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The long silence regarding the army's counter-insurgency operations against the guerrillas of Sendero Luminoso (SL) was broken last week with a report on a clash that killed two senderistas and gravely injured an army lieutenant. The confrontation took place near Santo Domingo de Acobamba, in the central Andean department of Juní­n.

The defence ministry said that an unspecified number of guerrillas had fled the scene, leaving behind shotguns, pistols, grenades and communications equipment.

In early October, interior minister Fernando Rospigliosi had said that there were only two surviving units of SL: one still engaging in armed action in the Apurí­mac-Ene valleys and the Vizcatán area of the department of Ayacucho, and another in the Huallaga valley northeast of Lima, which had not engaged in armed action since September 2001. The militarily active unit, said Rospigliosi, does not operate outside its home area.

At the time, Rospigliosi reiterated the official line that there no 'resurgence' of SL is taking place, and said that the counterinsurgency effort was facing difficulties due to a lack of funds.

COLOMBIA | Tax blitz goes to congress. The government of President Alvaro Uribe is seeking directly from congress the approval of a range of tax adjustments in lieu of the reforms envisaged in the recent failed referendum. Its aim is to raise the equivalent of US$1.12bn in additional revenues next year. About half of that is expected to come from unifying at 17% the rates for the value-added tax (currently ranging from 7% to 16%).

The rest will come from a combination of measures that includes making permanent the current income-tax rate of 38.5%, eliminating exemptions enjoyed by wage-earners, taxing pensions and cutting short special taxation régimes. Whistle-blowers on tax evasion are offered immunity from prosecution and rewards.

The package, which entails amending the penal code, is likely to run into heavy opposition from legislators from across the board.

BOLIVIA | Short-term reactivation drive. Between now and March 2004 the Bolivian government will try to raise about US$200m in donations to finance a short-term reactivation drive, economic development minister Xavier Nogales announced last week. The timeframe has been set by the agreement by the country's main creditors not to press on non-fulfilment of agreed performance targets. Chief among these is the fiscal deficit, which as a result of the recent upheavals is likely to exceed 8% of GDP - which means that it will overshoot the level agreed with the IMF last March by more than one percentage point. Together with the reactivation drive, he said, a big effort will be made to put the fiscal accounts in order, so Bolivia can access some US$2bn in undisbursed loans.

BOLIVIA | New gas link to Argentina. A new gas pipeline from Bolivia to the central Argentine province of Santa Fe will be built by the Argentine firm Techint, which will finance three quarters of the US$1bn cost. It is expected to be ready in 2006, with an initial capacity of 10m cubic metres a day.

A Mexican who served as a senior official in the US predicts that the prospects for immigrants are unlikely to improve anytime soon.

The prospects for Mexican emigrants to the US are likely to get worse before they get any better; a migrations agreement between the two countries is still well in the future, and its scope is likely to be much more modest than what Mexico has been seeking. This outlook comes from someone who knows both sides of the fence: Ana Marí­a Salazar, a Mexican who emigrated to study law at Harvard and Berkeley, and ended up serving as Assistant Undersecretary of Defense for antidrug policy during the Clinton administration. Her book National Security Today: A Challenge to Democracies appeared as the war against Iraq was looming.

Now back in Mexico, she heads a consulting firm, writes frequently in the national press and directs a specialised website (www.seguridadnacionalhoy. com.mx). What follows is a précis of her scenarios regarding the future of the Mexico-US migrations problem.

Progressive shutdown  
The strengthening of domestic security in the US after September 2001 has translated into growing ill-treatment of immigrants. What we have been witnessing since then is a systematic closing of the border. Passage will become ever more difficult, though there will continue to be a small group of migrants willing to risk their lives to get into the US.

This process is one of the greatest threats to Mexico's national security, which could have a considerable impact on the welfare of the Mexicans. What is happening on Mexico's northern border is 'a clash of paradigms' between a hyperpower and a country which since the invasion of Iraq has kept its distance from Washington. The end of the Cold War and more recent events such as the 'war on terror' and the invasion of Iraq show that even from the multilateral system it will be difficult to modify US policymaking - which will make matters difficult for President Vicente Fox and anyone hoping to succeed him in 2006.

No Mexican presidential candidate is likely to promote openly a rapprochement with the US, because even if this suits Mexico's interests, it will not attract votes.

Influencing perceptions  
The time will come when domestic pressures in the US, in view of the horrendous treatment of immigrants, will change US policies, seeking to replace the present pattern with one of orderly, legal migration. This, however, will not be anytime soon. Progress on this front will depend considerably on the extent to which Mexico's government and civil society can influence the dominant perceptions and opinions in the US.

Mexico is well equipped to do this, not only because of the large numbers of Mexicans and Mexican-Americans living in the US, but because of its proximity; the very fact of being neighbours in a close relationship.

There will, eventually, be an agreement between the two countries on migration, but not as comprehensive as Mexico would like: there will be attempts to legalise the situation of some groups of immigrants, but not all 7m of them.

Mexico's supreme court has ruled that forced 'disappearances', inasmuch as they entail abductions, are to be considered 'continuing' crimes which do not benefit from the statute of limitations. This aligns Mexico with the criterion adopted by Chile and Argentina in order to prosecute human rights offences otherwise barred by either amnesty laws or statutes of limitations.

The ruling technically referred to one specific case: the abduction in 1975 of Jesús Piedra Ibarra, son of former presidential candidate Rosario Ibarra (WR-03-40). However, the special prosecutor for 'social and political movements of the past', after promptly issuing eight arrest warrants for suspects in the Ibarra case, said that it would set a key precedent and become 'the engine [to establish] a democratic rule of law' inasmuch as it would afford justice to the victims of Mexico's 'dirty war'.

GROWTH OUTLOOK | Third quarter below expectations. Mexico's GDP is likely to grow by only 0.7% in the third quarter, according to the finance ministry, much less than what financial analysts were predicting last month. This will leave the accumulated growth rate at 1%, down from 1.2% in the first half of the year. The driving forces in QIII, says the ministry, will be oil export earnings and domestic retail sales. Ceesp, the private-sector thinktank, has said it expects a 'poor' performance in the third quarter, and a growth rate of 3.24% next year (as against the government's prediction of 3.5%).

EMPLOYMENT | Official optimism on job creation. Labour minister Carlos Abascal predicts that the open unemployment rate will be below 4% by the end of the year. The trend is already heading downwards: from the peak of 3.96% in August it fell to 3.87% in September. Abascal said the social security institute, IMSS, had recorded 110,000 new jobs by end-October. This clashes with Ceesp's prediction that only about 87,000 new jobs would be created this year.

Ceesp reckons that next year some 358,000 new jobs might be created, but notes that this falls far short of the requirement on 1m a year. Since the Fox administration took office two-and-a-half years ago, the IMSS had registered the loss of 570,000 jobs.

TOURISM | Record earnings expected. Tourism minister Rodolfo Elizondo reports that tourism revenues in the first nine months of the year reached US$7.04bn, or 7.1% more than in the same period last year. On the strength of this, he is predicting for the year as a whole a record US$9bn-plus.

Mexico's tourism balance in January-September showed a surplus of US$2.46bn, or 17.2% more than last year. Elizondo expects this to rise beyond US$3bn by year-end. The number of tourist arrivals to end- September was actually 6.6% down on last year, to 13.6m - but this year's visitors have been spending considerably more.

INVESTMENT | Downturn in spending on machinery. Gross fixed investment in Mexico in the first eight months of the year was down 1.3% on the same period last year (though the decline was decelerating in August). The eight-month result reflects a 5.3% decline in spending on machinery, offset by a 3.3%increase in construction. Gross fixed investment shrank by 1.3% in 2002.

More US pressure, this time from Colin Powell, appears to have succeeded in shifting policy on the destruction of SAMs.

US Secretary of State Colin Powell last week became the latest high-ranking official sent by Washington to press Nicaragua into destroying its arsenal of surface-to-air missiles (SAMs) - and there are signs that the pressure is working, even though resistance has spread from the army and the political opposition to the Catholic hierarchy.

More than Powell's own statements, which reiterated the arguments put forward by his predecessors, it was the local developments that suggested a weakening of the position maintained so far by President Enrique Bolaños, namely that there should be a quid-pro-quo in the form of a Honduran reduction of its airforce.

Nicaragua had formally proposed in the subregional summit held in March that Central America should seek a 'reasonable balance' of military forces; this was accepted in principle as a target, and the presidents charged the Central American security commission with starting to work towards that end. At its meeting last month in El Salvador, the commission took one step forward, agreeing that all countries should submit within the coming three months an inventory of their arsenals.

Separately, Nicaragua had already opened its arsenals to US inspection. The Nicaraguan military admit to holding 2,100 missiles supplied by the former Soviet Union - mostly SAM-7s, but also including some SAM-9s and SAM-11s.

The US argument is that the missiles could fall into the hands of terrorists; the specific demand that Nicaragua should destroy them also fits in with the strategy the US has designed for the subregion, which is based on scaling down all conventional defence establishments.

Army & Church  
Nicaragua's army chief, General José Carrión, has often stated publicly that the SAMs are defensive weapons, and that Nicaragua needs them because it lacks an airforce comparable to that of Honduras. This argument has been echoed by the Sandinista opposition, and was taken up just before Powell's arrival by the primate of the Catholic church in Nicaragua, Cardinal Archbishop Miguel Obando y Bravo.

The cardinal said, 'I'm not an expert in weapons, but people who understand about these matters have told me that the SAM-7s are defensive.' Destroying them, he added, would leave Nicaragua defenceless.

Risk of theft or diversion  
General Carrión has also insisted that the missiles are stored in high-security installations, and that so far none have been reported missing. The counter-argument used by the US is that more than 3,000 assault rifles and 3m rounds of ammunition from Nicaragua's arsenals ended up in the hands of Colombian paramilitaries in what had appeared to be a legitimate sale to a foreign government.

In the wake of Powell's visit, the Managua newspaper La Prensa, citing an unnamed government source, reported that representatives of the Colombian Farc guerrillas had visited Nicaragua over the past few years in attempts to buy SAMs. The report claims that the Farc had offered to pay US$1m apiece, when the actual price is US$50,000. Almost seamlessly, presidential spokesman Joel Gutiérrez followed up with a statement that the government did not want to see someone unable to resist a US$1m bribe to hand over a missile.

'No use for defence'  
Powell's visit also marked a shift in the attitude of Nicaraguan officialdom towards the defensive nature of the SAMs. After his meeting with Bolaños, the Nicaraguan president stated that he did not believe the missiles added anything to Nicaragua's security and, because their maintenance was costly, he expected them to be destroyed in the near future.

It was left to Joel Gutiérrez to join the dots. The missiles, he said, are of no use against Honduran F-5s, because they are too slow. They are of use against helicopters - but in the hands of terrorists they can be used against commercial airliners, particularly during takeoff or landing.

Sidestepping the assembly  
Sandinista leader Daniel Ortega provided the opportunity for another aspect of the policy shift to emerge. After Powell's departure, Ortega had said that the national assembly would have the last word on the missiles. Presidential spokesman Gutiérrez promptly replied that this claim had 'no grounding in law': the President, as commander-in-chief, has the power to order the missiles destroyed without any need to obtain permission from the assembly. In the past, he pointed out, this had happened with the destruction of anti-personnel mines.

Formally, the Bolaños administration is still to seek a 'reasonable balance' of military forces in Central America. We have picked up, however, indications that Bolaños might order the destruction of part of the missile arsenal in order to assuage Washington.

The 13th Ibero-American Summit, held last week in the Bolivian city of Santa Cruz, was meant to be mainly about social exclusion. It issued a lofty declaration on the subject. Its host, Bolivian President Carlos Mesa, made a stronger point by taking a break from the summit and attending the Alternative Social Encounter being held in the same city, which brought together representatives of the indigenous movements of a dozen countries in the hemisphere - the epitome of the excluded the summitteers were discussing.

The alternative encounter traces its origins back to the World Social Forum, organised in 2001 at the behest, among others, of Lula da Silva, as a counterpoint to the World Economic Forum held annually at Davos. Lula was not present this time.

The Santa Cruz encounter served as a platform for indigenous leaders to address the visiting heads of government. Carlos Eduardo Medina, a traditional healer from the Bolivian region of Chiquitania, urged them to abandon the negotiations on the FTAA. Marcos Matí­as Alonso, from Mexico, invited the summitteers to include in their declaration the demands of the indigenous peoples. The Aymara leader Antonio Machaca said the Indians expected nothing from the summit - instead, he said, Latin America's indigenous movements are coming together as a single force' to demand their rights.

Statements like Machaca's have already given rise to talk about the ascent of `indigenous fundamentalism'. The notion seems to have been coined by the Miami-based commentator Andrés Oppenheimer, who recently wrote that `Bush administration officials' believe that `radical leftist groups have effectively infiltrated Latin American indigenous groups and, in some cases, taken over their leadership.'

To this he added a twist: `In addition to Cuban President Fidel Castro, Venezuela's populist leader Hugo Chávez and politicians in several other countries are taking advantage of Latin American Indians' legitimate grievances to justify a shift to xenophobic, totalitarian regimes.' And the Indians, he notes, quoting Cuban exile Carlos Alberto Montaner, `make up only 5% of Latin America's population'.

Battle has already been joined. In response to Oppenheimer, Carlos Arcos Cabrera wrote in the Quito newspaper Hoy about the prevalence of `anti- Indian fundamentalism'. `If democracy has allowed the emergence of powerful indigenous movements,' he said, `what should we do? Limit democratic participation, promote dictatorships, or eliminate Indians?'

Four aspirants agree with him on a date for the ruling party's nominating convention, and accept his rules.

President Hipólito Mejí­a has scored his first victory of sorts within his own party: last week he got three of the four presidential hopefuls of the antireelection camp to agree with him the details of the nomination process. The result: the ruling PRD will hold a convention no later than 15 December. The three were tourism minister Rafael Suberví­ (the first to have broken away from the pack), Vice-President Milagros Ortiz Bosch, and party notable Enmanuel Esquea. The other four anti-reelectionists said they would only join in if Mejí­a agreed that all anti-reelection votes could be added to those of the most voted candidate in that camp. They are clearly aware that the anti-reelection camp's inability to agree on a single candidate, none of them is likely to attract the requisite 50%-plus-one needed to win the nomination - which is precisely what Mejí­a is banking on. In the mean time, another opinion poll has confirmed the leading position of the opposition PLD candidate, Leonel Fernández, with 58% of voter preferences; more than enough for a first-round victory.

As this issue is being put to bed, Dominicans will be discovering if the Coordinadora de Organizaciones Populares (an umbrella body representing about 60 social and civic organisations) has succeeded in mustering mass support for a 24-hour general strike to protest the government's economic policies. The main targets of the protest are the impact of inflation on basic goods and fuels, and the frequent power blackouts, which have become particularly intense in the north of the country.

The government has been trying by all means to dissuade people from joining. Labour minister Milton Ray Guevara has warned that the strike could trigger 'an explosion of violence.' Playing on the same fear, President Hipólito Mejí­a held on Friday a high-profile meeting with armed forces minister José Miguel Soto and police chief Pedro Franco Badí­a to discuss the 'strategy' to adopt. While admitting that 'you can't force people not to protest', Mejí­a suggested that the government might 'lock up [the strike organisers] so they can rest over the weekend.' Actually, the police had already arrested a number of them, in Santo Domingo, the southwestern province of Azúa and the northern one of Duarte.

DOMINICAN REPUBLIC | IMF to resume talks. An IMF mission is expected back in Santo Domingo this week to resume discussions on the first review of the standby agreement with the Dominican Republic. These talks were interrupted a month ago following the Mejí­a government's decision to purchase the two power distribution companies. IMF chief spokesman Thomas Dawson has said that the independent expert panel looking into this purchase 'is making good progress and its final report is expected by the middle of this month.'

DOMINICAN REPUBLIC | Upturn in tourism nears record level. Tourist arrivals in the first 10 months of the year reached 2.7m, or 21.6% more than in the comparable period of last year. This compares with increases of 14% and 7%, respectively, in Cuba and Mexico's Caribbean coast resorts. It is now expected that arrivals for the year as a whole will exceed 3m, and that earnings will be well above US$3bn.

PANAMA | Growth forecast upgraded. Following evidence of an upturn in July-August, Panama's growth forecast for this year has been upgraded to between 3% and 3.4%, economy & finance minister Norberto Delgado reports. In the second quarter of the year (the latest for which full figures are available), GDP was up by 2.4%.

PANAMA | Power link with Colombia. Plans to link up the Panamanian and Colombian electricity systems will begin this December with the launch of a hydroelectric project in the north of Darién province, next to the Kuna Yala indigenous district. An as-yet unidentified construction company from Medellí­n will build the plant.

CUBA | Imminent 'greying' poses challenge. The SABE project on health, welfare and ageing in the Americas predicts that by 2010 the proportion of over-60s in the Cuban population, currently 14%, will have reached 18% - overtaking the number of children for the first time. The official newspaper Granma underlines that this poses a formidable set of challenges in the areas of social security, employment and healthcare provision.

The lower chamber of Paraguay's congress has begun to hear the impeachment charges against four members of the supreme court (two of the six originally indicted chose to resign). The proceedings have already been tarnished by the claim that a bribe had been offered to vote against the impeachment of two of the four, Carlos Fernández Gadea and Felipe Santiago Paredes. Congressman Julio Colmán, of the ruling Colorado party, has accused fellow legislator Gustavo Mussi, of the Partido Uni ¢n Nacional de Ciudadanos Eticos (Punace, the party led from exile by former General Lino Oviedo) of offering him US$5,000 to swing his vote.

A commission of inquiry has been set up, which could end up recommending Mussi's impeachment and maybe even prosecution on criminal charges.

Major review meeting fuels speculation about a reshuffle to accommodate the PMDB and jettison `liabilities'.

Brasí­lia is abuzz with speculation about which ministers will lose their jobs in a cabinet reshuffle that many expect, but which government officials keep saying will not take place, at least not just yet. What has been confirmed is that President Lula da Silva has scheduled a meeting with representatives of all allied parties on 18 November, ostensibly `to review the achievements of the executive in 2003 and sketch out the guidelines for 2004.'

Needless to say, this has only heightened speculation that a reshuffle is imminent. There is certainly pressure enough on Lula to make changes, chiefly from the Partido do Movimento Democrático Brasileiro (PMDB), which has been openly hinting that the time has come to be rewarded with some cabinet posts for the support it has provided the government in congressional votes on its reform proposals. The PMDB is an important ally, as it has the largest bloc in the senate and the second-largest in the chamber of deputies. Word has been circulating that the PMDB would be satisfied with ministries like telecommunications (now held by Miro Teixeira), transport (Anderson Adauto) and education (Cristóvam Buarque). The latter has been mentioned by several commentators as a candidate for the chop after his outspoken criticism of the executive for skimping on funds for his portfolio.

Cited as also likely to be replaced, but from within the ruling PT's array of original partners, are José Graziano (food security and anti-hunger scheme), Benedita da Silva (social security), Olí­vio Dutra (cities), and Roberto Amaral (science & technology).

The opposition is having a field day with all this speculation and the announced review of government performance. Their stance is illustrated by senator Jorge Bornhausen of the Partido da Frente Liberal (PFL), who last week said, `To start thinking about renewing the cabinet before the end of the first year in office only proves the President's lack of confidence in his ministers.' Bornhausen, however, seems to want it both ways: Lula, he says, should carry out the changes 'as soon as possible' so as to minimise the `image problems' some of his ministers have been causing. From within Lula's own circle the message being put out is that no decisions have yet been made on ministerial replacements, and in any case, no changes would be made before January.

Beyond the Inspector Clouseau jokes, the reasons for a break-in by Chilean intelligence remain unexplained.

On 9 November José Andrés Basbus, Argentine vice-consul in the far southern Chilean city of Punta Arenas, had a nasty shock when he opened up the consulate so that any Argentine residents from the province of Chubut could take part in the elections taking place that Sunday back home. He found clear signs that he had disturbed intruders, who had left behind their car keys, two jackets, a camera, photocopies of confidential consular papers, and a briefcase. Among the contents of the latter was one item that proved this had not been an ordinary break-in: the identity card of a Chilean army NCO, Luis Alberto Robles Ricus.

Intelligence operation  
It soon transpired that Robles had been a member of a team from Special Joint Intelligence Detachment No 2, an interservice unit that reports to the defence ministry via the local regional command. The other intruder was an airforce corporal. Heading the team was a major, Rodrigo Acuña Délano, who waited outside. Acuña rushed to inform his superior, Lieutenant- Colonel Ví­ctor Hugo Poza Reyes, who in turn rushed to tell the regional commander, General Waldo Zauritz. Zauritz tendered his resignation, but insisted that he had not authorised the break-in.

By the time Zauritz reported to defence minister Michelle Bachelet, though, Basbus had informed the Argentine foreign ministry. Argentine President Néstor Kirchner immediately decided to make the incident public, but left it up to the Chileans to admit that the break-in had been a bungled, and unauthorised, intelligence operation. President Ricardo Lagos ordered the punishment of all officers directly involved, and accepted General Zauritz's resignation. Though the Chilean media played up the incident as `the worst since 1978' - the year Chile and Argentina almost went to war - the two governments decided to let matters lie there.

Search for motives  
There was much banter on both sides of the Andes about the `Inspector Clouseau' flavour of the episode in its immediate aftermath, but little information about the reasons for the incursion. One explanation that has gained considerable currency in Chilean military circles is that the purpose of the break-in was to obtain evidence that vice-consul Basbus was involved in spying, running a local network of information to collect strategic information, particularly about the secret berths of Chile's missile-equipped launches. A variant favoured in the higher echelons is that it was a rogue operation devised by Major Acuña or Colonel Poza, gambling that success would earn them kudos.

The weak point in this scenario is that Basbus's background is as a junior career diplomatic, and that Punta Arenas was, starting in late 2001, his first posting abroad, with the rank of consul third class. None the less, Argentina's ambassador in Santiago, Carlos Abihaggle, left open the door to the possibility that there might be some substance to the theory. `If any Argentine has misbehaved,' he told the press, `he too will have to pay, as has happened with some Chilean military officials.'

The Basbus-as-spy theory is not the only one circulating. There are at least two others, both of a more conspiratorial nature. Both consider that the intelligence unit was `set up' - in one case to embarrass defence minister Bachelet,in the other to provoke an incident between Argentina and Chile. One Chilean newspaper suggested that the thing to do was watch Argentina's reaction in the security arena in its southernmost reaches, keeping in mind that Kirchner, as former governor of the province just up the Magellan Straits from Punta Arenas, is particularly sensitive to developments there.

The ultimate irony in this affair is that the only chubutense resident of Punta Arenas decided not to vote, so vice-consul Basbus need not have bothered to turn up on the fateful Sunday.

Two more ministers go, plus the commander of military forces and the chief of the national police, in an apparently unplanned debacle.

The sudden departure of interior & justice minister Fernando Londoño (WR-03-44) was just the beginning. Within less than a week, one after another, the Uribe administration lost two more ministers, the top military commander, the chief of the national police and the head of the international cooperation agency. Spin doctors within the administration and friends from outside have been working hard to dispel the impression that this is a crisis - while conceding that President Alvaro Uribe could have given a better impression of being in control of the situation if he had followed the usual pattern of announcing all changes at once.

Reacting to the unforeseen?  
As events unfolded, Uribe seemed to be reacting to unforeseen upsets. In Londoño's case, it was the minister's statement that Uribe had contemplated calling early elections. In that of defence minister Marta Lucí­a Ramí­rez, the immediate trigger of her sudden resignation on 9 November is unknown, and the surprise was all the greater give the degree of confidence she seemed to enjoy from the President, and her perceived merits as an efficient administrative reformer and director of policies that led to reductions in the rates of violent crime, kidnappings and terrorist attacks.

What was known is that Ramí­rez had a stormy (or `tense', as officialdom would have it) relationship with General Jorge Mora Rangel, commander of military forces - their most recent spat having been over Ramí­rez's decision to outsource a US$3m catering contract (to provide field rations) that had been traditionally entrusted to an army fund. General Mora briefly took over as acting defence minister, but three days later Uribe decided to accept his application to retire, which had been sitting on a shelf since mid- October.

Ramí­rez's successor, the economist Jorge Alberto Uribe Echeverrí­a, a close friend of the President, has already announced that more changes and retirements would follow in the upper echelons of the military. Last month President Uribe made scathing remarks about the performance of some military units in the field, and advised those officers who were not willing to ensure better results to step aside for others who would.

One scandal too many 
The changes in the national police did have a visible trigger: a report in the newsmagazine Semana exposing the scandalous misuse of secret police funds by high-ranking officers stationed in Medellí­n, on huge restaurant bills, mariachi serenades, jewelry, designer pens and works of art. This led to the dismissal of the chief of the Medell ¡n police, General Leonardo Gallego and four other officers, and the simultaneous resignation of the director of the entire force, General Teodoro Campo.

In his place was appointed General Jorge Daniel Castro, police chief in Bogotá - a deliberate choice, designed to force into retirement a considerable number of top brass (Castro is a `one-star' general, so by tradition all more senior generals must go). This looks very much like a belated shakeup of a force whose prestige had taken a battering as a result of several other scandals, including the `loss' of almost three tonnes of confiscated cocaine that ended up back in the hands of drug traffickers, and the discovery of a ring formed by at least 30 policemen, devoted to stealing and reselling the petrol from official vehicles.

On 11 November, apparently motu proprio, the minister of environment, housing and territorial development, Cecilia Rodrí­guez, resigned irrevocably. Here again no immediate trigger was discernible, but Rodrí­guez had been frequently under media attack for not living up to expectations. She was promptly replaced by Sandra Suárez, hitherto administrator of the USsupported Plan Colombia - whose move does not look too much like a promotion, despite her acquisition of formal cabinet rank.

Talk of a rift between Kirchner and Lavagna follows `clarification' of minister's remarks on utility rates.

President Néstor Kirchner reportedly told Spanish foreign minister Ana Palacio that `even if the King himself were to request it' he would not back down from his purpose to review all contracts with privatised utilities. This was just before he hosted King Juan Carlos - but the point was that the issue is one over which Kirchner is highly sensitive.

For that reason, the word in Argentine political circles last week was that there had been a serious falling-out between Kirchner and economy minister Roberto Lavagna. The latter had told an assemblage of businessmen that he was in favour of allowing some increases in utility rates, frozen since early last year. `In gas and electricity,' he said, `we have some adjustments to make.'

No sooner was this reported in the press than prime minister Aní­bal Fernández was reiterating publicly that utility rates will remain unchanged until all contract reviews have been completed. He also repeated Kirchner's warning that any utility not fulfilling its contractual obligations would have their concessions rescinded. `Beyond all speculation and whatever minister Lavagna may wish,' he said, `we will continue to review the concessions [and] see how to correct them without harming the customers.'

This sounded much like a public rebuke, save for a less noticed remark by Fernández, to the effect that what Lavagna had said was `obvious' - and that he did not want the utilities involved to get the wrong idea.

Kirchner has in the past reacted angrily to signs of dissent on the issue of utility rates. When, back in August, Vice-President Daniel Scioli ventured that there might be rate increases in October, the President responded by removing Scioli's associates from top government positions and freezing out the V-P.

On 7 December, Uruguayans will vote in a referendum on whether to reject or retain a 1991 law that the left has portrayed as a `backdoor privatisation' of Ancap, the state oil, cement and distilling firm. Tabaré Vázquez, the leader of the leftwing Encuentro Progresista-Frente Amplio (EP-FA) and the strongest contender for the presidency, has been insisting for months that the referendum is not a dress rehearsal for next year's elections - but the EP-FA campaign makes it sound as if it is precisely that.

The law the EP-FA wants repealed allows the oil-refining division of Ancap to enter a 30-year joint venture with private enterprise and envisages the lifting of Ancap's monopoly on importing refining and distributing fuels by 2006. Frente Amplio legislators were active in the drafting of that law, though some leaders had an early change of heart. Vázquez only recently shifted into an opposition stance on the joint-venture idea.

The EP-FA has openly portrayed the referendum as a verdict on the Batlle government's economic policies. So far, its message seems to be working. Polls show that the proportion of voters wishing to repeal the law has increased from 36% to 44% since midyear, while those wishing to retain it have remained stuck at 25% - the increase in the former having come from the ranks of the undecided and those who initially declared themselves insufficiently informed.

URUGUAY | Signs of upturn multiply. Perhaps the most encouraging sign of an upturn after four years of recession was the fact that retail sales in the third quarter were running 4.7% higher than a year earlier (even though the figure for the first three quarters remained below that of 2002). Heading the QIII increase were domestic appliances (up 77%), hardware (58%) and hotel services (32%).

This comes after the report that GDP in the second quarter was up 3.3% in the year, compared with 2.2% in QI. Also, 36,100 new jobs were created in QIII, 28,000 of them in Montevideo - though this was not enough to keep up with new entrants to the labour market, so the unemployment rate remained stuck at 16%.

ARGENTINA | Recovery proving harder than expected. About twothirds of Argentina's manufacturing plants are operating below capacity; indeed, the number of firms with a sizable percentage of idle capacity has increased in October, according to the umbrella industrialists' association, UIA. This said, between August and September, 36.8% of the firms surveyed by the UIA reported increased domestic sales, and 26.3%, increased exports. Only 21.1% reported increased profits.

CHILE | Year-end-adjustment coming. A spate of belt-tightening is on its way, after third-quarter figures showed a fiscal imbalance of 0.56% of GDP, which took the accumulated fiscal deficit to US$608m, or 0.87% of GDP. Budget director Mario Marcel has said the government will make a big effort to close the year in the black. Already it will have to achieve a surplus of 0.1% in the last quarter if it is to remain within the official target of a deficit of 0.8% of GDP.

Though Marcel held open the possibility that the adjustment may be achieved through profitable financial operations, it is far more likely that it will have to be sought through spending cuts.

`Road map' includes the possibility of reopening negotiations between government and guerrillas.

After a brief hiccup at the end of October, when the government suddenly decided that the church-mediated deal for the liberation of the Santa Marta hostages (WR-03-42) was `non-viable', peace commissioner Luis Carlos Restrepo announced last week that a `road map' had been agreed with the guerrillas of the Ejército de Liberación Nacional (ELN).

Restrepo did not explain the toing and froing, invoking the `greatest discretion and confidentiality' in which the negotiations have been shrouded. He did, however, reveal a couple of details of the `road map'. One, he said, was `a commitment by the ELN to free all the hostages unilaterally and unconditionally'.

It had been expected that the government would demand the simultaneous release of all hostages, rather than one by one as agreed via the church mediators; the words chosen by Restrepo do not quite say that.

The other detail was that the deal included the possibility of a `reactivation of the negotiation' between the government and the ELN - the scenario we identified three weeks ago as the likeliest explanation for the ELN's uncharacteristic action. Restrepo noted that from the very onset of the hostage crisis, the government set up a `mechanism for dialogue'.

The Church's `facilitating commission' has continued to act as a go-between. Its members speak to guerrilla spokesman Francisco Galón, who is serving a sentence in the maximum-security Itagui prison, who has been allowed a radiotelephone link with Antonio Garc ¡a, a member of the ELN's central command.

The `transparency commission' has looked into the Galápagos arsenal affair, a diverted sale of missiles and the rocket used by the Farc.

Ecuadoreans are about to hear the official truth about the theft of military weapons and ammunition (WR-03-34,35). The independent `transparency commission' set up by the government in September to investigate the matter is about to release the first of two reports it has been preparing. The chairman of the commission, retired Admiral Raúl Jaramillo del Castillo (a former manager of the state oil company Cepe), without getting into the actual findings, has been preparing the public for the revelations.

The scope of the inquiry has been quite comprehensive. It includes at least two incidents which can provoke military ire with their mere mention: a mysterious explosion at the arsenal of the Galápagos brigade (which some have suggested was intended to cover up the theft of materiel) and the diverted sale of 660 missiles. It also delves into the charge made by Colombian President Alvaro Uribe that a missile used in a failed attempt on the life of a Colombian businessman had been sold to the Farc guerrillas by corrupt members of the Ecuadorean military. All of this will go into the first report; the second one will be a detailed analysis of the three armed services' stocks of weaponry.

Admiral Jaramillo is keen to underline that the report will not be a whitewash. He says that irregularities have been detected: `There are important novelties; grave omissions in contracts for military armament, in contractual processes; operational and administrative errors.' He is equally keen to let it be known that these do not add up to the portrayal of Ecuador as one of the main sources of weapons supplies for the Colombian guerrillas.

The commission will be recommending that the government invite a UN mission to visit Ecuador's border with Colombia. `Because of a strategy which is quite understandable,' he says, Colombia abandoned the border and conducts no rigorous control of the traffic in arms, munitions or precursor chemicals. Ecuador has deployed 7,000 men at an enormous cost. We are doing the job that is the primary responsibility of the country receiving the contraband.'

The Colombian rocket 
After much dialogue between presidents Uribe and Lucio Gutiérrez, and visits of top-ranking Ecuadorean military to Peru, the substance of Uribe's charges about the Ecuadorean provenance of Farc missiles has not been dealt with. Uribe's office issued a communiqué expressing the Colombian president's regret that his statements might have been taken as a slight on the Ecuadorean military, but carefully avoiding any retraction of the accusation. [The chief of Ecuadorean army intelligence, who went to Colombia to investigate Uribe's claim, said he was only shown inconclusive pictures as evidence, but was not given access to the remains of the missile itself. The Ecuadorean army had previously said that, in any case, the type of missile used would have had no identifying markings.]

On 11 November the commander of the Ecuadorean army, General Luis Aguas, announced that he had received a report `ratifying that the rocket used in the attack on Colombian cattle rancher Jorge Visbal did not belong to our country, thereby refuting the accusation made by President Alvaro Uribe'. Two days later, however, the Colombian newspaper El Tiempo said it had seen a Colombian intelligence report saying the exact opposite - that the rocket had come from Ecuador's arsenal.

Leaders of the three biggest parties reveal which reforms they consider necessary and what they should entail.

The proclaimed need for `reforms' dominates much of the political and economic discourse in Mexico. What is not always clear is which reforms are being advocated by whom. The financial press and market analysts tend to speak as if only two reforms mattered: those of taxation and the regime governing investment in the electricity system. Politicians appear to reduce this to what rate of value-added tax (IVA) and which exemptions are acceptable, and the extent to which private investment in the power sector should be allowed.

Last week provided a rare and revealing opportunity to see the presidents of Mexico's three biggest parties sharing a platform and expounding on the `reforms' they consider necessary. Roberto Madrazo of the Partido Revolucionario Institucional (PRI), Felipe Bravo Mena of the ruling Partido Acción Nacional (PAN) and Leonel Godoy of the leftist Partido de la Revolución Democrática (PRD) were hosted by the Mexican association of advertising agencies. What follows is a brief summary of what each had to say about the reforms they favoured and what they should entail:

Fiscal
Bravo Mena (PAN): Needed to give the state financial viability to promote development. In favour of lowering the income tax rate but only if the IVA is extended to all activities at a single rate of 10%. 
Madrazo (PRI): The aim should not merely be to increase revenues but to allocate them more efficiently (not as with the 2001 reforms which were used mainly to finance current spending). The income tax rate should be lowered to encourage investment and employment. Didn't suggest any ideal IVA rate, or allowable exemptions. Godoy (PRD): In favour of lowering the income tax rate to encourage investment and employment. Steered clear of the IVA.

Energy  
Bravo Mena (PAN): Needed because the constitutional model of state monopoly is exhausted and contains aberrations, like barring Mexicans from investing in their own country when they are free to cross the border and do so in the US. There is already private investment in the sector, and it needs clear rules. 
Madrazo (PRI): Needed to provide juridical security to investors in the electricity sector. Rates should be made more competitive and fairer for families.

Labour  
Bravo Mena (PAN): Needed to achieve a substantial increase in productivity. 
Godoy (PRD): Must include not only what businessmen want, but also the democratisation of unions and accountability in the use of their funds.

Political  
Godoy (PRD): Should include electoral reform, the autonomy of the judiciary and professionalisation of the administration. But all three parties say reforms should lead to a new, less presidentialist regime.