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The withdrawal of Conaie, the senior umbrella indigenous confederation, from the protest marches due to begin on 21 January, may mark a turning-point for the Gutiérrez administration. Though still facing a hostile left-of-centre coalition in congress, he may be granted a respite from pressure on the streets.

Conaie has said it is still committed to seeking President Lucio Gutiérrez's resignation, but that it wants to `avoid confrontation' - for now. Its political arm, Pachakutik (PK), has adopted the same stance. This is mainly because the two feel that the anti-Gutiérrez camp is too weak and divided to succeed right now. 

On one hand, the differences between Conaie and other indigenous 
organisations (particularly the Confederación Nacional de Organizaciones Campesinas, Indí­genas y Negras and the Federación de Indí­genas Evangélicos) have deepened to the point that they are barely on speaking terms. 

On the other, Conaie and PK have failed to enlist a `strategic partner' that would play the role assumed by the military under Gutiérrez in the 
uprising that unseated President Jamil Mahuad.

COLOMBIA | Moderating expectations. Colombia's economy will  grow this year by 3.5%, according to Asobancaria, the association of banks and financial institutions. This figure is at the bottom of the range envisaged by the government, whose best-case projection is 5%.

In the same vein, Asobancaria predicts that inflation will reach 6% (the ceiling set by the central bank) and that the fiscal deficit will reach 3.2% of GDP - against the government's target of 2.5%.

The banking association puts the end-2004 dollar rate at Col$2,941, with an average for the year of Col$2,859, which implies a real appreciation of the peso of 2.3%.

Asobancaria sees three areas where the government will have to struggle to keep things under control: social security payments, the volume of financial transfers to the regions, and the required improvement in tax receipts. It notes that the Uribe administration has yet to come up with a solution to Colombia's chronic fiscal shortfalls.

VENEZUELA | `Inflation up, widespread closures'. Fedecámaras, the umbrella employers' federation, is predicting an `explosive' increase in the rate of inflation this year. It did not venture a figure, but said that  it would `leave behind' the 26.1% recorded in 2003. The federation  also predicts widespread closures of factories and an increase in  unemployment.

It says the government has aggravated the outlook by extending until end-September the ban on dismissals of personnel, introduced last July together with a 30% blanket pay increase, with the declared aim of  preventing `mass dismissals'.

Exempted from the ban are executives, employees with fewer than three months on the job and those earning more than US$396 a month. At present, open unemployment is calculated at 17%, and just over 50% of the workforce earns a living in the informal sector.

About 1,800 members of the ruling Partido Acción Nacional (PAN) have applied to become members of the party's 300-member national council, but attention has focused mainly on two of them, for whom admission to the PAN's second-highest ruling body is a step towards seeking the presidential nomination: interior minister Santiago Creel and Marta Sahagún, wife of President Vicente Fox.

For months Sahagún has been blowing hot and cold on the prospect of running for the presidency. Her most recent utterances, last week, suggested that she was in a warming phase. `The opinion polls,' she said, `show me with a chance, and that has led me into a process of greater reflection: I've got to try harder because there are those who expect more from me.' A more solid indication came on 18 December when she, like Creel, submitted to the `exams' all aspirants to the national council must pass. 

They are quizzed on their knowledge of the PAN's statutes and doctrinal positions, subjected to a psychological test and examined on their command of Mexico's social and economic situation. And that is only the first barrier. They must also obtain the approval of their state committee, the national executive committee and the party's national assembly, due to be held between 30 April and 2 May.

Internal opposition
Among those to be incorporated to the national council this year is Francisco Barrios, leader of the PAN bloc in the lower chamber of congress. He is decidedly against Sahagún's candidacy. `I feel,' he said last week, `that her participation in the race would not be prudent, given her closeness to the current President. This would be a case of familial continuity that is not prudent for the PAN.'

Party leader Luis Felipe Bravo Mena is more brutally dismissive. The prospect of her candidacy, he says, is `mere speculation that a lot of people are having fun with, but ultimately it is not in the least serious.' For his part, he adds, `I have always been firmly convinced that Señora Marta Sahagún will not be our candidate.'

The odds in the polls
The polls alluded to by Sahagún are not new. The most comprehensive, conducted by Indemerc Louis Harris last September, placed Sahagún third, with 10%, in a straight measure of voter preferences (Mexico city mayor Andrés Manuel López Obrador of the PRD came first with 27%, followed by PRI leader Roberto Madrazo, with 12%). 

The findings, however, became much more interesting when the pollsters tested different combinations of contenders. If the PAN were to field Creel, he would attract 16% of the vote, while 44% would pick López Obrador and 23% would go for Madrazo. But if Sahagún were in the running, she would be neck-and-neck with Madrazo, at 22%-21% - though López Obrador would still win with 44%.

Political commentator Salvador Garcí­a Soto is sure she will try to beat the odds. `Between the mystical, the galactic and her Christian faith,' he says, `she fervently believes that anything is achievable if one puts determination and intelligence into the effort.'

The Fox administration has made it dramatically clear that its toleration of the `autonomous municipalities' established by the Zapatistas in the state of Chiapas does not extend to similar actions elsewhere. On 14 January an 800-strong array of security forces descended upon the small town of Tlalnepantla, in the southeastern state of Morelos, to quash its transformation into an `autonomous municipality'. Now the federal interior ministry says it is investigating whether Zapatista-style `guerrilla groups' were involved in this `breach of the constitutional order'.

Ironically, this action initiated by Morelos governor Sergio Estrada, of the ruling Partido Acción Nacional (PAN), has ended up consolidating a classical hijacking of a local election by the Partido Revolucionario Institucional (PRI).

Tlalnepantla is one of many Mexican municipalities where the local   authorities are selected by traditional `usage and customs'. The municipal president is chosen in an assembly attended by the comuneros, representatives of social organisations and the president of `communal goods'. His name is then entered under a `flag of convenience' registration provided by a recognised political party, for formal endorsement in the elections. In Tlalnepantla this proxy used to be the PRI - until last year, when the assembly sought to register their choice, Conrado Pacheco, under the banner of Fuerza Ciudadana.

The PRI decided to ignore the assembly's choice and register Elí­as Osorio, a local politician with a shady reputation. The people of Tlalnepantla decided to boycott the elections: only 10% of the 4,500 registered voters turned out, and on the strength of their votes Osorio claimed the municipal presidency.

On 2 November the followers of Pacheco seized the municipal palace and placed offices, furniture and vehicles under seal. They appealed to the local government to reverse the situation, offering to hold a plebiscite. This was refused, but the people of Tlalnepantla went ahead regardless, and overwhelmingly confirmed Pacheco's election.

The Tlalnepantla rebellion began to attract support from outside, which the state government described as a `radicalisation' of their stance. It then began to cut off the provision of state services to the town. On 11 January the rebel Tlalnepantla authorities proclaimed that they were becoming an `autonomous municipality', invoking federal and state constitutional provisions.

Sending in the troops
At that point, on the excuse of preventing a violent clash between the   supporters of Pacheco and Osorio, the government marshalled a force of municipal, state and ministerial police, spearheaded by the Grupo Aeromóvil de Reacción Inmediata (GARI), the élite airborne rapid-response counterinsurgency unit, and ordered it into Tlalnepantla to reinstate Osorio. According to the official report, this force ran into an ambush on the   outskirts of the town: unidentified assailants hurled stones and molotov cocktails and fired guns at them.

Led by the GARI the police went in firing tear gas and bullets. They did not take long to occupy the town, but at the end of the day one townsman was dead (locals say another was also killed) and at least 12 were injured. Homes of the `rebels' were raided and about two dozen were arrested. Osorio was installed in the municipal palace; interior minister Santiago Creel invited all parties involved to engage in `dialogue'.

According to President Vicente Fox, his US peer George Bush Jr has filled in a couple of gaps in his proposal for the issue of three-year visas for `temporary' workers [WR-04-02]: the volume of visas to be granted, and the core incentive for Mexican workers to return home.

He said last week that Bush had assured him that the number of temporary visas will be `increased considerably every year until they reach two or three times the present number'. He did not translate this into actual figures.

Fox said he also agreed with Bush the introduction of a `totalising' scheme, whereby social security contributions by Mexican workers will go into a single retirement account, instead of one in the US and another in Mexico, as at present. This would allow the temporary workers to enjoy back in Mexico the benefits accumulated during their stay in the US.

Bush's temporary visa scheme, he said, `seems to be substantial enough for us to give our determined support for its approval by the US Congress.' Nonetheless, he added, his government would continue to press for an `integral' migrations agreement.

INVESTMENT | FDI expected to rebound. Foreign direct investment (FDI) this year will increase to somewhere between US$12bn and US$14bn, according to the economy ministry. This would represent an increase of 20% to 40% over the projected total for 2003. In the first three quarters of last year, FDI totalled US$8.09bn. Figures for the last quarter are not yet in, but the ministry expected the annual total to be in the vicinity of US$10bn.

The areas expected to attract most FDI are car production and auto parts, electronic goods and construction, with Europe as a promising source, since it can take advantage of the strength of the euro vis-í -vis the US dollar. The ministry warned, however, that high electricity rates and an unreliable power supply could conspire against investor interest.

This, of course, is a plug for the government's proposal to ease private participation in the electricity sector - which has been stuck since August 2002 due to the opposition's reluctance to introduce the necessary amendments to the constitution.

INVESTMENT | Downturn in 2003. In the first 10 months of last year gross fixed investment was 0.7% lower than in the same period of 2002. This was the result of a 4.3% fall in investment in machinery and equipment, set against an increase of 3.5% in investment in bricks and mortar. The latter largely reflects greater investment in infrastructure works initiated by the government.

ENERGY | Gas from Bolivia? After a meeting with President Vicente Fox last week, Bolivian President Carlos Mesa announced that within the next few weeks two Bolivian ministers would be meeting their Mexican counterparts and authorities of the state oil company, Pemex, to examine the prospects for importing natural gas from Bolivia. As we have reported, Bolivia's earlier prospects for gas exports to the US via Mexico collapsed when the buyer, Sempra Energy, turned to other suppliers [WR-03-50]. Mesa said that there was also a chance of selling gas to the US in partnership with Pemex.

As Haiti was left with only a rump congress with no legislating powers, hopes for some kind of negotiated solution to the political crisis were rekindled on the sidelines of the Summit of the Americas in Monterrey, thanks mainly to the persistence of the Caricom governments, whose `facilitating' initiative had at first appeared stillborn [WR-04-02].

The official word from Georgetown is that during the Caricom fact-finding mission of 5-7 January, opposition and civil society leaders had expressed willingness to put their case to the Caricom heads of government. Following up on this, a meeting between them and some Caricom rulers was scheduled for 20-21 January in Nassau, Bahamas.

This was preceded by intense lobbying in Monterrey, where Caricom leaders enlisted support for their initiative from OAS secretary-general César Gaviria (whose own efforts had failed earlier on), Canadian Prime Minister Paul Martin and US President George Bush Jr. Martin discussed the matter with Aristide, and Caricom has said that it expects to meet with him and his party `separately and at a different time and place'.

Publicly Aristide has reiterated that he will not resign, and that sometime within the next six months he will call legislative elections - an urgent matter now that congress has been left with only 15 sitting senators. On 12 January the mandates of all 83 deputies and four senators expired (the balance results from the fact that eight senators had resigned). 

The 15-strong rump senate can continue to hold sessions, but cannot pass laws or ratify loans. Aristide can keep much of the routine business of  government going because this year's budget was one of the last acts  of the outgoing congress. The word has been put out that Aristide has agreed not to legislate by decree.

Just as publicly as Aristide, the opposition has reiterated its position that it will not take part in any elections as long as Aristide remains in power. This means that the Caricom `facilitators' have a difficult task ahead. 

Continuing violence  
On 13 January, unknown armed raiders set upon radio and TV antennas on a hill overlooking Pétionville. This cut off the transmissions of seven radio stations and one TV station. It is widely assumed that this was the handiwork of pro-Aristide shock forces, bent on suppressing the constant live broadcasting of anti-government demonstrations. 

The irony is that in the indiscriminate vandalisation of the antennas, they also cut off the transmissions of Radio & Television Ti-Moun, owned by a pro-Aristide foundation. Clashes between the two camps last week claimed another life and a number of people were injured by gunfire, mainly in southwestern Miragoane on  12 January and in Port-au-Prince on 17 January. University students have announced that they will stage a series of `symbolic funerals' to commemorate those killed in the protests of the last four months - a period in which fatalities are now estimated to have come close to 50.

The government of President Oscar Berger has committed itself to supporting a UN-led commission which will investigate the clandestine groups assumed to have been responsible of most of the acts of political intimidation and violence over the past few years - a body which was supposed to have been up and running last September. At the same time, Berger's security supremo has announced a plan for the police which might prove a hindrance for that commission's work.

The agreement with the UN setting up the `commission to investigate illegal security corps and clandestine apparats' ('Ciciacs' in the Spanish abbreviation) was signed on 7 January by outgoing foreign minister Edgar Gutiérrez. The next step, up to Berger, is to push from prompt ratification of the agreement by congress, following which UN secretary-general Kofi Annan will appoint a commissioner head a team of local and international investigators. Their liaison with the government will be human rights commissioner Frank LaRue, who as director of the Centro de Acción Legal en Derechos Humanos (CALDH) had actively promoted the creation of the Ciciacs.

Quis custodiet?
A parallel domestic development has been announced by retired General Otto Pérez, head of the national security commission in the Berger government. The government will encourage the voluntary retirement of members of the military and recruit them into the Polic ¡a Nacional Civil (PNC), the national police force. The PNC emerged from an overhaul of the old national police in 1996, in fulfilment of the peace treaties signed between the government and guerrilla organisations. An overriding aim of that overhaul was to wrest the police from military control and turn it into a purely civilian institution. Initial training for the new force was provided by Spain's Guardia Civil (which had been adopted as the model for Peru's Guardia Republicana in 1919 and Chile's Carabineros in 1927).

Early high hopes foundered on a number of obstacles. The police got more up-to-date equipment and more officers, but a considerable number of the latter remain, as one recent assessment puts it, `only marginally literate'. The upper echelons of the police hierarchy did not change all that much - forcing the US State Department to skirt around the issue in its 2002 report on human rights, saying that there were no `active' members of the military in charge (in the hope that the qualification would go unnoticed). The Portillo administration skimped on budget appropriations for the police (while finding ways to raise extra financing for the army). Scandals and pressures of various kinds led to the replacement of eight PNC chiefs (and four interior ministers) between 2000 and 2003.  

The PNC has been insistently cited, together with the army, as being involved with the clandestine groups engaged in violence and intimidation against the political opposition and the media - the target of Ciciacs' inquiries. The `clandestine' groups are assumed to form part of a web that links the old repressive apparatus of the state with organised crime, and to have if not active members at least patrons in the current security establishment. Hence, incorporating members of the military to the PNC is unlikely to help Ciciacs in its endeavours.

A similar situation, which has attracted criticism from the UN Commission for Guatemala (Minugua), arises from the quiet transfer of personnel from the disbanded EMP, the old headquarters of overt and clandestine repression, into the new, ostensibly civilian Secretarí­a de Asuntos Administrativos y de Seguridad (SAAS), which was meant to replace its internal security role.

The ruling coalition of the Netherlands Antilles* appears likely to survive the conviction of Anthony Godett, the FOL leader who got his sister Mirna installed as prime minister last year when barred by a corruption inquiry from taking over the post himself. 

Two member parties of the coalition (the Saba-based WIPM and the Bonaire-based UPB) withdrew demanding Godett's resignation as an MP and Curaçao councillor - but two others (the DP of Bonaire and the National Alliance) said they were prepared to take their place.

Godett, considered the real `power behind the throne', was convicted of forgery, bribe-taking and money-laundering, and sentenced to a year in prison. He is refusing to resign his offices and has filed an appeal. Four members of the coalition (Godett's FOL, the PNP and PLKP of Curaçao, and the DP of St Eustatius) decided to hold together, but they were reduced to 11 seats in the 22-seat parliament. The incorporation of the DP-Bonaire and the NA would raise that to 13 seats.

*A dependency of the Netherlands formed by Curaçao, Bonaire, St Maarten, St Eustatius, and Saba.

EL SALVADOR | Remittances rise to new peak. Remittances by Salvadorean expatriates last year totalled US$2.1bn, or 8.8% more than in 2002. The inflow was equivalent to 14% of El Salvador's GDP and 80% of its trade deficit. The country also benefited, to an undisclosed extent, by the fact that 31% of the remittances were handled by agencies of Salvadorean banks.

NICARAGUA | Modest growth after slump. GDP grew last year by 2.3%, a distinct improvement on the 0.7% decline recorded in 2002, but well short of the 3% target included in Nicaragua's letter of intent to the IMF, let alone what would be needed to start making inroads against poverty. Much of the growth was due to a 12.3% expansion of construction (weighed down by a 5.7% contraction in the critical agricultural sector). The central bank projects 3.7% GDP growth this year.

COSTA RICA | Growth to slow down. Costa Rica's economic growth rate, which last year reached 5.6% (one of the highest levels in Latin America), is expected to slow down to a still above-average 4.4% in 2004, according to the central bank. The bank is assuming that the  fiscal reform currently before congress will be approved, locking in  permanent revenue inflows equivalent to 2.5% of present-day GDP.

GUATEMALA | Better, but still poor, growth. Guatemala's economy will grow this year by 2.5% to 3%, according to the BCIE, the Central American integration bank. This would be the highest rate on record since 2000 but, as noted by the bank's chief economist, Marvin Taylor, `this is no cause for celebration, because it is still insufficient to reduce poverty and improve the population's living conditions'.

PANAMA | Tourism expansion. Tourism expanded by 8.1% last year, with the arrival of 865,142 visitors who spent an estimated US$750m. Private investment in the sector last year totalled US$152.2m.

With the assistance of the JCE, the central electoral board, President Hipólito Mejí­a has become the only presidential candidate of the ruling Partido Revolucionario Democrático (PRD) to have been elected by party members. Earlier primaries that picked party leader Hatuey Decamps were disallowed by the JCE.

In the twice postponed primaries that were finally held on 18 December, Mejí­a created the faintest illusion of a contest by getting a friend, Frank Joseph Thomen, to stand against him. Provisional results showed Mejí­a winning with 94% of the vote. These elections will be challenged by the other PRD aspirants, and the JCE might yet invalidate them. Meanwhile, congress has been unable to muster a quorum to debate the bill that would introduce a ley de lemas system, allowing a party to field several candidates, with the most-voted one later accumulating the votes cast for the others.

Exchange rates
Local currency per US$1
COUNTRY	CURRENCY	Year ago	Previous	Current
		17.01.03	16.01.04	23.01.04
Argentina	peso	3.27	2.91	2.92
Barbados	dollar	2.00	2.00	2.00
Belize	dollar	2.00	2.00	2.00
Bolivia	boliviano	7.55	7.87	7.88
Brazil	real	3.38	2.82	2.84
Chile	peso	729.00	577.00	577.00
Colombia	peso	2,928.76	2,724.53	2,743.11
Costa Rica	colón	380.71	420.59	421.26
Cuba	peso	1.00	1.00	1.00
Dominican Rep.	peso	22.50	49.64	54.52
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	8.14
Honduras	lempira	17.16	17.98	18.00
Mexico	nuevo peso	10.69	10.91	10.96
Nicaragua	córdoba oro	14.84	15.77	15.77
Panama	balboa	1.00	1.00	1.00
Paraguay	guaraní­	7,120.00	6,220.00	6,260.00
Peru	nuevo sol	3.50	3.46	3.47
Uruguay	nuevo peso	29.00	29.90	30.00
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	16.01.04	23.01.04	Variation (%)
Buenos Aires	Merval	1208.18	1163.60	-3.69
São Paulo	Bovespa	23154.58	23471.00	1.37
Santiago	IPSA	1459.48	1453.50	-0.41
Bogotá	IGBC	2482.25	2608.75	5.10
San José	BCT	10311.60	10461.34	1.45
Quito & Guayaquil	Interinvest	68.56	68.37	-0.28
Mexico	BMV	9193.81	9480.24	3.12
Lima	ISVBL	2788.39	2800.64	0.44
Caracas	BC	26947.76	27531.46	2.17
Source: Daily market reports.

President Lula da Silva finally kept his cabinet reshuffle confined to little more than finding a couple of slots for his new allies of the Partido do Movimento Democrático Brasileiro (PMDB) and rearranging the rest of the cabinet so as to keep on board his most valued collaborators. In what many saw as a deliberate balancing act, he incorporated into his presidential staff a well-known Communist.

As had been announced some time ago, the PMDB got two portfolios: communications went to congressman Euní­cio Lopes de Oliveira, and social security to senator Amir Lando. The latter gives the new allies a particularly fitting reward, since the PMDB helped ensure the votes needed to pass Lula's social security reforms. The alliance with the PMDB is not expected to be limited to these appointments: the PT wants its help in its drive to increase its presence in municipal governments come the October elections. 

Lula's explanation of the reasons for the alliance, though, omitted any mention of this — indeed, did not descend from a very vague generalisation. He said, `We have arrived at this political alliance because the PT understood the need to have the PMDB as part of the pro-government base, and the PMDB understood that, given its own history, it could not refuse this support so that we can enjoy tranquillity in the governance of the country.'

[One interpretation of Lula's allusion to the PMDB's `history' was that both the PMDB and the ruling PT have members who hailed initially from the Communist party.]

The trade-off
Within the cabinet the trade-off was not all that costly for the PT, because one of the two portfolios given to the PMDB (communications) had been in the hands of an independent, Miro Teixeira. Giving them social security did involve shunting a key petista, Ricardo Berzoini, to the labour ministry, which in turn meant moving Jacques Wagner, another petista, to the secretariat for economic & social development, which meant moving Tarso Genro (PT) to the education ministry. The musical chairs stopped here: the man Genro replaced, Cristovam Buarque (a petista and also a close personal friend of Lula's, away on a personal visit to Portugal at the time of the reshuffle) got a telephone call from Lula telling him that he was out of a job.

All told, there were changes at five ministries, and two portfolios — social assistance and food security & anti-hunger programme — were merged into a single social welfare ministry under PT congressman Patrus Ananí­as. Unexplained was the replacement of Roberto Amaral as science & technology minister: his resignation was accepted by Lula just before the reshuffle, a week after he had initially rejected it [WR-04-02]. Amaral, of the Partido Popular Socialista (PPS), was replaced by Eduardo Campos, of the same party.

Welcoming old friends
The one unexpected innovation was the appointment of the journalist Aldo Rebelo, a congressman from the Partido Comunista do Brasil (PCdoB), to a newly created secretariat for political coordination & institutional affairs, at the presidency, which will `share functions' with the `civilian household', headed by José Dirceu of the PT. Both of these men, with ministerial rank, will thus jointly carry out a role comparable to that of the White House chief of staff.

The PCdoB lays claim to being the oldest Brazilian political party still in existence: it broke away in 1962 from the PCB (founded in 1922) to embrace armed action. Its armed group, the guerrilha do Araguaia, was decimated by the military in 1974. Some of the PCdoB's members later joined the PT (a prominent example is Tarso Genro). As to the PCB, in 1992 it suffered another split, when an estimated 70% of its members decamped to set up the Partido Popular Socialista (PPS), currently allied with the PT in government.

One feature that did not make it into the reshuffle was the briefly considered alliance with the rightwing Partido Popular (PP). This ended up being considered too costly, both in terms of ill will within the existing government coalition and in terms of the price demanded by the PP: at least one ministry.

The changes in Lula's cabinet

Science & technology: Eduardo Campos (PSB), economist, replaces Roberto Amaral (PSB). Communications: Eunício Lopes de Oliveira (PMDB), farmer, replaces Miro Teixeira (independent). Social security: Amir Lando (PMDB), lawyer, replaces Ricardo Berzoini (PT). Labour: Ricardo Berzoini (PT) replaces Jacques Wagner (PT). Education: Tarso Genro (PT), hitherto secretary of economic & social development, replaces Cristovam Buarque (PT). Social development [new ministry]: Patrus Ananías (PT), lawyer, replaces Benedita da Silva (PT, formerly minister of social welfare) and José Graziano (PT, formerly in charge of food security and anti-hunger programme). Political coordination & institutional affairs [new secretariat at the presidency]: Aldo Rebelo (PCdoB). Economic & social development [secretariat]: Jacques Wagner (PT), former labour minister. Women's rights [secretariat]: Nilcéia Freire, doctor, replaces Emília Fernandes (PT).

Perhaps the most important achievement of President Néstor Kirchner's government so far is to have persuaded about half of the country that his ministers are honest (as emerges from a `confidence index' produced by a private university). This stands in stark contrast to the widespread assumption of guilt regarding the four former officials charged last week in the biggest corruption scandal of the de la Rúa government.

Investigating magistrate Rodolfo Canicoba Corral filed charges of bribery against former intelligence chief Fernando de Santibañes, former senators José Genoud and Emilio Cantarero, and former senate official Mario Pontaquarto — the latter being the whistleblower whose revelations in December brought this dormant case back to life.

What is alleged is that, in April 2000, Santibañes gave Pontaquarto US$5m from the coffers of the state intelligence service, Side, to deliver to Genoud and Cantarero, for distribution among opposition senators to buy their support for labour reform legislation then before their chamber. The bulk (US$4.3m) went to Cantarero for his colleagues in the now-ruling Partido Justicialista (PJ); the rest to Genoud, provisional president of the senate belonging to the then-ruling Unión Cí­vica Radical (UCR).

Pontaquarto claimed that apart from Santibañes, then-President Fernando de la Rúa was also fully aware of these dealings. When this scandal first came to light, Vice-President Carlos Alvarez resigned in disgust, and prime minister Rodolfo Terragno followed suit after refusing to sign documents which appeared to be part of a cover-up. The episode not only demolished the reputation of a government that had successfully campaigned on an anticorruption platform, but also led to the loss of credibility in all parties and politicians embodied in the `everyone out' slogan raised in the protests that forced both de la Rúa and his successor Adolfo Saá out of office. De la Rúa claims that the Kirchner government has paid Pontaquarto to discredit him and his government.

Building confidence
The Indice de Confianza en el Gobierno (Index of Confidence in Government) devised by the Universidad Di Tella shows that by January this year 50% of respondents believed that Kirchner's ministers were honest, 56% that the government was working for the common good, and 78% that Kirchner knows how to solve the country's problems but needs time to do so. Kirchner, who took office in May 2003, was voted for by only 22% of the electorate.

Over the past couple of months his rating had fallen a bit, but between December and January Kirchner achieved remarkable increases in several components of the index: government's performance (up 19%), quality of public spending (+18%) and commitment to the common good (+16%).

Charming them abroad

Kirchner's image appears to have improved beyond Argentina's borders as well. US Assistant Secretary of State Roger Noriega, who earlier in the month had censured Kirchner's stance on Cuba and portrayed him as part of a worrying leftward tilt in the region [WR-04-02], told a symposium at George Washington University on 22 January, `We believe we have in President Kirchner a good partner.' He described Kirchner's encounter with President George Bush Jr at Monterrey as a `good, practical meeting about what Argentina is doing.'

Much mirth, in Brasí­lia and other capitals in the region, greeted the New York Times's conclusion that Lula da Silva `has displaced Vicente Fox of Mexico as the most influential Latin American leader.' In the Brazilian capital, though, there was also much satisfaction at the newspaper's verdict that for the US `better ties with the rest of Latin America now hinge on a closer relationship with Brasí­lia.'

In an editorial published on 24 January, the NYT says, `Despite being the largest country in Latin America, Brazil has usually stood apart from its Spanish-speaking neighbours' — an observation which, with minimal changes, could just as well apply to Mexico. This situation has altered, it says, as `Latin American governments eager to follow Washington's lead on trade and economic policy have been replaced by more populist ones, which [...] are looking less to Mexico and more to Brazil to provide regional leadership.' Actually, it would be more accurate to say that previously the US would have liked the others to look to Mexico for leadership. The NYT ends saying, `So long as Washington moves beyond outdated notions that Latin America must march behind us in lock-step unity on every issue, there is reason to believe that a more constructive relationship can be cultivated with Brazil. It's important to try.'

The government of President Nicanor Duarte is trying to defuse a wave of protests by peasant organisations triggered last week by the killing of two peasants and injuring of eight others by police — protests that are already being morphed into a campaign against Duarte's agricultural policy.

On 21 January at Ypekuá, in the Repatriación district of the eastern department of Caaguazú, police had set up a roadblock to capture the ringleaders of a group that a day earlier had blocked the fumigation of a soya plantation. A van carrying 35 peasants failed to halt, and the police opened fire.

The Federación Nacional Campesina (FNC), one of the umbrella peasant organisations, promptly announced a protest rally at Ypekuá, and `mobilisations' in the departments of Caazapá, Canindeyú and San Pedro — all also in the east of the country. The broader Mesa Coordinadora Nacional de Organizaciones Campesinas (MCNOC) joined in, calling for action by all peasant organisations against the government's `liberal' agricultural policy, which it sees as favouring the big soya growers to the detriment of small cotton farms.

The government ordered the arrest of the police involved in the incident, the release of 40 arrested peasants, and the initiation of an inquiry into the possibility that this action may have been a deliberate provocation by police opposed to the administration's anticorruption moves.

ARGENTINA | Wiping out two years' decline. Economic activity in November was up 0.7% on October, and 8.7% on the same month a year earlier. This has led economy minister Roberto Lavagna to venture that GDP growth for the whole of 2003 will prove to have been somewhere between 7.8% and 8%. The level of activity in November was roughly at par with that of August 2001, just before the country nosedived: 2003 has become the first year of economic growth since 1998.

At the highest estimate, Argentina's economy is almost back where it was two years ago, which is to say, almost 12% below the level of 1998. If growth this year matches the budget estimate of 4% (some private analysts have predicted higher rates), it will have recovered another year of decline, reaching a level 8.4% below that of 1998. Maintaining the same rate of growth, full recovery from the recent four-year recession would only be achieved by 2006.

BRAZIL | Central bank applies brakes. Confounding almost all predictions by market analysts and sowing `apprehension and frustration' among business associations, last week the central bank's monetary committee decided to hold the benchmark interest rate at 16.5% (the bottom rung of a chain that leaves Brazilian borrowers paying up to 120%). The explanation: it was acting in the light of `uncertainties associated with the expected effects of monetary policy' and because the effects of the 10-point rate cut in recent months have not yet been fully reflected in the economy.

Business leaders said that this made no sense, and that the bank appeared to be issuing a warning signal that would lower growth expectations for this year. As we have been reporting, official growth forecasts range between 3% and 4% [WR-04-02] — on the assumption that the benchmark interest rate will be steadily lowered from the current 16.5% to 14% by year-end.

The CIA tends to make the news most frequently when it gets things wrong. One exception is provided by the discovery of a CIA study which, just under five years ago, displayed remarkable prescience regarding the probable impact of Plan Colombia on the drugs trade (particularly that in coca and cocaine). This time, it appears that it was the policymakers who failed to appreciate the dynamics at work.

The Intelligence Report entitled Plan Colombia's Potential Impact on the Andean Cocaine Trade: An Examination of Two Scenarios* was completed by the CIA's Crime and Narcotics Center in September 2000, as Plan Colombia was being readied for implementation. It focused exclusively on determining the impact of that plan on the drugs trade, citing Colombia's internal conflict only as a factor capable of influencing outcomes. It set itself a five-year horizon, which means that its conclusions can be usefully compared with the situation right now.

In its own words, the study `examines the potential impact of two scenarios stemming from the aggressive implementation of Plan Colombia: one in which at least 50% of the coca under cultivation in Putumayo and Caquetá departments is eliminated over a five-year period; and a second in which an 80% coca reduction is achieved.' Its main conclusions:

Scenario 1: `A 50% decline in coca cultivation in the south over the next five years likely would encourage substantial new cultivation in other parts of Colombia. Farmers probably would be able to compensate for their losses by growing elsewhere in Colombia; therefore, only a limited number of growers in border areas would cross international boundaries to plant new fields. Colombia's drug-funded insurgent groups could be expected to encourage or try to compel displaced farmers to migrate into areas the guerrillas dominate.'

Scenario 2: `A more dramatic reduction of more than 80% of coca plantings in the south under Plan Colombia would undermine the faith of Colombian farmers in their coca livelihoods and deter many growers from replanting within Colombia. As a result, Colombia's neighbors likely would face significant pressure as traffickers sought to compensate for their losses in Colombia.

`The governments in Ecuador, Panama, and Venezuela — which to date have aggressively eradicated incipient plantations — probably would deter large-scale plantations. Nevertheless, increases in cultivation along the border with Colombia would be likely. Commercial cultivation in those countries would be more likely if Colombian insurgents, to maintain their own sources of income, chose to emigrate along with farmers to help keep local authorities at bay.

`Peru, and to some extent Bolivia, would face increased market pressures that probably would fuel a resurgence in coca cultivation.'

Bolivia & Peru
As our readers know, the current situation is closer to the second scenario than the first, and the expected outcomes are not far from what those monitoring drug crops have been reporting [SR-03-05]. Of particular interest is the section of the study devoted to the potential for a `coca revival' in Peru and Bolivia. It says:

`Significant declines in Colombian coca cultivation are most likely to cause a resumption of large scale cultivation in Peru and, though less probable, Bolivia. These countries collectively produced about two-thirds of the world's supply of cocaine base until 1995 but account for only about 32% of that produced at present — owing both to large increases in Colombian production and to sharp decreases at home.

`The likely upward spiral in coca prices caused by marketplace shortages would provide a strong incentive for former coca farmers, and even new ones, to jump back into the business. Such effects are likely to be felt first in Peru, where, as noted above, the drug trade already appears on the verge of a resurgence. Traffickers in Peru have recently succeeded in reaching export markets independent of the Colombians, pushing coca prices high enough to become very profitable for most farmers.

`Farmers would be likely to increase their coca plantings in the spillover area of northern Loreto Department along the Colombian border; opposite the Leguizamo coca area of Colombia. In Bolivia, a dramatic upswing in demand coupled with reduced government enforcement would be necessary to induce growers to return to fields abandoned to the government's aggressive eradication program.'

Spillovers elsewhere
The study also examines the prospects for the spread of coca growing into the rest of Colombia's neighbours:

`While most farmers displaced by the expected eradication surge in Colombia will probably stay within national boundaries, there is some risk that commercial-scale cultivation could take root in Venezuela, Ecuador, Panama, or Brazil. Small amounts of coca have been detected in all four countries, but the willingness of Venezuela and Ecuador to eradicate these small plots has discouraged, until now, more extensive attempts to cultivate the crop. This will and the ability to eradicate coca as quickly as it appears are the key to holding the line at the Colombian border [...]

`Regardless of whether there is a coca spillover from Colombia, a spillover in regional trafficking is already under way and unquestionably will become more serious alter the launch of a major counternarcotics push into southern Colombia.  

`Reacting to current interdiction levels, traffickers in southern Colombia already have been making better use of Ecuadorean territory and Venezuelan territory and airspace to reach global markets for cocaine, in 1999, for example, Ecuadorean national police increased their seizures of finished Colombian cocaine threefold to some 12 metric tons [...] Venezuela is also being threatened by the impact of spillover from Colombia [...] Seven percent of detected cocaine exports from South America flowed through Venezuela en route to market in 1999. [...]

`Faced with declining drug-related revenues as coca cultivation declined in Colombia [the Farc] could choose to aid in the migration of cultivation into neighboring countries or to take steps to increase revenue from other sources. The Farc already have established a presence along the border in Ecuador, Panama, and Venezuela and undoubtedly would seek to increase coca cultivation in those areas. Such a move, however, would increase their profile and the degree to which they are perceived as a threat by those countries.'

*This report was obtained by the journalist Jeremy Bigwood using the US Freedom of Information Act. The full text can be found at http://jeremybigwood.net/FOIAs/2Scenarios-Colombia/CIA-2scenarios-Colombian_coca-2000.htm

As this issue is being completed, the defence committee of Peru's congress will be hearing the testimonies of interior minister Fernando Rospigliosi and antidrugs chief Nils Ericsson on the upheaval they expect the country to face in a month's time. They believe an attempt will be made to launch a wave of violent protests comparable to those that forced Bolivian President Gonzalo Sánchez de Lozada to resign last year.

Rospigliosi first aired this scenario on 20 January. He warned that the second congress of Peru's coca growers, to be held in Lima on 18-22 February, will mark the beginning of a `violent uprising': mobilisations, barricades across highways and strikes. Behind all this, he said, are `various unions and political organisations' like Patria Roja (an erstwhile Maoist group that split from the same root as Sendero Luminoso) and the Confederación General de Trabajadores del Perú (CGTP), the umbrella labour confederation. 

He also suggested that former presidential candidate Ricardo Noriega, a man associated with the Fujimori government, was involved in the coca growers' movement — `where many leaders aspire to be Evo Morales.' Morales is the leader of Bolivia's cocaleros, but, as our readers know, did not play a central role in that country's protest movements last year.

The interior minister also said that the coca growers `should apologise to the Peruvian people for flooding the streets of Lima with cocaine paste, which provokes crime, homicide and violence.'

View from the other side
Nancy Obregón, deputy secretary-general of the Confederación Nacional de Productores Agropecuarios de las Cuencas Cocaleras del Perú (Conpaccp), organisers of the February gathering, says, `We're not going to hold a congress to overthrow the government; we're only going to present [...] various demands to improve the situation of the peasants, such as the revaluation of the coca leaf and the introduction of a new law [on coca production and marketing].'

Hugo Cabieses, an economist who worked for the antidrugs agency Devida, says that Rospigliosi `is seeing ghosts.' While Bolivia's cocalero movement has been around for more than 15 years, he notes, Peru's is only three years old, and its protest actions so far have always been peaceful, seeking negotiation with the government. Moreover, he says, there are no political movements or unions behind the coca growers' organisation.

The Sendero omission
The one thing noticeably absent from Rospigliosi's warnings was a repetition of his past claims about the connection between the coca growers and the guerrillas of Sendero Luminoso. This is doubly odd because only days earlier a column of Sendero Luminoso which had not engaged in any armed actions since September 2001 surfaced with an ultimatum to the government from its leader, known as Artemio. He gave the Toledo government sixty days to come up with an official response to a Sendero proposal for `a political solution to the problems derived from the internal war'. Otherwise, said Artemio, his column would respond with `outright war'. This column operates in the upper Huallaga valley. On 23 January the government extended for yet another 60 days the state of emergency in areas where Sendero is presumed to operate. These have been narrowed down to two provinces in Ayacucho, two in Apurí­mac, one in Cusco, one in Huancavelica, and one (plus two additional districts) in Juní­n.

It was an eventful week for the government of President Carlos Mesa. On the encouraging side, the landless peasants called a halt to land invasions and the oil companies agreed to pay more tax. At the other end of the scales, the electoral authority has postponed for at least a month the referendum on the future of the gas industry, and the unions have served the government an ultimatum: meet a range of demands by mid-February or face countrywide protests and the closure of congress.

The MST
At a congress held on 21 January in Yacuiba, the MST, the movement of landless peasants, decided to halt all seizures of land and reengage the government in dialogue. This means that they will abandon most of the recently invaded farms — but not all: they will not quit those seized some time ago, where the government has not yet verified their claim that the past owners did not hold the land legally. One such farm is `Collana' owned by an in-law of former President Gonzalo Sánchez de Lozada.

New oil taxes
On 23 January, economic development minister Xavier Nogales announced that, after negotiating for two days with the oil companies, the government will submit to congress this week the draft of a new hydrocarbons law, introducing a new tax (impuesto complementario a los hidrocarburos, ICH), to come into effect immediately, and establishing that the surtax on windfall profits (impuesto sobre utilidades extraordinarias) will be `substantial and progressive.' In exchange, the companies get clauses specifically guaranteeing juridical stability. Nogales admitted that agreement with these provisions had not been unanimous, and that companies disagreeing with them might go for arbitration.

Referendum postponed
The referendum on the future of the gas industry, which Mesa had promised to hold on 28 March, will not take place at least until April. This is because the electoral council, CNE, needs 90 days to prepare the logistics — counting from the moment that congress completes its numbers by filling three vacancies. José Galindo, chief of staff at the presidency, has urged congressmen to expedite the appointments.

COB's ultimatum
The umbrella labour confederation, Central Obrera Boliviana (COB), has dismissed government claims that it is making progress towards meeting popular demands. For the COB there is no need to hold a referendum on the gas industry, since last year's protest movement had already spoken on the matter (against exports). It also says that last year's movement did not ask for a new hydrocarbons law negotiated with the oil companies, but for `the recovery of the patrimony of natural resources, so that it is again owned by the Bolivians.'

These pronouncements came from a gathering of regional COB leaders held on 22 January. The meeting rejected the government's offer of a 3% pay rise. Instead it demanded that the minimum salary be increased from US$58 to US$128, and that all high-ranking officials (including those of the police and armed forces) take a 70% pay cut.

The delegates agreed to declare a countrywide state of emergency and prepare a general strike and the `temporary closure' of congress, to come into effect if the government fails to respond to the COB's demands within the next 20 days.