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Oil export revenues increased 50% in the first four months of 2004 to US$1.08bn. High oil prices are a boon to the struggling government of President Lucio Gutiérrez, allowing it to buy off critics as it budgeted on an average oil price of US$20 a barrel for 2004. 

The problem the government faces is that even with buoyant oil prices, few oil companies want to look for oil in Ecuador. The government has been trying to make the business more appealing to foreign investors. It is trying to get a bill through congress to reduce state ownership of projects developed by Petroecuador and foreign companies from 50% to 35% in order to encourage more private investment. 

The reforms to the industry are also linked to an IMF package worth US$121m. The bill was rejected by congress on 17 June; Gutiérrez presented the bill for a second time on June 24. Congress has 30 days to come to a decision.

This is not the only controversial bill going through congress. The finance minister, Mauricio Yépez, announced on 4 July the government's intention to raise VAT by one percentage point to 13% in order to pay for a rise in the minimum pension.

The government is responding to protests by pensioners. Some started a hunger strike in mid July to back their demand for higher pensions. On 30 June congress passed a bill raising the minimum pension to US$135 a month. According to the pensioners' own statistics, 90,000 of them receive less than US$90 a month and in many cases that figure is between US$4 and US$10. The Instituto Ecuatoriano de Seguro Social (IESS) pays 60% of the pension, the remaining 40% comes from the government.

Raising VAT by 1% should bring in an additional US$80m, which, together with the funds from the IESS, should cover the cost of the increase in pensions. However, the government still owes the IESS at least US$500m. The government has yet to specify what goods would be subject to, or exempt from, the rise in VAT.

The central bank reckons that the premium for investing in colones rather than dollars is currently about right. It made its comment at the beginning of April.

Francisco de Paula Gutiérrez, the president of the central bank, had said at the beginning of March that the inflow of dollars had distorted the premium and the bank would have to do something about this. The central bank now says that the increase in US interest rates, on 22 March, has pushed the premium back to where it should be. The bank said that what it did not want to see was an increase in shorter-term (ie up to six month) deposits from investors who were attracted by the higher yields on colones. What it wants is longer term depositors. 

Currently deposits in colones pay 17% a year. To calculate the premium, simple investors knock off the expected rate of devaluation, reckoned by the central bank to be 8.2% for 2005. This gives a net return of 8.8%. If the effect of the devaluation is applied to the capital as well, the return falls to 8.3%. The premium is the difference between this return and that from dollar securities. The country's 2006 dollar debt currently yields 5.6%, so a domestic investor can choose between enjoying a premium of between 2.7% and 3.2% for taking the risk of investing in colones or sleeping soundly by buying dollars. The central bank's forecast for the rate of devaluation looks on the low side. In the past 12 months, to the end of March, the domestic rate of inflation was 13.6%.

Cafta: The president, Abel Pacheco, said that Cafta (the free-trade agreement between the US and Central America and the Dominican Republic) would be debated in congress in a civilised manner, not with rows and punch-ups. The US congress will consider the measure this May. Costa Rica was the last of the Central American countries to reach an agreement with the US. Trade unionists and peasants opposed to Cafta announced that they would be holding rallies against the measure from the middle of April. Pacheco reiterated that he would not send Cafta to congress for approval until congress had approved the fiscal reform which has been before it for over two years. Pacheco is in favour of Cafta, which he said, would attract more foreign investment in the country. He also said that he would ensure that the sectors most vulnerable to competition from the US were protected.

The central banks in Central America reported that the region had a record inflow of remittances in 2005: US$8.21bn. This was 15% up on 2004, when remittances to Central America came to US$7.17bn.

The three countries that depend most on remittances in Central America are Guatemala, El Salvador and Honduras. These three countries alone received US$7.23bn in remittances in 2005.

The importance of remittances to these countries' balance of payments is one reason why governments from Central America have joined with Mexico to protest against a proposal, which emanated from the US House of Representatives, to criminalise and expel illegal migrants who had successfully settled in the US. The same bill also calls for the erection of more walls along the US-Mexico border to prevent migrants getting into the US.

There are at least 5m Central Americans living and working in the US. At least half of these migrants arrived without visas.

Guatemala has most migrants working in the US and receives most in the way of remittances. In 2005, according to the Banco de Guatemala, it received US$2.99bn in remittances. This is equivalent to about 10% of the country's GDP. In 2004, the country's remittances came to US$2.55bn. The Organización Internacional para las Migraciones reckons that there are 1.2m Guatemalans working in the US, of which 60% are there illegally.

El Salvador, a much smaller economy, got almost as much in remittances as Guatemala: US$2.83bn. Remittances were up by 11% compared with 2004, when they came to US$2.55bn. They accounted for the equivalent of 17% of the country's GDP. The El Salvadorean central bank reckons that there are 2.4m Salvadoreans living in the US.

Honduras's remittance revenues in 2005 increased to US$1.5bn from US$1.25bn in 2004. According to the foreign ministry, 934,000 Hondurans live outside the country: of these, 895,000 live in the US

In Nicaragua, remittances in 2005 came to US$626m, according to the central bank. In 2004, remittances had been US$518m.

The other two Central American economies, Costa Rica and Panama, are not great recipients of remittances. Indeed, Nicaraguans often do the jobs that Costa Ricans will not do in Costa Rica. Panama has significant numbers of Colombians, Dominicans, Ecuadoreans, Peruvians and other Central Americans working in its economy. The Costa Rican central bank reckons that expatriate Costa Ricans shipped US$262m home in the first nine months of 2005. In the whole of 2004, they sent US$302m home.

Paraguay: The central bank said that remittances from expatriate Paraguayans who live predominantly in Spain, the US and Argentina, came to US$204m in 2005. In 2004, they had remitted US$194m and in 2003, US$164m.The central bank said that 38% of the money in 2005 came from the US; 30% came from Spain and 14% from Paraguayans living in Argentina. The central bank noted that remittances from Argentina had fallen sharply since the Argentine crisis erupted in December 2001. The central bank reckoned that since then the value of remittances from Argentina has halved. The bank points out that in 1999, when the Argentine economy was still keeping its head above water, the total value of Paraguayan remittances was US$220m.

Peru: The central bank reported that remittances from the 2m Peruvians living abroad are now running at over US$1bn a year. This was equal to the annual amount of foreign direct investment. The central bank said that it had commissioned research that showed that remittances have increased from US$600m in 1995 to US$1.12bn in 2004. The central bank figure is significantly lower than the one used by the IDB: it reckons that remittances to Peru were US$2.5bn in 2005, while the central bank reckons that they were not more than US$1.8bn.

The central bank said that it was almost impossible to calculate the value of remittances accurately. It asked how should an internet purchase, either of a good or a services (such as an international flight) be classed if it was paid for by the remitter for the benefit of someone back home.

The central bank study, by the Consorcio de Investigación Económica y Social, reckons that 3% of Peruvian households benefit from remittances. Unlike, remittance receivers in Central America, most of these households are middle class.

The average amount remitted, according to the CIES, is US$1,200 a year. This is equivalent to about 14% of the recipient family's total income.

What is clear is that the number of Peruvians leaving the country to work abroad has increased substantially in recent years. In 2000, 180,000 emigrated; in 2004 399,000 did. Foreign ministry statistics show that over half the emigrants are skilled workers.

Peruvian officials are worried about the "brain drain". They point out that 273,000 university graduate had emigrated and 2,700 Peruvians now work in other countries' or multilateral, research institutions.

Banks: Regional banks are becoming more interested in the remittance business. Juan Antonio Niño, the president of the Federación Latinoamericana de Bancos, said that banks were interested in the idea of helping remittance receivers use remittances for purposes other than consumption and subsistence. He said that banks wanted to identify the receiver, and then try to sell him or her other services around the remittance. He argued that this was being done most successfully in Ecuador, Peru and Mexico. Ecuadorean banks have developed products such as mortgages and car loans whose interest payments come from the remittance. The same system can also be used for credit card payments.

The IDB reckons that remittances in 2005 will top US$55bn. In 2004 they were US$45bn.

Niño said that the big issue for banks was lowering the cost of remittances. Switching remittances to electronic delivery was crucial to this. In the US some banks offer remitters cards with which they can send money: the recipients in Mexican have similar cards which they use to withdraw cash.

Niño argued that most banks still had to wake up to the opportunities offered by remittances. He forecast that remittances would be a considerable source of business over the next few years. He said that it was natural for banks to move into the remittance business because they could offer both the sender and the receiver more services than companies that simply wired money from one place to another. Traditionally, these companies have dominated the remittance business.

The downside to remittances: January and February are traditionally the peak times for migration from Mexico to the US. The result is that thousands of towns and villages which had been filled with young people, often looking for potential spouses, over Christmas and the New Year, empty, leaving just the very young and the very old in residence. Most Mexican migrants to the US come from the centre and south of the country. The Mexican press has highlighted the town of Pegueros, in the state of Jalisco, quoting a grandmother who said that the only people left were those of her generation and her grandchildren.

Manuel de Jesús Cardona, an 18-year old from Zacatecas said that he was going north because of the drought in his home state. He said that the state was now almost empty of both young men and young women because they had all gone north.

The business sector is upset by the government's decision to intervene in the cement market. The government ordered, on 9 November, a financial investigation into a French owned company, Industria Cementera Hondureña Sociedad Anónima (Lafarge-INCEHSA).

The government is annoyed that Incehsa, owned by a French company, Lafarge, did not cut its prices when the government told it to. The company, backed by the local business association, argues that it had to keep its prices up because of rises in its costs.  

The deputy commerce minister, Fredy Cerrato, said that the investigation would establish Incehsa's costs and profits. When the investigation was completed, Incehsa's executives would be summoned by the government to discuss the findings and establish a new price for cement. Incehsa is one of the country's two cement producers. At the beginning of November it increased its price for a 45.5kg bag of cement by 6% to L$104 (US$5.5).

The Consejo Hondureño de la Empresa Privada (COHEP) said that the investigation is not the best way to resolve the problem and would deter foreign investment.  

The suspension of the Banco del Café by the Junta Monetaria for poor management has major implications. The bank is one of the biggest in the country and its main shareholder is Eduardo González, an ambitious Gana politician who had been a candidate for the party's presidential nomination in 2007. The primaries for the nomination end in December this year. González had been executive secretary to President Oscar Berger until deciding to run for the presidential nomination.  

Willy Zapata said that Bancafé got into difficulties when it lost US$240m due to a US financial services company, Refco, going bust.  

Inflation: In October inflation was 0.1%, bringing the rate for the first 10 months to 3.9%. The 12-month rate is 4.5%.

Growth: The government told the IMF at the end of November that the economy will grow by 5.8% in 2006. This is above the government's target of growth for between 4.5% and 5%.

The country is suffering from two major economic problems. The first is rising inflation. The annual inflation rate has now reached double digits. The other problem is that the rate of growth is weakening: it was down to 2.97% for the first half of the year according to a private sector estimate.

The government appears to share the private sector's fears that the economy is slowing down. The finance ministry has cut its growth forecast for 2007 from 4.5% (specified in the budget) to 4%. In the first half of 2006, the economy grew by 4.55%.

Both the 2.97% estimate and the 4.55% figure come from the Centro de Estudios para el Desarrollo Laboral y Agrario (CEDLA). The Cedla says that the economy's three main engines (hydrocarbons, mining and agriculture) have all found this year difficult.

Luis Arce, the finance minister, said recently that he expected the economy to have grown by about 3% in the first half of 2007. He added that he was confident that the economy would grow by "around" 4% in 2007.

The most buoyant parts of the economy are, surprisingly, manufacturing and services. It is unusual in such a weak economy (the third poorest in the western hemisphere) that economic growth is led by the secondary and tertiary sectors. The service sector is hardly efficient: banks pay only 3% in interest, which means, with inflation where it is, depositors lose money in real terms.

The big problem is what is happening to mining. The problems in agriculture are seasonal: flooding in the first part of the year set production back. In hydrocarbons the government's tinkering with tax and persistent interruptions to supply by protesters have taken their toll.

In the first half of the year mining output was down, the government has admitted, though it refused to confirm unofficial claims, that output is down by anything between 5% and 20%. The main reason for the fall is lower production from two private sector mines: Inty Raymi (gold) and Sinchi Waira (silver, lead, zinc and tin). Another depressing factor has been the labour unrest at the Huanuni tin mine which was taken over by the government in October 2006.

The mining ministry pointed out that the problems in the industry were nothing new: output has been falling for the past couple of years.

Mining lobbyists argue that the government has failed to encourage foreign investment which would compensate for the run down in reserves and the uncertain legal position has deterred big mining companies from placing bets on Bolivia. This is not completely true because Jindal, an Indian conglomerate, has agreed to invest up to US$2bn in developing the huge iron ore deposit at Mutún. In early September, President Evo Morales visited Caracas and appeared to agree that Bolivia would share its 50% stake in the Mutún project with Venezuela.

The government's critics dismiss the surge in exports of metals as the result of higher metal prices -not higher export volumes. Some mining commentators say that the cooperative miners, who voted heavily for Morales in his presidential victory in 2005, have suffered because of his policies and that their output is down by 20% this year.

Arce, the finance minister, said that even if mining output was down by 5% year-on-year in the first half, this represented a recovery from what had happened in the first quarter when output tanked by 7.5%, year-on-year.

The other big economic problem is inflation. The monthly rate in August was 1.6%. This brought the accumulated rate for the first eight months to 8.1%; more than twice the rate for the first eight months of 2006. The August figure also pushed the 12 month rate over 10% to 10.4%. The government's only comfort is that the August rate was below July's 2.7%. Arce and his economic team had been claiming that the worst was over in July.

Inflation is running at over twice the government's forecast rate. The government had initially forecast a rate of 3.7% for the first eight months; it had then upped this forecast to 5.7%, but the actual rate was a further two percentage points higher.

The government said that the main reason for the surge in inflation in August was higher food and drink prices. The index covering these items rose by 3.3% in the month, largely because of increases in bread and meat prices.

Samuel Doria Medina, the leader of the opposition Unidad Nacional (UN), and a cement magnate, said that he was bothered because the government had failed to bring the "economy's temperature down". He said that unless the government changed its mix of economic policies inflation would hit 15% this year. Such a high rate would affect wages and the budget for 2008.

Trade: In the first seven months of the year the country ran a trade surplus of US$670m, down from US$737m for the same period of 2006. Exports were US$2.48bn. The biggest export item is hydrocarbons: exports of these came to US$1.22bn and imports of fuels and lubricants came to US$115m. The big deficits are in capital goods (US$353m); vehicles and transport equipment (US$297m) and consumer goods (US$121m). The country's biggest trade surplus is with Brazil: it exported US$875m worth of goods (principally gas) to Brazil and imported US$400m in the first seven months of 2007.

 

Consumer price inflation eased slightly in June to 1.2%. In May consumer prices had risen by 1.8%.

The June figure brought the accumulated inflation rate for the first six months of 2008 to 6.8%. The rate of the past 12 months is 12.2%, though the central bank prefers to use an average, which puts the 12 month rate at 8.9%.

According to the central bank, the stability of the Lempira against the dollar is one factor helping to keep a lid on inflation. Even so, however, it reckons that imported inflation in May was running at 3.1%, up 0.8 of a percentage point on the previous month.

Another factor keeping inflation down is the government's policy of maintaining subsidies on fuel. The cost of doing this is clearly high and is one reason why President Manuel Zelaya is so attracted to getting more support from President Hugo Chávez of Venezuela. Honduras has already signed up to Petrocaribe and, in mid-July, according to Chávez is on the point of announcing it will join the Alternativa Bolivariana de las Américas (Alba).

Honduras's business sector is deeply opposed to this idea. Zelaya would not say whether Honduras is signing up. Such a move would have major political implications. The members of Alba are all anti-US: Bolivia; Cuba; Dominica; Nicaragua and Venezuela. Zelaya pointed out that Honduras had been an observer at Alba meeting for several months. He noted that Milton Jiménez, the former foreign minister, had represented Honduras at the sixth meeting of Alba in Venezuela in January. 

The business sector claims that full membership of Alba would mean losing the benefits of Cafta, the free trade agreement with the US. This is unlikely: Nicaragua is a member of both Cafta and Alba.

In the first four months of 2009 tax revenues fell 8.6% year-on-year. The Superintendencia de Administración Tributaria (SAT) said that the main reason for the fall was lower exports and reduced remittance inflows. Tourism receipts were also down.

Fiscal revenues came to US$1.46bn in the first four months of 2009, down US$137m on the same period of 2008. The finance minister, Juan Alberto Fuentes, had been expecting tax revenues to fall by US$750m in 2009. The tax target for 2009 is US$4.39bn, down from an initial target of US$4.84bn. Annualising the first four months still puts the government US$100m shy of the revised target.

The only worry for policymakers is that the fall in the first four months was slightly bigger than the 7.6% fall recorded in the first quarter. The government is pushing congress to approve a fiscal reform and allow it to issue bonds to cover the shortfall in fiscal revenues.

Remittances: In the first four months remittance revenues were down 7.5% year-on-year (or US$102.6m) at US$1.256bn. The worry is that the fall in revenues in April to US$340m was into double digits: in April 2008 remittances came to US$385m.  Month-on-month, remittances were down by US$5m. The central bank is still forecasting growth in remittances of 3.5% for 2009. In 2008 these inflows rose 4.5% to US$4.31bn.

Inflation: In April consumer prices rose by 0.7%. In March they had fallen by 0.25%. The rate for the first four months was negative (at -1.19%). The annualised rate was3.62%, well down on 2008's 9.4%.

Argentina is still awaiting a response from the US Securities & Exchange Commission (SEC) on its proposal to swap bonds that were left out of a 2005 restructuring. It had planned to make an offer to creditors by the end of March.

On 30 March, the government finally got the OK from the Argentine courts to use money from the central bank's reserves for public debt payments. Two appeal court rulings backed its plan.

The opposition had wanted the government to use fiscal revenues, which would have meant that it would have less money to spend on boosting the economy (and, the opposition feared, its political support). The government wants to use US$4.3bn to pay off creditors and (probably) launch its return to the international capital markets.

Technically, the government is now borrowing the money from the central bank, by issuing the bank with a 10 year IOU (letra). Argentina has US$47bn in reserves.

President Cristina Fernandez had infuriated congress on 1 March when, as she was opening congress, she simultaneously signed another presidential decree ordering the central bank to transfer reserves to the so-called Bicentennial Fund which is earmarked for clearing arrears owed to creditors who refused the 2005 debt exchange designed to sort out the 2001 default. 

The country's total foreign debts stood at US$117.8bn at the end of 2009. This was down US$3bn from the end of 2008. The Instituto Nacional de Estadí­sticas y Censos (Indec) does not down break the figure between private and public debt.

Apart from Argentina and Venezuela, Latin America has seen its currencies appreciate against the dollar over the past year. The only country which has managed to drive its overvalued currency back down against the US dollar has been Colombia. In Chile, Brazil and even Mexico the big business concerns are twofold: will the current strength of the domestic currency last; and if so what is the best way to prosper?

Our view is that Latin America's currencies will remain strong for as long as the commodity boom continues. The commodity boom, in turn, largely depends on Chinese economic policymakers managing to rebalance their economy and increase domestic consumption while reducing exports. A stronger yuan would contribute to this and would be good for Latin America. What could be damaging for Latin America is if Brazil decides to flex its growing economic muscle by squaring up to China. So far Brazil has been most critical of US economic policy but there are signs that this could change.

Brazil's finance minister, Guido Mantega, has been one of the most outspoken critics of the weakness of other countries' currencies. His main target is the US, which he accused of trying to “melt the dollar" through its policy of Quantative Easing, but he could also have equally criticised China or the European Union (EU). The EU (and Britain, which effectively has devalued by 20% against the Euro since 2008), are also presiding over weakening currencies. 

Brazil claims that its economy is already suffering from other countries' predatory policies. In 2010 Brazil's imports jumped by 42% to US$181.6bn. This cut the country's trade surplus by 20% to US$20.3bn, the smallest in eight years.

Mantega's language is aggressive. He says that Brazil is in a currency war but adds that Brazil has an “infinite" number of “weapons" in its “arsenal" to wage its war to support exporters hit by the Real's appreciations.

The government has fired off three of these weapons. In 2010 it tripled the tax on fixed income investments to 6% to limit short-term financial inflows. Secondly the central bank spent US$41.1bn intervening (unavailingly) to stem the Real in 2010. Thirdly, on 6 January the new central bank president Alexandre Tombini announced curbs on short selling in a bid to stem the strength of the Real. These restrictions do not come into force until April and  were undermined by the central bank's subsequent decision to raise interest rates which drove the Real back through R$1.67 to the dollar.

Under the short-selling restrictions, which come into force on 4 April, Brazilian banks will need to deposit 60% of their short positions in US dollars above US$3bn or their capital base (whichever is smaller), in cash at the central bank. The reserves will not earn interest.

Besides the action the rhetoric is also likely to become sharper. President Dilma Rousseff, who was inaugurated as president on 1 January, may become more outspoken about China. Her development, industry and commerce minister, Fernando Pimentel, said that when Rousseff visits China this April for a meeting of the Bric nations (Brazil, Russia, India and China), she would raise the issue of the weak yuan.

Brazil has already made some moves against China. In December it raised its tariffs on toy imports from China to help local manufacturers reeling from the Real's 37% gain against the yuan since 2008. China has yet to respond to this move. China was Brazil's main trading partner for the second straight year in 2010, with two-way trade reaching US$56.4bn. Brazil's exports to China increased by 46% to US$30.8bn in 2010 but its bilateral trade surplus is fast disappearing as imports from China surged 60% to US$25.6bn.

Brazil's second largest trading partner was the US with US$46.7bn. Third was Argentina on US$32.9bn, a new record, bouncing back from the US$24.1bn in 2009 after the previous record of US$30.9bn set in 2008. Brazilian exports to Argentina totalled US$18.5bn, up 44%, in 2010, driven by iron ore, road vehicles, machinery, and white goods. Argentina sent US$14.4bn of goods (up 27% on the previous year) the other way, led by road vehicles, wheat and plastics.

Chile is another economy struggling with an overvalued currency. One sign of this, as we note inside, is that Argentina overtook Chile in the US wine market. A cheaper currency was the main reason, though US enthusiasm for Malbec as a varietal also helped.

Chile's strategy to keep its peso competitive is basic but has been effective. On  3 January the  Chilean central bank announced that it would buy US$12bn of dollars in 2011 to try and arrest the peso's climb against the dollar. The peso appreciated by 17% against the dollar in the second half of 2010. The day after the central bank's announcement the peso fell by 4% against the dollar and it has continued to slide gently back towards Ch$500 to the dollar.

The strength of the Mexican peso against the US dollar is more surprising. Unlike Chile or Brazil, Mexico is not a significant commodity exporter. Its net commodity exports are less than 10% of its total exports, a far cry from the near 50% contribution copper made to Chile's exports in 2010 and the significant contribution iron ore, soya, coffee, meat and orange juice all made to Brazil's exports. 

Currently the Mexican peso is nudging M$12 to the dollar, well above the M$14 it dipped to in 2004 but 6.5% above its 2007 rate. Some peso bulls, are forecasting that the peso could end 2011 at under M$12. Banorte, the country's biggest locally owned bank, for example is forecasting M$11.50; HSBC is forecasting M$11.8 and BNP Paribas M$11.45.

The peso bulls are assuming two things: the first is that the US and the EU will maintain their QE throughout 2011 even though inflation, driven by international food prices, is showing signs of accelerating. The second is that Mexico will keep its local interest rates positive to avoid inflation taking off. Both seem reasonable assumptions.

A survey carried out by an independent think-tank has shown that Argentines place more importance on ties with their neighbours in South America and with Europe than with the US. According to the Argentine council for international relations (Cari) poll, half of Argentines believe that aligning the country to the US is dangerous, while 77% approve of Argentina's involvement in Mercosur.

Although Argentina moved steadily towards the US under former President Carlos Menem, and the present incumbent Néstor Kirchner has also committed himself to improving ties with Washington, there seems to remain a degree of suspicion among the population towards the US. Only 19% of those asked believed that Argentina could benefit from a stronger relationship with the US despite Washington's strong interest in Argentina's economic recovery and the forthcoming IMF deal. Meanwhile, 60% said that increasing military ties with the US is a bad idea.

Argentina still seems to tend towards its European links, with 24% of those polled saying that Argentina should improve its relations with the EU. Moreover, 42% said they would prefer to be involved in the EU trade bloc rather than North American Free Trade Agreement. Mercosur was, however, the most popular bloc, which is in keeping with the fact that regional integration was found by the survey to be the nation's top foreign policy priority.

The US government will continue with its present hardline policy towards Cuba, the Assistant Secretary of State for Western Hemisphere Affairs, Roger Noriega, told a Senate Foreign Relations Committee hearing on Cuba. Noriega was pressed by several senators to clarify why the government was insistent on preserving the 40-year old trade embargo on Cuba.

Senator Christopher Dodd, a Democrat from Connecticut, quoted US Secretary of State Colin Powell as saying that Cuba was not a military threat to the US: 'If it is no longer a threat, why would we maintain those restrictions?' Dodd asked. Noriega answered: 'We continue ... to believe that Cuba has at least a limited, developmental, offensive biological weapons research and development effort and is providing dual-use biotechnology to other rogue states'. The Cuban Foreign Minister, Felipe Perez Roque denied accusations by Washington last year that it was running a germ weapons programme. He said it was 'a bald-faced lie' and asked the US to prove it.

Noriega said that the government was extremely satisfied to see other Latin American governments energetically pressing for change on the island and condemning repression. He added that it would be his personal mission to promote Latin American consensus on the Cuban issue. While it is true that there was unanimous condemnation across the region of President Fidel Castro's crackdown on political dissidents earlier this year, this did not extend to support for Washington's tough stance on Cuba.

Colin Powell campaigned to get the Organisation of American States to adopt a resolution on human rights on Cuba in April but met stiff opposition. Brazil's ambassador to the OAS, Valter Pecly Moreira said that his country would not support the resolution. He said Brazil 'opposes actions that ostracise (Cuba), like embargoes'. Mexico's Miguel Ruiz Cabañas rejected the resolution on the grounds that in the Permanent Council (of the OAS), Cuba has no voice (it was ejected in 1962).

The opposition to President Hugo Chávez claimed that the government allowed 11,530 Cubans into the country in September and October. The opposition claims that these Cubans were admitted to help to train a pro-Chávez militia.

The accusations came from a Movimiento al Socialismo deputy, Pedro Castillo, and were published in the opposition newspaper, El Universal. Castillo claims that he is drawing on intelligence sources for his information. According to Castillo, the Cubans were flown into the military side of the Caracas airport, Maiquetí­a, where they arrived with plenty of baggage which was not checked. He claimed that there were 76 flights from Havana to Maiquetí­a between 27 September and 27 October.

Oddly, the Cubans were recorded in the transit records of the airport, though they did not have to fill in landing cards. According to Castillo the Cubans were met by government officials who doled out Venezuelan passports and papers to them.

The government claims that the Cubans who have arrived in the country are helping with literacy, sports and medical programmes. The opposition has been claiming that the Cubans are there to brainwash Venezuelans into supporting Chávez and communism.

Castillo subsequently expanded on his claims. He now says that the planes which brought in the Cubans also took Venezuelans back to Cuba for military training.

The split in the Partido Revolucionario Institucional, the biggest party in congress, deepened yesterday. The leader of the dissidents, Elba Esther Gordillo, the number two in the party nationally and the deposed leader of the party in the lower chamber, said that she was setting up a new group, still inside the PRI, of reformers. She then announced that 59 deputies were following her. The PRI has 224 deputies in congress, following the election reruns at the weekend.

The financial markets are becoming alarmed at the political confrontations in the country. Yesterday the stockmarket fell by 1.2%, and the peso dropped 17 centavos to close at 11.31 to the dollar. During trading the peso touched 11.33, such was the demand for dollars. The country risk premium also ticked up, suggesting that international investors are becoming a bit more nervous about holding Mexican assets. The premium was 212 basis points yesterday. A month ago the premium had been under 180 basis points.

Investors were not reassured by an inept comment from Eduardo Sojo, President Vicente Fox's right hand man who is now responsible for public policy. Sojo said that it was insane to say that the crisis Mexico was facing was anything approaching the scale of the 1994/95 devaluation crisis. Until Sojo spoke, no-one had suggested that Mexico was in such a mess. In 1994 and 1995 the then-government, headed by President Ernesto Zedillo Ponce de León, had to devalue and rescue the banks.

The markets are concerned because they take the view that nothing much is likely to emerge from congress in the way of substantial fiscal reform. This will mean that the government will continue to rely on oil revenues for a third of its income.

Congress has now gone into extraordinary sessions, since it still has to pass a budget for 2004 and the usual congressional term ended yesterday. Today, the dominant faction of the PRI plus its allies - the Partido de la Revolución Democrática, the Partido Verde Ecologista de México, and the Partido del Trabajo - will try to get their suggestions for a budget and tax reforms debated. This alliance, which grandly calls itself the Nueva Mayoria Social Demócrata (NMSD), probably commands a majority of the 500-seat lower chamber of congress which has to approve the budget. The NMSD does not, however, command a majority on the lower chamber's finance committee which vets and recommends financial legislation to the full chamber.

The spokesman for the leader of the PRI majority in congress, Emilio Chuayffet, said that the alliance was confident that it could get its budget proposals agreed by congress. He said that Chuayffet had productive meetings with Francisco Barrio, who is the leader in the lower chamber of the government's Partido Acción Nacional. Both men were sure, he said, that a satisfactory compromise could be reached.

The government's budget fell through because a majority of deputies did not approve of the proposal to make food and medicine subject either to VAT at 10% or to a new tax of 8%. Their refusal to sanction this meant that income tax cuts, for both individuals and companies, were also thrown out.

Chuayffet's men claim, reassuringly, that it should not be too hard to clinch a deal since 90% of the budget proposals made by both the PRI and the PAN are pretty much the same. Separately, the PRD claims that the Centro de Estudios de las Finanzas Públicas, which was set up by the lower chamber of congress, has come up with suggestions for closing loopholes and reducing evasion just in income tax. These changes, the PRD says, will produce an extra M$80bn pesos. The budget is likely to demand total spending of around M$1.5tn. The PRD says that nothing in the Centro's suggestions would lead to higher taxes on food and medicines.

Seven people died and more than eighty were injured as the 48-hour general strike, which has paralysed the country, came to an end yesterday. The strike was called by an alliance of popular movements and was supported by the national business council (Conep) as well as the two main opposition parties, the PLD and the PRSC, and trade unions. Protesters demanded a reversal of the government's economic policies, wage rises, reduced food and fuel prices and the severing of links with the IMF.

Protesters accused the government of being deaf to their demands from the previous strike on 11 November, when a further seven people died in clashes with the security forces. The leader of the Fuerza de la Revolución, Narciso Isa Conde, went as far as to call on President Hipólito Mejí­a to resign on account of what he described as his dreadful mismanagement of the economy. The umbrella protest group Coordinadora de Organizaciones Populares will hold a meeting on 15 February to plan more protests.

Despite widespread popular disillusionment with his performance, Mejí­a will be proclaimed as the official candidate of the ruling Partido Revolucionario Dominicano (PRD) tomorrow after winning the party primary on 18 January, which was boycotted by his main rivals on the grounds that he would rig the vote. 

Meanwhile, the central bank has promised to make a US$27m sovereign bond payment, a prerequisite for the approval of a US$600m loan from the IMF. The IMF board will vote on whether to restore the suspended standby agreement on 11 February.

The Brazilian finance minister, Antônio Palocci, yesterday asked the president of the Partido dos Trabalhadores, José Genoino, to discipline the critics of the government's economic policy. Palocci complained to Genoino about the harsh tone used on a document approved last Friday (5 March) by members of the PT, which called for more agility in the economy.

The PT's hardliners insisted on including in the document criticism of the government's economic policy. They are worried about the poor performance of the economy last year, which shrunk 0.2%. They are also concerned about the high unemployment rates in Brazilian cities, and accuse the Central Bank keeping interest rates too high, at 16.5%, hamstringing the economy's growth.

After speaking with President Lula da Silva, Genoino tried to play down the tone used in the document, saying it 'did not refer the government's economic policy, but to the country's economy in general'. He pointed to recent polls showing Brazilians' concerns over unemployment, security, and lack of investments. However, Genoino defended the 'party's right to disagree with the government and to demand more action from the economic team'.

One of the main unions, the Central Unica dos Trabalhadores (which used to be led by President Lula), fed the friendly fire by announcing it will promote a seminar with leading Brazilian economists next month to debate the government's economic policy. The CUT wants changes in policy; according to its leader, Luiz Marinho, 'if economic growth is nil, wages are falling and unemployment is rising, changes are due'. Amongst the speakers at the seminar will be Delfim Neto, who served as finance minister during the military dictatorship.

The head of the federal police force's anti-kidnapping division was arrested yesterday amid allegations that he had acted on behalf of the abductors in a high-profile kidnapping case.

Juan José Schettino was detained on the instructions of federal judge Jorge Sica, who said that Schettino had hidden information and lied during an investigation into the disappearance of Axel Blumberg. Schettino's parallel investigation, which was supposedly run in order to cover for the real perpetrators, is being blamed for the fact that Blumberg was killed by his kidnappers before he could be rescued.

This brings to three the number members of the federal police force currently behind bars for their alleged links to the group that kidnapped Blumberg. Schettino's boss, Jorge Palacios, was recorded having a telephone conversation with one of those currently under arrest for the abduction and murder. Palacios was widely tipped to become the next chief of police. Another official, Daniel Gravinia, has been accused of hiding information about the case.

Following the controversy surrounding the Blumberg case - there was another major protest yesterday calling for improved law and order - the government has been forced to take a keen interest in proceedings. This has led to Argentina's President Néstor Kirchner overruling his own justice minister, Gustavo Beliz. Beliz was against the arrest of Palacios and is known to dislike Sica.

The government is getting increasingly rattled by the coca-growers' protests and the impasse with Aymara Indians in Ilave. The official line had been to brand all the protesters as trouble makers who were consorting with drug traffickers. Yesterday, President Alejandro Toledo softened his tone, describing the protesters in Ilave as 'our Aymara and Quechua brothers and sisters'. He specifically added that 'they are not delinquents, they are not drug-traffickers'.

Toledo went on to claim, obscurely, that 'bad people', including Peruvians and foreigners, were stirring up trouble in Peru and making 'our brothers' fight amongst themselves. Coca growers have blocked the road linking Huanaco, capital of the department of the same name and Pucallpa, in the department of Ucayali. The army has joined forces with the national police to try and clear the roads.

Toledo also said that 'order and discipline are key elements of a democracy'. This could have been directed at more than just the coca growers. A growing number of politicians and social groups have recently called for Toledo to stand down and hold early elections on the grounds that he has lost credibility. He insisted yesterday that 'constitutionally it is the president that names the cabinet, it is the president that governs the country, he listens to everyone, we exchange opinions but the one who governs is me'. He followed this up by saying that he would be meeting leaders of the opposition, including Alan Garcí­a of the Partido Aprista Peruano (PAP), Lourdes Flores of the Unidad Nacional and a former interim president, Valentí­n Paniagua of the Acción Popular to discuss ways to confront the country's current political problems.

Development: Peace talks between the government and the Autodefensas Unidas de Colombia (AUC) begin today, 1 July, in Santa Fe de Ralito. At the same time, the concentration zone around Santa Fe de Ralito will come into effect.

Significance: The future of the peace process between the AUC and the government hangs on these talks. If all goes according to plan, the AUC will order the demobilisation of the 20,000-strong paramilitary force it claims to have at its command. The government has also staked its credibility on a successful conclusion to the process, having made major concessions to the AUC's leadership in order to revive negotiations which appeared on the verge of fizzling out earlier this year.

President Uribe has already gone back on one major promise, namely that he would not offer a demilitarised zone to the paramilitaries similar to that which his predecessor, Andrés Pastrana, granted the Fuerzas Armadas Revolucionarias de Colombia (Farc). He has also hinted that he might go back on a second, with his government suggesting that by participating in a successful peace process, the AUC leadership might protect itself from extradition to the US.

Today's meeting will be marked by speeches from the AUC's military leader, Salvatore Mancuso, and the government's peace commissioner, Luis Carlos Restrepo. There will be over 30 leaders of various blocs of the AUC from around the country who have agreed to remain in the concentration zone for the duration of the peace talks.

There will also be some notable absentees. The whereabouts and health of the AUC's erstwhile political chief, Carlos Castaño, are still unknown, and he will play no part in the talks. Also absent are Rodrigo Tovar Pupo, alias 'Jorge 40', and Hernán Giraldo who have lost their seats at the table for the kidnapping of former senator, José Gnecco. The pair withdrew from the talks of their own will, despite releasing Gnecco on 30 June. Before letting him go, they described the former senator as 'a white-collar criminal' and asked authorities to look into his financial dealings.

An international presence will also be notable for its absence. Although the OAS, which is overseeing the process, will be represented, a UN presence is not expected. There will also be no representative from the EU, and only three countries in Latin America - Costa Rica, Panama and El Salvador - are sending their diplomats. The US will be represented by its defence attaché.

Development: Soldiers killed three trade-union leaders on 5 August in an operation in Arauca against Colombia's second-largest rebel group, the Ejército de Liberación Nacional (ELN).

Significance: The trade-unionists who died in the operation were Jorge Prieto, the president in Arauca of the Asociación Nacional de Trabajadores Hospitalarios de Colombia (Anthoc); Leonel Goyeneche, regional treasurer of the Central Unitaria de Trabajadores (CUT); and Héctor Martí­nez, head of a peasants association in Arauca. Their killings have provoked a storm of controversy.

The military claims that troops surprised the three men while they were present a meeting with members of the ELN, and has vowed that they too were guerrillas. Troops also claim the men were armed with pistols, which they fired at the soldiers during the operation, and say they found explosives and fuse wire at the scene.

The defence minister, Jorge Alberto Uribe, was certainly in no mood to apologise. He said the action was justified 'first, because they were criminals; secondly because they died during a fight with security forces; thirdly because they were armed; and fourthly because there was a warrant for their arrest'. Vice-president Francisco Santos said that while they were union leaders, intelligence reports had shown they were involved 'in activities that had little to do with their job'.

The various unions in question have vigorously denied the government's claims, and human-rights groups have slammed the killings. The timing of the incident was especially inopportune, occurring as it did on the same day as Colombia's president, Alvaro Uribe, was restoring relations with the international rights group, Amnesty International.

Uribe's government has often accused the ELN and the Fuerzas Armadas Revolucionarias de Colombia (FARC) of infiltrating trade unions. If the government cannot provide evidence that the three men were linked to the ELN, not only will it face massive criticism for this incident but its whole approach to the unions will come under much greater scrutiny.

Colombia is by far the most dangerous place in the world to belong to a trade union; 90 of the 129 trade unionists killed worldwide last year died in Colombia.

Development: Tolls from the Panama Canal have topped US$1bn for the first time with three weeks to go before the end of the fiscal year, which runs until 30 September, the Panama Canal Authority (PCA) announced on 9 September.

Significance: It is the first time that Canal tolls have amounted to more than US$1bn in a year. Tolls for the 2003 fiscal year amounted to US$666m. The increase was due in large part to the controversial 12.5% increase in tolls which the PCA introduced in July 2003, which makes ships pay different tolls according to their tonnage. The Canal's success strengthens the PCA's case for a major US$4bn-6bn widening plan to accommodate the new post-Panamax ships.

The recently installed president, Martí­n Torrijos, is considering 150 separate studies into the benefits of widening the Canal, which were submitted in June. The constitution requires that any decision on the widening of the Canal be put to the Panamanian people in a referendum.