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The imbalances in the US economy finally look as they will force changes in economic policymaking. The dollar's sudden downward lurch in Thanksgiving Week looks like the start of a period of dollar weakness. This will be bad news for Mexico, which has benefited from the steady US boom over the past three years. The alarming weakness in the US house-building industry may point towards a slump in residential property prices which will, almost inevitably, prompt US consumers to rein in their personal consumption. As the US savings rate is already negative it is hard to see commercial banks extending more credit to keep the US boom going, even though US interest rates are still low in real terms. As US consumption falters, Mexican exports to the US will wilt, and the next government will have to look to the domestic economy for growth.

The Banco de México is signalling that it does not want to raise interest rates but there are unmistakeable signs of bubbling inflation in Mexico. The headline inflation figure for November is likely to be poor: cold weather in the second half of November will, almost certainly, push up inflation. In the first half of November inflation was 0.5%, slightly down on the 0.7% rate in the same period of 2005. Even so, the economy is back on course for 1% monthly inflation, the rate in September, after the monthly rate had fallen back to 0.4% in October. 

Since President Vicente Fox took office in December 2000, there have been only two months of 1% plus inflation; December 2000 and September 2006. What concerned some analysts was that the September inflation figure was the highest for any September since 1998.

The central bank is taking an optimistic view. It held its reference rate at 7% and the corto at M$79m on 24 November. The annual rate of inflation to mid-November was 4%, down slightly for the 4.3% rate at the end of October, but this was more a product of what had happened 12 months ago than what is happening now. 

Manuel Ramos Francia, the research director (chief economist) at the central bank, argues that the pick up in inflation is transitory and that there is no need for the central bank to jam on the brakes. This is because the underlying inflation index is performing in line with the central bank's targets, even if the headline rate looks worrying.

The underlying index strips out volatile prices, such as fresh foods. Tomatoes, in Mexico, have a heavy weighting in the inflation index but can double or halve in price over a week depending on the supply situation. The Banco de México points out that the jump in September's headline inflation rate (to 1.01% in the month) was largely because of the rise in tomato prices: they accounted for a third of the increase in the overall index. 

Cold or stormy weather causes shortages and pushes up prices. Indeed, in the third week of November the cold weather prompted onion, tomato and pumpkin prices to double in a week. Wholesalers said that the prolonged cold snap would keep prices high until at least the beginning of December. The effect of the cold snap has been compounded by the federal government's decision to push through a 3% increase in diesel prices in mid-November. The central bank argues that monetary policy should not be determined by the weather. So although the headline inflation rate is over 4%, the underlying rate is still under 3.5%, which is close to its target. Even so the October underlying rate is the highest since April. 

The central bank is confident that inflation is under control. The central bank expects a headline rate of 4% for 2006 and 3.5% in 2007. The central bank expects the underlying rate to hold at around 3.5% this year and to fall to 3% in 2007. 

The main reason for the rise in inflation in the first half of November was an increase in electricity, onions, cooking gas and air ticket prices. The central bank said that the rises were offset by falls in the prices of some staple foods. Among the prices that fell were avocados; tomatoes; water melons; oranges; sugar and potato. The prices of a lot of these products are likely to rise because of the cold snap in November. If the central bank has to push up interest rates to bring inflation back under control it will affect domestic consumption. Banks in Mexico had been hoping that both real and nominal rates of interest would fall in 2007, encouraging more Mexicans to borrow and so boost consumption. 

Real interest rates, which are currently around 3% a year, may fall by half a point or so if inflation overshoots. The Banco de México, though, has developed a reputation as something of an inflation hawk. It is more likely that it will push up nominal interest rates even if headline inflation stays around current levels to the end of this year, despite what its officials say.

One of the reasons why bank credit is, in GDP terms, comparatively low in Mexico is because banks charge so much for it. Not only are real interest rates high, but banks also charge customers heavy fees for providing credit. The central bank has criticised this. Arguably this situation is a legacy of the 1995 economic crisis when borrowers simply walked away from their obligations and the banks found that they could not seize the collateral they thought they had.

As a result of the banking crisis, bank credit fell from 40.9% of GDP at the end of 1994 to just 6.9% at the end of 2002. Over this period, bank lending to the private sector fell by 78% in real terms. What banks did was buy government debt, and with the decline in interest rates, they made good money from doing so. The only real reform achieved by the government of President Vicente Fox involved a partial, but long overdue, overhaul of the laws covering banks and borrowing. The big problem, still, is that neither banks nor borrowers are sure about the legal framework. Although bank lending has picked up from the 2002 low, it is still feeble in global terms. In the third quarter of 2006 bank credit was still only 11% of GDP. At this pace it will take a couple of generations before bank lending is back to the level it reached before the crisis. 

Growth: The outgoing government of President Vicente Fox is forecasting that growth in 2006 will be at least 4.5% and could be as high as 4.9%. This will be, comfortably, the fastest growth of Fox's term. In the third quarter year-on-year growth was 4.6% bringing the rate for the first nine months of the year to 4.9%. In 2005, growth was 3%.

Foreign direct investment: Foreign direct investment (FDI) in the first nine months of 2006 came to US$14.1bn. This is 10% up on the same period of 2005.

Over the six-year term of President Vicente Fox, FDI has totalled US$117.45bn. This is 63% more than the country received under President Ernesto Zedillo (1994 to 2000). 

Sugar strike: The start of the sugar harvest was delayed by a strike at the country's 58 sugar mills. Workers at the mills went on strike on 16 November for a 15% pay rise and better pensions. The strike was well supported by the 48,000 people who work at the mills and produce 5m t of sugar a year.

The agriculture minister, Francisco Mayorga, warned on 22 November that if the strike went on for much longer sugar supplies to the domestic market could be affected and prices would rise. The government has already authorised sugar imports of 267,000t this year in order to avoid shortages. 

Competitiveness 

The new government may try to do something to boost Mexico's productivity. The easiest way to do this to take on some of the quasi monopolies such as telecoms, electricity and education. 

Arguably, education is the biggest problem for the economy. Mexican schools are dominated by the powerful teachers' union, the SNTE, which is the fief of the ambitious politician, Elba Esther Gordillo. President-elect Felipe Calderón Hinojosa's decision to appoint the woman who won him the presidential election, Josefina Vázquez Mota, as his education minister, suggests that he may be preparing to take on the SNTE. 

It is worth noting that almost simultaneous with Vázquez's appointment was the revelation that the education ministry was directly paying the wages of SNTE officials. This is a sign of the SNTE's power: in most other OECD countries, union officials are paid from dues collected from union members.

The Banco de México is conscious that the only way that inflation in Mexico can remain low is if there is competition across the economy. Increased competition will also, almost certainly, boost competitiveness. 

The current account

The country ran a current account deficit of US$1.13bn in the third quarter of 2006. This is 74% higher than in the third quarter of 2005. There was a trade deficit of US$2.45bn; a non-factor services' deficit (cause mostly by a deficit in tourism of US$2.03bn and a factor service's deficit (mostly interest and dividend payments) of US$2.76bn. 

These deficits were counterbalanced by a surplus of US$6.1bn in the transfers' account. This is caused mostly by remittance payments from expatriates. Remittance payments, at US$6bn were up 11% on the third quarter of 2005. This brought remittances for the first nine months up to US$17.4bn, 19% up on the same period of 2005.

The central bank said that the rise in the current account deficit was mainly down to the increase in domestic demand which caused the trade deficit. By category, imports were up 17% in intermediate goods (ie inputs for goods that will be re-exported) and 24% in consumer goods and 16% in capital goods. 

The central bank noted that remittance income was now greater than (net) oil export revenues and the inflow of foreign direct investment.

In the third quarter, exports of goods came to US$63.3bn, 17% up on the third quarter of 2005. Imports at US$65.8 were 18% on the same period of 2005.

The main reason for the increase in exports in 2006 was a surge in vehicle exports. Slightly worryingly for policymakers, the increase in vehicle exports tailed off over the third quarter.

On the capital account the country ran a deficit of US$10.85bn in the third quarter which brought the deficit for the first nine months of the year to US$1.49bn. 

The deficit in the capital account was covered by a drawdown of central bank reserves: these fell by US$11.4bn, as the central bank paid off US$12.45bn of foreign public sector debt early.

This brought central bank reserves to US$67.3bn at the end of the third quarter.

Bomb: A fake bomb was discovered on the Puerta a las Américas, one of the four international bridges which link the Laredos of Texas, US, and Tamaulipas, Mexico, on 24 January. Although the suspicious package did not turn out to be a bomb, the speedy reaction of the authorities on both sides of the border shows how alert they are to the possibility of Mexican gangs attacking economic targets.

Mexican gangs, which the government has been fighting with only limited success since December 2006, have mostly focused on attacking police or military targets. In 2008 they began to dabble in terrorism, first attacking a tourist train in Chihuahua and then throwing grenades at an Independence Eve celebration in Michoacán.

A successful bomb attack on the bridge between the two Laredos would have major economic repercussions and would jerk Mexico closer to the top of the list of foreign policy issues for the new US president, Barack Obama.

In the event, the bridge was closed for a couple of hours on the morning of 24 January while a robot, summoned from San Antonio, Texas, removed the suspicious package and destroyed it in a controlled explosion.

TV: The legal battle between Televisa, the biggest Mexican TVcompany, and Univisión, the biggest Spanish language broadcaster in the US, ended on 22 January. The stockmarket's view is that Televisa did better out of the deal which ended court action in Los Angeles: its shares rose 7%. Univisión is no longer quoted on the stockmarket after being taken private in a US$12.7bn buyout in 2007.

Televisa went to court on 6 January to get US$100m in royalties it said it was owed by Univisión. Televisa claimed that the settlement was worth US$600m in its favour. Univisión has apparently agreed to share some of its advertising revenues with Televisa (and beyond those revenues attracted by Televisa productions).

The terms of the deal are confidential, but it is clear that Univisión has agreed to a significantly increased royalty for broadcasting the hugely popular telenovelas (soap operas) produced by Televisa.

The deal also suggests that Televisa will not try to challenge Univisión's domination of Spanish language broadcasting in the US. The Spanish-language broadcast market in the US is growing fast and is a lucrative new advertising market. The new deal will last until 2017. The original deal between Televisa and Univisión started in 1992.

• ICJ rules against Texas
  The International Court of Justice (ICJ) ruled on 19 January that Texas had broken a provisional ICJ ruling by executing a Mexican, José Ernesto Medellí­n, in August 2008. The ICJ ruling did not, however, accept Mexico's argument that the ICJ should instruct the US on how to comply with a previous 2004 ruling by the Hague court.
  

One of the surprises in Mexico's recent GDP data is the pick-up in the domestic market. On 28 March the national statistics agency, Inegi, reported that in January the flash indicator, Indicador Global de la Actividad Económica (Igae), a proxy for real GDP growth, was 5.8% higher than in January 2010. This was the fastest rate of growth since 2000.
 
The primary sector, agriculture and ranching in particular are doing well: rising 6.6%. Mining (which includes the oil industry) also had a good January, along with construction and manufacturing: overall these secondary sectors were also up 6.6%. The lagging sector was services, which was up 5.1% year-on-year. Month-on-month, January was also strong, since output was up 1.16% on December 2010.

Officially, domestic demand grew 5% in 2010. This suggests that for 2011 the government's optimistic GDP growth forecast of 4% plus looks feasible. Indeed the finance minister, Ernesto Cordero, has forecast that that the economy could grow 5.5% in 2011.

Economic confidence is definitely picking up. In the first three months of 2011 it jumped three percentage points. Between February 2010 and February 2011 the jump was 14 points. One sign of this reviving domestic confidence is the 10% increase in domestic vehicle sales this year, compared with the first two months of 2010. As banks' car loans appear to be falling, domestic buyers seem to be using cash.

Although vehicle exports were up by more (20%) in the same period, the revival in domestic demand suggests that consumers are indeed more confident. It is worth noting, however, that domestic vehicle sales for the first two months of 2011 were still 26% down on the same period of 2008, the last year before the US subprime crisis hit.

In the first two months of 2011, the Mexican car industry sold 135, 756 vehicles in the domestic market, while exports came to 320, 854. It is worth noting that overall vehicle production in the first two months of 2011 is now ahead of pre-crisis levels.

One of the fastest growing sectors now is construction. In the final quarter of 2010, it recorded year-on-year growth of 4.3%. That was by far the best performance for the year. In the third quarter, year-on-year growth had been just 0.9%, while in the first two quarters of 2010 the industry had contracted, even when compared with 2009, when it was falling at near double digits rate.

If the economy continues to do well, Cordero, who is probably still the only realistic government candidate for the ruling Partido Acción Nacional (PAN)'s presidential nomination in 2012, could see his chances reviving. Political commentators had thought that he was out of running when President Calderón suggested to the PAN that it should pick the best candidate for 2012, even if that person were not a member of the party. This statement was taken, by political commentators, to be an endorsement of Ramón de la Fuente, a former dean of the Universidad Nacional Autónoma de México (UNAM).

Although the economy is producing decent recovery statistics and grew 5.5% in 2010, everyone (the government, local economists and multilaterals) had been assuming that the rate of growth would slowdown in 2011. This is because of the structural weaknesses of the economy, which despite the rhetoric, have not been tackled by the PAN governments that have held office since 2000.

The most damming statistic, which the opposition parties are likely to brandish in the 2012 election campaign, is that real GDP growth between 2000 and 2010 was only 1.6% a year. When the real rate of GDP growth is adjusted for population growth, the rise in GDP per capita comes out as a barely discernible 0.2% a year. In the so-called 'Lost Decade' of the 1990s, real GDP growth was 2.5% a year, which translated into per capita GDP growth of 0.9%.

A fair-minded economic commentator, Enrique Quintana, recently dug out the comparable stats for Mexico City, which was ruled, between 2000 and 2006 by a radical left-winger, Andrés Manuel López Obrador.  In those six years, the Distrito Federal's GDP grew by 0.8% on average, well below the national average for these six years of 2.3%. 

The consensus forecast for GDP growth in 2011 is 4%. Inflation, at 3% for the 12 months to February, is subsiding after hitting 4.4% per year in December 2010. The big question is whether the continuing violence, predominantly in northern Mexico, will start to deter foreign investors. There is anecdotal but not much statistical evidence of this.

Cordero said that the government would raise its official forecast for GDP growth this year, betting that rising domestic demand will allow the economy to maintain momentum after 2010's decent performance. Even so, Cordero has yet to put a figure on GDP growth for 2011. All he would say is that growth will be between 4% and 5%.

How Mexico fares in 2011 will still depend a lot on what happens in the US economy. In 2010, a recovery in US manufacturing spurred Mexican exports and job growth.

In the final quarter of 2010 Mexican exports, over 80% of which go to the US, were up 23% at US$80bn. The government is claiming that the economy is now creating jobs at the rate of almost 100,000 new posts per month. In 2010, about 730,000 new jobs were created.

The strength of the peso means that inflation is not yet a concern; it was 4.4% in 2010 and should ebb slightly in 2011. Cordero, cautiously, would not commit himself on inflation beyond a range of between 2% and 4% in 2011. The Banco de México kept its benchmark lending rate at 4.5% for a 17th straight meeting on March 4.

Oddly for an oil exporter, Mexico does not benefit that much from the run up in oil prices. It says that its manufacturers, and thus jobs and domestic demand, suffer if high oil prices dampen down US demand. It is also worth noting that Mexico's imports of oil are increasing faster than its exports of oil products.
In 2010, Mexico's oil exports came to US$41.6bn, but its oil imports (mostly fuels) came to US$30.2bn. In the first two months of 2011, oil exports were up by 32%, but oil imports were up by 47%. The oil trade surplus, which dipped under US$1bn a month in 2010, is on course to fall even further this year.

Mexico's oil industry had another poor February. Production fell 1.1% month-on-month to 2.55m barrels per day (bpd). In January, the state-owned oil company had managed to produce 2.58m bpd. What is more worrying is that exports slipped by 14% to 1.2m bpd, from January's 1.44m bpd. To be fair, in the past three years, exports in February have dipped sharply on January.

Poverty: The opposition PRI is gearing up to attack the ruling PAN over its handling of the economy since 2000. The PRI's party president, Humberto Moreira, claims that according to data from the national social development policy council (Coneval), when President Felipe Calderón took office in 2006 Mexico had 44.7m poor, but by 2009, that figure had increased to 54.8m. Moreira said that this meant that in the first three years of the PAN's second term in office, 10.1m Mexicans fell into poverty, or “five people per minute". He also criticised the Coneval for not releasing updated figures for 2010, allegedly for fear of exposing the full extent of the problem. He said that fighting poverty was not a priority for the government, which was more focused on its failing war on crime.

The PAN's party president, Gustavo Madero, argued that although poverty did increase between 2008 and 2010, this was due to increases in international food prices, which was largely counteracted by a food subsidy plan adopted by the government. Conversely, Madero told journalists that in reality poverty in the country grew disproportionately during the last PRI administration of president Ernesto Zedillo (1994-2000). According to Madero, in the 1994-1996 period, 16m people fell into poverty, an average of 22 people per minute.

Telecoms:  On 22 March, Mony de Swaan, president of Mexico's telecoms regulator, Comisión Federal de Telecomunicaciones (Cofetel), told the senate that his organisation's 'resolutions' (effectively recommendations) were not final and could be challenged in the courts.

This means that the current row between Telmex and Telcel, two companies controlled by the world's richest man, Carlos Slim Helú, and Mexico's big broadcasters (TV Azteca and Televisa) will continue until Cofetel produces its final report on Telmex's application for a broadcasting licence. The broadcasters oppose this application, arguing that Telcel and Telmex's high connection charges for access to their subscribers are keeping them out of Mexico's booming mobile telecoms business.

Mexico's anti-trust watchdog, the Comisión Federal de Competencia, is in favour of the broadcasters and the telecoms companies entering each other's markets.

De Swaan admitted that Cofetel had no powers to force cheaper connection charges on operators. Slim says that he will only drop his connection charges if the broadcasters' mobile companies (such as Iusacell, which is controlled by TV Azteca's dominant shareholder) lower their final prices to users. Currently, however, Telcel has taken out injunctions to prevent Cofetel's recommended (and lower) connection charges coming into force.

Fiscal reform: One of the oddities of Mexico's current political state is that it is the opposition PRI that is making coherent suggestions for fiscal reform. The big question is whether its suggestions will go anywhere. The PRI's suggestions are being made by its leader in the senate, Manlio Fabio Beltrones. On 10 March Beltrones presented a tax reform plan to the senate. Beltrones is a rival of Moreira's ally, Enrique Peña Nieto, currently the governor of the Estado de México, for the PRI's presidential nomination in 2012. Beltrones' big ideas are the obvious ones  - broadening the tax base and simplifying the tax system. His main tool for doing this is to extend Value Added Tax (VAT) at 13% (reducing it three percentage points) to what he calls “luxury" foods. Under this scheme, for example, some dairy products (such as particular cheeses or yoghurts) would become liable for VAT, but milk and other basic dairy products would remain zero rated. Medicines would also remain zero rated.

• Beltrones
  How Beltrones' tax proposals fare in congress will probably be determined by how constructive the current government is feeling. As Beltrones is a rival to Peña Nieto, the main opponents to his reform are inside the PRI. They will only support his reforms, which most local commentators agree are sensible, if Peña Nieto's presidential campaign remains on track. So a clear run for the PRI's  candidate in the Estado gubernatorial elections is probably good news for Beltrones' scheme, which could mean that a Peña Nieto government taking office in December 2012 will have more fiscal room for manoeuvre. Besides extending VAT, Beltrones also proposed raising personal income tax for high earners, but cutting corporate taxes. He would abolish Calderón's main tax innovation, the Impuesto Empresarial a Tasa Única (Ietu), a flat tax on businesses.

• Fiat investment
  Fiat, an Italian car maker, announced that it is investing US$550m to build Fiat 500s in Mexico. This will be Fiat's first new launch in North America for 28 years. The vehicles will be built at Fiat's Chrysler plant in Toluca, in the Estado de México. The idea is to export the vehicles to China and South America. The Fiat 500 is the car maker's most ecological model. Fiat Chrysler has six plants in Mexico, producing a range of vehicles and engines.

The issue of Haiti's political future is being hotly debated, but mainly by those outside the country. While Brazil considers whether or not to involve former president Jean-Bertrand Aristide in talks and several political analysts discuss making Haiti a UN protectorate, the interim prime minister of Haiti, Gérard Latortue, seems to feel there is nothing to debate. On 9 December he said that he and officials from his government will not run in the presidential elections, which, he said, would be held late in 2005. 

The idea of making Haiti a UN protectorate was aired by Don Bohning, a Haitian expert, in a column published on 22 November in The Miami Herald. Bohning said that it was 'increasingly obvious that Haiti's current interim government […] has neither the popular support nor the capacity to meet the challenge of the country's ongoing disintegration'. He recommended 'a 10-year restoration initiative', an idea he picked up from the conclusion of a study commissioned by the US Southern Command from OSS.net, a private outfit that specialises in 'open source intelligence' (for a detailed analysis of this report see The Security & Strategic Review - November 2004).

On 3 December, Raymond A. Joseph, the charge d'affairs at the Haitian Embassy in Washington, wrote a piece in The Miami Herald in response to another column published a day earlier in the newspaper again advocating 'some form of international protectorate'. Joseph said that this was 'not supported by the historical record'. He said: 'the US occupation (between 1915 and 1934) spawned Haitian nationalism […] the ruthless dictator François 'Papa Doc' Duvalier was a by-product of that occupation.' He continued: 'For not applying the Powell Doctrine of overwhelming force last February, the international community now bears great responsibility for a mini-Iraq at America's doorstep.' He argued, however, that with a broader mandate the UN could deal with the insecurity in Haiti by using more force without the need for a protectorate.

The US Secretary of State, Colin Powell, also recommended an enlarged military role for the UN during a visit to Haiti on 1 December. Powell's meeting with Latortue had to be moved from the presidential palace after a fierce exchange of gunfire was heard outside the building. The UN stabilisation mission, Minustah, eventually restored order to the streets. But Powell commented later, 'We have to forcefully take on the people like those who did the shooting this morning. We have to disarm. We have to get all weapons out of the hands of those except the government.' 

The head of the Brazil-led Minustah, General Augusto Heleno Ribeiro, responded to the criticism that Minustah was not doing enough to deal with the violence of armed gangs on 3 December. 

Speaking before a congressional committee in Brasí­lia, Heleno Ribeiro said that he would not bow to international pressure: 'We are under extreme pressure from the international community to use violence […] we are not there to carry out violence, this will not happen for as long as I'm in charge of the force.' He said that the US, France and Canada, as well as other countries, had all pushed for the use of force against armed groups. He said that Minustah was 'a peacekeeping force, not an occupying force'.

Brazil's foreign minister Celso Amorim told legislators that returning the violence in kind would 'require a force of 100,000 men prepared to seek and kill in large numbers and this is not our role, nor do we want it.'

After three days of questioning, police in Trinidad formally charged two teenagers with the rape and murder of a six-year old US national at the beginning of April. The horrific case has brought the issue of security into the spotlight once again; especially since it took place during the country's bloodiest ever quarter for murder. In response, the national security minister, Martin Joseph, has invited police officers from Scotland Yard and the FBI to help curb the increase in violence. Thirty-nine British officers are due to arrive by the end of April.

By the end of March there had been 106 murders in Trinidad and Tobago, equivalent to an annual rate of 33 homicides per 100,000, a considerable rise from the 29.6 per 100,000 recorded in 2005, which in turn was higher than the rate of 2004. 

In 2005, Jamaica was top of the region's murder league with 64 murders per 100,000, followed by El Salvador (with 57 per 100,000), Guatemala (46 per 100,000) and Colombia (42 per 100,000).

However, despite Jamaica being still far ahead, crime there is falling whereas in Trinidad and Tobago the rate is rising. The number of murders in 2005 was down 20% and projections for this year show the rate should be down another 22%. Trinidad and Tobago's projected rate is 11.5% higher than last year's.

Joseph was keen to emphasise that most of the murders that had taken place were related to gangs or drug dealings. The national security minister said that the government was attempting to tackle the situation, but also argued that "there are levels of homicides for which we cannot take control over […] and those are the domestic related ones".

Kidnapping ring discovered

On 5 April members of the Trinidad police Inter Agency Task Force announced they had infiltrated a major kidnapping ring after seizing a cache of arms, genuine army uniforms and bullet-proof vests. The officers also confiscated fragmentation jackets which bomb technicians wear to resist shock from blasts. All the army fatigues bear the regimental numbers of serving soldiers.

President Tony Saca completed his third year in office on 1 June. He could reasonably point to his government's success at turning around the economy during his state-of-the-nation address but he was unable to highlight any significant improvement regarding the security situation. This formed the bedrock of his presidential campaign in 2003.

The economy is in its best shape for a decade, growing at just over 4% in 2006 and with estimated growth of between 4.5% and 5.5% this year. Salvadoreans, however, claim they are not feeling the effects of this growth: 64% of respondents to a recent survey felt the economy had worsened under Saca, while only 13% felt it had got better. They were less damning of his efforts at fighting against organised crime but still unimpressed: more than 50% of respondents felt that security had deteriorated since Saca's government came to power while less than 30% felt security had improved.

Saca's personal approval ratings, unlike those of his Guatemalan counterpart Oscar Berger, have proved to be remarkably resilient despite his limited success at cracking down on the mara gangs and organised crime. The study, by the Instituto Universitario de Opinión Pública de la Universidad Centroamericana "José Simeón Cañas", put Saca's approval rating at 66% in 2005. It fell to 62% in 2006 and 57% this year. Berger fell some fifty percentage points from 83% over a similar timeframe. 

The difference is that El Salvador has a much more polarised party political system. Saca would never enjoy an approval rating of over 80% even if he were to fulfil all of his election promises because supporters of the opposition Frente Farabundo Martí­ para la Liberación Nacional (FMLN) would not offer him support. By the same token he would never fall as dramatically as Berger because core supporters of the ruling Alianza Nacionalista Republicana (Arena) would always support him.

*** JAMAICAN CRIME MEASURES.  On 22 July, Jamaica's Prime Minister Bruce Golding announced a series of new anti-crime measures. These include extending the period for which suspects can be detained before appearing before a magistrate from 24 hours to 72 hours. He also pledged to amend the Bail Act so that those charged with serious crimes are denied bail for 60 days. The proposals emerged after bi-partisan talks, but human-rights groups have opposed the ending of judges' discretion in granting bail. The offences affected include murder, treason, serious firearms offices, arson of a dwelling, and extortion.

*** DOMINICA'S OPPPOSITION LEADER RESIGNS.  Earl Williams, the leader of Dominica's opposition United Workers Party (UWP), resigned on 30 July over corruption allegations involving the purchase of land for a US-based client. He has been replaced by UWP Deputy Leader Ron Green.

***TRINIDAD PONDERS ANTI-CRIME EFFORTS.  On 8 August, Trinidad & Tobago's National Security Minister Martin Joseph said that it was taking longer than expected to come up with measures to deal with gun crime and criminal gangs. New legislation on gun ownership is one measure under consideration. According to Joseph, “homicides now are running at about 69% more than the similar period last year", with a total of 320 murders recorded so far this year. Joseph said that tackling criminal gangs, of which he said there were 190 operating in the country, was a top priority. According to police sources, the notorious El Salvador-based MS-13 gang was now operating in Trinidad.

*** TRINIDAD INFLATION SURGE.  Inflation in Trinidad & Tobago reached a 14-year high in June at 11.3%. The rate in June 2007 was 7.3%. In May this year it was 10%.

*** MARGINAL Q1 GROWTH FOR JAMAICA. Jamaica's economy grew by just 0.3% in the January-March quarter. The government is forecasting 2.5% growth for 2008.

Last month Mexico's President Felipe Calderón paid a visit to Guatemala where one significant outcome of his trip was the inauguration of a cross-border power project, connecting Mexico and Guatemala. The link-up, together with Guatemala's most ambitious infrastructure project, the “northern transversal strip" (FTN) highway - which also received the go-ahead several months earlier - forms part of Mexico's regional infrastructure plan, Proyecto Mesoamérica (formerly Plan Puebla Panama [PPP]), an initiative of Calderón's predecessor, Vicente Fox (2000-2006), which until recently appeared to have stalled.

Hailed by Calderón as the (long-awaited) start of efforts to connect the power grids of all of Central America with Mexico and Colombia, the US$55m electricity link stretches from the southern Guatemalan border town of Retalhuleu to Tapachula in Mexico, and will allow Guatemala to buy cheaper power from Mexico. President Alvaro Colom boasted that the inter-connection, which is slated for completion in mid-2010, will provide Guatemala with an additional 200KW and will reduce the domestic price of electricity from the current US$0.12/kWh to between US$0.08-US$0.09/kWh.

The project is a key flank of the Proyecto Mesoamérica, which aims to boost economic development in the poorest southern regions of Mexico and the isthmus. Its inauguration follows Colom's promulgation of a law in late August which gave the green light to the construction of the FTN, after nearly 40 years in the pipeline. The proposed highway has an initial budget of US$240m and will run through the historically neglected north, spanning the Ixcán region and connecting the departments of Izabal, Alta Verapaz, Quiché, and Huehuetenango.

The response to the FTN however, has been mixed. While the government hails the project as a tool for rural development, civil society groups have long protested the move, warning that it will lead to environmental degradation and displacement of indigenous communities. Similarly there is sceptism with regard to the government's motives: the Ixcán is rich in natural resources, such as oil and water, and local groups oppose government plans to exploit these - notably in 2007 when an overwhelming 89.7% of Ixcán's inhabitants voted in a referendum against the construction of large hydroelectric dams and oil exploration in the region.

• Transparency concerns

The FTN project has attracted criticism for the lack of transparency in the bidding process for the construction of the road; the contract was awarded in 2007 to an Israeli-based construction firm, Solel Boneh International (SBI), the sole participant in the contest. SBI, which has operated in Guatemala for over 25 years, has been involved in more public and private works projects than any other company in the country's history. According to local weekly, Inforpress Centroamericana, it was thought to have won the contract by creating a consortium of 20 companies, many with strong ties to the Óscar Berger administration (2004-2008).

The ruling Frente Sandinista de Liberación Nacional (FSLN) last month officially nominated President Daniel Ortega as its presidential candidate, ahead of the November 2011 vote, despite the constitutional ban on his re-election. Ortega's flagrant breach of the constitution over the re-election issue, which may be copied in Guatemala (see next page), sets a worrying precedent. Ortega's move marks a change from the previous debate on changing constitutional term limits which swept the region in recent years and was a contributing factor in the ouster of Honduras's President Manuel Zelaya in the June 2009 coup d'état. The question of democracy has consequently become the dominant electoral issue in Nicaragua. The opposition presents the choice before voters not in terms of differences of ideology but rather between “democracy" and “autocracy".

In   October 2009 the supreme court (CSJ) revoked the ban on presidential re-election for incumbents or those who have previously served two terms (both of which conditions apply to Ortega, who took office for the second time in January 2007, having first been elected in 1984). Yet the constitution itself states (Article 94) that constitutional changes can only be made by a two-thirds majority in the 92-seat legislature - the one branch of government which Ortega does not control.

With the judicial and electoral authorities firmly under Ortega's thumb and the international community so far keeping a relative distance (see sidebar), the perennially divided opposition so far shows every sign of going through the electoral motions. Aside from the FSLN, (which is heading up an eight-member coalition, entitled Alianza Unidad Nicaragua Triunfa 2011), three other political alliances registered by the 1 March deadline.

One is marginal: the Alianza por la República (APRE)   is composed of a handful of minor right-wing parties. The two main opposition contenders are: a grouping led by the Partido Liberal Constitucionalista (PLC) of former president Arnoldo Alemán (1997-2002) who is expected to run as its presidential candidate and has long been the main obstacle to opposition unity because of his power-sharing arrangement ('el pacto') with Ortega.

The other is the newly created Unidad Nicaragüense por la Esperanza (UNE), which groups together movements across the political spectrum. These include the Movimiento Vamos con Eduardo of the dissident liberal Eduardo Montealegre (the 'anti-pact' candidate in the 2006 election), the dissident Sandinista party, Movimiento Renovador Sandinista (MRS) and the conservative Partido Liberal Independiente (PLI). Sealing this alliance, the UNE is fielding as its presidential candidate, Fabio Gadea, a right-wing radio personality, who first announced his intention to stand last year [RC-10-09] and Edmundo Jarquí­n, of the MRS as his running mate. Jarquin is a former ambassador to Mexico and Spain under Ortega's first government (1979-1990) and ran as presidential candidate for the MRS in 2006. Despite their ideological differences, the two are billing themselves as the only real vote for “democracy" over Ortega's perceived “autocracy" given that Alemán and 'el pacto' are key to the continued erosion of checks and balances: the CSJ's decision in January 2009 to absolve Alemán of a corruption conviction, releasing him from a 20 year jail sentence and allowing his return to political life was a key example of this [RC-09-01].

• Ortega backs Gaddafi

Ortega's endorsement of Libyan leader, Colonel Muammar Gaddafi despite the latter's violent repression of the opposition made international headlines at the end of February. It raised further questions about Ortega's democratic credentials and isolated him from much of the region. Only Venezuela and Cuba, fellow members of   the Venezuela-led alliance, Alianza Bolivariana para los Pueblos de Nuestra América (Alba) shared Ortega's line, framing the crisis in Libya in 'anti-imperialist' (ie anti-US) terms with the argument that foreign actors are seeking to help topple the 'Revolutionary' state to gain control of Libya's oil wealth.

• “A day of shame and rage"

Sandinista dissidents such as Henry “Modesto" Ruiz and Dora Marí­a Téllez dubbed 26 February (the day Ortega was officially proclaimed candidate for the FSLN) as a “date that will go down in history as a day of shame and rage". These former Sandinista comandantes remain a significant source of criticism of Ortega and his perceived authoritarian tendencies. Ortega's announcement last year of new 'Christian, solidarity, bonuses', for public sector workers led Ruiz to draw comparisons with former dictator Anastasio Somoza - notorious for resorting to hand-outs to buy political allegiances - whose regime Ortega and the FSLN toppled in 1979 [RC-10-05].

• International concerns

While the foreign community has expressed concerns about President Daniel Ortega's various swipes at democracy - most recently with his refusal to allow international and local observers to monitor the November 2011 general elections [RC-11-01] - so far only Denmark has taken direct action. On 17 February Denmark's minister for foreign cooperation, Sí¸ren Pind, announced that Denmark would end aid to Nicaragua by December 2011, one year earlier than planned, due to transparency concerns, signalling a loss of some US$18m in aid.

Since the inauguration of President Lula da Silva in January 2003, the Brazilian government has been pushing for a more influential international role for Brazil. For years, the country's intellectuals have complained that Brazil has not fulfilled its 'natural leadership role' in Latin America. Lula, a follower of this ideal, sees Brazil as an advocate of the developing world's plea for social equality. In the beginning of his term, Lula gave the Brazilian Foreign Office a mission: to win Brazil a permanent seat in the United Nations' Security Council. 

In the beginning of 2003 the Brazilian Foreign Office, known as Itamaraty, started to work to engage other developing nations in its 'international equality crusade'. The first step was to approach other regional leaders in Asia and Africa, which resulted in an alliance with India and South Africa, the BIAS Group. The idea was to create a block of developing nations to represent the interests of the developing world on international trade negotiations. President Lula da Silva personally traveled to India and South Africa to negotiate the creation of the BIAS alliance between the three regional leaders. Following the creation of the BIAS Group, the Itamaraty went on to shape the G-20, a group of developing nations from across the globe, which also includes Brazil's partners in the Mercosur and China. The group grew to 23 members until pressure from the US shrunk the group to its current 19 associates. Together with its BIAS partners and China, Brazil led the G-20 during the WTO conferences ensuring the region had a voice in the recent Cancún and Doha conferences and granting developing nations a greater political weight. 

The G-4
The Itamaraty's master diplomatic strike, however, came when Brazil convinced its partner India, and, more importantly, Germany and Japan, to join forces in their bids for permanent seats in the UNSC, giving Brazil's campaign a considerable greater weight. The creation of the G-4 forced the US to see Brazil as a serious contender. During Colin Powell's visit to Brazil on 4 October he described the country as a 'solid and important' candidate for a permanent seat in the UNSC and praised Brazil's 'significant role' in stabilizing the American continent, for its campaign in Haiti and for its democratic influence in Venezuela and Bolivia. More importantly, Powell played down the only issue that could spoil Brazil's candidature: the country's recent problems with the International Atomic Energy Agency. On the subject, Powell said the US administration was 'satisfied' with the Brazilian government's explanations and that the 'US trusts Brazil' on that matter. 

The Brazilian bid
During the opening ceremony of the UN's General Assembly on 21 September, the G-4 made a joint statement presenting their motives for reform in the UNSC and supporting each other's candidatures for permanent seats. Their statement argue that reforming the Security Council is necessary if the UN is to effectively deal with the challenges and threats to global security. Also, the G-4 argues that the UN needs to be revitalized if it is to be a legitimate representative of international community in the face of the 21st century's geopolitical realities. Because UN membership has increased four-fold since its creation in 1945, the G-4 makes a case for expanding in the number of nations directly represented in the Security Council, including there developing and developed nations. Crucially, the Itamaraty has to bring the US to its side in order to increase the pressure on Kofi Anan's reform panel to consider extending the number of permanent members in the UNSC, abandoning Anan's initial plan to extend only the number of non-permanent members.

President Lula da Silva announced on 24 June he will stand for re-election in October for the Partido dos Trabalhadores (PT). Lula's candidacy was highly expected, not least because he appears well ahead of all the other candidates in every opinion poll. For many, Lula's delay was calculated so that he could unveil a number of vote-winning measures, such as the above-inflation minimum wage increase, before Brazilian electoral laws prohibited him from doing so. 

In his announcement speech Lula made it clear that a prospective second mandate would be geared towards resolving Brazil's social problems. So far Lula has been held back by his economic team, which preached austere policies and limited most of the government's social plans. He went on to say that his main objective is now "not economic surplus, but social surplus", promising that education would be "priority". 

Lula also took the opportunity to attack his main contender, Geraldo Alckmin, from the Partido da Social Democracia Brasileira (PSDB). The President claimed that Alckmin represents "backward political voices" that have failed, and that Alckmin's victory would be a "return to the past". Lula also attacked his predecessor, former president Fernando Henrique Cardoso, saying that he has "done more than what the previous PSDB's government did in eight years". 

Responses to Lula came a day later when the PSDB formalised the candidacy of José Serra for the governorship of São Paulo. Cardoso declared that Lula "talks too much and does too little". He went on to say that Lula's government "only wins in comparison [with the PSDB's administration] as regards corruption". These comments seem to have settled the tone of the campaign. 

The PMDB and alliances policy

Lula also delayed the announcement of his candidacy in the hope he could seal a national alliance with the powerful Partido do Movimento Democrático Brasileiro (PMDB). As expected, the alliance did not materialise: the PMDB is split between two factions, one supporting the government and another opposing it. After months of deliberation the party decided not to launch a presidential candidate and instead has allowed its local leaders to form alliances with whoever they want. 

This policy will certainly boost the PMDB's chances of winning more seats in congress. The party has been described as a "brotherhood of regional interests, incapable of taking decisions". Yet this characteristic also makes the PMDB a powerful electoral machine: the party is the political force to respect in every single Brazilian state and is currently the largest party in both houses of congress, making its support essential to whoever wins the presidential and local elections.

Because the PMDB declined to provide the PT with a vice-presidential candidate, Lula will have to run again with his current surrogate, José Alencar. Alencar left the Partido Liberal last year to join the obscure evangelical Partido Municipalista Renovador following corruption allegations. 

Meanwhile in São Paulo, the PSDB is still waiting to decide who will be Serra's running mate as it hopes to seal an alliance with the local PMDB. The problem is that the PMDB's cacique in the state, Orestes Quércia, wants the post but Serra refuses to have him as his vice-governor. The two parties are still negotiating and may announce their coalition in São Paulo on 30 June. Serra is already well-placed to win the race for governor in the first round against the PT's candidate, Aloizio Mercadante.

The PMDB - again - and the 'governability'

Behind the scenes Lula is said to be planning alliances to guarantee support for a second mandate. Lula confessed to aides that his "biggest mistake" was having "disregarded" the PMDB's support at the beginning of his mandate. 

Lula will do everything he can, including giving over several ministries, to win the PMDB's support this time round in order to obtain "parliamentary stability" and secure the necessary support for the "governability" of a prospective second term in office. 

The reason for this is that despite Lula's staggering lead in opinion polls, his PT is most certainly going to be the biggest loser both in local elections and in congress. The party's reputation has been badly tainted by a series of corruption allegations involving its members. In the 2002 elections the PT managed to elect 91 congressmen and Lula started his government with the support of all leftwing parties. Four years on the PT has only 75 congressmen and the wobbly support of corruption-tainted centre-right parties and two other (small) leftwing parties.

Tellingly, according to a study published in Brazilian newspapers based on information gathered from several political analysts, the government's coalition in congress will shrink from the current 267 deputies to 206 after October. This means that from a majority of 52%, the government's allied base in congress will shrink to 40.2%. At the same time the PMDB bloc is bound to grow from 14.5% to 18.32%, making the party's support essential for Lula's second mandate.

Legislative terrorism

Meanwhile, the opposition's bloc in congress is bound to increase from the current 31.4% to 40.2%. The representation of independent parties is forecast to shrink from 2.1% to 1.28%. Not surprisingly, Lula has become obsessed with the relations between the executive and congress. The president has been telling his aides - rightly - that the PSDB and its ally Partido da Frente Liberal (PFL) will use "legislative terrorism" to undermine his prospective second government. 

Lula's concern is appropriate. Both the PSDB and the PFL have blocked crucial legislation in the past. Most recently, the two parties embarrassed Lula by approving a law amendment, with the support of leftwing parties and the PMDB, pegging pension increases to those of the minimum wage. In effect the amendment would bankrupt the federal pension system, and Lula will now have to choose whether to veto this popular measure or to sanction it irresponsibly. 

The PSDB and the PFL's "legislative terrorism", however, has a cause: the government's favouring of PT and PMDB congressmen in the dispatch of public money for congressional projects. Last year PT congressmen received 36.23% of all federal resources sent to congress. The PMDB received 17.11%. Next came the corruption-tainted Partido Progressista, which is an ally of the government, with 10.8%. PSDB and PFL congressmen together received just over 3%. 

It is not surprising that Lula's head of institutional relations, Tarso Genro, is having difficulties negotiating with the opposition in congress.

Santiago has witnessed nine incidents involving bombs and firebombs this year. Some follow a well-known pattern of attempts by diverse small groups to radicalise social or political protests. Three, however, have been claimed by the same organisation, an anarchist group which last year accounted for three out of 10 bombing incidents and which some investigators believe may be connected to six other similar events in 2005. While its attacks have seemed designed not to cause casualties, their recurrence has begun to attract more police attention: anarchist groups, investigators say, tend not to last this long.

The group which calls itself Fuerzas Autónomas y Destructivas León Czolgosz (FADLC) first came to the notice of the Chilean public in January 2006, when it claimed responsibility for planting a bomb next to the premises of the Agencia Nacional de Inteligencia (ANI, the state intelligence agency). This incident was a rarity in that it claimed a casualty: the cleaner who found the bag containing the bomb and threw it into a bin, where it exploded, slightly injuring him. The device was only strong enough to shatter some windows. 

"With this attack," said the group's communiqué, "we prove that state intelligence is as fragile and destructible as this broken glass [...] Our attacks will be unceasing, and ever more violent."

The group's name suggested anarchist inspiration: León Czolgosz was the Polish anarchist who in 1901 assassinated US President William McKinley and within little over a month was tried, convicted and executed.

Immediately after the ANI bombing, investigators began to look at similarities between it and previous bombings, in the hope of tracing the identity of the bombers. Though by May 2006 they claimed to have identified three suspects, the inquiry soon stalled for lack of evidence.

This year the FADLC returned to the limelight on 15 July with the detonation of a bomb outside the building housing the British embassy in Santiago. It caused some damage to the building but claimed no casualties. 

Though at first there was some speculation that the attackers were aiming at other targets (British American Tobacco, with offices in the same building, or the nearby Israeli embassy), a FADLC communiqué made it clear that it had targeted the British embassy "in armed solidarity with the anti-imperialist resistance fighting the cowardly occupation armies [in] Iraq, Afghanistan and other territories." The communiqué calls for the "immediate withdrawal of the troops of the allied army from any place on the planet where they are to be found [and of] the Chilean police troops from Mapuche territory [as well as' the absolute and immediate disappearance of the state of Israel and, after that, of all states."

Longer track record?
This time police sources sounded more convinced that the bombing could be linked to other events, only some of which had been explicitly claimed by the FADLC. They said that a common feature was the type of explosive device used: "a metal cylinder packed with gunpowder, with a destructive radius of about 20 metres, detonated by a timer." Much the same as was said about the ANI bomb. They also cited the fact that the bombings took place at night or before dawn, and that the language of the communiqués was strikingly similar.

The FADLC was known to have issued communiqués claiming responsibility for four attacks: ANI in January 2006, the armed forces cathedral of San Ramón in September that year, the premises of the Juventud Socialista in April 2007, and the British embassy in July. The FADLC had actually claimed authorship of another attack: the bombing of a Banco de Chile ATM in July 2006. 

Also, it claimed that the authorities had deliberately withheld other incidents from the public: its own numbering of communiqués suggests that there were seven more 'actions' which did not reach the public domain, or, that the FADLC is playing with the numbers to suggest greater activity.

Some police sources have suggested that the FADLC may have assumed other names for some attacks. Two such events were the bombing of education ministry premises in Santiago in May 2006, claimed by Revuelta Antonio Román Román, and the bombing of the church of Santa Marí­a in Santiago's affluent Las Condes district in September 2007, claimed by Grupos de Ataque Antiautoritario.

There have also been unclaimed bombing attacks accompanied by communiqués that bear great similarity to those put out by the FADLC. For example, the 13 August 2007 bomb set off next to the TV studios of Canal 13 was anonymous, but the flier left behind by the attackers carried the same list of so-called victims of repression as the one distributed by the FADLC after the bombing of the Juventud Socialista premises four months earlier.

Violence more verbal than physical
For all the violence of its discourse, the FADLC has not escalated the power of its bombs, not has it claimed responsibility for acts of violence carried out by 'back blocs' during major demonstrations for which they had urged support, such as those held on the 11 September anniversaries of Pinochet's coup (in 2006, when the La Moneda palace was firebombed, or this year, marred by violent riots) or the one held on 5 October to commemorate the 1988 plebiscite which rejected the extension of Pinochet's tenure of power. 

In that incident a group of about 30 hooded people emerged from the Universidad Metropolitana de Ciencias de la Educación (UMCE) and claimed a serious casualty when they firebombed a bus full of passengers: a badly burnt 14-year-old girl. When the Carabineros followed their trail back into the university they found a cache of about 30 firebombs.

A warning issued by the FADLC in April this year which stated "we will burn La Moneda again" has been dismissed as an oblique way of associating the group with the 2006 September firebombing; police sources say the 'signature' of that attack differs from those previously associated with the FADLC.

Questions remain over a couple of recent bombing attacks. One device was set off at the door of an office of Telefónica Chile on 9 October, damaging the building but claiming no casualties. An anonymous flier left behind by the bombers linked the attack with recent increases in the price of bread and the electricity and water rates. On 16 October considerably more damage resulted from the bombing of an office of the power utility Chilectra. Police did not report having found any literature.

Also among the unclaimed incidents was the placing of a bomb on a car close to the La Moneda palace on 22 March this year. The device was spotted and defused before it could be detonated. 

On 30 March the latest CNT/Sensus poll showed a fresh dip in approval for the government of President Lula da Silva. It was the third poll in as many weeks indicating that the electorate is coming under pressure as the economic crisis hits home. The government is desperately trying to shore up economic activity and employment ahead of general elections in 2010, with Lula anxious not to see his legacy undone by a crisis not of his making.

According to the poll, the government's approval rating fell a sharp 10 percentage points to 62.4% in March, from 72.5% in January. Lula's personal approval rating fell to 76.2%, from 84% previously.This echoed earlier surveys by Ibope and Datafolha. The electorate is now clearly feeling the crisis, mainly via rising unemployment and falling household incomes. Unemployment rose to 8.5% in February, from a record low of 6.8% in December 2008. Around 1.9m are now unemployed, according to the National Statistics Institute (Ibge). A hefty 44.8% of CNT/Sensus respondents were worried about losing their jobs if the crisis worsened.

These polls should be put in context: the Lula administration's approval ratings remain impressively high. Nonetheless, such a sharp drop will concern the ruling Partido dos Trabalhadores (PT), which might have been expected to do better in the last local elections in October 2008, when the economic boom was still in full swing. The fear is that an economic downturn of any magnitude will encourage an already shifting electorate to swing away in large numbers from the PT in 2010, when Lula will step down after eight years in office.

On the bright side, Lula's preferred presidential nominee to succeed him in 2010, Dilma Rouseff, continues to gain ground in the polls. After initial grumblings from both the party base and even some ministers, the PT has finally accepted Lula's imposed choice of candidate and since early 2009 has swung round behind her. (It is unclear whether there will be PT primaries ahead of 2010, but it would take a brave politician to break with Lula). This newfound PT support, along with Lula's concerted efforts to promote her up and down the country - efforts that have prompted the opposition to pull him up for pre-electioneering - has thrusted her into the public limelight, and the previously unassuming minister of the presidency now has growing national recognition. Her poll support has risen steadily in recent months, reaching 16.3% in March, up from 13.5% in January.

Moreover, a sizeable 21.5% of CNT/Sensus respondents said they would only vote for a candidate supported by Lula, up from 15.6% previously. In the poorer North East, the focus of much of the governement's social spending programmes, including the Programa de Aceleracão do Crescimento (PAC), managed by Rouseff's office, this percentage reaches 42.6%. As demonstrated in October's local polls, Lula has the power to elect candidates almost singlehandedly, almost regardless of party affiliation.

Yet Dilma, as she has become known in the local media, has a long way to go ahead of what promises to be one of the longest presidential campaigns ever in Brazil: the leading candidate, José Serra of the opposition Partido da Social Democracia Brasileira (PSDB), has consolidated a strong and stable lead of 45.7% (up from 42.8% in January). And Serra would still handily defeat Rouseff in the all important second round (53.5% to 21.3%).

If nothing else, this underlines the importance of the country's electoral kingmakers, the Partido Movimiento Democratico Brasileiro (PMDB), currently nominally allied to the PT, to both the PT and the PSDB ahead of 2010. The PMDB is unashamedly biding its time however, waiting to see which of the two (PT, PSDB) makes it the best offer.

Serra and Dilma - old pals turned political contestants
The daily O Estado de Sao Paulo recently pointed up the 30-year friendship between Serra and Dilma, which is founded on their shared political history as leftwing opponents of the military dictatorship and, more recently, their pragmatic roles as economists and administrators. While the PT and PSDB have fallen out in recent years, the parties should be natural political kinsmen. Yet poor relations between Lula, his ambitious former chief of staff José Dirceu and Lula's predecessor, former president Fernando Henrique Cardoso (1995-2002) prevented any PT-PSDB alliance in congress when Lula first took office in 2002. Like Cardoso before him, Lula instead turned to the PMDB.

Relations between the São Paulo state government and the federal administration have notably improved under Serra-Rouseff, whose office oversees the transfer of billions in infrastrastructure funding to state governments. According to O Estado, in 2007 and 2008, the first two years of Serra's term, Sao Paulo, a centre of opposition to the PT, has received 58% more in federal transfers than in 2005-2006, the final two years of former (PSDB) governor Geraldo Alckim, who was roundly defeated by Lula in the 2006 presidential election. In real terms, that translates into R$1.23bn in the 2007-2008 period vs. R$814m in 2005-2006.

The federal government now 'promptly' transfers resources for key road and housing projects, and “we have no complaints", remarked Serra's transport secretary to the newspaper.   While this may have something to do with the relationship between Serra and Dilma, it also likely reflects Serra's better management skills, and his extensive knowledge of the Brazilian government - having himself been a very successful health minister under Cardoso.

Indeed, Serra contributed several ideas to the government's new housing plan, which Dilma incorporated into the final version. She also oversaw the sale of Nossa Caixa to Banco do Brasil, against some PT resistance, for fear it would benefit Serra's state treasury (to the tune of some R$5.4bn). That type of politics, she allegedly declared, no longer had any place.

For all their cordial relations at a personal level, Serra is determined to be president and in public maintains strong attacks on the PT government. The friendship, however, could yet come into play in the event of a Serra presidency beyond 2010, particularly if Dilma manages to mount a strong electoral offensive against her old comrade, which would help her to consolidate her position within a post-Lula PT.

• Raposo del Sul
  On 19 March the Federal Supreme Court ruled 10-1 in to keep intact the country's largest indigenous reservation, Raposo del Sul, meaning that local commercial rice farmers have finally lost their long battle to remain in the area.The ruling sets an important precedent for indigenous land rights in Brazil, where 488 reservations make up 105.7m hectares, or 12% of the national territory. The dispute pitted indigenous Amazon Indians against farmers, and caused tensions with the military, which fears that national sovereignty is threatened by the government's “hands-off" policy towards these extensive areas.
  

The recently widowed President Cristina Fernández may be an extended period of mourning, but that hasn't stopped her from moving forward with her plans for re-election in October 2011.

November produced several successes on the economic front for President Fernández. First, while Fernández was at the G-20 summit in Seoul, South Korea, the federal congress failed to approve the 2011 budget during an embarrassing debacle that included insults, bribery accusations and even a televised slap across the face. That means that Fernández will instead roll over the 2010 budget into next year, an election year, with the freedom to allocate excess revenues at her own discretion (via decree).

Secondly, upon her return Fernández announced that the Paris Club of creditor nations had acceded to Argentina's demand to enter into talks to settle its outstanding defaulted debt, including the condition that the talks be held without the mediation of the International Monetary Fund (IMF). And third, the government requested technical assistance from the IMF to improve data analysis by the national institute of statistics and census (Indec), thus ending seven years of confrontation with the Fund.

The debate over the 2011 budget became an opportunity for members of the congress to flex their muscles and settle old political scores - the most entertaining of which was when Graciela Camaño (of the dissident Peronistas Federales [PF]) slapped a rival, Carlos Kunkel (of the ruling Peronist Frente para la Victoria [FPV]) live on TV. Prior to her departure for Seoul, Fernández had told her cabinet that the budget was “non-negotiable" and instructed the FPV legislators to get it approved “without changing a single coma". Thus the parliamentary debate was ultimately a bit of a farce, and the congress's failure to approve the plan allowed the FPV to paint the opposition as obstructionists, to the detriment not only of crucial government business but also of Argentina.

However, it's fairly convenient for the government to roll over the 2010 budget into 2011, which means that the president can rule by decree and arbitrarily increase public spending ahead of the elections (see Economic Overview). Fernández, who could have seized on the budget row to play a conciliatory role, instead preferred the role of victim. In a recorded message to the nation on 15 November, she lamented that she will be “the first president" to rule “without a budget". Yet there are at least five previous examples of presidents (Figueroa Alcorta, Isabel Perón, Arturo Illia, Raúl Alfonsí­n and Fernando de la Rúa), whose proposed budget bills failed to get through congress.

The main row over the budget is that the opposition does not accept the Indec figures used by the administration to draft the plan. And neither do the majority of Argentines; in a recent poll respondents said they expected annual inflation of 36.6% in 2011, twice that forecast by the Indec (18.4%). This scepticism is also likely shared by the Paris Club members, to whom Argentina owes some US$7.7bn.

If Argentina's proposed debt negotiations become reality - Fernández made a similar announcement in September 2008 but later decided not to follow through, due to the world financial crisis - it could prompt a significant improvement in investor sentiment. In the markets, Argentine bond prices would likely rise and the country's risk premium would fall, potentially giving it better access to international credit. However, the continued refusal by the Fernández government to allow the IMF to conduct a review of the public accounts would undermine these steps. So, in an apparent gesture to the Paris Club and the Fund (which was said to be considering sanctions against Argentina for non compliance with Fund rules), and also in an effort to pre-empt the opposition in congress, which was moving to push through a reform of the Indec, Argentina requested technical assistance from the IMF to design a new consumer price index (CPI).

The request was accepted. Rumours about IMF sanctions dissipated and though the opposition still passed the Indec reform bill in the lower house, the executive had successfully pre-empted the vote and was able to portray itself as willing to redress previous policy mistakes. The economy minister, Amado Boudou, insisted in a radio interview that Argentina had not “pulled its trousers down" in turning to the IMF.

Nevertheless, in Argentine academic circles the move got only a lukewarm reception. The experts that make up the Comité Académico de Evaluación y Seguimiento (Caes), which the ministry of economy requested in 2009 to draft a report on the working order of the CPI, sniffed that the government didn't need to look for assistance overseas but rather needed to have the political will to admit that its 2007 takeover of the Indec had been a monumental mistake.

Double scolding
In early November, while the government sought to mend fences with the Paris Club and the IMF, Argentina was publicly reprimanded twice for its “lack of commitment" towards adopting measures to combat money laundering and it's “mishandling" of classified financial information. The Financial Action Task Force (FATF), an international organisation charged with combating money laundering and terrorist financing, issued its most damning report on any member state since the organisation was created in 1989. The 25-page report noted that of the 49 recommendations the FATF had made to Argentina, only three had been part implemented, while the rest remained partially or wholly pending. It also expressed its “disappointment and serious preoccupation" at Argentina's failure to implement anti-laundering measures. It gave the administration an ultimatum of 100 days to address these “deficiencies"; failure to do so could result in Argentina's inclusion on the FATF's 'grey list'. If Argentina were added to that list, local banks would face operational difficulties and domestic credit could become more expensive. Paraguay and Bolivia are already on the list.
The FATF report was released just 24 hours after the US Financial Crimes Enforcement Network (FinCEN) confirmed that classified financial information it had shared with the Argentine administration regarding an opposition congressional candidate in the 2007 midterm elections, Francisco de Narváez, who defeated Fernández's former husband and predecessor Néstor Kirchner in that vote, had been leaked to the Argentine press in an attempt to damage his image. The FinCEN revealed that it has not shared information with its Argentine counterpart, the Unidad de Información Financiera (UIF), since July 2009.

• Inflation

In a recent study published by the centre for financial research at the Universidad Torcuato Di Tella, researchers found that, on average, Argentines expect annual inflation to reach 34% in 2011. These perceptions are important, not only because they can put pressure on inflation, but also because it underlines that the majority of people simply don't believe that the government claim that inflation is contained. Less educated respondents (those with a high school degree or less) believed inflation would hit 36.6%, while higher educated respondents put it at 31.3%. This reinforces the fact that inflation hits the poorest hardest, in contrast to Economy Minister Boudou's recent assertion that inflation affects the upper-middle class and the rich.

• Betraying Néstor

Carlos Roberts, a columnist for the daily La Nación, entitled a recent column 'Cristina's betrayal of Néstor' and, tongue-in-cheek, argued that the president should have waited until the end of her mourning period before 'betraying' one of her husband's signature policies - his refusal to deal with the IMF. The opposition also picked on the sudden official change of heart. Silvana Giudici, deputy for the opposition Unión Cí­vica Radical, quipped in congress on 24 November, “we have to highlight a contradiction: wasn't this government the one that said we had to kick the IMF up the backside? Now, it kneels down_and asks for its help."

The government devalued the bolí­var by 10.7% on 3 March. This took the official exchange rate down from B$1,920 to the dollar to B$2,150. The move will boost oil revenues by about B$8bn (or 3.6% of GDP) and help to reduce the budget deficit which has been running at around 4% of GDP and funded by domestic borrowing. The economy grew by a staggering 17.3% in 2004, the government claimed. This year the government is forecasting growth of around 5%. 

The unemployment rate jumped by 4.6 percentage points in January from December to 15.5%. However, the January unemployment rate is still 3.5% below the January 2004 rate. Nevertheless the increase occurred despite the government's extension (for the seventh time) of the six-month ban on companies dismissing workers who earn less than B$633,000 a month. This ban will expire, unless it is extended again, at the end of March. It was introduced in May 2001.

Tax revenues are rising fast. Energy taxes alone have brought in US$564m in the first 10 months of the year. Following the agreement of new contracts with foreign energy companies in October 2006, and the ratification of these contracts by congress at the end of November, the government reckons that energy taxes will increase to over US$1bn a year. The issue is where (and how) this money is spent. Tarija, which holds most of the country's gas, will see its departmental income rise from US$84m in 2004 to US$245m this year. When the new agreements take effect, its income will rise even further. The World Bank pointed out that the leftwing government of President Evo Morales was more fiscally disciplined than its predecessors. This is more by accident than design. What seems to be happening is that the administration has not yet developed ways of spending these enhanced revenues. The result is, the World Bank says, that the government will run a fiscal surplus of 5% of GDP in 2006.

For the 2007 budget, the finance minister Luis Arce announced a 29% increase in spending and thus, he stressed, left out the effects of the new energy contracts which still have to be ratified by congress. Arce said that the budget for 2007 would be US$9.57bn, up from the US$7.4bn budgeted for 2006.

GDP growth: The government is forecasting that GDP growth this year will be 4.1% and in 2007 it will be 5%. It is also forecasting that inflation will fall from 4% this year to 3.74% in 2007. The minimum wage will go up from US$62 a month to US$65.

Inflation: In October the rate was 0.47%, significantly up on the September rate of 0.08%. The rate for the first 10 months of 2006 was 3.38% and the rate for the past 12 months 4.41%.

After lurching towards a phony war at the start of March, Colombia, Ecuador and Venezuela have established a phony peace. Ecuador and Venezuela have demobilized the troops it rushed to the Colombian border after Colombia's air strike on a camp in Ecuador run by the Fuerzas Armadas Revolucionarias de Colombia (Farc). Colombia's President Alvaro Uribe has apologized for the raid and promised not to repeat the action. However, computers found at the bomb site pose a major obstacle to a lasting reconciliation.

Chávez orchestrates peace

The sabre-rattling by Venezuela and Ecuador towards Colombia in the wake of the 1 March raid came to an abrupt end at a meeting of the Rio Group in the Dominican Republic on 7 March. As dozens of Latin American leaders stood applauding, Venezuela's president, Hugo Chávez , artfully orchestrated an end to the crisis: after shaking hands with Uribe, Chávez then ensured the Colombian president also shook hands with his Ecuadorean counterpart, Rafael Correa, and with the president of Nicaragua, Daniel Ortega, who had somehow inveigled his way into the Andean crisis.

Chávez 's performance was public-relations gold. The Venezuelan president had no intention of going to war with Colombia but knew that his willingness to stand up for Correa in a crisis he had done so much to inflate would boost his flagging domestic support. However, he had the good sense to see that turning peacemaker would not only earn him further plaudits at home but also restore his image as a regional leader. Uribe, too, emerged in credit after apologising for the raid and saying it would not happen again.

In Chávez 's defence, the achievements of the Rio Group meeting contrasted markedly with the failure of the Organization of American States (OAS) to contribute towards a resolution. The OAS investigation into the air raid noted but made no attempt to assess the differences between the Ecuadorean and Colombian versions of the raid's logistics (including Ecuador's suggestion that US planes were involved). The OAS's final resolution amounted to little more than a slap on the wrist for Colombia and endorsed vague-sounding mechanisms to ensure good relations between Colombia and Ecuador.

The obvious difference between the Rio Group and the OAS is that the US only belongs to the latter. The US had already made itself unpopular by being virtually the only OAS member not to criticise Colombia for the raid and hardly made amends by fighting hard to prevent the OAS from even "rejecting" Colombia's actions (Ecuador had called for "condemnation" of Colombia).

Ecuador unmoved

Although Chávez and Uribe seem satisfied by the achievements of the Rio Group and the lack thereof from the OAS, President Correa has never looked content. He glowered at Uribe when the pair shook hands in the Dominican Republic and has made it clear that he is not willing either to forgive or forget quite yet.

This is wholly understandable. What riled Correa most about the air raid was that Uribe brazenly lied to him about the nature of the attack, something for which Uribe has refused to apologise and for which he has received no foreign censure. Correa was also furious that Ecuadoreans might have been killed in the attack and that throughout March the Colombian authorities released a slew of documents allegedly discovered on Reyes' computer linking Ecuadorean officials to the Farc.

It later transpired that an Ecuadorean - Franklin Aisalla - had been killed in the raid and that the Colombians had removed his body, apparently in the belief that he was Julián Conrado, another senior Farc leader. However, the Colombians countered that Aisalla was himself a member of the Farc, a claim which seems to have at least some substance to it even if it hardly excuses the fact that Colombia required more than three weeks and considerable Ecuadorean pressure to admit its mistake. Colombia has been fortunate that its accusations against Aisalla and indeed the raid on Reyes' camp, appear to have uncovered major problems within Ecuador's defence hierarchy.

The laptop

With relations between Uribe and Chávez seemingly back to normal and Correa increasingly distracted by domestic problems, March's turbulence appears to be fading from view. However, there remains one major issue yet to be resolved: Reyes' laptops.

It is not just Correa who was upset by the flow of documents; in late March Chávez made it very clear to Colombia that he would not tolerate any more leaks, after which none more were forthcoming. Colombia then sent samples of the documents to Ecuador and Venezuela; Venezuela dismissed the dossier as "inconsistent and incomprehensible" while Ecuador complained that Colombia had not sent all the computer files in digital form as requested but only a selection of print-outs of documents that had already been leaked to the press.

Interpol is investigating the authenticity of the electronic documents and will announce its findings by the end of April, at which point blanket denials by Ecuador and Venezuela will serve little purpose. Chávez has the most to lose if Interpol does validate the documents since they suggest strong links between his administration and the Farc. Yet Chávez will defy such claims and will only have Colombia to blame if the computers do expose him. With Ecuador's resentment towards Colombia still simmering Correa would be inclined to take Chávez 's side. The region might yet be plunged back into crisis.

• Betting on Betancourt

Colombia's President Alvaro Uribe has finally made a special case of Ingrid Betancourt, the former presidential candidate who has been held by the Farc for the past six years. Amid reports that her health was failing fast Uribe announced that he wanted a prisoner swap with the Farc as soon as possible and said that he was willing to suspend the sentences of every imprisoned Farc guerrilla to achieve this. Uribe also allowed a French humanitarian mission to set off in search of Betancourt. Predictably, the mission failed: the Farc has no interest in freeing its most important asset, though if she really were dying it might consider it. Uribe knew that the Farc would not cooperate, but he also knew that in making Betancourt's release a matter of urgency he would win the support of France's president Nicolas Sarkozy.

• Glyphosate case to go to The Hague

On 31 March the Ecuadorean government filed its seven-year case against Colombia with the International Court of Justice in The Hague over the spraying of glyphosate on coca plantations in the border area. Ecuador claims the herbicide is toxic to crops, animals and humans; Colombia says it is not. Ecuador's foreign minister, Marí­a Isabel Salvador, said that the timing had "absolutely nothing" to do with the current diplomatic dispute.

The maverick former prefect of Cochabamba, Manfred Reyes Villa is proving an unlikely rallying point for the opposition ahead of the December presidential contest. His last minute surprise choice of jailed ex prefect of Pando, Leopoldo Fernández as running mate caused a media storm and prompted a string of candidates, including leader of the main opposition alliance, Podemos, former president Jorge “Tuto" Quiroga (2001-2002) to pull out days before the 7 September deadline to register.

Undeterred by his ejection from office in the August 2008 recall vote [RA-08-09], Reyes Villa had been clear early on about his presidential ambitions (see sidebar). However his 1 September announcement that Fernández would stand as his running mate took the media by surprise. Fernández, who commands real support in the eastern opposition “Media Luna" regions, is currently in a La Paz jail, awaiting trial for his alleged roll in the September 2008 Pando massacre, in which at least 16 people were killed [RA-10-08]. He is the first Bolivian politician to run for office from prison. The new plurinational electoral authority (OEP) says there is no constitutional impediment to his bid, a position endorsed by President Evo Morales.

Five days later, Quiroga, a former vice-president, Ví­ctor Hugo Cárdenas, and Germán Antelo, an ex-leader of the influential Comité pro Santa Cruz and the candidate for the rightwing Movimiento Nacionalista Revolucionario (MNR) ticket, announced they were pulling out of the running for the presidency. Antelo explicitly backed Reyes Villa and his movement, Plan Progreso para Bolivia-Autonomí­a para Bolivia (PPB-APB) (and subsequently received a senatorial nomination for his pains). Cárdenas and Quiroga - whose withdrawal signals the demise of Podemos as the main opposition alliance - have yet to declare where their political allegiances will lie. Notably Antelo's decision to throw his weight behind Reyes Villa signifies the first time since 1951 that the MNR -the party of ex-president Gonzalo Sánchez de Lozada (1993-7 and 2002-3) will not compete for the presidency.

The PPB-APB draws together some of the most conservative elements in the die-hard landowning elites, attracting the support of the opposition governors of Beni, Tarija and Chuquisaca, civic groups from Pando and Podemos legislators such as deputy Pablo Klinsky (Santa Cruz) and senator Roger Pinto (Pando). However, the opposition bastion of Santa Cruz has retained a distance. There, the vote is likely to be split between Reyes Villa and the only other opposition figure of any significance, the president of the centre-right Unidad Nacional (UN), Samuel Doria Medina, who recently struck a deal with the Santa Cruz politician and powerful senate president Oscar Ortiz.

Nevertheless, the ruling Movimiento Al Socialismo (MAS) has since revealed that it considers Reyes Villa to be the main threat to Morales (who nevertheless continues to lead the opinion polls by more than 40 percentage points). Jim Shultz, of the Cochabamba-based Democracy Centre, also noted the potential importance of Reyes Villa's unlikely comeback, arguing that “even if he loses in December, Reyes Villa is likely to end up the undisputed leader of the national opposition". This is potentially very significant given that a major reason for Morales's continued strength has been precisely the failure of the parliamentary and regional opposition to unite around a single figure.

Senate contest
With victory in the presidential contest virtually a given for Morales, the MAS is focussing on the senate elections, desperate to avoid a repeat of the current situation in which the opposition controls the upper house and has repeatedly proved a stumbling block to its reform efforts. Under the new constitution, the senate increases from 27 to 36 members, or four per department and the MAS has opted for senate candidates likely to appeal to a wide range of sectors and the middle classes in particular. Topping its list is a former human rights ombudsman, Ana Marí­a Romero de Campero, whose nomination for La Paz is considered an attempt by the MAS to broaden its support with the middle classes. In a similar vein it has opted for an ex presidential delegate, Gabriela Montaño (Santa Cruz), and a retired professor Rina Aguirre (Tarija). Meanwhile peasant leaders such as Fidel Surco of the umbrella group Coordinadora Nacional por el Cambio (Conalcam, La Paz) and a trade unionist, Isaac Avalos also feature on the list, indicative of the crucial role of social movements in picking candidates.

With campaigning already under way, Vice-President Alvaro Garcí­a Linera presented the MAS 2010-15 plan of governance on 13 September. Comprising 11 main components and more than 180 different measures, the manifesto, has as its starting point, the application of the new constitution and the industrialisation of natural resources, in which the State will play a leading role. Garcí­a Linera identified the five different sectors considered key to economic development as hydrocarbons, electrical energy, lithium, minerals and steel.

Other candidates also unveiled their electoral offerings although of the main contenders, only Doria Medina, offered a plan with an overtly economic focus, although this is at a micro rather than a macro level. Reyes Villa meanwhile is offering a vague programme based on “moral transformation" and “recovery of the rule of law". So far, however, his campaigning has consisted of attacks on the “systematic destruction of Bolivia's democratic institutions" under Morales, with a special focus on the judiciary. This has the much less vague aim of securing the liberty of his running mate, Fernández, long a cause celebre in the Media Luna.

Morales in Spain

Morales kicked off his first official three-day visit to Spain on 13 September, with a mass rally in Madrid, attended by thousands of Latin Americans. While his official speech centred on immigrant rights, the event served as a first stop on his campaign tour, and an acknowledgement of the importance of the newly enfranchised expatriate community, ahead of the election; some 98,000 Bolivians live legally in Spain (a further 150,000 are there illegally) and the new electoral framework law regulating December's vote allows expatriates, for the first time, to vote in presidential elections and national referendums. While a concession by the MAS to the opposition during tortuous negotiations in April over the passage of the law [RA-09-04] limits the number of registered expatriates to 6% of the electoral roll, or roughly 10% of the total number of Bolivians abroad (38,380 in Spain), the event reflects the importance accorded to this new pool of voters.

Morales's subsequent meetings with Spain's prime minister, José Luis Rodrí­guez Zapatero, (who agreed to write off Bolivian debt of some US$85m) and Spanish business delegates also had a distinctly electoral tinge. Morales issued reassurances regarding Bolivia's business climate, and received promises of further Spanish investment from companies including energy giant Repsol (see next page). This is central to his plans for Bolivia's industrialisation under greater State control, as outlined under his campaign manifesto. With key sectors so far nationalised including the oil and gas industry (which affected Repsol); the gas distribution network, Transredes; and parts of the telecoms sector), on 9 September Morales issued a decree which opens the way for the nationalisation of the electricity sector. The decree allows the state-owned power company, Empresa Nacional de Electricidad (Ende), to control between 47% and 49% of shares in the electricity generators, Corani, Guaracachi and Valle Hermos, previously owned by Spanish group, BBVA and Zurich Group (Switzerland). The government said it hopes ultimately to recover a majority stake in the companies.

• Reyes Villa

A former army captain, in the 1980s, Manfred Reyes Villa was personal guard to the dictator Luis Garcí­a Meza (1980-1). He  became active in local politics and in 1993 was elected mayor of Cochabamba (serving a total of four terms), where he won popularity through public works projects (and alleged political favours). Despite coming third in the 2002 presidential vote, he remained influential, going on to win the 2005 prefectural contest. His announcement in January 2007 of plans to reverse the result of the July 2006 autonomy vote in Cochabamba (after voters had soundly defeated it) proved a major political blunder however, ultimately costing him the August 2008 recall vote.

• Presidential candidates

 The eight presidential nominations are: Evo Morales-Álvaro Garcí­a Linera, Movimiento Al Socialismo; Manfred Reyes Villa-Leopoldo Fernández, Plan Progreso para Bolivia-Autonomí­a para Bolivia (PPB-APB); Samuel Doria Medina-Gabriel Helbing Araúz, Unidad Nacional; René Joaquino Cabrera-Carlos Suárez, Alianza Social; Alejo Véliz Lazo-Pablo Valdez Molina, Pueblos por la Libertad y la Soberaní­a; Ana Marí­a Flores-Guillermo Núñez del Prado, Movimiento de Unidad Social Patriótica (Muspa); Rime Choquehuanca-Nora Castro Retamozo, Bolivia Social Demócrata (BSD)-Nueva Generación; and Román Loayza-Porfirio Quispe, Gente.

In March, the monthly inflation rate was 0.7%, the highest for three years. The figure was well above the consensus forecast from independent economists of 0.5%. The central bank president, Julio Velarde, is not too bothered by the rising inflation: he says that inflation will probably be a bit above target this year but converge with the target again in 2012.
Velarde argues that since 2001, the economy has grown at its second fastest rate for 60 years. The average annual growth rate from 2001 to 2010 was 5.7%. The best decade in the past 60 years was 1961 to 1970 when the rate was 5.9%. Per capita, GDP growth in the past 10 years has been the best for 60 years at 4.4%. In the 1960s the rate was 2.9%.
The central bank is forecasting 7% GDP growth in 2011. In 2010 the economy grew 8.8%. In January 2011, the year-on-year rate of growth was 10%. Broad measures of domestic demand (such as electricity consumption up 10% in the first quarter, year-on-year and cement sales which were up 15%, year-on-year in January) point to string demand. It is worth noting, however, that the bank's consumer confidence indicator has been heading south since December 2010. On the other hand, residential property prices in swanky Lima areas, such as Miraflores and San Isidro, have been rising strongly both in Soles and in dollar terms.
The central bank has risen both interest rates (to 3.75%) and reserve requirements this year to cool down the economy, where domestic demand is strong. Velarde argued that the effective base interest rate is now 4.75%, which means that monetary policy is no longer expansionary.