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Brazil's other land problem — involving its indigenous peoples — erupted over the year-end festivities when thousands of Guaraní­-Caiauá adopted and enhanced the tactics of the landless peasants' movement, MST, and launched an armed occupation of farms close to the border with Paraguay. At the opposite end of the country, in Roraima, it was the farmers (plus Indian allies) who mobilised to oppose the demarcation of a reservation inhabited by seven ethnic groups.

At the root of both incidents is the government's slow movement on demarcation of Indian territories. The government recognises as ancestral indigenous territories 580 reservations jointly covering just over 1m square kilometres, or 11.85% of Brazil's total expanse. The 1988 constitution mandated their demarcation by 1993; so far only 342 have been fully demarcated and registered with the national indigenous foundation, Funai. To make matters worse, indigenous activists, backed by many anthropologists, say that there should be 772 reservations, not just 580 — and they point out that farmers and ranchers have invaded several demarcated territories. This has bred violent conflict, which last year alone, according to Cimi (the indigenist missionary council), claimed the lives of 25 Indians.

The Mato Grosso invasions
About 20,000 of the 42,000 Guaraní­-Caiauá mobilised at Christmastime to invade farms and ranches close to Japorá and Iguatemí­, in Mato Grosso do Sul, about 390km south of the state capital, Campo Grande. They have targeted 16 fazendas which they say have been established on their territory (the authorities say that so far only five have been invaded, by about 3,000 Indians). All accounts say that the invaders are armed and painted for war.

They have a reservation, Yvy Katu, which covers 1,600 hectares, but they claim that their ancestral lands actually cover 9,461 hectares. Funai agrees with them, but has been pleading for patience while it gets around to demarcating the full area. An impasse has ensued, but the Indians have threatened to seize more farms if they do not see prompt government action.

The Roraima blockade
In northern Roraima, the farmers' action has been triggered by the imminent demarcation of the 1.75m-hectare Raposa-Serra do Sol reservation — 7.7% of the state's territory — as home to 15,000 Indians belonging to seven different ethnic groups.  

The farmers do not oppose the reservation outright; what they want is for the authorities to demarcate it as a series of `islands' which would leave untouched their fazendas, which some of them have been occupying, with titles granted by the agrarian reform institute, for more than 60 years, and villages that have been established in the area (mainly by illegal miners).

In early January, accompanied by allied Indians, the farmers set up roadblocks on the highways leading into the state capital Boa Vista, cutting off supplies to the city and blocking international road traffic to and from Venezuela and Guyana. They also took hostage three missionaries, and some 200 of the Indians allied with the farmers seized Funai's Roraima headquarters.

The action lasted less than a week, when a federal judge ordered the blockade to be lifted. The missionaries were set free, but as of 10 January the Funai offices remained in the hands of the Indian protesters. Justice minister Márcio Thomas Bastos has said that the demarcation will go ahead as planned.

Chalk and cheese would be too lame a simile to illustrate how opposite are the stances of the Partido da Frente Liberal (PFL) and the Partido Democrático Trabalhista (PDT). Still, they have discovered that they have one thing in common: a burning desire to block any expansion of the ruling PT's municipal powerbase.

On 7 January, the leaders of both parties, Jorge Bornhausen (PFL) and Leonel Brizola (PDT), sat down to start constructing alliances for the municipal elections due in October. Their aim is to join forces wherever they are separately not strong enough to overwhelm the PT. This they describe as `a pragmatic alliance'.

The PFL is the most conservative of Brazil's major parties, and was allied with President Fernando Henrique Cardoso throughout his eight-year tenure of office (1995-2002). It is strongly committed to enabling market forces to rule the economy and to the privatisation of state enterprises. The PDT, a member of the Socialist International, is just as strongly anti-privatisation and pro-state intervention. It supported Lula da Silva in the presidential run-off and initially backed his government, but later shifted into opposition on the grounds that Lula's economic policies were a mere continuation of Cardoso's. This, says Brizola, is no obstacle to working together: `We are not interested in an ideological alliance. We wish to act against concrete situations. We are concerned about the situation of the country, which is undergoing great difficulties.'

The task the PFL-PDT alliance has set itself is not monumental. At present, the PT controls only 183 of Brazil's 5,561 municipalities. Its stated intention is to field candidates in all municipalities in October, but there is a big difference between contesting the elections and winning them.

Mercosur has come a step closer to making true its commitment to the free movement of persons across the borders of its member-countries: Argentina has just announced the imminent introduction of a new system which will legalise the situation of about 700,000 illegal immigrants from neighbouring countries.

Census data suggest that there are close to 1m foreigners working in Argentina, of which 940,000 hail from Bolivia, Chile, Paraguay and Uruguay — 74% having entered or remained illegally in the country. Under the new fast-track system for Mercosur and associates (Peru is not yet provided for), these may obtain one-year residency permits, renewable for a second year, after which they may apply for permanent residence or citizenship if they have a permanent job.

The eligibility requirements sound simple enough: applicants must prove that they are citizens of a country in the extended Mercosur, that they have no criminal record at home or in Argentina, and that they are in good health. Getting some of the necessary certifications from their home countries may prove tricky for quite a few. For now, though, the good news for them is that deportations of illegal immigrants have been put on hold until the new rules are fully effective.

BRAZIL | Preparing for modest growth. At a 7 January cabinet meeting to discuss growth strategies, the tone was set by finance minister Antônio Palocci, when he said, `There is no country in the world that can have sustainable growth accompanied by high inflation. Brazil will not be the one to perform this feat.' He is hoping that the economy will expand by between 3% and 4% this year, against the estimated 0.3% of 2003. `The government's aim is to work to create conditions enabling long-term growth at ever-greater rates with more stability.' Palocci expects public investment in basic sanitation and housing to help bring down the unemployment rate, currently 12%. Agriculture minister Roberto Rodrigues says his sector could create 1.3m jobs, now that the 2003/04 harvest is expected to be 5.7% bigger than the last one. The main impetus for growth this year, as in 2003, is expected to come from exports, predicted to expand by 8.3% to a new record level of US$80bn.

BRAZIL | Signs of upturn in industry. Industrial output last November was 0.8% higher than in October, with which the accumulated 11-month production rose to 0.1% over the comparable period in 2002. Best performer was the mechanical sector, up 9% thanks largely to demand for tractors and diesel engines. Worst were pharmaceuticals (-18.4%) and apparel & footwear (-12.5%). Car production in the whole of 2003 was up 2%, sustained by a 37.7% increase in export earnings, since domestic sales shrank by 3.4%.

ARGENTINA | IMF to move on review. To read the Buenos Aires media (fed by government briefings), the IMF had already given it full marks in the delayed first performance review under the US$12.5bn, three-year standby agreement. Actually, what has happened is that IMF managing director Horst Köhler has announced that the review will go ahead, on the strength of a letter of intent from Buenos Aires in which, crucially, the Argentine authorities `reiterate [...] their determination to complete a public debt restructuring that attracts broad creditor support.' Economy minister Roberto Lavagna has said that the US government helped persuade the Fund. The fact that he also received a congratulatory letter from deputy managing director Anne Krueger suggests that there was some give on the Argentine side.

Suddenly, it is no longer so certain that a majority of Venezuelans would vote President Hugo Chávez out of office. A leading local pollster, often slated as pro-opposition by the government, has shown that the largest segment is that of people who define themselves as neither supporting nor opposing Chávez . Its director believes Chávez will survive, and a leading international risk rating agency concurs.

Datanálisis, in a survey released on 9 January, reports that there are indeed more anti-chavistas than chavistas among their respondents: 33% versus 25.2%. But it also finds that both groups are outnumbered by those the pollsters call ni-ni, neither chavista nor non-chavista — 38.7% of the sample. The ni-ni segment is down from its November peak of 43.2%, but still well above the 32.5% recorded in September. Their most recent decline has been matched by a shift towards the chavista camp.

The pollsters reckon that this is a response to the implementation of a string of social programmes, including the one of massive provision of healthcare (seen as the vanguard of Cuban `infiltration' because of the large number of Cuban volunteer doctors involved), and the one aimed at making 5m Venezuelan literate.

Luis Vicente León, head of Datanálisis, envisages two scenarios for the second half of this year: that the referendum to revoke Chávez 's mandate does not take place (this depends on the electoral council's validation of signatures endorsing the call for a referendum), or that it does, but fails to unseat Chávez . The latest survey suggests that these are plausible outcomes.

A similar view has come from an unexpected quarter: the rating agency Fitch. In the course of rating Venezuela's recent US$1bn 30-year bond issue, Fitch says that in the event that a referendum does take place, it could be as soon as May, but even if it does, `the most likely outcome is that he remains in office through the end of his term in 2006.' Fitch notes that Chávez 's approval ratings, `as reported even by opposition-loaded polling companies, remain in the 32-40% region and, as the crisis-hit nation realises its economic recovery with positive results from social programs etc, Chávez 's support continues to increase strongly.'

Verification by mid-February
The national electoral council, CNE, has announced that it will start to verify the signatures submitted in support of the referendum calls on 13 January and will complete the job, as legally stipulated, by 13 February. The opposition strongly criticised the CNE for taking an unnecessary `Christmas and New Year break', suggesting that this was done to favour the government's position. This line of attack was soon countered by the CNE, which noted that the opposition did not deliver documentation due on 23 December until well into the new year. It is worth restating that the CNE's job is to certify that the requisite number of signatures (20% of the electorate) supporting a referendum call have been submitted. In the case of Chávez that means 2.4m. Then the opposition must muster in the referendum more votes than the 3.7m attracted by Chávez when elected.

The Summit of the Americas that is coming to a close shortly after this report is completed was not, despite the media build-up, about a Brazil-US confrontation over airport security measures. It was meant to be about coping with the social inequalities that had fostered crises like the downfall of the de la Rúa and Sánchez de Lozada governments. Some participants tried to use the occasion to superimpose their own agendas, but failed. The summit, whichever gauge is used, was not a resounding success.

The US wanted to elicit a commitment on the FTAA which many Latin American governments were unwilling to provide. Bolivia wanted to use the forum to drum up overt support for its demand for a sovereign oceanic outlet. Venezuela wanted to attract solidarity against what it portrays as a new US attempt to unseat President Hugo Chávez . Most of this was pushed off to the sidelines.

Hopes that the Monterrey meeting might provide the basis for a `social charter' analogous to the Inter-American Democratic Charter had already been dashed before the meeting started. Negotiators working on the draft Declaration of Nuevo León stumbled over a difference of approach that could only be overcome by watering down the text. The Latin Americans among them said that the main problem was US opposition to the inclusion of clear commitments to such measures as special support for highly indebted countries (and not only the poor ones), or for those at risk of political destabilisation. As the meeting draws to a close, similar differences have arisen over references to the FTAA and free trade.

For US President George Bush Jr the event was not the expected welcome party for his reengagement with Latin America. Applause was perfunctory. Indeed, the US was fortunate to have got off so lightly after a week of heavyhanded diplomacy, if that is the correct term, throughout much of the region. Instances included lecturing Argentina on its policy towards Cuba, accusing Cuba and Venezuela of seeking to destabilise other governments (including the funding of Bolivian opposition leader Evo Morales), preempting the conclusions of Venezuela's electoral authority and an eventual referendum on Chávez 's mandate, engineering a domestic political alliance in Nicaragua against the Sandinistas, and urging upon Jean-Bertrand Aristide a formula he had just tried out days earlier.

All this was toned down at Monterrey, but the aftertaste lingers. Chilean President Ricardo Lagos, until very recently counted among Washington's close friends, illustrated the prevailing mood when he said that Latin America was awaiting proposals that `respect the values of each nation.'

If, as US military sources have suggested, the Colombian government is pursuing a `decapitation' policy towards the Farc guerrillas, then it has clocked up its first real success. On 2 January the Ecuadorean police picked up in Quito the man known as Simón Trinidad, a member of the top leadership of Farc, reputedly in charge of their finances.

Trinidad, whose real name is Ricardo Ovidio Palmera, is a 53-year-old former banker who has acted as representative of the Farc in negotiations with the Colombian government. According to the Colombians, a Farc defector first made them aware that Trinidad needed to travel to Ecuador to be treated for a medical condition (first reported as leishmaniasis, later as prostate cancer). They say joint surveillance with the Ecuadoreans began last July, and that they were prompted to move on him when it became known that he had acquired Ecuadorean documents in the unlikely name of Cristo Rey Mariscal Peralta (actually, a real stolen identity).

The story changed after protestations from Quito, and was amended to read that it was the Ecuadorean police, acting alone, who had spotted Trinidad while checking on suspected immigration irregularities. Lost along the way is the fact that he was shipped back to Colombia without the benefit of normal extradition procedures.

The Farc tried to argue that Trinidad was not in fact a top leader of the organisation — in a bid to avoid his being charged with responsibility for an array of crimes committed by the Farc. The charge sheet includes rebellion, kidnapping and murder. The ploy failed when the chief prosecutor's office produced a Farc propaganda video in which Trinidad was proudly presented together with the rest of the group's leaders.

Even if there is no `decapitation' policy as such, Trinidad's arrest will be particularly welcomed by Colombia's army commander, General Martí­n Orlando Carreño. Late last year Carreño vowed to resign if he did not capture or kill at least one top guerrilla leader.

Colombia's neighbours are being particularly helpful of late. On 10 January, the Panamanian police announced that they had arrested Arcángel de Jesús Henao Montoya, el Mocho, reputedly one of the bosses of the Valle drugs cartel.

Henao was picked up in Tortí­, a small town some 400 kilometres from Panama city in the Darién jungle, close to the Colombian border. The official communiqué said that the arrest had been made `at the request of the United States, in a joint operation of the judicial police, the chief prosecutor's office and the national police.' Other sources have said that DEA agents took part in the operation as well.

Arcángel's brother Orlando, deemed to be the top boss of the Valle cartel, is currently in jail awaiting trial on a charge of illicit enrichment.

[Also on the drugs front, it has emerged that the aerial interdiction programme, resumed last August after a two-year suspension, was briefly halted in September after the Colombian air force forced an aircraft to land and then destroyed it, without clearance from the US controllers in Key West. The programme has since been resumed after a review of the rules of engagement.]

President Carlos Mesa is hoping that his recruitment of allies for the renewal of Bolivia's claim for its outlet to the sea [WR-03-50] will generate enough support to offset dissatisfaction over the slow pace of his delivery of what last year's October protesters had been demanding.

The promised referendum on future use of the country's natural gas reserves is the only demand to have a firm date: 28 March. Mesa's reason for the delay is that the government must first conduct a campaign to ensure that the electorate is fully informed about the options. Promised, but without a date, are a scheme to connect 200,000 homes to natural gas supplies, and the submission to congress of a new hydrocarbons law which would increase taxes on oil companies, de-link gas prices from the international market and gear up the state-owned YPFB for a greater role in gas development projects.

To be delayed until 2005, or perhaps even 2006, is the constituent assembly expected to reshape political institutions — which brings that very close to the general elections scheduled for 2007. Two related questions in circulation are whether the new rules will allow successive re-election, and whether this will be made retroactive so as to benefit Mesa.

VENEZUELA | Central bank autonomy at stake. President Hugo Chávez has turned to bluster, accompanied by street demonstrations by his followers, in an attempt to press the central bank into lending the executive US$1bn from its international reserves (currently US$21.3bn) in order to finance agricultural development. He has been pursuing this aim since last November, and is now threatening to take the case before the supreme court if the bank's board of directors does not `at least sit down to discuss the matter' by 15 January. The central bank has reiterated its position that the constitution specifically bars it from making such a loan (it actually bars it from lending to support deficit spending, and from lending directly to businesses).

The bank says it can, however, increase the lending capacity of the banking system via rediscounts. The government had toyed with this option, with new legislation forcing the banks to increase their lending to agricultural activities — but recent developments suggest that it has chosen to put pressure on the central bank instead. The opposition says this provides a new example of Chávez 's `autocratic disregard for the law'.

PERU | `De-dollarising' the economy. Central bank president Javier Silva Ruete is determined to reduce further the degree of dollarisation of bank deposits this year, after having succeeded in bringing it down to 63% by the end of 2003. He also says he expects foreign direct investment to surpass US$2bn, which would entail a 5.6% increase on 2003. More than half of this target appears ensured by two projects: the development of the Camisea gas deposits (US$847m) and that of the Alto Chicama gold mine (US$340m).

Silva Ruete's economic growth target for this year is 4%. This would repeat the performance of 2003 (when, says Silva Ruete, `we could have grown by one point more had we not had so much political noise'). His only fear for this year is more of the same. `The economy,' he says, `is closely linked to politics, and consequently, if the media, the statements and the analytic centres start underlining negative situations, this will discourage or delay some investments.'

President Hipólito Mejí­a has come out in favour of reforming the electoral law so that he may be able to run as presidential candidate of the ruling Partido Revolucionario Democrático (PRD) — as well as all of his PRD rivals. The idea is to adopt a system that Uruguay used for a long time: the ley de lemas, under which any party can field a number of candidates, with the most voted among them later accumulating the votes cast for all others belonging to his same party.

The opposition will try to challenge this on constitutional grounds, arguing that it distorts popular choice: a candidate could accumulate votes that would not be cast for him on his own. This was one of the reasons for Uruguay's abandonment of the system — though it has since been used by Argentina as a means of patching party-political crises.

"If [the new electoral law] has to be imposed, it will be imposed, because that is your role when you are in power. Power is to be exercised. Whoever speaks to the contrary should become a hairdresser's apprentice."

Hipólito Mejí­a, President of the Dominican Republic, seeking reelection.


"The maritime problem has become a potential destabilising element in the region because it called into question Bolivia's democracy."

Carlos Mesa, President of Bolivia, on his country's demand for a sovereign outlet to the sea.


"Our parties have different policy approaches but share a common condition, which is that of being in the opposition, and this can bring us together in the municipal elections."

Jorge Bornhausen, president of Brazil's conservative PFL, on his alliance with the leftwing PDT against Lula.

Latin American Weekly Report (Online) ISSN 1741-7422. Published weekly (50 issues a year) by Latin American Newsletters, 61 Old Street, London EC1V 9HW, UK. Telephone +44 (0)20 7251 0012, Fax +44 (0)20 7253 8193, Email: [email protected]. Website: www.latinnews.com EDITOR: Eduardo Crawley, [email protected]. Subscription rates will be sent on request. COPYRIGHT © 2004 in all countries. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, electrical, chemical, mechanical, optical, photocopying, recording or otherwise, without the prior written permission of the publishers. REFERENCES: Back references and cross-references in the current series will be made thus: WR-04-01 will indicate Latin American Weekly Report, Issue No.1, 2004.

Exchange rates
Local currency per US$1
COUNTRY	CURRENCY	Year ago	Previous	Current
		10.01.03	09.01.04	16.01.04
Argentina	peso	3.27	2.92	2.91
Barbados	dollar	2.00	2.00	2.00
Belize	dollar	2.00	2.00	2.00
Bolivia	boliviano	7.55	7.87	7.87
Brazil	real	3.38	2.83	2.82
Chile	peso	729.00	562.00	577.00
Colombia	peso	2,928.76	2,750.92	2,724.53
Costa Rica	colón	380.71	419.78	420.59
Cuba	peso	1.00	1.00	1.00
Dominican Rep.	peso	22.50	40.20	49.64
Ecuador	dollar	1.00	1.00	1.00
El Salvador	colón	8.75	8.75	8.75
Grenada	EC dollar	2.70	2.70	2.70
Guatemala	quetzal	7.73	_	8.11
Honduras	lempira	17.16	17.97	17.98
Mexico	nuevo peso	10.69	10.92	10.91
Nicaragua	córdoba oro	14.84	15.77	15.77
Panama	balboa	1.00	1.00	1.00
Paraguay	guaraní­	7,120.00	6,180.00	6,220.00
Peru	nuevo sol	3.50	3.47	3.46
Uruguay	nuevo peso	29.00	29.90	29.90
Venezuela	bolí­var	_	1,600.00	1,600.00
Sources: EFE; Bank of America.

Inflation in the region
Country	Source	October	November	December	Last 12m	Jan-Dec 2002
Argentina	Indec	0.60	0.20	0.20	3.70	41.00
Bolivia	INE	1.25	-0.51	0.90	3.94	2.45
Brazil	FGV	0.29	0.34	0.52	9.30	12.53
Chile	INE	-0.20	-0.30	-0.30	1.10	2.80
Colombia	Dane	0.06	0.35	0.61	6.49	6.99
Costa Rica	DGEC	1.17	1.42	1.25	9.87	9.68
Ecuador	Inec	0.01	0.33	-0.04	6.07	9.36
El Salvador	Min.Ec.	0.31	0.07	0.20	2.50	2.80
Guatemala	BCG	0.43	0.45	0.58	5.85	6.33
Honduras	BCH	0.40	0.70	0.30	7.70	8.10
Mexico	Bco.Mx.	0.37	0.83	0.43	3.98	5.70
Nicaragua	BCN	0.39	0.82	0.76	6.48	3.87
Paraguay	BCP	2.10	1.30	0.90	9.30	14.60
Peru	INE	0.05	0.17	0.56	2.48	1.52
Uruguay	DGEC	0.52	0.16	0.65	10.19	25.94
Venezuela	BCV	1.50	1.90	1.80	27.10	31.20
US	DOL	-0.10	-0.30	0.58	5.85	1.60
Previous: WR-04-01

The stockmarket in figures
Market	Index	09.01.04	16.01.04	Variation (%)
Buenos Aires	Merval	1195.40	1208.18	1.07
São Paulo	Bovespa	23916.72	23154.58	-3.19
Santiago	IPSA	1476.40	1459.48	-1.15
Bogotá	IGBC	2478.99	2482.25	0.13
San José	BCT	10835.42	10311.60	-4.83
Quito & Guayaquil	Interinvest	67.64	68.56	1.36
Mexico	BMV	9102.82	9193.81	1.00
Lima	ISVBL	2915.23	2788.39	-4.35
Caracas	BC	25633.21	26947.76	5.13
Source: Daily market reports.

There are still more than four months to go before US Secretary of State Colin Powell submits to the White House the blueprint for Cuba's post-Castro `transition', but already some of its most ominous findings, reflecting a worst-case scenario, have been given a public airing. As put by Andrew Natsios, administrator of USAID, the transition carries with it `a real possibility of a complex emergency [with] a high risk of chaotic migration.'

Actually, the 100-or-so members of the inter-agency commission set up to see how the US can accelerate the transition (to use Roger Noriega's interpretation of its remit), have come up with three scenarios:

• A peaceful transition to democratic rule with broad popular support - the best case.
• A transition punctuated with spasms of violence and internal divisions which, albeit with difficulty, can be overcome.
• A disorderly transition that might cause a major social and `humanitarian' crisis, with severe food shortages, looting and even acts of violence against aid agencies.

Last week, at a meeting sponsored by the University of Miami's Institute for Cuban and Cuban-American Studies, two health experts, Richard Garfield and Frederick Burkle, said that Cuba's healthcare system, despite its reputation, lacks essential medicines and has been seriously weakened by years of economic hardship. In a moment of optimism, USAID's Natsios said that he hoped this chaotic transition would not be as grave as the crisis that afflicted North Korea in the 1990s, when more than 2m people died.

According to Natsios, the US is devising a strategy aimed at saving lives and reducing human suffering, mainly through social rehabilitation programmes to be implemented jointly with humanitarian organisations, civic and religious groups, and the `transition government'.

Powell's `Free Cuba' commission has been working on this matter since 5 December. USAID had already spent about US$20m on `transition' projects for Cuba, and in the current financial year, which began in October, it has earmarked another US$7m for the same purpose. 

The Cuban interpretation of this effort is that, to quote Lázaro Herrera, spokesman of the Cuban Interests Section in Washington, as the Cuban exile community is `not satisfied with the embargo and other actions, the US wants to send concrete signals of movement towards the so-called transition, creating and supporting an internal opposition.'

President Lula da Silva is not only about to offer a couple of places in his cabinet to the right-of-centre Partido do Movimento Democrático Brasileiro (PMDB), a party he has in the past castigated as `corrupt' and `reactionary'; he has opened negotiations to extend the ruling alliance to the rightwing Partido Popular (PP), which members of Lula's party still consider `the epitome of all that is backward in Brazilian politics.'

Bringing the PMDB into the cabinet is the promised reward for that Party's support of Lula's reform legislation in congress last year - though several political analysts suggest that it also has to do with the aspiration of the ruling Partido dos Trabalhadores (PT) to expand its presence in municipalities across the country when local elections are held in October. There have already been talks about joint action at that level. The proposed alliance with the PP could be for the same purpose - but it may prove costly.

The PP is the political heir of Arena, the pro-government party created by the military during their 21-year rule (1964-85). Among the PP leaders whose political prominence harks back to those days are former finance minister Delfim Neto and former São Paulo mayor (and insistent presidential hopeful) Paulo Maluf, the latter currently facing several charges of corruption.

The news that the government was negotiating with the PP was made public on 13 January by the latter's congressional spokesman, Pedro Henry - who also made it clear that the PP wanted at least one ministry, while Lula's chief of staff, Jos‚ Dirceu, had offered them only lower-ranking positions in the government. As horsetrading continued later in the week, Henry proclaimed, `If they don't give us a ministry we shan't be submissive towards the government and will continue to act independently.'

If they do get a ministry, though, Lula may lose one of his left-of-centre allies, the Partido Popular Socialista (PPS). Its president, congressman Roberto Freire, said, `I have always defended alliances with centrist parties, with groups that respect democracy, but the PP is not among these. It is impossible to imagine Maluf forming part of a government that presents itself as leftwing.' `Alliances,' says congressman Chico Alencar, a PT leftwinger, `have a limit, and our limit is the PMDB.'

The municipal factor
In October Brazilians will go to the polls to elect new mayors and town councillors in the country's 5,560 municipalities. At present the ruling PT controls only 187 municipal governments. Its target for this year, according to João Paulo Cunha, president of the chamber of deputies, is to field candidates in all municipalities, and win in 850 of them. The PT strategists privately acknowledge that in this, as in congress, they need as much help as they can get.
Others have already started striking alliances as unforeseeable as the PT's rapprochement with the PMDB and PT. One such case is the pact between the Partido da Frente Liberal (PFL) and the Partido Democrático Trabalhista (PDT) to join forces in October wherever they are separately not strong enough to overwhelm the PT.

The PFL is the most conservative of Brazil's major parties, and was allied with President Fernando Henrique Cardoso throughout his eight-year tenure of office (1995-2002). It is strongly committed to enabling market forces to rule the economy and to the privatisation of state enterprises. The PDT, a member of the Socialist International, is just as strongly anti-privatisation and pro-state intervention. It supported Lula da Silva in the presidential runoff and initially backed his government, but later shifted into opposition on the grounds that Lula's economic policies were a mere continuation of Cardoso's.

Overtime in congress
Many federal legislators have served notice that they intend to run for municipal offices in October, which is not an unusual occurrence in Brazil. Worried that this may hinder the federal legislative-agenda, and particularly the passage of his proposed reform of the judiciary, Lula has persuaded congress to interrupt its recess and hold extraordinary sessions between 19 January and 13 February, which will still leave them a couple of weeks off before the ordinary sessions begin.

The government does not expect any piece of legislation to make it all the way through congress in that brief timespan, but is hoping that the additional month will allow legislators to make considerable headway on such matters as the laws regulating the pensions reform approved last year.

The legislators have not only been given political enticements (such as the alliances being finalised); they will also be paid handsomely for working `overtime'. The rate for extraordinary sessions is double that for ordinary ones, so they will be entitled to pocket just over US$9,000. Chico Alencar, who believes this will not go down well when the minimum salary is only US$87 a month, has been encouraging voters to write to their representatives saying, `Mr Legislator, don't pocket the extra salary, because we are not fools. We'll remember you on election day.'

After having successfully acted in tandem in Monterrey, Brazil and Argentina have decided to take their foreign-policy partnership a step further. In an unprecedented move, Brazil has offered to incorporate an Argentine diplomat to its team when it becomes a non-permanent member of the UN Security Council, and Argentina will reciprocate when it is its turn. For now they are jointly engaging on a campaign to `prevent the isolation' of any South American country - code for opposing any attempt to ostracise Venezuela.

This was one of the messages that Argentine President Néstor Kirchner conveyed to US President George Bush Jr when they met on the sidelines of the Summit of the Americas: that both Argentina and Brazil would resist any pressure to isolate Hugo Chávez . Apparently he was persuasive.  

Argentine foreign minister Rafael Bielsa said that Bush told Kirchner, `I would ask you, President Kirchner, the same as I have asked President Luis Ignacio da Silva of Brazil, to convey the message to Venezuela's President Hugo Chávez that if Chávez should legally win the plebiscite, he will legally continue to govern Venezuela.'

After the Monterrey summit, Lula's chief foreign policy adviser, Marco Aurélio Garcia, spelt out publicly the joint policy: `We don't want to isolate any country in South America. We believe this is bad for the stability of the South American region.' He made it clear, however, that the two had no intention of being coopted by Chávez , who has begun to speak of   a`Venezuela-Brazil-Argentina axis' in tune with his `Bolivarian' ideology, and on 15 January hinted that this would be consolidated when he hosted Lula and Kirchner in Caracas on 1 March. Garcia said that the only scheduled meeting between the three will take place at the summit of the G-15 in Puerto Ordaz, Venezuela, on 25-28 February. He also said that the purpose of the meeting was not to criticise the US, but to focus on economic matters, and particularly Venezuela's interest in an association with Mercosur.

[The G-15, which actually has 19 members nowadays, is a group created in 1989 to foster mutual cooperation and act as a regular consultative forum. Its members are Algeria, Argentina, Brazil, Chile, Colombia, Egypt, Jamaica, Kenya, India, Indonesia, Iran, Malaysia, Mexico, Nigeria, Peru, Senegal, Sri Lanka Venezuela and Zimbabwe - a considerable overlap with the G-22, now diminished, which emerged at the recent Cancún trade meeting.] At the Security Council Brazil joined the UN Security Council as a non-permanent member, replacing Mexico, on 1 January, and will remain there until 2006. The agreement to incorporate an Argentine diplomat to its team is preventively only meant to last until 2004, because - as there are no other candidates from Latin America and the Caribbean - it is likely that Argentina will itself become a non-permanent member of the council in 2005. If that is the case, only in 2007, when Brazil's mandate expires, will a Brazilian diplomat join the Argentine Security Council team.

Details have emerged of an Argentine-Brazilian scheme to solve Bolivia's landlocked confinement which preceded Hugo Chávez 's famous `Bolivian beach' intervention. The idea was to establish a `peace corridor' straddling the border between Chile and Peru, to be administered under a 99-year concession by Mercosur and its associates (Chile, Bolivia and Peru).

Similar to a Peruvian proposal of 1975, this scheme was first floated at the foreign ministers' security meeting in Mexico last October, then broached again at a meeting between Kirchner, Lula, Lagos and Fox at the Ibero-American summit in Santa Cruz. It failed to get off the ground because neither Peru nor Chile found it acceptable. At the Monterrey summit there were rumours that Argentina would try again: last week the Argentine foreign ministry denied this.

ARGENTINA | Putting pressure on the IMF. President Néstor Kirchner has served notice that if the IMF does not approve Argentina's compliance with agreed targets by 9 March, when a new payment of US$3.06bn to the Fund falls due, Argentina will not dip into its international reserves to make the payment. On 10 January the IMF approved compliance with targets in the first quarterly review, almost a month after it had been expected to do so - and then only after considerable pressure by the US. The IMF is also under pressure, in the opposite direction, from the banks. Charles Dallara, director of the IFI, the international banks' think-tank, last week accused the IMF of breaking its own rules by continuing to lend to a country in default and failing to coax Argentina into expediting a deal with its creditors.

ARGENTINA | Industrial downturn. Industrial output in Argentina fell by 2.7% between November and December, paring down the improvement over the whole year to 16.3%. It must be kept in mind that in 2002 the country's industrial output shrank by 10.6%.
Over the year as a whole the most dynamic branches of industry were textiles and mechanical products (excluding cars). The only branch to register a decline was that of dairy products (down 9%).

BRAZIL | Expectations up, modestly. According to a survey by the Fundação Getúlio Vargas, 42% of industrialists expect to increase their production this quarter, as against 27% who expect a decline. A slim majority expect the jobs situation to remain unchanged: 21% expect to employ more people, while 18% say they'll employ fewer. This roughly matches another mix: 20% say the business outlook is good for this time of year, while 12% say it is `weak'. This is the most optimistic reading of the situation since April 2001.

Sitting oddly with these results is the fact that more respondents (35%) expect demand for their products to fall, than expect a rise (31%). This dovetails, however, with figures that show retail sales in the first 11 months of 2003 running 4.25% lower than in 2002, with the November data - marking the 12th consecutive month of declines - showing a deceleration of the fall.

CHILE | Growth inching upwards. Economic activity in November was 0.5% higher than in October, taking the year-on-year increase to 3.2% - the rate the central bank had projected for the year as a whole. The bank expects growth this year to range between 4.5% and 5.5%.

A shadowy pro-Chávez guerrilla group has emerged in Caracas, sniping at officers of the metropolitan police (PM) and issuing threats of bombings against US, British and Spanish diplomatic premises - or so say the PM and its sister force of Chacao, both of them under the control of opposition mayors. Publicly, the government has ordered an investigation; privately, officials suggest that this may be an opposition ploy to link the Chávez government with terrorism in the public eye.

On 16 January, PM chief Lázaro Forero announced that sniper fire had injured two members of the PM and two passersby near the Agua Salud metro station in the 23 de Febrero district of the capital, a chavista stronghold. He displayed leaflets purportedly left on the scene by the attackers, identifying them as the Unidad Táctica de Combate Néstor Zerpa of the Tupamaros - both of these names hitherto unknown in Venezuelan political circles. The leaflets cited as motive for the attack that the PM had been persecuting community organisations in the district.

The name on the leaflets contains a mix of allusions. The Tupamaros were Uruguayan guerrillas (the name is a derivation of Tupac Amaru) who operated in the 1970s and have long since shifted to legal political activity. Néstor Cerpa (with a C, not a Z), was a member of the Peruvian Movimiento Revolucionario Tupac Amaru (MRTA), killed in 1997 by Peruvian security forces when they stormed the Japanese ambassador's residence to free hostages held by that guerrilla group. This combination is not typical of radical leftwing groups in Latin America, who tend to know their guerrilla genealogy in detail.

The day after the sniping incident the Caracas newspaper Ultimas Noticias published a photograph it had received, showing seven masked and armed figures in front of a Venezuelan flag and a placard reading, `Unidad Tactica Néstor Zerpa Cartolini'.

Bombing alert  
Then, that same day, came news that the embassies of the US, Britain and Spain had received warnings of possible bombing or firebombing attacks by a suspected pro-Chávez `radical' group, to take place between 18 and 21 January. The warnings did not come from the would-be attackers but from the PM and the Chacao police. The US and British embassies appeared to give credence to the warnings and issued alerts urging their nationals to be vigilant. The Spanish embassy reacted more sceptically. `The purported threat is against the embassy premises, which in Spain's case enjoy permanent protection [...] since it was the target of an attack in February 2003,' a spokesman said. Consequently, it issued no warning to its nationals.

Last year's bombings  
In February 2003 there were bombing attacks against the offices of the Agencia Española de Cooperación Internacional (AECI) - the Spanish government's aid agency - and the Colombian consulate-general. At the time the opposition blamed the attacks on chavistas. The subsequent investigation led to the issue of arrest warrants against three anti-Chávez officers, national guard General Felipe Rodrí­guez and army Colonel Yussepe Piliery and Lieutenants José Colina and Germán Varela as the suspected masterminds and perpetrators of the bombings. All four fled to the US, followed by an Interpol arrest warrant. A Florida court is currently hearing the request for political asylum filed by the two lieutenants.

The other guerrillas  
Another allegedly pro-Chávez guerrilla group, called Fuerzas Bolivarianas de Liberación (FBL), is said to have been operating since 2000 in the border states of Táchira, Apure and Barinas. Cattle ranchers blame it for about a third of the kidnappings and extortion cases in the area; opposition politicians say the FBL is the first step in a plot by Chávez to turn Venezuela into a `second Cuba'. Pro-government politicians describe the FBL as a `phantom organisation' used as a convenient `cover' by common criminals.

In any case, over the past year the FBL has been engaged in turf wars with the Colombian Farc and ELN guerrillas, denying them free access to portions of Venezuelan territory they had been using as safe havens. If the FBL is genuinely pro-Chávez , this sits oddly with the claim that Chávez is aiding the Colombian guerrillas and giving them refuge.

Last week US government officials leaked a purported report by `dissident' members of the Venezuelan national guard which claims to corroborate the claims of Chávez 's collusion with the Colombian guerrillas. This was picked up in Venezuela by the association of anti-Chávez retired military officers, who said it provided justification for US intervention.

Apart from ambiguous kudos, Ecuador appears to have obtained one clear benefit from its capture of Farc leader `Simón Trinidad' (WR-03-22): a commitment by Colombia to deploy military and police forces to control the common border. Meanwhile, the question that has been exercising security officials and diplomats is what, precisely, was the reason for Trinidad's presence in Ecuador.

The initial and most straightforward explanation, that he had been visiting Ecuador for some time for treatment of a medical condition, is still a very strong contender, but it begs a number of questions. One is the nature of the condition: it was first identified as leishmaniasis, then as cancer (either testicular or of the prostate). The other is where he was being attended: several different clinics and the Eugenio Espejo Hospital have been mentioned. It has been claimed that Trinidad had been in Ecuador at least three times in the second half of last year, which fits the notion of regular cancer treatment (apparently corroborated by a Farc defector's report that the organisation's 1st Front had been ordered in mid 2003 to provide facilities in one of its camps for his recuperation). This, however, does not sit well with the fact that only on this last visit had Trinidad sought to obtain false Ecuadorean documents.

The UN-France connection  
The Farc, after failing to convince anyone that Trinidad was not a prominent leader, last week began to describe him as `a prominent political cadre [who] in the peace process suspended two years ago performed solvently, first in the thematic commission and later at the dialogue table'. This, which is more in line with what Colombian officials knew about Trinidad, provided the background for the Farc's explanation of what he was doing in Ecuador.

He was, says a Farc communiqué, seeking a venue for a meeting with UN secretary-general Kofi Annan, UN envoy in Colombia James Lemoyne and representatives of the French government `to find a definitive solution to the captivity of [former presidential candidate] Ingrid Betancourt and other prisoners of war through a swap or humanitarian exchange'. This appeared to follow on from two developments last year: the Farc's shift to accepting the idea of a meeting with the UN, and a failed attempt to release Betancourt to a French team of officials and soldiers who had secretly flown into Brazil on a military plane for that purpose. When he was arrested, Trinidad reportedly told the Ecuadorean police that he had entered the country to obtain false ID and start negotiating an exchange of prisoners -and on those grounds requested political asylum. However, the UN promptly denied that any such meeting was being arranged.

Taking the war abroad  
A story circulating in intelligence circles says that Trinidad's visit was connected with the establishment of an `International Command' bringing together the Farc and insurgents or would-be insurgents from elsewhere. In one variant, Trinidad had been designated coordinator of this body, and the purpose of his visit to Ecuador had been to obtain false documents so he could travel incognito to Brazil for a meeting with foreign allies.

In this explanation, Trinidad had been preceded by several other Farc cadres, who only spent two or three days in Ecuador: Trinidad was caught because his documents took longer than expected to obtain.

Kidnapping  
An additional explanation, originating in Colombia, is that Trinidad had gone to Ecuador to coordinate a big-ticket kidnapping for ransom. This does not fit what is known about his background as a negotiator - but then he has also been involved in managing Farc's finances, and one of the organisation's main sources of funding is kidnapping.

The director of Ecuador's antikidnap unit (UNA) Edmundo Mera, dismisses this notion saying that kidnapping in Ecuador has been on the decline, and that of 122 suspected kidnappers arrested over the past couple of years only 35 were Colombians. He admits, though, that Colombian armed organisations have previously `outsourced' kidnappings to gangs of Ecuadorean criminals.

Border control  
The Trinidad episode added strength to Ecuador's campaign to persuade the Colombians to increase control of their side of the border, a sore point since last year's mutual recriminations over Colombian claims that rockets from Ecuador's military arsenals were finding their way into the Farc's hands. Recently, Ecuador had been threatening to demand that visiting Colombians should obtain visas - a nuisance measure, since it would only apply to aboveboard transit into Ecuador, not into Colombia, and moreover would be probably an actionable breach of Andean Community rules on free movement.

Still, in the wake of Trinidad's arrest the Colombian foreign ministry let it be known that troops and military intelligence personnel would be deployed along the border with Ecuador, and in consequence Ecuador would not implement its visa requirement. Ecuadorean foreign minister Patricio Zuquilanda has said the deal is not yet firm, but an agreement on this issue is expected to be announced formally at a bilateral foreign ministers' meeting on border security, scheduled for 23 January.

It is worth noting that any such decision by Colombia will be picked up as a precedent by Venezuela, which has been insisting for a long time that many of the problems along its border with Colombia have been due to the absence of any control by the Colombian security forces. Colombia's counter-argument has been that its military priority is winning the internal war.