOs. The PCdoB heads the sports ministry through Orlando Silva, who has already been implicated in the misuse of corporate credit cards distributed by the government [WR-08-07]. Now the party is being accused of using NGOs as a front to embezzle money for its campaigns with government funds supposedly going to projects to promote sports. The party denies any wrongdoing, despite admitting it allowed NGOs linked to it to take on projects without public tendering.

The two opposition parties in congress, which put together hold a majority of seats in both houses, said on 18 June that they had reached an understanding about the shape of the reform of the state oil company, Petróleos Mexicanos (Pemex).

An agreement, followed by an alliance, between the leftwing Partido de la Revolución Democrática (PRD) and the Partido Revolucionario Institucional (PRI) will be bad news for the government of President Felipe Calderón Hinojosa. Calderón had been counting on the PRI, the third biggest party in congress, to push the Pemex reform through. The PRI and the PRD were careful, however, to note that their discussions so far had stopped well short of a full agreement. This suggests the PRI wants to force more concessions from the government.

The Pemex reform is the government's key bit of legislation for 2008. Congress has been debating the issues and the PRD, which opposes the reforms which it   claims are the start of the privatisation of Pemex, has pushed for a national referendum. So far only Mexico City; Guerrero and Michoacán, all controlled by the PRD, have agreed to hold referendums on the reform.

On 18 June the interim president of the PRD, Guadalupe Acosta, met Jesús Murillo Káram, a PRI senator and secretary general of the PRI to discuss whether both parties should ally against the government's proposal in congress and launch a joint counter-proposal. Although the PRI is the third biggest party in the lower house, it is the second biggest party in the senate. Acosta admits that the PRD needs the PRI senate votes to defeat the government's proposal.

Acosta and Murillo are a powerful combination. They marshalled their parties behind the electoral reform law, passed last year, which purged (as the PRD saw it) the Instituto Federal Electoral and, controversially, centralised the purchasing of TV and radio advertising in elections. The centralisation means that only political parties, rather than single issue lobbies, can broadcast political advertising during elections. This change probably benefits both the PRI and the PRD and undermines the Partido Acción Nacional to which Calderón belongs.

• López Obrador fined

The Instituto Federal Electoral (IFE) fined two leftwing political parties, the Partido de la Revolución Democrática (PRD)   and the Partido del Trabajo (PT) a total of M$731,480 (US$69,900) for TV spots in which the parties described Andrés Manuel López Obador as the legitimate president of Mexico. He was narrowly defeated by Felipe Calderón in the July 2006 election, but has failed to recognise his defeat. López Obrador claims that the ruling amounts to censorship.

MEXICO | IFE ruling. On 24 September the Instituto Federal Electoral (IFE) concluded its investigation into the protests after the presidential election in 2006. The IFE executive wants to fine the leftwing Partido de la Revolución Democrática (PRD) M$57m (US$5.4m) for the post-election protests. Its decision, contained in a 367-page judgement, risks tipping congress back into a party-political standoff. The final decision on whether to impose the fine will be made by the IFE board at its meeting on 29 September.

The 2006 election was the closest in Mexican history and the result, a victory for the rightwing candidate Felipe Calderón Hinojosa, was not accepted by the leftwing candidate Andrés Manuel López Obrador. He launched a series of protests to demand a full recount. The electoral authorities allowed only a partial recount of the vote and Calderón was confirmed as the victor by a margin of 0.6% of the total vote.

The IFE also wants to fine the PRD another M$16m for seizing the rostrum in congress in an effort to prevent Calderón from being inaugurated. López Obrador has already complained that the fines are unfair and excessive. The IFE executive argues that the protests led by López Obrador exceeded the right to demonstrate because they infringed the rights of other citizens and impeded the working of the government.

MEXICO | PRI deal with Gordillo. The Partido Revolucionario Institucional (PRI) appears to have agreed to a leading member of Elba Esther Gordillo's Partido Nueva Alianza (PNA) taking over the senate seat of Alfonso Elí­as Serrano who wants to run for the governorship of the state of Sonora. Serrano's replacement as interim senator is Fermí­n Trujillo Fuentes, the PNA's secretary general. This coup has infuriated Manlio Fabio Beltrones, the leader of the PRI in the senate and a former governor of Sonora. It also demonstrates that the PRI is still in danger of splitting into a faction loyal to Gordillo and a faction that opposes her.

MEXICO | Unemployment. The unemployment rate rose to 4.15% in August, up from 3.9% in August 2007. The official statistics agency, Inegi, reckons that there are 1.88m people, aged 14 or above, who did not manage to find even one hour of paid work in the week of the survey. Mexico's labour force numbers 45.5m.

The supermarket tycoon, Ricardo Martinelli, is looking increasingly likely to win May's presidential elections for his Cambio Democrático (CD) party. With the 2 February deadline for political parties to finalise their alliances looming, the small opposition party, Molirena, abandoned its electoral agreement with the main opposition Partido Panameñista (formerly Arnulfista) to throw its weight behind Martinelli. 

The most recent survey by the pollster Unimer, published by the national daily, La Prensa, showed Martinelli increasing his lead over the candidate for the ruling Partido Revolucionario Democrático (PRD), Balbina Herrera, to 17.7 percentage points; Martinelli saw his support levels increase from 36.2% in November to 43.1%, while Herrera saw her popularity slide from 30.8% to 25.4%. Meanwhile PP candidate Juan Carlos Varela garnered only 14.9% while ex president Guillermo Endara (1989-1994), of the Vanguardia Moral de la Patria (VMP), trailed in fourth place with 0.9%.

Faced with the real possibility that the elections could be within Martinelli's grasp and alarmed at Varela's fall in the polls, Molinera's national executive committee decided to back the CD candidate, abandoning an alliance struck with the PP in November. Martinelli also recently named as his running mate, Leopoldo Benedetti, a deputy for the Colón region and member of the Unión Patriótica (UP) party, thereby sealing an alliance with the UP. If Martinelli is successful in May, it would be the first time since 1964 that neither the PP (or one of its splinters) nor a PRD candidate is elected president.

• Security

Security continues to top the public's list of concerns in Panama, according to a recent survey in the national daily, La Prensa. The survey showed that 47.7% of those questioned named crime/violence and insecurity as their main concern, followed by inflation (21.4%); unemployment (8.6%); the economy (6.2%); poverty (5.6%) and corruption (3.9%).

The head of Colombia's secret police, the Departamento Administrativo de Seguridad (DAS), Felipe Muñoz, announced the dismissal of 11 officials this week and a comprehensive restructuring of the organisation. The DAS has been embroiled in a long-running scandal involving the illegal wiretapping of government officials, the opposition, the judiciary, and the media, which prompted the defence minister, Juan Manuel Santos, in February to call for the DAS to be given “a Christian burial" [WR-09-08]. The changes are not as sweeping as Muñoz suggested, however, and the announcement that all future phone tapping would be conducted by the national police had already been made by President Alvaro Uribe two months ago.

Muñoz said that 33 officials had been replaced since he took over in January. He announced various structural changes, including the strengthening of the DAS anti-corruption department to investigate corruption in public institutions, and the creation of a human rights department. He also appealed to congress to approve legislation to increase the penalty for improper behaviour by DAS officials. The opposition said the changes were little more than cosmetic.

Muñoz said the latest dismissals had nothing to do with the investigation being carried out by the public prosecutor, Mario Iguarán, who last week announced a probe into 18 DAS officials, past and present. Iguarán said a report by judicial investigators (CTI) into the wiretapping would soon be released, but he left it in no doubt that what had been uncovered gave off “a stench". The presidential candidate for the opposition Partido Liberal (PL), Rafael Pardo, demanded that Iguarán unmask the “Colombian Montesinos". More likely is that a few more heads will roll, as in past purges, but nothing much will change.

On an official visit to Spain, Uribe lent his support to the DAS restructuring. He said the DAS could no longer “stain (his) democratic security policy". The main reason Uribe transferred future tapping from the DAS to the police was out of fear the scandal might jeopardise future security assistance: much of the equipment used by the DAS for its illegal tapping had been provided by the US.

• Displaced

The number of people displaced by Colombia's internal conflict increased by 24% to 380,863 in 2008 compared with a year earlier, according to the human rights NGO, Codhes, in a report released last week. Codhes claimed the main reason for the increase was the emergence of new armed groups out of former paramilitaries, as well as persistent guerrilla actions. “The campesino population has become a military objective and their land and property war booty," the report said. The government, which is keen to downplay the presence of emerging groups of paramilitaries, said official figures put the number of displaced Colombians at 240,000.

With less than three months before general elections, the presidential candidate for the ruling Frente Amplio (FA), José Mujica, and the opposition Blancos, former president Luis Alberto Lacalle, are competing for the centre ground. Mujica sent his running mate, Danilo Astori, a moderate economy minister under President Tabaré Vázquez, to Washington last week. He also confirmed that Astori would choose the next economy minister. Lacalle, meanwhile, presented his security proposals, which he is making the cornerstone of his campaign, in response to a public perception of rising insecurity.

Mujica had struggled with Astori over the right to choose his own cabinet should he win election. It was clearly no more than a point of honour. Within weeks of having won the struggle, he promptly announced that Astori would select the next economy minister while the current economic team would be little changed. He also pointedly dispatched Astori to Washington, not Caracas.

Mujica had one eye firmly on the opinion polls when he made the decision to assuage the fears of centrist voters concerned by his more radical rhetoric. The pollster Interconsult put the FA on just 42% in its July poll - the first since the primary elections on 28 June. This was down two points on the June poll. The Blancos received 36% backing and the Colorados were up two points to 10%. This suggests that in a second round Lacalle would be within touching distance of 50%, with the traditional support of the Partido Independiente, which polled 2%. A poll released by Equipos Mori this week put the FA on 44%, the Blancos on 34%, the Colorados on 11% and the Partido Independiente on 1%.

The most eye-catching feature of Lacalle's campaign proposals is the tougher punishment for young offenders, complemented by better social rehabilitation schemes. Lacalle advocates increasing from five to 10 years the conviction for “very serious crimes", such as rape, homicide and kidnapping, committed by young people aged between 16 and 18. He also wants to create a national rehabilitation institute, to supplement the existing juvenile detention centres, which he said were overcrowded, with the staff unable to manage the inmates.

Lacalle also proposed the creation of a National Republican Guard (see sidebar) to assist the police in combating drug-related crime. He said that the police had been unable to crack down sufficiently on drug networks and needed additional support. He also proposed a significant increase in police salaries.

• National Republican Guard

The National Republican Guard proposed by Luis Alberto Lacalle would be composed of 2,000 troops. It would have a national jurisdiction, unlike the National Guard it would replace, which is currently based only in and around Montevideo. It would focus on combating drug-trafficking and organised crime, with its role broadly defined as “prevention, dissuasion and repression". Lacalle denied that he was essentially proposing a militarised police unit. He said it would be controlled by the interior ministry not the defence ministry.

José Mujica, the presidential candidate for the ruling Frente Amplio (FA), tried to regain the political initiative this week by promising to hold a referendum on abortion if he is elected in the second round run-off on 29 November. Mujica is keen to move the electoral debate on from the issue of insecurity, where his opponent, Luis Alberto Lacalle of the opposition Partido Nacional, or Blancos, has scored most points, and push the case of Saúl Feldman and his large arsenal of weapons [WR-09-45] off the front pages. Opinion polls show, however, that the opposition's efforts to link Mujica to Feldman have not met with success.

President Tabaré Vázquez vetoed a congressional bill this time last year which would have legalised abortion in the first 12 weeks of pregnancy. Mujica knows that the issue could be a vote-winner though: opinion polls at the time showed that a clear majority of Uruguayans had favoured legalising abortion, and opposed the presidential veto of the bill. His promise of a referendum takes the focus off the Feldman affair. The Blancos paid for a series of TV advertisements in the interior - a traditional stronghold but where the FA made big gains in the first round - purporting to be a “press review" in which former president Jorge Batlle called on Mujica to clarify his relationship with Feldman.

The permanent commission of congress summoned the interior and defence ministers, Jorge Bruni and Gonzalo Fernández respectively, on 10 November to face questions related to the arms discovery. They argued that it was impossible to ascertain yet what the political link was, if indeed there was one. The commission (on which the FA has a majority) voted by six votes to five to accept the explanations given by the ministers as “satisfactory".

Lacalle's support fell by two percentage points in a poll by Factum this week from a poll taken the previous week, suggesting that his party's effort to link Mujica to Feldman, without any evidence, had cut no ice with voters. Indeed, polls have consistently shown throughout the campaign that trying to portray Mujica as a radical liability has been badly received by the public and that Lacalle's greatest success has come when he has attempted to discuss issues of public concern, such as security.

Lacalle had clearly hoped that linking Mujica to Feldman might accomplish both ends, but this has not proven to be the case. Mujica holds a significant nine-point lead over Lacalle in two separate polls released this week. Both Factum and Cifra gave him 49% against 40% for Lacalle with 11% undecided. The only hope for Lacalle is to win over the undecided voters, many of whom probably backed the Colorado candidate Pedro Bordaberry in the first round and are not following his lead in backing Lacalle. This is because many of them voted for Bordaberry as a protest against the two main candidates and not because they are aligned with the Colorados ideologically.

Mujica again refused to engage in a televised debate with Lacalle but reiterated a promise to discuss four state policies - security, education, environment and energy - with the Blancos. The FA campaign team made it clear that the country "would not die from not having the debate but would die [if dialogue between the two parties was broken off]". The Blancos said any talks should take place after the elections.

The lower chamber of congress approved a new regime last week whereby the bulk of royalties from the production of Brazil's offshore oil would be split equally between all states and municipalities in the country. This would lead to huge revenue losses for the three main producer states of Espirito Santo, Rio de Janeiro and São Paulo. Significantly, the new regime went against the royalty regime proposed by the government, implying President Lula da Silva is in for a tough ride to approve a new regulatory framework for the country's vast offshore hydrocarbons sector before the congressional recess in July - when the presidential campaign starts for real.

The new royalty regime was approved by 362 votes to 72 (with two abstentions), confirming that several of the nominally government-allied lower chamber deputies voted against the government's original proposal. This cast doubt over whether Lula will be able to convince congressmen to vote according to his instructions when government proposals for a new regulatory hydrocarbons framework come to the vote. This would be a serious political defeat ahead of the presidential election in October.

Lula is attempting to centralise control of the Brazilian hydrocarbons sector, which would give a significant edge to his anointed political heir, the minister of the presidency Dilma Rousseff, now the official presidential candidate for the ruling Partido dos Trabalhadores (PT). One of Rousseff's campaign tactics is expected to be an attack on the opposition's privatisations prior to Lula coming to office in 2003, which continue to inflame passionate hostility in Brazil despite the broad improvement in services. Defenders of the privatisations, or at least of increased partnership between the public and private sectors, cite the case of the Brazilian energy company Petrobras itself, which arguably only managed to make the recent sub-salt oil discoveries after its capital was opened to investors, even if the company remains majority-owned by the state.

Under Lula's plans, Petrobras will be the sole operator of future oil and gas discoveries in Brazil. He also intends to capitalise the company, although still maintain it under government control, by launching new shares in the stock markets, worth as much as US$50bn. But, the fight between Brazilian states and municipalities for the distribution of royalties risks undermining his plans.

The approved new royalty regime was proposed by deputy Ibsen Pinheiro, from the southern state of Rio Grande do Sul. Significantly, he is from the nominally allied Partido do Movimento Democrático Brasileiro (PMDB). Pinheiro altered the original government proposal that also split royalties between the federal government and all states and municipalities, but left producing states with a higher share. Under Pinheiro's proposal, all Brazilian states and municipalities receive a similar share of the royalties. According to him, this is fair because “only one in ten exploratory drillings prove to have oil or gas, but while the profit is kept in the hands of producers, the costs are shared equally by all" through public funds that go into Petrobras.

Those against the alteration say that the producing states and municipalities put up with the social costs that come from hydrocarbons exploration activity, such as disordered population growth, demand for infrastructure, housing and schools. Officials from Rio calculated that the state government would stand to lose R$5bn (US$2.8bn) under the Ibsen scheme, while the state's municipalities would lose R$2.5bn (US$1.42bn). Rio accounts for some 60% of Brazil's total oil output. The state's authorities, not least the PMDB governor, Sergio Cabral, an ally of Lula, called on the population to protest.

• Oil defeat
  President Lula is in for a difficult ride following the congressional approval of the new royalty regime for Brazil's oil reserves. Unless he finds an alternative, he will either have to accept a fresh senate amendment to the proposal, under which producing states would be compensated with the share that was supposedly to go to the federal government under Lula's original plan, or veto the changes altogether. The latter alternative, however, could prove unpopular with voters from non-producing states.

Syria's President Bashar-al-Assad carried out his first mini tour of Latin America this week. His first port of call was Venezuela, where he was feted by President Hugo Chávez , before moving on to Cuba, Brazil and, on 2 July, Argentina. Al-Assad is following the lead of Iran's President Mahmoud Ahmadinejad, who has forged close relations with Chávez , and other leaders in the region, in recent years.

Beyond the familiar rhetoric of striking a “strategic alliance to confront imperialism" in a new multipolar world, Chávez and al-Assad agreed to set up a US$100m fund as a first step towards a binational bank to finance social and economic development projects in both nations. They discussed creating a joint company to produce and distribute Syrian olive oil in Venezuela, and Chávez spoke about a planned US$4.7bn refinery in Syria with capacity to process 140,000 barrels per day, with Iranian (and possibly Malaysian) assistance. Chávez , who has announced several grand plans for refineries elsewhere, said the Syrian refinery would be ready by 2013.

Both men called for deepening unity between Arab and Latin American peoples, and promised to create a Movimiento de los Aliados Libres (Movement of free allies) in a mocking allusion to former US president George W Bush's “axis of evil": the acronym MAL is of course the Spanish for “evil". Al-Assad proposed that Chávez should be the secretary general of this movement of “good states". He said Chávez was a “symbol of resistance to the winds blowing from the North" and that Venezuela was first on his itinerary as it was “leading the fight for freedom in this region". Returning the compliment, Chávez awarded al-Assad the odd soubriquet of “one of the liberators of the new people". Chávez was far more critical of Israel than al-Assad, who preserved a semblance of diplomatic tact. “One day the genocide state of Israel will be put in its place," Chávez said, adding that Israel acted like “the assassin's arm of the US government".

Eliot Engel, the chairman of the US House of Representatives Foreign Affairs Subcommittee on the Western Hemisphere, reacted angrily by saying it was “not difficult to understand why President Chávez would try to distract from his problems at home." He quipped: “If my country had the one of the highest murder rates in the world, the highest inflation rate in Latin America, and an economy which is expected to shrink by more than 6% this year, I, too, would be talking about anything but what's going on at home." President Barack Obama this week named Larry Palmer as the new ambassador to Venezuela pending ratification by the senate. The top US envoy for Latin America, Arturo Valenzuela, said Obama had sought to forge better ties with the region but it was “difficult" to deal with a country that saw you as its “main enemy".

• Reshuffle

President Chávez carried out a major cabinet reshuffle last week. Although most of the nine ministers are departing in order to stand as candidates for the ruling Partido Socialista Unido de Venezuela (PSUV) in September's congressional elections, the fact that there are so many revolving-door ministers means that many have not even got up to speed with their job before being moved on. Tania Dí­az, for instance, only took the job of information minister in April when she presided over the launch of the teenage “commandos of communicational guerrillas" to act as a “rapid reaction force" to fight falsehood in Caracas [WR-10-15]. Mauricio Rodrí­guez replaces her.

The finance ministry this week raised its forecast for GDP growth in 2010 from 4.5% to 4.8%. The problem is that its forecast for growth in 2011 is still only 3.9%. The finance ministry, whose head Ernesto Cordero is widely presumed to be President Felipe Calderón Hinojosa's preferred candidate to take over as president in 2012, reported that the economy was continuing to recover faster than the government expected. In 2009 the economy contracted by 6.5%, when the US economy went into recession.

The finance ministry reported that in the second quarter gross demand grew at the annualised rate of 12.8%. More reasonably, the flash economic indicator, the índice Global de la Actividad Económica (Igae), was up by 5.1% year-on-year in July. In August, non-oil exports were up by 39%, year-on-year, thanks to a surge in car exports, while overall industrial output in August was up 8.1% year-on-year.  

Even more encouraging is the evidence that domestic demand is beginning to pick up. Sales at self-service stores were up by 5.5%, year-on-year, in September, the retailers association reported. Sales of new cars in the domestic market were up by 12.7% on September 2009. Although the increase is worth only 7,427 vehicles it does show that some Mexicans are feeling more confident. For the first nine months of 2010, sales of new vehicles in the domestic market were up by 6.7% at 565,789. This is, however, 26% down on sales for the first nine months of 2008.

Vehicle exports, on the other hand, in the first nine months were up by 71.6% at 1.37m. They are also 10.5% above their January to September 2008 level. The main reason for this is substantially higher exports to the US (up 65% in the first nine months of 2010 compared with the same period of 2009); Latin America (up 118%); and Europe (up 53%). Exports to Canada (the fourth main market) were up by 54% at 111,265 vehicles in the first nine months of 2010.

Cordero argued that the economy was in decent shape with low interest rates, a stable exchange rate and record central bank reserves. He noted that the IMF was now claiming that domestic demand had been driving the economic recovery in Mexico since the second quarter.

The labour minister, Javier Lozano, forecasts that this year the economy will create 780,000 new jobs. He noted that by the end of the year the number of people working in the formal economy (defined as those making payments to the social security institute [Imss]) will be back to the record level of 14.6m. He said that the economy had shed 701,000 formal-sector jobs between November 2008 and the end of 2009.

The other good news for Cordero this week was an apparent deal in congress over the 2011 budget. For this he can thank the influential state governors from the Partido Revolucionario Institucional (PRI), who thrashed out a compromise over this year's budget with the PRI's legislative leaders on 17 October. The governors forced the legislative wing of the party to drop its plans for a showdown in congress over a cut in the VAT rate from 16% to 15%.

The compromise appears to be that the finance ministry will agree to a modest rise in the fiscal deficit and a change in its forecast for crude oil export prices. The average price will be increased by US$2 a barrel for 2011 to US$65. As Mexico's oil is currently selling for almost US$74 a barrel, this is far from ambitious. This change will push the value of crude oil exports up from US$26.4bn to US$27.2bn in 2011. The net result of the negotiations will be that budget spending in 2011 will be M$40bn (US$3.1bn) higher, at around M$71bn, than the government proposed. In a US$235bn budget and a US$1 trillion economy the changes will do little to boost growth in 2011, despite government assertions to the contrary.

The reason why the PRI governors forced the deal on the congressional part of the party is that they want more federal money to go towards supporting military operations against gangsters in PRI controlled states in the north: principally Chihuahua, Nuevo León and Tamaulipas. Most of the other windfall money will go on flood relief, which will benefit Nuevo León and another PRI bastion, Veracruz. Both states have been battered badly by hurricanes and tropical storms this year.

The budget amendments approved by the PRI governors will, however, do little to improve the performance of the economy or its growth prospects. The PRI governors pushed only for an increase in the forecast for GDP growth from 3.8% to 3.9%. This suggests that the final phase of the administration of President Felipe Calderón will peter out without substantial economic reforms, so the alarming vulnerability to oil revenues and the US economy will remain.

The simple fact that Cordero appears to have steered the 2011 budget through congress without major mishap will strengthen his position as President Calderón's dauphin. Cordero's problem is that the disappointing performance of Calderón's government means that his endorsement may not be worth much either with the ruling Partido Acción Nacional (PAN) or with the electorate.

OECD takes jaundiced view of economic prospects
The Organisation for Economic Cooperation and Development (OECD), which is currently headed by a former Mexican finance (and foreign) minister, José Angel Gurrí­a, issued a damning report of the economy on 19 October. The report warned that unless Mexico increased its GDP growth rate it would continue to lag the rest of the OECD countries. Until Chile (now rated a substantially better credit risk than Mexico) joined the OECD earlier this year, Mexico was the OECD's only Latin American member.

Gurrí­a commented that Mexico was still not capable of generating sustained growth based on its domestic economy and competitiveness. He argued that Mexico should boost the economy in 2011 rather than settle for sub-4% GDP growth. Gurrí­a noted that on OECD figures, Mexico's labour productivity was the lowest of any OECD member, let alone other emerging economies. He said that Mexico had major structural challenges that demanded policies which introduced substantial reforms. In the medium-term he argued that Mexico needs a fiscal reform which will broaden the fiscal base. If this happens the government can increase public spending while simultaneously cutting (or even better eliminating) energy subsidies.

• Clash
  The two leaders of the Left, Marcelo Ebrard and Andrés Manuel López Obrador, clashed publicly this week on the Left's approach to the Estado de Mexico elections in 2011. Ebrard, who succeeded López Obrador as mayor of Mexico in 2006 when López Obrador failed to win the presidency, is keen for the Left to form a broad alliance to defeat the PRI. López Obrador, however, believes that the Left can win alone in the Estado and argues against any alliances with the PAN.
  

President Felipe Calderón has decreed a key tax reform ahead of the upcoming 2012 presidential elections. The tax reform, which Calderón decreed on 14 February, is aimed at providing tax breaks for tuition payments made at the elementary and higher levels of education. It is the first such initiative to be adopted by the current Partido Acción Nacional (PAN) government in advance of the elections. While it is intended to garner support among the general population by easing the effects of inflation through indirectly increasing household income, there are indications that the reform may backfire as it was met with furious protests by the powerful public education sector.

According to the decree published in the official gazette, the government plans to institute tax deductions for education-related payments made since 1 January. The deductions can be claimed for payments made for the claimant, their partner, and on behalf of their direct relatives. The reform sets maximum deductions of M$14,200 (US$1,180) for pre-school payments; M$12,900 for primary school payments; M$19,900 for high school payments; M$17,100 for vocational studies payments; and M$24,500 for undergraduate level payments.

However, the bill also specifies that the deductions would only be applicable to payments made by cheque, bank transfers, and credit or debit cards. Importantly, it also stipulates that deductions would not be applicable to enrolment or re-enrolment payments, nor could they be claimed for students that have been granted scholarships.

After publicly making the announcement from the presidential residence of Los Pinos, Calderón explained that the reform would directly benefit the families of the estimated 3.3 million students enrolled in private education. He explained that the measure would not affect the fiscal balance because it is to be covered by government savings expected in other areas of the budget. In an attempt to defuse discontent from the public education sector, he pointed out that the initiative would not affect any public education programmes since it would not be financed through any budget cuts. Calderón also recalled that his government increased its public education budget by 40% from M$377bn (US$31bn) to M$531bn this year, before reaffirming his government's commitment to public education. Nevertheless, all this did little to placate the public sector's anger.    

The reaction first came in congress, where the opposition Partido Revolucionario Institucional (PRI), Partido de la Revolución Democrática (PRD) and the Partido del Trabajo (PT) members accused Calderón of effectively minimising congress by attempting to rule by decree. They questioned the fiscal soundness of the measure, claiming that the reform was irresponsible as it had the potential to upset the fiscal balance by significantly reducing the government's tax revenues without any corresponding compensation.

More damningly, after analysing the details of the initiative, many criticised the reform pointing out that it would only benefit the middle and upper classes - the PAN's traditional support base - as they are the only ones that can afford to pay for private education. They characterised the measure as a blatant attempt to garner support ahead of the presidential elections. Crucially, some senators highlighted that the reform could have the negative effect of promoting the “privatisation" of the education sector, much to the detriment of public education. This as more students would seek to enrol in private schools instead of public schools which could ultimately result in the closure of some existing public schools. 

Teachers' protests
Criticism in congress sparked strong rejection to the reform from the politically influential national public teachers syndicate (SNTE). Ahead of Calderón's one-day visit to Oaxaca state on 15 February, the local SNTE branch announced that the president's visit was not welcome and that it would stage a march to the state capital, Oaxaca to protest his recent decree. Worryingly for the government, the demonstration turned violent, leading the local SNTE to announce that it would stage further protests against the government until its complaints are heard (see sidebar).

Ominously for the PAN, the SNTE is controlled by its powerful lifetime president and leader of the Partido Nueva Alianza (PANAL), Elba Esther Gordillo. A former PRI general secretary, Gordillo was expelled from the party in 2006 due to differences with the party leadership; she then formed the PANAL and backed the PAN in the presidential elections that eventually saw Calderón become president.

Although the PANAL is a minor political party, it is estimated that through the SNTE, Latin America's largest teachers' syndicate by numbers, Gordillo controls up to 4% of the electorate; and this was instrumental in securing Calderón's incredibly narrow victory at the polls. Should the protests continue, the PAN risks alienating a once valuable political ally.            
 

• Cassez's Arrest

Florence Cassez and her partner, Israel Vallarta were first arrested on 8 December 2005 after their car was detained by police on the Mexico City-Cuernavaca highway. Then, 24 hours later, Mexican authorities informed local news sources that they had located the hideout of the “Los Zodiacos" criminal group led by Vallarta and held responsible for the kidnapping of the Rí­os Valladares family. TV cameras followed police to a Cuernavaca farmhouse where they filmed the couple being arrested and the three kidnap victims being released. Cassez claims that although the house was hers, she had no direct involvement with the gang, and that the arrest had been staged. This was later admitted by then attorney general Daniel Cabeza de Vaca.  

• Violent Protests

On 16 February members of the SNTE's 22nd section marched to the Oaxaca's governmental palace to protest against the tax reform decree issued by President Felipe Calderón. As the protesters attempted to gain access to the palace where Calderón was present, they were set upon by local and federal police forces, leaving a toll of 18 people injured, two of whom are currently in hospital. As a result of the hostilities, local SNTE leader, Azael Santiago Chepi announced that all 13,500 schools planned to go on strike on 17 February. Santiago Chepi also revealed that the SNTE leadership in Oaxaca has scheduled a meeting over the weekend to determine a course of action against what he described as “government repression".