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EL SALVADOR | Army reserves mobilised against crime. In late July, following the publication of police statistics showing that the number of homicides in the first half of this year up 32% on last year, President Elí­as Antonio Saca has ordered the mobilisation of about 1,000 army reservists and 1,100 police academy cadets to reinforce the police in the country's 20 most violent municipalities. The number of homicides in the first six months of the year rose to 1,715, or 36.5% more than in the same period of 2004, and equivalent to an annual rate of 52.6 per 100,000 inhabitants.

The new initiative will not be the first time the army is called upon to perform policing duties. For several years now troops have taken part in the Grupos de Tarea Conjunta (GTC, joint task forces) created to protect key export crops, mainly coffee (under Operación Grano de Oro), from theft. There are now about 50 GTCs in operation; 180 soldiers are assigned to them. Elements of the military are also acting next to the police in the Plan Cuscatlán, an antidrugs campaign. Last year the army was enlisted in the Grupos de Tarea Antipandillas (GTA, antigang task forces), of which about 333 are now operating.

The Policí­a Nacional Civil (PNC) currently has about 17,000 officers, and there are plans to raise that number to 23,000 by the end of Saca's term of office. The PNC suffers a high attrition rate, of 300 to 500 a year, due to dismissals for wrongdoing or resignations of officers unsatisfied with their pay and working conditions. Last year the government began to commission units of a new Policí­a Rural (PR), intended to enforce the law in rural areas.

NICARAGUA | Government riled by US fixation on missiles. On 11 August, defence minister Avil Ramí­rez said that if the US wants Nicaragua to cooperate in the fight against drug trafficking and international terrorism it should stop making military aid to Nicaragua conditional upon the destruction of its remaining surface-to-air missiles and assume this as a 'shared responsibility of the US and the armies of the region'. The commander of the army, General Omar Halleslevens, added a day later that the lack of resources could lead to an increase in drug-trafficking activity in Nicaragua. 'We're doing what we can,' he said, 'but would be far more effective if we had interceptors, more radars and more coastguard vessels.'

GUYANA | Alarm over Venezuelan 'threat'. On 2 August, Tony Shields, executive secretary of the Guyana Gold and Diamond Miners Association (GGDMA), raised the alarm about an alleged Venezuelan plan to use military force against illegal Guyanese miners tapping the diamond wealth of the neighbouring country's Amazonian region, claiming that attacks by the Venezuelan national guard have been reported.

On the Venezuelan side there have been no signs of a major military mobilisation to evict the illegal Guyanese miners, but the government has warned of a clampdown.

If knowing the enemy is crucial to successful warmaking, the 'war on drugs' is in serious trouble. The US government and the UN have come up with such widely differing estimates of coca cultivation that the latter would have to count Bolivia and Peru twice to match the former. For the second year running, the US has been finding plantations in Colombia - the most comprehensively surveyed country in the hemisphere - where it had not even been looking before.

On 4 June the US Office of National Drug Control Policy (ONDCP) released its annual survey of coca cultivation in Colombia. The survey began by claiming that "statistically there was no change in the amount of coca being grown between 2005 and 2006". It qualified this by explaining that the 2006 estimate was 'subject to a 90% confidence interval of between 125,800 and 179,500 hectares'.

This means that the ONDCP is almost certain that the 2006 cultivation figure lies somewhere between those two extremes. It then continues to cite an estimate of 157,200ha, which is very close to the mid-point and 9% higher than last year's figure.

In 2005 the estimate was up 26% on 2004, because the surveyed area was increased by 81%, incorporating parts of Colombia that had previously escaped notice. In 2006 the area surveyed increased once again, by 19%. The ONDCP says that most of the increase in cultivation last year took place in these 'new' areas.

The US agency reports on the coca growers' responses to massive eradication by spraying: rapid crop reconstitution, a move to smaller plots, widespread use of techniques such as radical pruning and replanting from seedlings and expansion of cultivation into areas off-limits to the spray program, such as national parks and the area along the border with Ecuador.

"Such countermeasures,"the report states, 'result in crops that are initially unproductive or significantly less productive than mature fields. Yet, when surveying a field, it is impossible to know with certainty whether it is a mature, productive field, or a field which has been sprayed with glyphosate, and then pruned or replanted."

Given the vagueness regarding the area under cultivation and the quality of the plantations surveyed, other calculations also become suspect, such as the one which state the Farc guerrillas' drug profits declined from US$90-150m in 2003 to US$60-115m in 2005.
The ONDCP reports that in response to recent developments the US government "is shifting the focus of its aerial eradication in coordination with Colombian civil and military efforts to target the areas of most intensive coca cultivation" and "will seek to work with the government of Colombia to increase the tempo of spraying, to help counter the growing tendency toward pruning and replanting."

The contrasting UN view
More worrying than the vagueness of the ONDCP's assessment of Colombian coca cultivation is the fact that its conclusions are contradicted outright by the most recent report by the UN Office on Drugs and Crime (UNODC), Coca Cultivation in the Andean Region, issued on 14 June.

Instead of the notional 9% increase in Colombian coca cultivation reported by the US agency, the UNODC claims that there was a 9% decline in 2006. And that is not all: it estimates the total area cultivated with coca at 78,000ha - half as much as the implied US calculation.

This pattern is repeated in the case of Peru. The ONDCP issued its Peruvian assessment on 14 May. It does not venture an explicit estimate of cultivation in 2006, but it does offer 'confidence interval' extremes of 31,000ha to 42,800ha, but then goes on to say that 'the overall assessment shows a 17% increase when compared to similar survey areas assessed during 2005, and a 25% increase when including survey areas assessed for the first time in 2006.

The estimate for 2005 was 38,000ha (a figure which included 4,000ha in areas not previously surveyed). This suggests a total cultivated area in 2006, including newly discovered plantations, of 47,500ha. The UNODC calculates that Peruvian coca cultivation expanded by 7% in 2006, to 51,400 (which lies beyond the ONDCP's 'confidence interval' extremes).

The ONDCP's assessment of Bolivia was released even earlier, on 25 April. Here too it shies away from offering an explicit estimate for 2006, but cites "confidence interval" extremes of 21,000ha to 32,500ha which it presents as "statistically unchanged" from 2005, when the extremes were 21,400ha to 32,500ha.

However, it adds, "The accuracy of the estimate was degraded because of the extremely mountainous terrain in the largest single cultivation area, the Yungas.

The estimate showed a decrease in cultivation in the Yungas, a conclusion that is not readily supportable given the lack of eradication and anecdotal reporting of increased cultivation. All other major growing regions registered increases during 2006."

For 2005 the ONDCP estimated the area under cultivation to coca at 26,500ha, or 33% more than in 2001. The UNODC believes that cultivation in Bolivia grew by 8% to 27,500ha (a figure close to the mid-point between the ONDCP's extremes). The UN agency, by the way, sees continuing expansion of cultivation in the Yungas.

The overall picture that emerges from the US and UN assessments differ hugely. The ONDCP appears to be estimating for the entire Andean region (conservatively assuming a mid-point figure for Bolivia) a cultivated area in 2006 of 232,450ha, or 11.4% more than in 2005.
The UNODC estimates 156,900ha, or 1.7% less than in 2005, for Colombia, Peru and Bolivia, plus less than 100ha for Ecuador). The difference between the two totals is 75,550ha, which is almost equivalent to the combined total for Bolivia and Peru (78,900 for the UNODC, 75,250ha for the ONDCP).

Bolivia going high-tech
The discovery of the biggest-ever cocaine-processing laboratory in eastern Bolivia appears to confirm that, though the overall level of coca cultivation may have ceased to grow at the same pace as in the past six years, the production of cocaine has moved up into Colombian-style industrial procedures. This lab on its own had the capacity to produce annually just under a third of Bolivia's estimated potential cocaine output. This suggests that claims of Bolivia having reached a production plateau may be mistaken.

The lab, located near Izozog in the Kaa-Iya national park, a 34,411-square-kilometre conservation area in the south of Santa Cruz department. Colonel René Sanabria, chief of FELCN, Bolivia's antidrugs force, says it was located thanks to satellite imagery provided by the DEA, and that it had clearly been operating for some time. Its production capacity was estimated at about 100 kilos of cocaine a month, or 36 tonnes a year. Ernesto Justiniano, former deputy minister of social defence, the agency overseeing the counternarcotics effort, has calculated that in order to keep the lab going at full capacity, the produce of about 4,800 hectares of coca plantations would be required.

The ONDCP estimates that between 2001 and 2004 Bolivia's potential cocaine production increased by 15%, to 115t. This last figure, which has remained unchanged, has been challenged by many analysts, as the prevailing pattern throughout South America's cocaine industry is one of increasing coca yields and, consequently, higher cocaine production. As noted above, between 2001 and 2006 the ONDCP believes that the area dedicated to coca growing in Bolivia has increased by 33%.

The greater technological sophistication of the Izozog lab, compared to the small, rudimentary labs that have hitherto been the rule in Bolivia, suggests that potential production levels may have been rising there too. The authorities believe that setting up the lab may have cost as much as US$1.5m, and that it would have employed up to 30 people. Colombian expertise has certainly played a part: when the authorities raided the lab they arrested eight people, six of which were Colombians.

In April FELCN said that it had been intercepting about 1.3t of cocaine a month and estimated that another 2t would have slipped through into the export market. This translates into an annual total of 18t of cocaine, well below the US estimate of Bolivia's production potential, and half as much as the Izozog lab could have produced on its own.

Jorge Quiroga, former president and currently leader of the opposition Podemos party, claims that Bolivian cocaine production is growing "exponentially" and is on its way to returning to the position it held in the 1980s and 1990s, as "world champion or runner-up" of cocaine output. He bases this on the reported seizures of cocaine. He also says, though without citing evidence, that the traffickers' network of cocaine-processing labs has become "widely disseminated, mobile and high-tech".

The US government, in its latest International Narcotics Control Strategy Report, says that "according to Bolivian law enforcement, the number of cocaine base labs more than doubled since the inauguration of President Morales." This has been disputed in recent reports by the Andean Information Network and the Washington Office on Latin America, where they say that during 2006 Bolivian law enforcement officials repeatedly told them that increased destruction of labs has almost doubled: "three different officials confirmed that this was a result of an increased number of missions and intensified interdiction efforts, not an increase in the number of existing cocaine labs in the country."

When the fifth Summit of the Americas takes place in Port of Spain on 17-19 April, US President Barack Obama's first formal encounter with the region's leaders as a group will be hallmarked by an important change in hemispheric relations: he will be the representative of one of only two countries that do not have diplomatic ties with Cuba — and the other one, El Salvador, is only a few months away from restoring diplomatic relations with the island. Behind this is another, related change: the repositioning of Cuba vis-í -vis Venezuela.

On 18 March Costa Rican president Óscar Arias, one of the most outspoken critics of Cuba under former president Fide Castro (1959-2008), announced that his country was restoring the diplomatic links severed back in 1961. This was the culmination of a rapprochement that began when Raúl Castro was formally invested as President of Cuba in February 2008. In December, Costa Rica voted in favour of Cuba's incorporation into the Rio Group, Latin America's premier political forum. In early March this year, the Cuban government invited Arias to attend the summit of the Non-Aligned Movement, due to be held in Havana in April.

Mauricio Funes, the president-elect of El Salvador, included among his campaign promises the restoration of diplomatic ties with Cuba, severed back in 1959. Immediately after his 15 March victory in the Salvadorean presidential elections, the Havana representative in of his party, the Frente Farabundo Martí­ para la Liberación Nacional (FMLN), issued what sounded like a formal announcement that the promise would be kept, adding that the FMLN was interested in joining the Alternativa Bolivariana para las Américas (Alba), the Venezuela-led bloc. On 18 March Funes announced that he would restore relations upon taking office in June, adding, 'The official position is defined only by the President. Any opinion on foreign policy not issued by the President is not to be considered official.'

The significance of this remark became evident two days later, when Funes made his first pre-inaugural trip abroad — to Brazil. After a meeting with 'my friend', President Lula da Silva, Funes said, 'I identify myself more with the Brazilian model than with the Venezuelan one, though I want good relations with all. President [Hugo] Chávez called to congratulate me and I will visit him, and all the countries I can, particularly the Latin American ones [...] Many of our ideas for government are taken from concrete actions of Lula's fight against poverty. I had a Brazilian campaign adviser, my wife is Brazilian, my son lived these last days of the campaign in Brazil and the first president to congratulate me on my victory on Sunday was Lula. Thus, my link with Brazil is undeniable.'

This earned Funes an oblique criticism from Nicaragua. Tomás Borge, deputy secretary general of the ruling Frente Sandinista de Liberación Nacional (FSLN), after congratulating the FMLN — not Funes — for its victory, said he hoped it would 'represent the inheritance, the fullness and the identification with the principles that gave life to the FMLN.' By way of contrast, he said, 'Sometimes there is a tendency for the victory of progressive movements to lean towards exaggerated conciliation and to renounce certain principles that gave it life.'

Arias is representative of the mood that will prevail at the Summit of the Americas. 'The Cold War is over and I think that President Obama will sooner or later have to draw close to a dialogue with the Cuban régime. [Obama] has announced that he will close the prison in Guantánamo. I go further: I have said that sooner or later Guantánamo must be returned to the Cuban people and be part of their territory.'

His stance was mirrored in Brazil by Lula's foreign affairs adviser, Marco Aurélio Garcia. He predicted that the issue of Cuba would be on the table at the Summit, and said that he hoped the US would take the plunge and respond unilaterally, without waiting for pressure to build up. 'It would be good for the US to see these [recent] events as another signal that governments in the region with the most diverse political sensitivities consider dialogue important [...] The issue of Cuba will come up because there is a widespread feeling in Latin America that the [US] embargo no longer makes sense, that it is part of a Cold War agenda that belongs to the past [...] The normalisation of relations with Cuba would have an extraordinary effect on the image of the US. It think that, at first, the US initiatives must be unilateral, with no strings attached.' Lula himself is on record as stating that there are 'no moral, political or economic justifications' for the US to maintain its embargo.

So far, the only move to improve relations with Cuba has been the provisional adoption by the US Congress of measures to relax restrictions on travel and remittances, and hold in abeyance the practice of demanding cash payment in advance for Cuban agri-imports from the US. Obama has linked any relaxation of the embargo with a transition towards democracy in Cuba.

The prime minister of Trinidad & Tobago, Patrick Manning, who will chair the Summit of the Americas, embarked on 19 March on what his officials have described as a whirlwind 'peacekeeping mission'; a tour of six Latin American nations (Brazil, Paraguay, Ecuador, Nicaragua, Venezuela and Mexico) to try, as he himself put it, 'to minimise any undue contention in a forum of this nature, to which such a forum is tremendously susceptible.'

Earlier in March, Raúl Castro conducted a major reshuffle of the upper echelons of his government. Its most important feature was the removal from key executive posts of the most prominent figures of Fidel Castro's last cabinet, Carlos Lage (executive secretary of the council of ministers) and Felipe Pérez Roqué (foreign minister) — the leading figures of the so-called Fidelista-Taliban faction and strong advocates of closer integration with Venezuela, who from the moment Raúl replaced the ailing Fidel in July 2007 had been undermining his policy initiatives.

Raúl waited well beyond his formal accession to the presidency in February 2008 to move against Lage and Pérez Roqué — armed, according to some sources with evidence that they had escalated from interference into conspiracy, with the support of Venezuela's President Hugo Chávez . This might explain how he was able to persuade Fidel to condemn them publicly, and Chávez to disavow emphatically any involvement in a plot.

MEXICO | Biggest-ever cannabis seizure. On 18 October, on the outskirts of Tijuana, Baja California, a military unit intercepted a convoy found to be carrying 30 tonnes of cannabis packed and ready for distribution. Interrogation of those arrested there led to a ranch where another 70-plus tonnes were found, and then to two houses with an estimated 30t, all ready for shipping.

By the time the entire haul was weighed, the total came in at 134t, the largest-ever single seizure of cannabis, equivalent to all seizures in Baja California over the past three years. In 2009 the authorities seized 2,105t of cannabis countrywide.

Initially the state authorities ventured that the volume seized was of such magnitude that it could only have been marshalled by Fernando Sánchez Arellano ('el Ingeniero') the current boss of the Tijuana cartel. Later, however, the federal government's spokesman on national security matters, Alejandro Poiré, said that there are 'indications suggesting that [the haul] is connected to the Pacific organisation' — one of the designations of the gang more commonly known as the Sinaloa cartel, led by Joaquí­n Guzmán Loera ('el Chapo').

Guzmán has been forcefully moving into the territory of the Tijuana cartel since it was weakened by a succession of blows over the past eight years: the death of Ramón Arellano Félix in February 2002, the capture of his brother Benjamí­n a month later, the arrest of another brother, Francisco Javier, in August 2006, and the capture of yet another, Eduardo, in October 2008.

The confrontation between the two cartels has been particularly gruesome, its 'signature' being the hanging of dozens of 'execution' victims from highway bridges. Four such cases took place in the week before the Tijuana haul; as usual, suspicions have been voiced that one of the rival groups provided the authorities with the information needed to locate the cannabis.

MEXICO | Laundering enquiry uncovers cartel's sidelines. On 13 October, following an investigation initiated by the special unit monitoring suspected money-laundering operations, federal police arrested Ignacio Javier López Medina (also known as Manuel Lombera or Nacho López), who is thought to have been the chief financial operator of the La Familia Michoacana (LFM) cartel. Among those arrested with him was an executive of a bank branch in the port of Lázaro Cárdenas who validated a series of accounts used by López Medina.

The investigation revealed that one of the businesses run by López Medina was the export of illegally mined iron ore, mainly to China, on a substantial scale: about 1.1m tonnes, valued by the federal public security (SSP) ministry at US$42m.

The SSP says that López Medina, who has admitted to acting on instructions from Servando Gómez Martí­nez ('la Tuta'), the reputed operations chief of LFM, was responsible for administering the cartel's proceeds, not only from drug trafficking but also from kidnappings and extortion. López Medina was arrested in the US in 1991 on a heroin trafficking charge, for which he served time in prison before being deported to Mexico in 1996.

MEXICO-US | Agreements on gunrunning & laundering. On 5 October Mexico's chief federal prosecutor, Arturo Chávez Chávez , signed two agreements with the head of the ATF, Kenneth Melsom, and Undersecretary of Justice Lanny Breuer. One gives Mexico access to the E-Trace system, which helps track the source of weapons seized from criminals, a key step towards checking the inflow of US arms into Mexico. The other provides for the supply of equipment valued at US$2.9m to help fight money laundering.

Date: 3 October 2010 (first round), 31 October 2010 (second round).

Type: Presidential, state governors (26 states plus Brasí­lia federal district), federal and state legislative (including federal senators, federal deputies and state deputies, including Brasí­lia federal district).

Main contenders: Partido dos Trabalhadores (PT), Partido do Movimento Democrático Brasileiro (PMDB), Partido Socialista Brasileiro (PSB), Partido Comunista do Brasil (PCdoB), Partido Democrático Trabalhista (PDT), Partido Verde(PV); Partido da Social Democracia Brasileira (PSDB), Democratas (DEM).

The race for Brazil's next president geared up in February ahead of party congresses and fresh political horsetrading as the leading parties attempted to seal crucial pre-electoral alliances at the federal and local levels for the 3 October polls. After two consecutive terms (2002-2006, 2006-2010), the immensely popular President Luí­z Inácio 'Lula' da Silva cannot run again but he is seeking to secure his successful social and economic legacy with a third term for the ruling Partido dos Trabalhadores (PT).

The latest opinion polls have energised the race, putting Lula's personally anointed heir and presumptive nominee for the ruling PT, the minister of the presidency Dilma Rousseff, much closer to her main rival, José Serra, São Paulo's popular (and powerful) state governor and candidate-in-waiting of the main centrist opposition Partido da Social Democracia (PSDB). According to the latest (January) CNT/Sensus national survey, Serra's lead over Rousseff has dropped to just over five percentage points in a first round scenario (to 33.2% vs. her 27.8%), down from 10 points in November (and 20 points for most of last year). Serra still has a seven-point lead in the key second round scenario (elections in Brazil invariably go to a run-off). Despite this progress, the pressure is on the PT to seal its coalition alliances at the national and local level as quickly as possible in order to maximize Rousseff's chances. Despite Lula's invaluable personal endorsement, Rousseff, a technocrat largely unknown to the electorate, and lacking Lula's heady charisma, remains a weakish candidate for the PT.

Ciro Gomes of the small leftwing and government allied Partido Socialista Brasileira (PSB), a minister in Lula's first administration, comes third in the first round at 11.9%. Notably, despite his party's alliance with the ruling coalition, more of his votes appear to transfer to Serra rather than to Rousseff - without Gomes in the race, Serra's first round lead over Rousseff increases to 40.7%, over her 28.5%, crucially giving him just enough votes to win in the first round. This puts additional pressure on the PT, which already fears that a split leftwing vote will damage Rousseff. The fourth placed nominee, Marina Silva, representing the Partido Verde, is Lula's former high profile environment minister, who quit the government in May 2008 and left the PT in 2009 citing disillusionment with the government's environmental polices. Silva and Rousseff were cabinet rivals and Silva in 2008 accused the productive ministries, led by Rousseff's ministry of the presidency, of riding roughshod over her office. Like Gomes and the PSB, Silva and the PV lack the national strength to really compete in the presidential race, but by sheer force of their high profile candidates have the ability to splinter the left. The PV and Silva are being courted by the PSDB in key states like São Paulo.

Lula had sought to dissuade Gomes, a former presidential candidate in 1998 and 2002, from running in 2010. In September 2009, Gomes, currently a federal deputy representing his home state of Ceará (governed by his brother, Cid), hinted that he might accept Lula's suggestion that he run instead for the state governorship of São Paulo, the largest electoral college in the country, but with little chance of winning that highly prized race, he has since refused to bow out. Gomes, a charismatic, starry and ambitious politician who was once touted as a potential heir to Lula, had sought to position himself for the vice presidential slot alongside Rousseff, but there is one big obstacle in the way of that - the main coalition partner in Lula's government ¬ - and Brazil's largest and most electorally dominant group - the Partido do Movimento Democrático Brasileiro (PMDB), has already laid claim to that slot, and Lula is in no position to argue.

Horsetrading with the PMDB
The mercurial PMDB's number one priority is to remain in power. The saying goes that no president can rule Brazil without it and the party has not been out of office since the return to democracy in 1985. In the October 2008 municipal elections, the PMDB won control of 1,201 mayoralties, up from 1,059 in 2004, though this success was in no small part due to its trumpeting of its ties with Lula. It currently controls nine states, with 90 deputies and 17 senators in the federal parliament in Brasí­lia, and runs six ministries - Communications, Defence, Energy and Mining, Health and National Integration - and heads up both the senate (José Sarney) and the congress (São Paulo deputy, Michel Temer).

On 6 February 2010 the PMDB voted overwhelmingly (by 591 votes of a total 597) to re-elect Michel Temer as party president. Temer, a powerful figure, is heavily favoured by the PMDB leadership to take the number two slot to Rousseff. Yet Lula and the PT are in two minds about Temer. On the one hand he is well able to control the unruly PMDB, both in congress and at the national level, and his re-election means that the PT and Rousseff should be able to count on the PMDB's full support this year. On the other, Temer and the PMDB will extract a hefty price for this support. Lula has, to date, managed to keep the PMDB out of his close inner circle, which remains dominated by PT confidants. The PMDB is itching to get closer to the centre of power and Temer has real clout to make life difficult for the PT if he is denied.

The PMDB and the PT also compete vigorously over key local power bases, complicating their negotiations. The two will struggle to field state-level joint slates in Bahia, Ceará, Matto Grosso do Sul, Pará and Rio Grande do Sul. In Pará, for example, the unpopular PT governor, Ana Júlia Carepa, is facing a challenge from Jader Barbalho of the PMDB. In the southern state of Rio Grande do Sul, José Fogaça, the PMDB mayor of the state capital, Porto Alegre, will compete with Lula's heavyweight former justice minister, Tarso Genro (PT), who resigned his post in mid February to begin his campaign for the state governor's office. In Minais Gerais, the second largest electoral college after São Paulo, the popular PDSB incumbent governor (and former Serra rival), Aecio Neves, intends to run for the federal senate. Here, the PMDB communications minister, Hélio Costa, is vying with the PT minister of social development, Patrus Anais, as well as a former PT prefect, Fernando Pimentel (Belo Horizonte) against the vice govenor Antonio Augusto Anastasia (PSDB), who is seeking to replace Neves. The PMDB has even hinted that it would join with the PSDB in Minais against the PT. These are precisely the kind of kinks Temer will iron out - at a price.

Nonetheless a minority of PMDB figures, led by the regional party leader in São Paulo, former governor Orestes Quércia, argue that the PMDB would be better off throwing its lot in with Serra and the PSDB. Quércia, along with governors Roberto Requião (Paraná), Luiz Henrique (Santa Catarina) and senators Pedro Simon (Rio Grande do Sul) and Jarbas Vasconcelos (Pernambuco), insist that the PMDB should not finalise its intentions until the party's national convention in June.

The debate begins
Lula casts Rousseff as a continuity candidate who will accelerate, broaden and deepen the achievements of his administration. The PSDB and its allies, unable to contest the PT's economic record, paint her in contrast as a radical left-winger bent on throwback, regressive statist policies. The PT, which is keen to make the 2010 election a plebiscitary vote comparing the last eight years under Lula with the previous eight under the PSDB government led by Fernando Henrique Cardoso (1995-2003), welcomes this debate, as it usefully helps polarise the race between the PT and the PSDB and marginalises the other candidates.

Rousseff's preliminary programme for government, due to be unveiled at the PT party congress on 18-20 February, defends a bigger role for the state in national economic development, based on the fashionable post-global-crisis argument that the state can and should take a much more pro-active role in the economy. The Lula government argues that Brazil emerged quickly from the recent crisis due to active state intervention, not only through the usual fiscal stimulus measures, but also through its concerted push to maintain credit through the country's large state-owned banks, led by the Banco Nacional de Desenvolvimento Econômico e Social (Bndes), Banco do Brasil and the Caixa Econômica Federal, which moved to fill a gap left by the private financial sector during the crisis.

Rousseff's programme duly emphasises the importance of stronger state firms (led by the state oil company Petrobras), along with investment incentives for manufacturing, infrastructure, science and technology, targeted social policies focused on income re-distribution, broader access to improved public education and universal health access. A key campaign plank is the pending second phase of the massive R$640bn public-private infrastructure development scheme, the so-called 'Growth Acceleration Program' (Programa de Aceleração do Crescimento [PAC]) overseen by Rousseff in her capacity as minister of the presidency. Lula is due to announce 'PAC II' in early March, which the PT hopes will overshadow the formal declaration of José Serra as the PSDB's presidential candidate. PAC II will focus on large urban infrastructure projects for the main cities - where Lula's capacity to pass on his popularity to Rousseff is lowest - including projects for the 2014 World Cup and 2016 Summer Olympics in Rio de Janeiro which, much like the Chinese Olympics, is designed to showcase Brazil's 'emergence' as a global superpower. The PSDB says the PAC is nothing more than a giant PR extravaganza, and it heavily contests the official data on its results to date.

Predictably, the opposition decried the Rousseff plan as “Jurassic" and “Venezuelan", noting sceptically that it was drawn up with the help of Lula's chief foreign policy advisor Marco Aurélio Garcí­a, who is regarded with suspicion by conservatives for his previous radical leftwing militancy, a heritage he shares with Rousseff. The PT party president, Deputy Ricardo Berzoini, acknowledged that the plan sat to the left of the Lula administration, but argued that having achieved economic stability; the government should now seek more ambitious socio-economic reforms. Ahead of the PT congress, however, it was widely reported that Lula was insisting on modifications to the plan to water it down and make it more palatable to both the middle class voters that will decide the 2010 election and the financial markets.

While the 2010 campaign promises to be long and nasty, the reality is that, in policy terms, the PT and the PSDB would not differ all that much in government. The markets are largely comfortable with idea of a third consecutive term for the PT. Likewise, the PSDB's prior record under Cardoso (and Serra's successful stints as mayor and governor of São Paulo) speaks plenty for its social and economic policy credentials. This year, however, the PSDB will have to work hard to win over Brazil's largely contented new lower middle class, now numbering some 91m people (half the population), which associates its recent windfall very firmly with Lula.

• Internet campaigning in 2010

Candidates will be able to make free use of the internet, including blogs, instant messaging and social networking. Campaign advertising is allowed on the web as long as the author is identified and the right of response is guaranteed. Donations over the web are permitted using credit/debt cards/bank draft or telephone account.

• Other changes in 2010

Voters must bring two forms of ID, including one photo ID, to booths. People in transit between states on the day can vote for the president and the vice president in booths in state capitals. Parties must assign 30% of their seats to women and 5% of party funding must be put towards enlisting female candidates. Of the free advertising assigned to political parties every year, 10% must be reserved for female candidates. Party funded personal expenditure limits have increased from 20% to 50%. New regulations on electoral advertising in public and private places limit the number of ads permitted per candidate.
Meirelles Lula was strongly rumoured to favour the current central bank president, Henrique Meirelles, to provide a market friendly, vice presidential 'shield' for Rouseff. Meirelles last year joined the PMDB with a view to political office. His candidacy was rejected by the PMDB as he is not a party stalwart and is ultimately too close to Lula for their liking. It now looks as though he may instead agree to stay on at the bank until the end of Lula's term.

• Breakdown

Federal senate - 54 of the 81 seats are up for grabs. Each of Brazil's 26 states (plus the Brasí­lia federal district) can elect three senators, so in 2010 each state will elect 2 each (27*2).

Federal congress: All 513 seats are up for grabs; each state elects deputies according to its population.

• Terms

Presidency and governors - four year terms, with a two consecutive term limit.

Senator - eight years, with indefinite re-election.

Federal, state and DF deputies - four years, with indefinite re-election

• Key dates

3 April: Cut off date for ministers and other public officials intending to run (who must resign their posts six-months in advance).

10-30 June: Party conventions to choose candidates.

5 July: Final deadline for candidate registration.

6 July: Campaign begins.

17 August-30 September: Free radio and TV advertising for first round.

16-29 October: Free radio and TV advertising for second round.

The 3 October elections for the state congress and municipalities in Chiapas and for municipalities in Oaxaca did not turn out to be the triumphs the Partido Revolucionario Institucional (PRI) had expected. To be fair the PRI did succeed in recapturing control of the big cities in the poor southern state of Chiapas and the equally poor and violent state of Oaxaca, albeit on very low turnouts. The PRI, however, lost ground badly in the state congress in Chiapas. This means that the final round of this year's regional elections, in Tlaxcala, Puebla, Sinaloa and Tamaulipas, will be particularly important for all the parties. The big contest, for the presidency, takes place in July 2006.

The PRI lost control of the 40-seat state congress in Chiapas. The dominant party in the state congress is now the Alianza por Chiapas. This is virtually the same alliance, composed of the Partido Acción Nacional (PAN), the Partido de la Revolución Democrática (PRD) and the Partido del Trabajo, which took the state governorship from the PRI in 2000. The difference is that the Partido Verde Ecologista de México has defected from the Alianza por Chiapas to the PRI.

The Alianza por Chiapas has 13 of the 24 directly-elected state congress seats, and the PRI-PVEM alliance 11. In Sunday's election, the Ejército Zapatista de Liberación Nacional refused to take part and the turnout was low, which should have boosted the PRI. 

The PRI did recapture two important cities, Tuxtla Gutiérrez (from the Partido Acción Nacional) and San Cristóbal de las Casas (from the Alianza Social) but it lost 16 municipalities in total. The Alianza now holds 55 of the 118 municipalities in the state while the PRI has 56. 

Oaxaca
In the elections in the neighbouring state of Oaxaca, although the PAN lost the state capital Oaxaca to the PRI, the PRD took 17 municipalities from the PRI. The gubernatorial and state congress elections were held in August. The PRI narrowly hung on to the governorship.

In the municipal elections, the PRD even won in San José Estancia Grande where its candidate, Guadalupe Avila, was shot dead by the outgoing incumbent on 28 September. Her husband, Israel Reyes, will be mayor in her stead, even though he wanted to remain living and working in the US. Only 329 people in San José Estancia bothered to vote and the PRD won by 150 to 104 for the PRI. 

Of the 148 Oaxaca municipalities which have declared results, the PRI has 69; the PRD 48 and the PAN 22. The two smaller parties, Convergencia and the Partido Verde Ecologista have three and five municipalities respectively. 

The PRI went into the election with 86 municipalities and the PRD had 36. The main reason why the PRI won the state capital was that the opposition parties split the anti-PRI vote. The PRI, however, lost the important port of Salina Cruz and only just hung on to two other towns, Matí­as Romero and Huajuapan. The PRI was particularly annoyed to have lost Juchitán to the PRD by 329 votes. The PAN is also complaining about the way the election was held in this town and the activities of the Coalición Obrero Campesina Estudiantil del Isthmo. The PAN's candidate was a popular evangelical of Zapotec origins. 

The cities
The PRI played up its victories in Oaxaca and Tuxtla Gutiérrez, the capital of Chiapas. The PAN had run both cities for nine years. Across the country, the PAN is known as the street-lamp party because its support is so overwhelmingly urban. The fact that this support is now either staying at home or defecting to the PRI should be good news for Roberto Madrazo, the leader of the PRI who is the party's likely candidate for the presidential elections in 2006.

In Tuxtla, the PAN's defeat came as an abrupt shock to the party. Exit polls showed that the PRI's Juan Sabines, son of a former state governor had won almost 60% of the votes cast.

The loss of Oaxaca is also a blow to the PAN. Altogether there were elections in 118 municipalities in Chiapas and 152 in Oaxaca. Both states are poor and have, until recently, been fiefs of the PRI at the state level. Besides the 152 municipalities in Oaxaca which used elections to choose their governments, there were also 418 municipalities in the same state which used traditional Indian systems, where the winner is nominated.

The turnout in both elections was low. The state electoral authorities reckon that in urban areas 65% of the electorate did not bother to vote. In rural areas about half the voters turned out. 

VERACRUZ: Gerardo Buganza, the loser in the race for the governorship of Veracruz, said on 12 September that he would launch a peaceful campaign to get the result overturned. Buganza lost by less than 0.8% of the votes cast in a high-turnout election to Fidel Herrera from the Partido Revolucionario Institucional (PRI), which has ruled Veracruz since the Mexican Revolution. Buganza is from the Partido Acción Nacional (PAN) to which President Vicente Fox belongs.

Buganza has already asked the PRI governor of Veracruz to overturn the result. He has also asked the (PAN) interior minister, Santiago Creel, to intervene. The Veracruz state election authority is dominated by the PRI. Nationally, the PAN seems to be lining up behind Buganza. At the rally to launch the campaign to overturn the result, the keynote speaker was Francisco Barrio Terrazas, the leader of the PAN deputies in the federal congress. Barrio told the PRI governor, Miguel Aleman Velasco, that he would not know what hit him if he refused to act to investigate the result of the election. Buganza threatened to jail a number of state officials once he took office. He said that the state had to give a lead to the country and that what had happened in Veracruz (in terms of cheating by the PRI) was the final straw that would break the camel's back.

 

President-elect Felipe Calderón Hinojosa will be inaugurated as Mexico's second president from the Partido Acción Nacional on 1 December. Unlike his immediate predecessor, Vicente Fox, whose term has been a disappointment, given the support and expectations he stimulated in 2000, Calderón cannot rest on his laurels.

Fox's historic victory in 2000, over the Partido Revolucionario Institucional, meant that his place in Mexican history was assured, whatever happened during his presidency. Perhaps Fox was wise to let Mexicans slowly get used to living in an embryonic democracy rather than a one-party state: for many political commentators Fox was a failure because he failed to implement the big changes in Mexico he and his victory promised.

Fox failed to force political reforms through congress or to impose his will on the supreme court. Yet by refusing to govern in the old way, he made Mexico more of a democracy. Congress and the supreme court are now much weightier institutions and Mexico is much less of an elected dictatorship. The paradox of Fox, for whom the constitution had to be changed so that he could stand for the presidency, is that he allowed these fundamental democratic credentials to be sullied by his wife and his supporters. They mounted a low farce to try to ensure his legacy by picking, or at least rigging the choice of, his successor.  

On the day of his inauguration six years ago, Fox famously had breakfast with sixty street children. Of the three to whom he promised work on his farm, two are now dead and the other's whereabouts is unknown, a situation somehow symptomatic of the unfulfilled promises of Fox's administration. Fox failed to change their lives or fates. That failure, both personal and political, illustrates the new weakness of the presidency and the scale of Mexico's problems. With his narrow mandate, President-elect Felipe Calderón cannot afford to take the long view. To justify his victory he has to show that he and the government can improve people's lives. The crucial issue now is security. Under Fox the country has become progressively more violent and lawless, though, arguably, the government has become more open and, with the major exception of the police, less corrupt.

The way Calderón is approaching taking office suggests that he expects to be judged on results, not column inches. His economic cabinet is highly technocratic but, with one major exception, experienced. His social spending ministers are all from his Partido Acción Nacional. So they are motivated by the politician's need to harness the power of the federal government to win elections. The law and order team, the crucial selection, over which both of the two last presidents made crucial mistakes, was the last to be announced and is likely to be the most radical of the three cabinet groups. Its members will, almost certainly, determine what sort of start Calderón makes to his sexenio.

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. The main problem facing the state oil monopoly Petróleos Mexicanos (Pemex) is dwindling production.

On 10 February Pemex announced that it would invest US$60bn by 2012, the end of President Felipe Calderón's term, to boost production. In 2008, Mexico's oil production was at its lowest level in 13 years.

Jesús Reyes Heroles, the director of Pemex, admitted that production from Mexico's main oilfields would fall in the next eight years. He said that the company would have to invest more to boost secondary production.

Pemex's problem is that its main undeveloped onshore oilfield, Chicontepec, is hideously complicated, geologically. Pemex is sure that Mexico's portion of the deep waters of the Gulf of Mexico hold huge reserves of oil (50bn barrels, Pemex guesses) but Pemex has neither the financial nor the technological resources to tap these fields. It is also far from clear that the government's tepid reform of the oil industry in 2008 will allow Pemex to go into partnership with foreign companies to develop these fields on mutually advantageous terms.  

The big problem is the decline at Cantarell, the country's main oilfield. Over the course of 2008, Cantarell's output fell by 36%, down to just 811,000bpd in December. As recently as 2004, Cantarell was producing 2m bpd.

Reyes Heroles said that Pemex was expecting its production in 2012 to be 1.1m bpd below its 2008 level. By 2017, Pemex expects production to be down by 1.8m bpd.

Pemex is hoping that production from the Ku Maloob Zaap field will continue to rise over the next four years, but also admits that this field's production will start to fall from 2012. This year, however, Ku Maloob Zaap should overtake Cantarell as the country's main oilfield.

Reyes Heroles denied that Pemex would on the point of collapse, despite the bleak production outlook. He claimed that the company's prospects had been transformed by the recent oil sector reform.

This looks unlikely. Few petroleum geologists believe that Pemex will be able to increase its production from Chicontepec from its current level of 33,000bpd a day to 700,000bpd by 2017.

Pemex is also expecting to start production from its deep water fields in the Gulf of Mexico by 2015.

Prices: On 10 February, the price of the Latin American benchmark oil basket, West Texas Intermediate (WTI), fell by 5%  in one day to US$37.5 a barrel, close to its 2009 low. This fall followed a gloomy report from the US Energy Information Administration which suggested that world demand for oil would drop by over 1.17m bpd in 2009, compared with 2008.

Production: Mexico's crude oil output in 2008 averaged 2.799m bpd, down 9.2% on 2007. Oil exports fell 16.8% annually to 1.4m bpd. Export receipts, however, rose 22% annually to US$43.3bn, a new record. The average oil price was US$84.3 per barrel.

President Felipe Calderón startled the ruling Partido Acción Nacional (PAN) on 5 March by suggesting that the party should choose the best candidate for the presidential elections in 2012, even if that person is not a Panista.

This suggestion immediately triggered a row in the PAN. The party president, Gustavo Madero, rejected the idea straight away. More interestingly, Calderón's predecessor as president, Vicente Fox (2000-2006), endorsed the idea, even though Fox and Calderón have long had difficult personal and political relations.

Calderón's suggestion is an admission that there is no obvious PAN candidate for 2012. His statement is a blow for Ernesto Cordero, the finance minister, who has long been assumed to be Calderón's preferred candidate for the PAN presidential nomination. Some claim that Calderón may have been endorsing Heriberto Félix Guerra, the welfare minister, who technically is not a member of the PAN, though he is a member of the PAN aristocracy, through his wife, Lorena Clouthier. She is the daughter of a hugely popular PAN leader, Manuel Clouthier, who died in a suspicious motor accident on 1 October 1989.

Calderón made his incendiary comments in an address to the PAN's national committee. Besides Fox, the PAN leader in the senate, José González Morfí­n, also endorsed the notion of an independent candidate. González Morfí­n pointed out that the party has frequently backed independents for state governorships and city mayors. Fox also supports the idea of completely independent figures being allowed to run for the presidency. Under current election law, only candidates nominated by registered parties can stand for the presidency.

PRD leadership: The left-wing Partido de la Revolución Democrática (PRD) chose Jesús Zambrano and Dolores Padierna as its president and secretary general for the next three years on 20 March. These two will lead the party into the presidential elections in 2012. It is far from clear that the feuding PRD will be a force in these elections, though it is the country's third biggest party and controls Mexico City (DF). Zambrano and Padierna come from different factions in the party: Padierna is married to René Bejarano, who is close to Andrés Manuel López Obrador, the radical left-wing leader.

In their victory speeches, Zambrano hailed the success of the tactical alliances the PRD had gone into with the Partido Acción Nacional (PAN). In her victory speech, Padierna criticised the alliances and argued that the PRD should be true to its identity and support López Obrador in 2012. 

PRI platform: The main opposition party, the Partido Revolucionario Institucional (PRI) clearly believes that an alliance between the PAN and the PRD poses a major threat to its prospects in 2012. The PRI party president, Humberto Moreira, condemned the much debated prospective alliance between the right-wing PAN and the PRD in the Estado. Before the consulta in the Estado on 27 March, he described the proposal as a “a farce". He said everyone knew the result of such an “unnatural" alliance. He advised voters not to waste their votes on something that would “never work" given the political differences between the two parties and their leaderships. However, he did recognise a potential threat in the proposed alliance, claiming that it was looking to steal a potential candidate from the PRI's ranks: “they haven't won a single election with one of their own members, they only win with former prií­stas as they did in [2010] and Guerrero," he said.       

Coahuila: The other major state election on 3 July 2011 is in Coahuila. Moreira, now the PRI's national party president, had been governor of the state until taking up his new position. One of his brothers, Rubén, is the PRI candidate to succeed him. Even in Coahuila, where the leftwing PRD has little support, Andrés Manuel López Obrador will not go into an alliance with the PAN. He prefers to back to a former federal deputy, Jesús González Schmal, as the candidate for a leftwing alliance headed by the Partido del Trabajo and  Convergencia.  López Obrador also dismissed the PAN's pre-candidate, Guillermo Anaya Llamas, as a member of the “mafia" which runs Mexico. López Obrador accused the outgoing president of the PRD, Jesús Ortega (whose successor Zambrano is from the same wing of the party) of having done a deal with President Felipe Calderón for forge alliances in various states. On 29 March, indeed, the PRD, the PAN, along with the Unidad Democrática de Coahuila, agreed an alliance for 3 July.

Seven of the 75 political dissidents rounded up by Fidel Castro's government in June 2003 were released in late November. A fortnight later, on 13 December, Cuba launched 'Bastión 2004', a week of military exercises widely trumpeted as the biggest for over a decade. The first looks like a gesture to the EU; the second is, according to the Cuban media, a warning to US President George Bush not to get any ideas in his second term. Yet both the release of the dissidents and the military posturing deserve more than surface readings. 

The EU and the dissidents
The decision by the Fidel Castro's government to release the seven dissidents was all about timing. Havana had monitored the courtship of Madrid ever since the new left-of-centre government of Prime Minister José Luis Zapatero came to power in April 2004. Relations between Cuba and Spain hit a nadir during the term of Zapatero's predecessor, José Marí­a Aznar, described by Castro as 'a little Fuhrer'. Under Zapatero, Spain, which has by far the greatest trade and cultural links with Cuba in Europe, has been trying to change the EU policy, which was personally developed by Aznar in the wake of the dissident clampdown. 

Any serious rapprochement between Cuba and the EU will take more than the release of a handful of dissidents. Spain will have a hard enough time persuading Germany and the Netherlands to change the EU's foreign policy without a significant improvement in human rights in Cuba but the gulf between Madrid and Riga, for instance, is far greater: many of the Eastern European states are strongly opposed to forging closer ties with a country bearing more than a passing resemblance to their own states before the collapse of the Berlin Wall. 

It is axiomatic that agreeing to a joint EU foreign policy stance will not be easy. Aside from the opposition of several member states to opening up dialogue with Havana, Cuba's Oswaldo Payá, winner of the European Parliament's Sakharov Prize in 2003, wrote to the EU telling them that a change in policy towards Cuba is not in Cuba's best long-term interests. However, under Spanish pressure, EU foreign ministers agreed in November to instruct EU ambassadors in Havana to produce a report with 'new measures' to establish political dialogue with Cuba. This report will be considered by EU foreign ministers on 14 December. Cuba's decision to renew official contact with Spain on 25 November and then, subsequently, to release the dissidents, should be seen in the light of this meeting. 

There are, however, other considerations. Several of the men released from prison had suffered from medical problems. The Cuban government was probably also wary of the adverse publicity that would have been excited by the possible deaths of the dissidents in prison. It is also significant that the Castro government should make a conciliatory gesture to the EU just before a major demonstration of military strength, calculated to show the regime can be tough. 

Military exercises
'Bastión 2004', which runs from 13-19 December, will involve 100,000 members of all branches of the armed forces and reservists. Currently Cuba's press is full of photos of Cuban soldiers, armed and camouflaged and the defence minister, Raúl Castro, is omnipresent. He is talking about a 'war of the entire population'. At a press conference on 7 December, he said, 'The Americans should watch closely, so that they do not commit the mistakes they made in Vietnam and are now making in Iraq, where they are bogged down.' Raúl explained that the purpose of the exercises was so that the US could 'observe well and not underestimate our people who are more united and therefore much stronger than the Iraqis. That is the reason'. Quite apart from the cost of the exercises, Cuba is desperately short of fuel: there have been power cuts in Havana since August 2004 when the government introduced a host of new measures to curb electricity demand, the suspicion being that it has been badly affected by the surge in oil prices. 

Domestic significance
The military exercises, ostensibly a warning to the US, have a much deeper domestic significance. Beneath Raúl's rhetoric lies a message from the Castro government: Fidel is intent on concentrating more power in the hands of the military and centralising power. The military exercises present a big propaganda opportunity for Raúl. With speculation growing that Fidel's health is in decline after he slipped and broke a knee and fractured an arm on 7 October, the media outside Cuba is discussing possible successors. Raúl has, officially at least, always been his brother's chosen successor. However, relations between the two were looking strained until a number of hardline measures implemented by the Bush administration in 2004 forced Castro to tighten his grip on the economy and turn once again to some of the old revolutionary warhorses at the expense of the new generation of leaders. 

Cuba's two most significant industries, tourism and sugar, are under military control. The lucrative tourism industry, formerly run by the 53-old vice-president and economic supremo, Carlos Lage, (the man who oversaw Cuba's economic opening and trade diversification after the collapse of the Soviet Union) was brought under Raúl's remit in February 2004 when Fidel appointed a military colonel, Manuel Marrero Cruz, as tourism minister.

North Korea
The military exercises follow fast on the heels of a visit to Cuba by a top-flight military delegation from North Korea that went almost unreported in the international press and did not create (on the surface at least) a ripple of concern in Washington. Both Cuba and North Korea are on the US State Department's list of states that sponsor terrorism. Under the Bush administration, North Korea was even placed in the US's 'Axis of Evil'. In view of this, and Cuba's uncomfortable proximity to the US, it is difficult to understand just why the State Department chose to make no comment about the five-day visit (starting on 23 November) from Kim Yong Chun, North Korea's chief of the General Staff, and his military retinue unless the US somehow knew about it in advance or knew exactly what was on the agenda.

The Cuban media simply reported that Kim Yong Chun was shown around Cuba's military installations by his Cuban counterpart Alvaro López Miera.

The visit of the North Koreans came amid a flurry of diplomatic activity in Cuba. The president of China, Hu Jintao, the president of Vietnam, Tranc Duc Luong, and the prime minister of Malaysia, Abdullah Ahmad Badawi, all stopped by in late November. Abdullah arrived in Cuba on 24 November to commemorate the 30th anniversary of the establishment of diplomatic ties between Malaysia and Cuba. Raúl Castro entertained Tranc Duc Luong on 24 November, hours after Hu, and a 200-strong Chinese business delegation, left.

Hu's visit was the culmination of a two-week tour of Latin America. Although China has shipped military goods to Cuba and is working with Cuba's communist government on intelligence and military issues, all the talk (that the press picked up, at least) was of nickel. China agreed to import 4,400 tonnes of nickel annually from Cuba. It also promised a US$500m investment in a new nickel plant in Moa, in the eastern region of Holguí­n. Fidel even managed to stand to greet Hu. It was the first time he had been seen to rise from his wheelchair since his fall on 7 November. Hu made one political statement: he praised Fidel, 'under whose leadership the Cuban people has been able to resist enormous pressures'.

Panama and Cuba restore consular ties

Cuba re-opened its consulate in Panama City on 6 December. The Torrijos administration got its reward for three months of careful diplomacy: Cuba severed diplomatic relations with Panama after former president Mireya Moscoso decided, as a parting gesture in August 2004, to pardon and release four men that Havana claims had plotted to assassinate Fidel Castro at the Ibero-American summit in Panama in 2000. Panama opened its consulate in Havana on 13 December. The restoration of full diplomatic ties should follow in early 2005. The foreign minister of Panama, Samuel Lewis Navarro, condemned Moscoso's decision to pardon the men, including Luis Posada Carriles, a veteran of the abortive 1961 Bay of Pigs invasion of Cuba and wanted by both Venezuela and Cuba for the 1976 bombing of a Cuban aeroplane that killed 73 people and the bombing of six Havana hotels in 1997, which left one dead and 11 injured. He also announced that the former director of the national police, Carlos Barés, the former government and justice minister, Arnulfo Escalona and the former deputy director of immigration, Javier Tapia, would all be investigated for abuse of authority. They are charged with allegedly having released the four men and expedited their departure from Panama without following the requisite administrative and judicial procedures.

ECONOMIC OVERVIEW: CUBA

The central bank claimed that in the three weeks leading up to the 8 November deadline on which the dollar ceased to be legal tender, there were 2.5m currency conversion operations. The authorities claimed that more dollars were switched into convertible pesos in this three week period than were switched in the previous 10 years when the dollar was legal tender.The government claims that the amount of dollars it has collected in exchange for the convertible pesos will give it the money to meet its international trade obligations. Francisco Soberón, the president of the central bank, said that the de-legitimising of the dollar would mean that the authorities would have more control over the economy. Outlook The government claims that foreign investors will not be affected by change since they will be allowed to earn and remit dollars without having to pay the 10% tax others have to pay for using the dollar. The government stresses that other currencies, such as the Euro, the Canadian dollar, Swiss franc and pound sterling can be used without attracting the 10% conversion tax. Yen, Bolivares and Mexican pesos can also be used freely.

The closely contested elections for mayor of San Salvador went to the wire with Violeta Menjí­var, the candidate for the opposition Frente Farabundo Martí­ para la Liberación Nacional (FMLN) beating Rodrigo Samayoa, of the ruling Alianza Republicana Nacionalista (Arena), by just 44 votes. 

The supreme electoral tribunal took four days to announce the final result after carrying out a recount. Menjí­var, 54, is the first female mayor of San Salvador. She graduated in medicine from the state Universidad de El Salvador but her father had to collect her degree as she was in the field with FMLN guerrillas coordinating the medical team. Her brother Ernesto was shot by a death squad in 1979. President Tony Saca congratulated Menjí­var on her victory as did Samayoa. 

FMLN exceeds expectations

The FMLN can now see the legislative elections of 12 March as a major success. Not only did the party cling on to San Salvador, by far the most important alcaldí­a, for the third consecutive time but it also returned 32 deputies to the national legislative assembly, one more than its previous best performance in 2003. Arena won 34 seats (seven more than 2003) but while it should be able to obtain a simple majority of 43 through the support of the right-wing Partido de Conciliación Nacional which won 10 seats, the FMLN will be able to veto major pieces of legislation that require an absolute majority of 56 (see RC-06-03).

San Salvador's prestigious Universidad Centroamericana (UCA) warned on 21 March that the failure of any one party to obtain a majority in the legislative assembly could lead to greater political polarisation in El Salvador. The UCA, a Jesuit-run institution, said that while both parties are talking of the need for dialogue and consensus they both know in advance that they will reject the other's overtures. It warned that this attitude would lead to "legislative stagnation, more polarisation and more weakness".

The prospects for consensus look bleak. On 20 March President Saca struggled to conceal his annoyance at an agreement reached by mayors representing the FMLN with Venezuela, under which the Venezuelan state-owned oil company Pdvsa will provide diesel and petrol to FMLN mayors at preferential rates.

The central bank noted that the índice Mensual de Actividad Económica (IMAE), was up by 7.1%, year-on-year, for the first two months of 2007. This was only marginally slower than the growth rate in the final two quarters of 2006: 7.8% and 7.5%, respectively. The dark cloud was the February growth figure which at 6.8%, was the weakest for two year. The February figure was the result of sluggish exports from free zones.  

What was particularly impressive was the 11% growth in manufacturing output in February. Agriculture also made a solid start to 2007. Output in the first two months was 10.9% up on the same period of 2006. The main reason for this was surging exports of pineapples (up 18%); bananas (up 15%); coffee (up 20%) and flowers and ornamental plants (up 19%).  

Exports: In the first quarter of 2007 exports came to US$$2.21bn, up 11% on the same period of 2006. The biggest growth was in food and manufactured exports: the former were up by 40% and the latter by 13%. In March the biggest single export was micro-processors. These represent 22% of the country's total exports. The surge in demand for microprocessors from Lenovo in China converted China into Costa Rica's second biggest export market after the US.  

Inflation: In May inflation was 1.04%, much the same as April's 0.9%. This brought the rate for the first five months of the year to 4.06%. The rate for the past 12 months is 9.2%, down from 2006's 9.8%.  

 

On 11 August President Raúl Castro released a statement expressing his support for Russia in its conflict with Georgia over the separatist region of South Ossetia. This is the latest in a series of events indicating a rapprochement between the old Cold War allies, lately confirmed by a visit from a high-level Russian delegation to Cuba in late July.

The visit came after speculation that Russia was considering deploying bombers to Cuba in response to the US's establishing of an anti-missile 'defence shield' in Eastern Europe, ostensibly to counter Iran's growing military capability. The head of Russia's security council, Nikolai Patrushev, insisted that the meeting between the Russian delegation and Raúl Castro focused on economic ties between the two countries. “We agreed on_ a direction for cooperation in energy, mining, agriculture, transport, healthcare and communications," he said.

The presence of the head of the security council, however, suggests that either the talks involved possible military purchases by Cuba, or Russia wanted to give the impression that military matters were discussed. Indeed, on 4 August Russian prime minister Vladimir Putin raised the spectre of the 1962 Cuban missile crisis by mooting “re-establishing positions in Cuba". This came after Russian daily Izvestia cited a top military source as saying that Russia was considering basing nuclear bombers in Cuba in response to the US's plans to set up an anti-missile shield in Poland and the Czech Republic. Raúl Castro refused to confirm or deny the allegations; his brother Fidel praised his silence.

It is distinctly possible, however, that the “leaks" to Izvestia (denied by the Russian defence ministry) - as well as Putin's evocation of the 1962 missile crisis - were deliberately organised by the Kremlin to express Russian unease over the US missile defence system. The State Department reiterated that the 'shield' does not threaten Russia and dispelled the threat of a second 'Cuban missile crisis', but Russia's warning will not have gone unnoticed.

• Trade claims

The Cuban government claims that its exports of goods increased from US$3.2bn in 2006 to US$4bn in 2007. This is plausible, if only because of the run-up in nickel prices. Less plausible - especially since the government is claiming that the economy grew fast in 2007 - is that imports increased from US$9.5bn to only US$10.2bn. Cuba's oil bill, even with Venezuela's offer of cheap payments, should have increased by more than that on any reputable accounting system.

President Daniel Ortega would appear to have succeeded in his declared aim of ending the constitutional ban on presidential re-election. A ruling by the constitutional chamber of the highly politicised supreme court (CSJ) has lifted the prohibition, allowing Ortega to compete again in the 2011 presidential contest. The court's decision is illegal (only the legislature is authorised to make the change). However with the credibility of Nicaragua's institutions in tatters - as was already illustrated in the November 2008 municipal vote - and the opposition as divided as ever, there is every likelihood that the ruling will stand.

Ortega had first publicly declared his interest in re-election in March [RC-09-03] and initially sought to overturn the ban, (introduced in 1995 under the rightwing Violeta Chamorro administration), via the appropriate constitutional means - the national assembly. Under Article 194 of the constitution, a two-thirds majority in the 92-seat congress is required to make constitutional changes and, hampered as ever by the fact that his ruling Frente Sandinista de Liberación Nacional (FSLN) has only 38 seats, Ortega made repeated attempts at capturing the remaining votes.

These efforts, which received ample coverage in the local press, ranged from the time-honoured practice of offering posts in government institutions as part of “el pacto", the decade-old power sharing arrangement with former president Arnoldo Alemán (1997-2002) of the opposition Partido Liberal Constitucionalista (PLC), to Ortega's threat to revive legal proceedings against opposition leader Eduardo Montealegre for his alleged role in the Cenis bank fraud in exchange for votes from his Bancada Democrática Nicaragüense (BDN).  These attempts ultimately proved unsuccessful, however, and, in an uncharacteristic display of unity, both opposition leaders remained firm.

'A constitutional coup'
Faced with resistance from the political opposition, Ortega abandoned constitutional channels and turned to the judiciary - one of the institutions politicised under “el pacto". On 15 October his legal representative, Eduardo Mejí­a presented an appeal against Article 147, which bans re-election to public office, to the Managua appeals court. Four days later, the head of the CSJ's constitutional chamber, Francisco Rosales, announced the article had been removed, a ruling promptly endorsed by Roberto Rivas, the head of the highly discredited supreme electoral court (CSE), leading Ortega to pronounce the ruling “set in stone".

The CSJ's argument for revoking the ban was that it violates a basic human right to seek election - the same argument as was used in Costa Rica to overturn a similar prohibition on re-election in April 2003, which allowed Oscar Arias to seek and win a second term in office. The comparison subsequently sparked an angry response from Arias who protested that the two resolutions were like “oil and water" given the Nicaraguan judiciary's notorious “lack of independence".

The court's ruling unsurprisingly provoked outrage in Nicaragua, not least from the PLC-aligned CSJ president, Manuel Martí­nez, who highlighted the dubious process whereby the decision had been reached; the CSJ's constitutional panel comprises three judges aligned with the PLC and four affiliated with the FSLN including Rosales. Martí­nez complained that the three PLC judges received insufficient notice of the meeting and were replaced by three FSLN substitutes. This, however, replicates the procedure whereby Alemán's fraud and embezzlement conviction was overturned in January this year [RC-09-01] where a PLC-substitute was called in to replace an absent FSLN judge. The parallels led opposition figures to accuse Alemán of striking a deal with Ortega.

In an unprecedented show of unity from the country's different sectors, the political opposition, civil society groups and the business sector issued a joint statement condemning the move as a “coup by Orteguismo", and agreed a series of measures- including a legislative committee to recover control of the national assembly - the one institution not under Ortega's thumb. The country's two most important business groups - the superior council of private enterprise (Cosep) and the US-Nicaragua Chamber of Commerce (Amcham) - also joined the anti-Ortega movement.

However as was the case with the highly questioned November municipal vote, where the FSLN's sweeping and allegedly fraudulent victory has remained in place, these unity pledges appear once again to have foundered; an opposition Alianza Liberal Nicaragüense (ALN) member of the congressional directorate has already broken the pact, abstaining from a vote on whether to allow congress to debate the ruling, leaving the issue off the congressional agenda.

US response
The US, which led the international outcry over the municipal vote, (subsequently cutting off US$62m in funds through the Millennium Challenge Corporation (MCC) in response [RC-09-06]) has similarly expressed concerns regarding the ruling. On top of a strongly worded statement from the US State Department (see sidebar) US envoy to Managua, Robert Callahan, dubbed the ruling “improper", prompting Ortega supporters to pelt the embassy building with rocks and home-made explosives, and demand his expulsion.

This rhetoric has not been backed up with the threat of economic sanctions. The International Monetary Fund (IMF), which had effectively frozen aid to Nicaragua last year amid the transparency concerns, unexpectedly announced that it would continue its country programme with Nicaragua, leading opposition leaders to accuse the multilateral of sending Ortega a message of “appeasement". The IMF's decision allows the government - which has been forced to cut the budget three times this year - to receive an immediate loan of US$37.8m (bringing total disbursements to some US$85.9m).

• US concerns

The US state department issued a statement declaring it was “very concerned about the manner in which the Constitutional Chamber reached a decision regarding re-election for Nicaraguan officials, including the President. We share the concern of many Nicaraguans that this situation is part of a larger pattern of questionable and irregular governmental actions, beginning before the flawed municipal elections of November 2008, that threatens to undermine the foundations of Nicaraguan democracy and calls into question the government's commitment to uphold the Inter-American Democratic Charter." 

• Lack of support

A recent survey by local pollster M&R Consultores published in the national press showed 67.8% of those questioned were opposed to presidential re-election. The poll also showed that 50.3% did not identify with any of the political parties while 32.8% aligned themselves with the Frente Sandinista de Liberación Nacional (FSLN) and 9% with the opposition Partido Liberal Constitucionalista (PLC). The poll surveyed 1,600 people and has a 2.5% margin of error.

Guyana's main opposition party, People's National Congress Reform (PNCR) has picked retired brigadier David Granger as its presidential candidate for the elections likely to be held in August 2011.  The ruling People's Progressive Party-Civic (PPPC) has yet to choose who will replace outgoing president Bharrat Jagdeo, but it has not been slow in beginning the inevitable mudslinging towards the PNCR's new leader.

The curiosity of Guyana's electoral history is the length of time that the two main political parties have maintained their ascendancy once elected into power.  The PNC held power for 28 years before giving way to the PPP which has now had 19 consecutive years in power. 

There are multiple uncertainties about the coming election, only one of which has been resolved by the PNCR's election of a new leader.  The most obvious point is that both parties will go into the election with fresh faces at the head.  For the ruling PPPC, this will be doubly dramatic as its new leader will not be either a Jagan (party patriarch Cheddi Jagan was followed by his widow Janet Jagan) or chosen by a Jagan - as was the case with President Jagdeo who was Janet Jagan's finance minister.

The PNCR leadership election was far from being decisive and there are dangers that the divisions might be slow to mend.  David Granger, a former brigadier in the Guyana Defence Force (GDF) only just edged out former finance minister Carl Greenidge by 279 votes to 264.  But the fight to succeed Jagdeo at the helm of the PPPC is itself turning into a bitter struggle.  Former Information Minister Moses Nagamootoo has criticized President Jagdeo for opposing a secret ballot for the selection process.  The main contenders for the position of PPPC presidential candidate are Nagamootoo, House Speaker Ralph Ramkarran, party general secretary Donald Ramotar, Home Affairs Minister Clement Rohee, and presidential adviser Gail Teixeira.

The ruling party's main advantage is that it can point to robust economic growth in recent years at a time when most of the rest of the world has been struggling.  Average economic growth from 2006-2010 was 4%.  This enabled the government to lower corporation tax by 5% in the January budget (to 40% for commercial companies and to 30% for manufacturing firms).  The country's debt-to-GDP ratio is around 60%, down from 93.1% at the end of 2006 and significantly lower than many Caribbean Community (Caricom) countries.

Guyana's economic resilience has come from its natural resources, particularly gold, bauxite, sugar, and rice, with hopes that offshore oil could in due course become a significant earner as well.

However, those opposed to the government say that 19 years of PPP rule has brought little progress on social deprivation.  One particular area of criticism has been the fall in the percentage of GDP spent on education, from 8.5% in 2000 to 6.1% in 2007.  The rise in crime is also seen as a major failure of government, particularly as it has allegedly involved officially sanctioned vigilantism.  The 2010 Amnesty International report noted the “enforced disappearance or killing" of more than 200 people between 2002 and 2006.

No doubt fearing that issues of good governance could prove a weakness for the PPPC in the upcoming elections, the ruling party was quick to exploit concerns about Granger's past as soon as his victory was declared.  One of the negative legacies that the PNCR carries is a history of election rigging.  On 6 March, President Jagdeo said that Granger, as a former member of the GDF, was associated with a period of repression and with the seizing of ballot boxes by the army.

In a speech to mark the 14th anniversary of the death of Cheddi Jagan, Jagdeo said: “Make sure people are educated about the past.  Granger was one of the proponents of the PNC party paramountcy so they were counting on poor memories and they are counting on the lack of knowledge on the party of the young people...The PNC has chosen a presidential candidate who was very active in that era - the era of repression, the era of starving our people."

The PNCR immediately complained to the Organization of American States (OAS) about Jagdeo's “provocative" statements, which it said “could reignite racial conflicts in the country".  Traditionally, the PNCR draws its support from the Afro-Guyanese population while the PPPC is supported by Indo-Guyanese.

ECONOMIC OVERVIEW: PARAGUAY

The government introduced a bill to congress on 1 October seeking to establish a tax on land which it hopes will produce an extra US$100m-US$125m per year over the next ten years to be channelled into projects to cut poverty. The government is currently trying to seal a deal with the US under the US Tropical Forest Conservation Act, which offers developing countries debt forgiveness while generating funds for conservation activities. Belize, Panama, Peru and El Salvador each benefit from the TFCA. Paraguay's outstanding debt to the US is US$10.8m: the conservation areas to benefit from the scheme would be San Rafael in the west and Paso Bravo in the east. Outlook The president of the central bank, Gabriel González, said on 19 October that the economy would grow by 2.6% this year. He said that it would never grow by any more than this unless reforms were implemented to increase productivity and competitiveness. The guaraní­ has slipped against the US dollar to more than G6,000 to US$1 for the first time in seven months.

Roberto Lavagna is emerging as the most serious threat to President Néstor Kirchner's re-election ambitions. Although Kirchner's former economy minister is refusing to announce his candidacy for the presidential elections in 2007, he has let it be known that he feels Argentina needs "an alternative" and his putative bid has been endorsed by several prominent figures within the main opposition party, Unión Cí­vica Radical (UCR), and dissident Peronists from the Partido Justicialista (PJ).

A Lavagna candidacy first began to take shape in late May [see RBS-06-05] when the faction of the UCR led by former president Raúl Alfonsí­n and dissident Peronists aligned with former president Eduardo Duhalde and spoke openly of Lavagna as a plausible rival to Kirchner. At first Lavagna played it very cool but in June he launched probing attacks on the Kirchner administration, criticising some of the economic policies that it is putting in place and the foreign policy decision to seek closer and closer relations with Venezuela which culminated in welcoming the country into Mercosur. He immediately struck a nerve. Kirchner cannot abide criticism, as testified by his not infrequent sallies against the press.

Kirchner strikes back

On 2 June, with the Argentine press full of Lavagna, Kirchner dropped the strongest hint yet that he will seek re-election in 2007. He said that "the candidate will be an Argentine man or woman, a pingüino or a pingüina", a reference to himself and his wife, Senator Cristina Fernández, who he says would have all the credentials for the job.

The very next day his two cabinet heavyweights, the cabinet chief, Alberto Fernández, and the interior minister, Aní­bal Fernández, both dismissed Lavagna's challenge out of hand. Alberto Fernández said Lavagna had been put forward by "two former presidents [Alfonsí­n and Duhalde] trying to drag Argentina 20 years into the past". Aní­bal Fernández said he would "have to eat soup" to stand any chance of overhauling Kirchner.

Before revealing his intention to stand next year Lavagna appears to be monitoring the public's reaction to his criticism of the government. He is also waiting to see which strands of the political opposition he could lead. Alfonsí­n is calling for Lavagna to head a "centrist and progressive" coalition. On 11 June, in an interview with the Argentine daily La Nación, Lavagna criticised Kirchner's efforts to co-opt the opposition through the 'pluralist' political pact he proposed during a big rally in the Plaza de Mayo on 25 May. He said that Kirchner liked to talk about pluralism but "plurality only has one definition in the dictionary and it has nothing to do with hegemonic thinking".

Interestingly, former president Carlos Menem threw his hat into the ring on 9 June. He said a Lavagna candidacy would be "a strong candidacy" and hinted that an alliance between the two men might be possible. Lavagna's strongest alliance would probably be with Mauricio Macri, the leader of the centre-right Partido para una República con Oportunidades (Pro). Macri has not ruled out standing for election himself but he welcomed Lavagna's bid, saying that he would "strengthen the opposition". If he were to run with Macri, however, Lavagna would alienate Alfonsí­n's faction of the centre-left UCR. 

UCR mulls backing Lavagna

While Alfonsí­n wasted no time in offering his support to Lavagna, the rest of the party is torn between providing genuine opposition to Kirchner or working with him. At a UCR party summit held on 22 June, the president of the UCR, Roberto Iglesias, insisted that party leaders intent on forging the 'pluralist' political pact with the government should leave the organisation. Bold words but it is questionable how much authority Iglesias retains given that four out of six UCR provincial governors, from Mendoza, Rí­o Negro, Catamarca and Corrientes, failed to attend the meeting. The fifth absent governor, Gerardo Zamora of Santiago del Estero, was out of the country - accompanying Kirchner on his official visit to Spain. The only UCR governor to turn up was Roy Nikish of the Chaco. In addition to these five governors, as many as 15 UCR mayors of heavily populated municipalities have also subscribed to Kirchner's plan. They have been dubbed the 'K Radicals' because of their close ties to Kirchner.

Iglesias urged the party to rediscover its political identity, saying that "there are many governors who are confused, unsure of whether they are government or opposition". He said that those who wanted to work with Kirchner should declare themselves and move to the "other side".

The debate over inflation has been a factor in the decline in popularity of the government, with a recent poll showing that over 80% of those questioned believed that inflation was getting worse. More generally a poll by the Fundación Mercado showed that in September indices of Consumer Confidence (ICC), Savers (ICA) and Families (ICF) were 43.4%, 38.8% and 42.8% respectively. 

Much of the media casts doubt on every monthly inflation figure released by the national statistics agency, Indec and has been doing so ever since February when the government replaced the Indec official responsible for calculating the consumer price index (CPI) with an official loyal to Guillermo Moreno, the trade secretary. The most recent report by the Indec released on 4 October showed consumer prices in Buenos Aires and its environs at between 0.6%-0.8%, much lower than the estimates of independent economists who believe the figure to be over 1%. Similarly, figures for August showed prices rising much higher in certain provinces than in the capital, which added to speculation that the government was manipulating inflation data. These complaints culminated in the resignation of the official responsible for Indec's inflation department, Beatriz Paglieri, at the end of September.

The government has undoubtedly been concerned about the possible impact of the criticism, with the issue seized upon by the opposition; candidates Roberto Lavagna and Elisa Carrió have both accused the government of ignoring the truth. After the release of September's inflation figure, Kirchner publicly addressed the issue, assuring that "the index is perfect _ there is the Indec index and the opposition's index because we are in an electoral year".

According to local daily La Nación, the government made numerous phone calls to top businessmen asking them to dampen the row over inflation, efforts which would appear to have paid off; representatives from organisations such as the Unión Industrial Argentina and the Confederación Argentina de la Mediana Empresa endorsed the inflation data. The newspaper suggested that one reason firms were happy to toe the government's line was due to the fact that unions would increase their wage demands if there is evidence of rapid inflation.

While the issue has been exploited for its political value in the campaigning period, questions nevertheless emerge over why cabinet chief Alberto Fernández told union leaders during a meeting in the Casa Rosada on 24 August that a new methodology for the Indec CPI would be released "but on 29 October".

In obvious attempts to address the issue, on 10 October Kirchner announced a 5% reduction in the cost of key household goods in supermarkets - reflecting the concern that the fear of price rises will drain confidence in the government ahead of the elections. The popular outcry over prices peaked on 8 October when consumer associations announced a boycott on tomatoes after the price rose six-fold between August and the start of this month. 

Following a call to the banks to lower interest rates or "face government action", Kirchner made a deal with banks on 17 October to reduce the cost of borrowing. Under the agreement, banks will lend as much as Arg$5000 (US$1,581) to consumers at 12% while they will lend up to Arg$75,000 (US$23,687) to companies at 9%. The day before the agreement was unveiled, the central bank released funds worth just over US$600m to free up the credit markets. The opposition complained about the timing of the agreement, describing it as a blatant piece of electioneering by Kirchner on behalf of his wife Cristina.

• Poverty drop
  President Néstor Kirchner boasted at a political rally in mid September that the percentage of Argentines living below the poverty line had dropped to 23% during the first half of the year, from 26.9% in the second half of last year. Indigence, he said, had fallen to 6% from 8.7%. While Kirchner's government has substantially reduced poverty from its high level of 54% in the first half of 2003, the credibility of the latest figures released by Indec is in doubt since it is calculated with inflation data. 

Credit is starting to contract. According to the Superintendencia de Bancos, in February 2009 loans to the commercial sector fell for the first time in 10 months. In January, the sector had outstanding loans of G$2,405bn (US$471m) but these fell to G$2,362bn in February.
Despite the fall, total outstanding loans are still 20% higher than at end September 2008, when they stood at G$1,999bn. Year-on-year, credit to the commercial sector was still 50% up in February than in the same year earlier month.

What seems to be happening is that banks preferred to lend more to the commercial sector rather than increase their lending to the primary sector any further. Lower commodity prices have made lending to farmers and agricultural processers more of a risk. Bank lending to the agricultural sector stands at G$4,916bn and remains the biggest single exposure on the banking sector's books. 

Farmers have also been helped by central government subsidies. In the past 12 years, cotton growers and sesame seed producers have enjoyed US$140m in government subsidies. Most of the money has been extracted under pressure: in 2007, the current governor of the province of San Pedro,  José “Pakova" Ledesma, organised protests that forced the-then president, Nicanor Duarte Frutos, to hand over G$18bn from accounts owned by Itaipú, the dam across the Paraná, that is jointly owned with Brazil.

Brazil's agriculture minister, Wagner Rossi, made headlines on 22 October when he declared after a ministerial level meeting at the Consejo Agropecuario del Sur (CAS) that member countries were discussing plans to establish a strategic soya and oilseed producer's alliance in order to deal jointly with international buyers, notably in Asia. The CAS is integrated by Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay. 

Rossi's comments sparked speculation about the possibility of the South American countries creating an Opec-like organization that would control over half of the world's soybean production.  CAS member countries led by Brazil, Argentina, and Paraguay (the second, third, and sixth largest producers, and the first, third, and fourth largest exporters) produce on average a total 111.5 million tonnes of soybeans per year; and export approximately 83.2 million tonnes per year, accounting for 59% of the world soybean trade.

During the XIX CAS meeting at the Inter-American Institute for Cooperation on Agriculture (IICA) in Santiago, Chile, the member countries discussed a number of agricultural policy priorities in the region. Among these was the outlining of strategic alliances under the Red de Coordinación de Politicas Agropecuarias (REDPA) policy coordination scheme in order to carry out unified international agricultural negotiations. 

However, as Rossi quickly pointed out, the Opec comparison is inaccurate because the CAS countries do not have any plans to manipulate market prices, but rather they want present a unified front against major international buyers such as China that generally manipulate the regional market forcing the South American countries to compete with each other in order to obtain a lower price. As Argentina's agriculture minister Julian Domí­nguez explained, “It's about unifying our supply platform". Moreover, CAS is a product of the relatively ineffective Latin American Integration Association (ALADI); and it is not clear how REDPA will work or whether the CAS has the capacity to effectively enforce compliance to the identified regional policies. In this context, the Mercosur member countries are notorious for being unable to agree and enforce orchestrated regional policies.

• The Argentine agriculture ministry forecasts a record harvest of 103.5m tonnes in 2010-2011, of which over 50% is soya.