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What impact will electoral politics in the US have on Washington's policies towards Latin America? The question was one of several posed by the Inter-American Dialogue (IAD) for its annual regional outlook*, an informal survey of forecasts, data and analysis from members of the Board of Advisors, economists and policy experts covering the Latin American region. What follows is an edited version of the responses.

`Only Mexico & Cuba'
Andrés Rozental, President of the Mexican Council on Foreign Relations, believes that only two countries in the region are likely to be affected: Mexico and Cuba. `As far as Mexico is concerned,' he says, `it would seem likely that the Bush political camp would try to garner as large a portion of the Hispanic vote as possible [...] The White House might timidly support the partial steps that Congress is currently debating, such as the Dream Act or an agricultural worker programme. However, the migration "grand bargain" hoped for at the outset of the Fox/Bush administrations seems to be further away than ever, at least until after next November.' Regarding Cuba, says Rozental, `Florida plays a key role in Bush's re-election strategy, and this explains the recent tightening of the embargo against the island and the active courting of the Cuban-American electorate.'

Trade dominates the scene
Roberto Teixeira da Costa, vice-trustee of the Brazilian Center for International Relations (Cebri), sees the trade issue at the top of the US policy agenda. He looks beyond the elections and predicts, `The probability for more dialogue with Latin America is higher in that area if the Republicans remain in power and if Mr George W Bush is reelected. This does not mean that after 2005, if that occurs, we will have all the demands for countries like Brazil attended. But nevertheless, after the elections the situation may change. In the meantime the US will continue the dialogue for a less embracing FTAA.' In the field of security, says Teixeira, `Colombia, Venezuela and Bolivia, to different degrees, could receive higher attention from the US.'

Consensus breaking down
Eric Farnsworth, vice-president for Washington Operations at the Council of the Americas, comes out somewhere between Rozental and Teixeira. His position: `It's probably safe to say that Latin American and Caribbean issues will not dominate the 2004 campaign. Much will obviously depend on who ends up being the Democratic Party nominee. That said, discussion of at least one issue — trade — will have a direct impact on US policy in the region. Hemispheric trade expansion has been a bipartisan commitment for the past decade, although that consensus may now be breaking down.'

This, he ventures, could have an adverse effect: `To the extent candidates seek votes by calling trade expansion into question in the hemisphere or elsewhere, or refighting the Nafta debate, this will further create the impression that trade expansion is a net negative and should be abandoned, which could delay or even defeat keystone US policy initiatives.'

Tough fight over Cafta
Tony Smith, a member of the Advisor board and a Partner at Schmeltzer, Aptaker & Shepard, sees an impact on the free-trade negotiations with Central America: `Because of the elections Cafta will become very contentious on a number of different fronts -- particularly labor, environment, and textiles and apparel. In addition, the fact that Costa Rica is still negotiating will create another purported problem for ratification in the Congress.' This notwithstanding, he envisages Cafta being approved `after a tough fight'.

On immigration he expects more noise than substance: `There will be a lot of talk by both parties about immigration reform, but don't expect anything to happen. The Democrats will want a lot, the Republicans very little. As both are fighting for the Hispanic vote, neither are likely to take the risk of an actual law. You can't be criticized for what you contend you support, but the devil is in the details and neither party is going to be willing to compromise on a bipartisan bill that can pass.'

*Latin America Forecasts: 2004, published by the IAD's Latin America Advisor service. Available from www.iadialog.org

US ambassador Barbara Moore has been trying hard to bring back together the factions of the ruling Liberal party she briefly united weeks ago [WR-03-49], as the old split reemerges with a plan by the followers of jailed former President Arnoldo Alemán to get their leader released. At a meeting with the umbrella business association Cosep last week, in the presence of President Enrique Bolaños, she said, `I hope this is not so. I hope this is not so.'

The 45 pro-Alemán Liberal legislators have submitted to the national assembly a bill establishing the `authentic interpretation' of the legal provision regarding money-laundering — the main charge on which Alemán was convicted and given a 20-year prison sentence last December [WR-03-48]. The six-strong Azul y Blanco faction of the Liberal party, which supports President Bolaños, has been trying to firm up an alliance with one Conservative, a representative of an evangelical party and the Sandinista bloc, to oppose this initiative. The pro-Alemán faction is one vote short of the majority needed to secure approval.

Their idea is to provide legislative backing for the notion put forward by Alemán's defence lawyer that money-laundering can only be deemed a crime if associated with drug-trafficking.

Meanwhile, state auditors have been questioning Alemán about the alleged laundering of US$59.3m worth of public funds through an account misleadingly named `Taiwan Donation'. Alemán says he knows nothing about this and denies claims that his former aides had kept him informed.

An interesting sideline: the auditors have served notice that they will also be seeking the testimony of President Bolaños, as Alemán suggested that he might have been aware of the operation while he was Vice-President.

President Hipólito Mejí­a has embarked on a new tack in his reelection bid. Having formally registered his candidacy with the national electoral council, he now appears to see no purpose in pressing for a change in the legislation to allow parties to field several candidates [WR-04-02]. He has engineered a takeover of the ruling Partido Revolucionario Democrático (PRD), though this is being resisted by party president Hatuey Decamps and his followers.

The ley de lemas, after being shunted from the lower chamber of congress to the senate, was halted in its tracks when senate leader Jesús Vásquez decided to ask the supreme court to rule on its constitutionality — a step which threatened to split the ranks of the pro-Mejí­a camp. The dispute over this may now prove academic as Mejí­a, who has ended up as the sole official candidate of the PRD, ceases to press for the new law.

When the pro-Mejí­a faction hurriedly engineered the replacement of Decamps as party president by Vicente Sánchez Baret, about 500 followers of Decamps seized the party headquarters on 2 February to prevent him from taking office. There have been clashes between the factions, including the firebombing of the party premises and a (non-fatal) shooting. There are fears that the confrontation could escalate, as both sides are heavily armed.

The US has been preparing since December to intercept and hold in its Guantánamo base a wave of Haitian refugees feared to become almost as big as the one that followed Jean-Bertrand Aristide's ouster in 1991. NGOs have been consulted on their capabilities and willingness to establish in Guantánamo a camp able to hold up to 50,000 refugees.

In the post-1991 wave of Haitian emigration, close to 70,000 refugees were intercepted by the US coastguard, over a three-year period, and held in Guantánamo until their repatriation. After the numbers of Haitian refugees beating the blockade started rising again in 2001-02, the US tightened the pre-requisites for requesting political asylum. The first hurdle: entitlement depends on crying for help upon being taken aboard a US vessel. Only four Haitian migrants were granted refugee status at that time, but not entry to the US: together with another Haitian who made the grade last year (out of 1,490 intercepted), they are still held in Guantánamo awaiting relocation to a third country.

Twice last year the US classified Haitian migrants as security risks: in April, by Attorney-General John Ashcroft (on the grounds that Haiti could be a staging-post for terrorists), and in December by the State Department (with no explanation). 

DOMINICAN REPUBLIC | Plant shutdown aggravates power crisis. Blackouts have been lasting 15 hours or more as the shutdown of generating plants aggravates the electricity shortage that has been building up over recent weeks [WR-04-04]. On 6 January the power deficit had risen to 783MW, or almost 51% of demand. The companies are shutting down their plants in demand of overdue government debts which they put at about US$400m in all. The government last week said the figures had been inflated, but started paying some arrears. It also appointed army chief José Miguel Soto Jiménez and General Pedro de Jesús Candelier (head of the traffic police) to lead a commission to inquire into the debt with generating companies and the shutdowns. The last time President Hipólito Mejí­a turned to the army to solve a non-military crisis was when he tried to talk down the dollar rate to RD$30 [WR-03-48]. Last week the rate hit RD$56.

CARIBBEAN | Tourism growth seen continuing. After recording an estimated 6% increase in tourist arrivals last year, the Caribbean Tourism Organisation (CTO) predicts that the growth will continue into this year, perhaps at a slightly lower rate (4-5%). The strongest increase in tourist flows last year were those from Canada (15%) and Europe (9%). Arrivals from the US increased by 4%. Cuba's tourism ministry reports that arrivals to the island last year reached 1.9m, up 13% on 2002. This means that Cuba is now attracting one out of every nine visitors to the Caribbean. The upturn recorded in the Caribbean contrasts with the worldwide decline of 1.2% in arrivals reported by the World Tourism Organisation (WTO).

EL SALVADOR | Growth slowing down. On the strength of partial data, the private think-tank Fusades has estimated that El Salvador's GDP growth last year was somewhere between 1.7% and 2%. Figures for the first nine months had shown a rate of 2%. What little growth there was, says Fusades, can be attributed to post-earthquake public works and a slight expansion of domestic consumption.

An area specifically focused in the IAD's forecasting exercise for 2004 is the situation in the Andean countries. Michael Shifter, vice-president for policy at the IAD, says that it is hard to be sanguine about the outlook for this subregion. His outlook:

Venezuela
`Venezuela remains the most volatile country, polarised both politically and socially. A referendum in early 2004 to resolve the crisis constitutionally is the most hopeful scenario, although there are ample grounds for skepticism. President [Hugo] Chávez will not easily relinquish power, and the opposition could blunder again. The risk of escalating violence is considerable.'

Bolivia
`The Bolivian government headed by Carlos Mesa is fragile, beset by the same intense social and political pressures that led to the collapse of the Sánchez de Lozada administration last October. Another election could help calm the situation temporarily, but is unlikely to quell the tremendous discontent and anger among the country's well-organised, marginal population.'

Peru
`Despite a sound macroeconomic performance, Peru's politics are highly precarious. Social protests and strikes in 2004 are almost assured, and the main question Peruvians will be asking is if President Toledo, at 11% in the polls, will be able to survive until 2006.'

Ecuador
`Ecuadoreans are already asking the same question about President [Lucio] Gutiérrez, in office for less than a year, but suffering a severe credibility problem and relying increasingly on the armed forces for support.'

Colombia
`Alvaro Uribe, the only Andean president who previously held elected office, remains highly popular because Colombians believe his security policy is producing results. But in 2004 he will have to deal with a stronger opposition and more recalcitrant congress.'

Exchange rates
Local currency per US$1
COUNTRY	CURRENCY	Year ago	Previous	Current
		07.02.03	30.01.04	06.02.04
Argentina	peso	3.19	2.94	2.97
Barbados	dollar	2.00	2.00	2.00
Belize	dollar	2.00	2.00	2.00
Bolivia	boliviano	7.58	7.88	7.88
Brazil	real	3.58	2.93	2.93
Chile	peso	745.00	588.00	594.00
Colombia	peso	2,963.76	2,741.10	2,749.32
Costa Rica	colón	383.16	422.14	422.92
Cuba	peso	1.00	1.00	1.00
Dominican Rep.	peso	24.84	50.55	54.25
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	7.82	8.13	8.10
Honduras	lempira	17.22	18.03	18.04
Mexico	nuevo peso	11.09	11.13	11.20
Nicaragua	córdoba oro	14.90	15.78	15.80
Panama	balboa	1.00	1.00	1.00
Paraguay	guaraní­	6,970.00	6,220.00	6,020.00
Peru	nuevo sol	3.49	3.49	3.49
Uruguay	nuevo peso	29.50	29.85	30.00
Venezuela	bolí­var	1,600.00	1,600.00	1,600.00
Sources: EFE; Bank of America.

Inflation in the region
Country	Source	November	December	January	Last 12m	Jan-Dec 2003
Argentina	Indec	0.20	0.20	0.40	2.70	3.70
Bolivia	INE	-0.51	0.90	0.62	4.17	3.94
Brazil	FGV	0.34	0.52	_	9.30	_
Chile	INE	-0.30	-0.30	-0.20	0.80	1.10
Colombia	Dane	0.35	0.61	0.89	6.19	6.49
Costa Rica	DGEC	1.42	1.25	1.70	11.02	9.87
Ecuador	Inec	0.33	-0.04	0.41	3.92	6.07
El Salvador	Min.Ec.	0.07	0.20	1.11	2.43	2.50
Guatemala	BCG	0.45	0.58	_	5.85	_
Honduras	BCH	0.70	0.30	_	7.70	_
Mexico	Bco.Mx.	0.83	0.43	_	3.98	_
Nicaragua	BCN	0.82	0.76	_	6.48	_
Paraguay	BCP	1.30	0.90	0.30	5.50	9.30
Peru	INE	0.17	0.56	_	2.48	_
Uruguay	DGEC	0.16	0.65	2.19	10.39	10.19
Venezuela	BCV	1.90	1.80	2.50	26.10	27.10
US	DOL	-0.30	0.58	_	5.85	_
Previous: WR-04-05

The stockmarket in figures
Market	Index	30.01.04	06.02.04	Variation (%)
Buenos Aires	Merval	1140.81	1053.26	-7.67
São Paulo	Bovespa	21851.44	21968.81	0.54
Santiago	IPSA	1408.86	1424.71	1.13
Bogotá	IGBC	2772.50	2867.22	3.42
San José	BCT	10367.45	10281.70	-0.83
Quito & Guayaquil	Interinvest	65.65	68.57	4.45
Mexico	BMV	9428.77	9810.77	4.05
Lima	ISVBL	2730.00	2716.22	-0.50
Caracas	BC	27956.14	28027.00	0.25
Source: Daily market reports.

News that the Haitian opposition had rejected a Caricom-brokered meeting with President Jean-Bertrand Aristide was eclipsed by the outbreak of open insurrection, starting in Gonaí¯ves and by now reportedly spreading to other urban centres. Spearheading the uprising are the members of the gang formerly known as the Armée Cannibale, recently transmuted into the Revolutionary Artibonite Resistance Front (RARF) — probably nobody's favourite to succeed Aristide in power. The political opposition appears to have been taken by surprise.

The uprising began on 5 February, when members of the RARF stormed the Gonaí¯ves police headquarters, setting free about 100 prisoners and putting the police to flight. The attack left a toll of four dead and about 20 injured. After torching the police station, the raiders moved on to the residence of the mayor, Topa Moise, and set it alight. By the end of the day the reported death toll had risen to 11.

The government took two days to mount a counterattack with a 300-strong contingent including an élite police unit and armed Aristide supporters. The RARF, instead of blocking the accesses to the city, drew in the attackers and then encircled them. In the ensuing gun battle 14 police were killed. RARF leader Etienne Winter proclaimed himself mayor of Gonaí¯ves and announced that the whole of the Artibonite department had become an `independent zone', after they had taken control of Gros-Morne, Anse-Rouge, St Michel de l'Attalaye and Ennery. The next step, he said, would be to extend that zone to all three northern departments.

Over the weekend, fighting spread to St Marc and to Grand-Goave, and rebel sources claimed that 14 police stations had been abandoned. The media reported that tension was rising in Jacmel, in the south, and Cap Haí¯tien, in the southeast, and attempts were made to set up burning barricades in Port-au-Prince.

The government has been playing down the number of police casualties (it must be recalled that Haiti has no army) and claiming that the withdrawal from police stations in the north was `strategic'. It does appear, however, that many members of the police have gone AWOL. By the time of writing, the number of fatalities had risen to 40, and the government appeared to have lost (or temporarily abandoned) control of all major centres between the capital and Gonaí¯ves. The rebels have been suggesting that the next city to fall will be Cap Haí¯tien, the country's second-largest city.

US prepares to intercept wave of refugees, Page 15. See also Security & Strategic Review, January 2004 [SSR-04-01].

The government of President Lula da Silva is clearly worried about the political impact of the central bank's renewed anti-inflation drive, as can be seen in its members' frantic efforts to persuade the public that nothing is amiss. At municipal level, where elections will be taking place in October, the representatives of the ruling Partido dos Trabalhadores (PT) are making no secret of their concern.

Finance minister Antônio Palocci has been insisting that there is no reason to change Brazil's quite modest growth forecast for this year, even as he was announcing a US$1bn cut in public spending (off a budget of US$136bn). According to Palocci, the central bank will soon resume its gradual lowering of the benchmark interest rate, and all will be well. As to the additional budget constraints, he says the government will `invest as much as possible, but spending as little as possible.'

Says Palocci, `There is no dissent within the government on the course of economic policies. On the contrary, we are all convinced that Brazil is on the right track [...] It would not make sense after all of last year's strong adjustments and all indicators improving that we should change economic policy.'

Lula took it upon himself to deny rumours that he was displeased with the bank's policy and `impatient' with the growth prospects — which have been holding up his core campaign promises. He did so adopting a paternalistic tone and embracing a virtually neutral stance on economic policy.

`I have a four-year term,' he said on 6 February, `and do not intend to promote any senseless adventure. There are millions of Brazilians facing hardship and we have the responsibility of caring for them as if they were our children [...] We shall do everything within our power for this economic growth, which we desire and which began at the end of last year, to be sustainable [...] We do not have a Lula Plan or a Palocci Plan. What we have is seriousness in the management of public affairs.'

The government itself reckons that in order to ensure a sustainable growth rate of 4-5%, the country needs to invest the equivalent of 21.7% of GDP. Last year, public and private investment added up to 17.7% of a stagnant GDP.

Municipal unrest
As Palocci was announcing his budget cut, 34 PT mayors were meeting in Belo Horizonte to discuss electoral strategy — and how to achieve the party's aims with scant resources. Their host, Fernando Pimentel, was quite blunt: `It is very difficult to defend [the government's] economic policy before our social, party and electoral constituencies. They say that this year the economy will grow, but no money is flowing.' 

Martha Suplicy, mayor of São Paulo and a prominent figure in the PT who is standing for reelection this year, is bitter about the paucity of resources she is having to cope with: several of the firms working for the municipality have called a halt to their activities because they have not been paid since October. On 6 November she went to Brasí­lia to plead her case with Lula, but came away with `a lot of goodwill and no money.'

Interior minister José Miguel Insulza will not, after all, be contending for the post of secretary-general of the Organisation of American States (OAS). The question circulating in Santiago is whether he will become yet another of the contenders for the ruling Concertación's presidential nomination.

Much has been said about the two presidenciables of the Concertación who have been doing relatively well in the opinion surveys, both of them women: defence minister Michelle Bachelet, of the Socialist party (PS), and foreign minister Soledad Alvear, a Christian Democrat (DC). Though the polls suggest that the Chilean public at large is ready for a woman President, many are wondering if the country's political establishment is equally prepared.

One member of that establishment who, at least as regards the next elections, is not keen on either of them is DC president Adolfo Zaldí­var, who is widely seen as preparing the ground for housing minister and former Santiago mayor Jaime Ravinet. One suggestion that is being made by political analysts is that enlisting el Panzer Insulza in the race would give the PS a `balancing option'.

It is, of course, early days. First must come the municipal elections due in the second half of this year, when both the ruling coalition and its rightwing rivals will be able to gauge their real strengths (beyond the opinion polls), and within the Concertación, the two main member parties, DC and PS, will find out how they stand vis-í -vis each other.

For the Concertación, an important consideration must be their candidate's ability to attract votes from beyond their committed followers. So far, it is the candidate of the right, Joaquí­n Laví­n of the Unión Demócrata Independiente (UDI) who continues to lead the field, clearly appealing to segments of the electorate who in the past supported the Concertación. This may change, particularly if the Lagos administration succeeds in boosting Chile's economic growth rates to significantly higher levels, and in reducing the number of unemployed even more than it did last year.

Paradoxically, an improvement of the government's public standing could make it more, not less, difficult for the Concertación to agree on a presidential candidate, as the member parties feel secure enough to return to their bickering over preeminence and the `right to lead'.

Rodríguez alone in OAS race — for now

With Insulza removed as a candidate to the top job at the OAS, the only declared contender in the field is former Costa Rican President Miguel Angel Rodríguez. Before Insulza's withdrawal he had attracted 15 endorsements from Caribbean countries, plus five from South America (Colombia, Venezuela, Uruguay, Bolivia and Paraguay). Since the withdrawal, it has enlisted two of the hemisphere's heavyweights, Canada and Mexico. Unattached are two important ex-backers of Insulza, Brazil and Argentina. The only other (undeclared) aspirant is Salvadorean President Francisco Flores, whose term ends before the June OAS election. He is said to enjoy the support of the US, with whom he has aligned his country in almost every arena. Election to the post of secretary-general requires the votes of at least 18 of the 34 member countries of the OAS. Though Rodríguez claims to have more than that, line-ups have been known to change almost at the last minute.

The level of political noise over the Chilean-Bolivian dispute has fallen considerably over the past week; indeed, there have been at least two developments that show an increased willingness to contain the problem, one of them involving Bolivia and Chile, the other involving Peru as well.

On 4 January, Bolivian foreign minister Juan Ignacio Siles stated that his country was willing to conduct bilateral negotiations with Chile. His opposite number, Soledad Alvear, replied, `It is always good to talk.' A good opportunity, she said, is the meeting of deputy foreign ministers scheduled for 17-18 January in Arica. The following day, the Peruvian foreign ministry announced that representatives of Peru, Bolivia and Chile had approved the works done on the tripartite border marker (that marks the point where their post-Pacific War boundaries meet), after having conducted the first joint inspection in more than a decade. Actually, the works had been approved a week earlier in Tacna, Peru, so the announcement can be taken as a deliberate `distension' gesture.

The only fly in the ointment: Bolivian officials, politicians and media have started accusing Chile of breaching the 1904 treaty [WR-03-50] with its plan to privatise the port of Arica.

ARGENTINA | Pressure grows on the debt front. The G7, meeting last week at Boca Ratón, Florida, issued a call for Argentina to negotiate `constructively' with its creditors. This is an oblique way of saying that it should ease its 75% write-off proposal, a position held by the three G7 members who abstained at the last IMF board meeting when Argentina's first review came up for the vote. Even Argentina's main supporter in this matter, the US, signalled that reconsideration might be in order. US Treasury Secretary John Snow said that it is `terribly important' that Argentina should meet its commitments and `negotiate in good faith'. The decrypted version: it is not a good idea to delay the next repayment to the IMF if the second review is not on time, and Argentina should keep in mind that the IMF statutes allow it to continue lending to a country in default only if it is negotiating in good faith with its creditors — and that good faith could be called into question if there is no sign of flexibility on the write-off.

BRAZIL | Industrial downturn revealed. After five consecutive months of (small) increases in Brazil's industrial output, figures for December show a downturn in all branches of industry save one (intermediate products, up 0.9%). Overall, industrial output was down 1%: production of capital goods was down 5.3%; of consumer goods, 3.6%. This left total output in 2003 only 0.3% higher than in 2002.

In January, sales of cars were down 36.4% on December (and 4.4% on the same month last year), even as production increased by 2.1%. The main factor behind the fall was an average 5% increase in prices. Worth noting: all these developments took place before the central bank decided to halt the reduction of interest rates [WR-04-04].

CHILE | Unemployment down. Open unemployment in the Santiago conurbation in December, according to the Universidad de Chile survey, was 11.7%, the lowest rate in five years. INE reports a countrywide unemployment rate for the last quarter of 7.4%, which left the average for 2003 at 8.5% — also the lowest in five years.

Warning bells have not ceased to sound since the government of President Alvaro Uribe embarked upon the negotiations leading to the `demobilisation' of the paramilitary groups. Uribe got former Colombian President César Gaviria to go out on a limb by committing the OAS to support this process, just as a string of events illustrated exactly how risky it is.

At the end of January, Gaviria agreed with Uribe that the OAS would monitor the disarmament of the paramilitary organisations. There were ructions within the organisation because a number of members considered that the secretary-general should have consulted first on a matter of such importance (Gaviria later conceded that, while he had acted within his powers, this would have been better). In the end, Uribe got what he wanted: faced with a fait accompli, the permanent council of the OAS endorsed Gaviria's action.

Caveats old & new
This provided Uribe with international `cover' after the strong caveats recently issued by James Lemoyne, special envoy of UN secretary-general Kofi Annan in Colombia, to the effect that a mishandled demobilisation process with the paramilitary groups could jeopardise an overall solution to the Colombian conflict. `Badly conducted,' he said, `the paramilitary process could weaken Colombian democracy.' This had been echoed by the Red de Iniciativas por la Paz y Contra la Guerra (Redepaz), an umbrella for about 300 Colombian NGOs seeking a political solution to the war. Said Redepaz: `The current process with the AUC has not been handled with a public agenda and is beginning at the end.'

The `agreement to accompany the peace process' as the accord signed by Gaviria is entitled, has come in for heavy criticism from human rights organisations. One of them, Human Rights Watch, warns the OAS that it should `take steps to ensure that it does not bestow international legitimacy on a process that grants impunity to the perpetrators of gross violations of international human rights and humanitarian law.' It also says, `In our opinion, the agreement would not permit the OAS to wholly fulfill its proper role of assisting and verifying the Colombian peace process. This is because, according to reports, the document bars the OAS from providing its opinion regarding legal and political decisions that the Colombian government decides to make in crucial areas such as the disarmament, demobilisation, and rehabilitation of the paramilitaries - unless the government or other actors in the process request its opinion. Under these circumstances, the OAS is wrongly reduced to acting as a mere spectator.'

Fears not unfounded
The biggest concern of the critics is that the paramilitaries might be allowed to get away with the heinous crimes committed over the past years — and some fear that their links with the drugs trade may not be really severed. A string of recent events suggests that many of the fears expressed are not unfounded:

• On 28 January, Italian authorities announced that a three-year investigation into the drugs trade had established links between the Ndrangheta of Calabria (reputedly the successor to the Sicilian mafia as the leading Italian trafficking organisation) and the Autodefensas Unidas de Colombia (AUC).
  
  
• On 3 February, the army found a large cocaine-processing complex run by the Autodefensas Campesinas del Casanare (ACC), which was negotiating with the government separately from the umbrella AUC. The ACC had, only days earlier, become the first paramilitary organisation to proclaim that it was ready to accept verification by the OAS of its `demobilisation'. It did so at a ceremony presided over by the government's peace commissioner, Luis Carlos Restrepo.
  
  
• On 5 February, the army seized a huge arms and munitions cache belonging to the Bloque Central Bolí­var (BCB), the second-largest paramilitary group affiliated with the AUC, which operates in the northwest of the country. That same day Bishop Jaime Prieto Anaya, of Barrancabermeja, stated publicly that paramilitary units were still committing crimes in the middle Magdalena valley, in Santander department. `I believe,' he said, `that in that region they have never even talked about cessation of hostilities. Selective crimes are constant.' He said the paramilitaries interfere with humanitarian missions and are involved in both fuel smuggling and drug trafficking.
  
  
• An important test of how the government will deal with the demobilised paramilitaries who have committed heinous crimes was set in motion on 7 February, when the Bloque Cacique Nutibara (BCN), which turned in its weapons in late November [WR-03-47] was notified of charges pending against 222 of its 855 members. Another 150 former BCN fighters were handed a libreta militar, the document issued by the army to those undergoing compulsory military service.

By the way, AUC leader Carlos Castaño, faced with new drug-related charges made by Spanish judge Baltasar Garzón, has offered to step aside from the peace negotiations while he proves his innocence.

Exchange rates
Local currency per US$1
COUNTRY	CURRENCY	Year ago	Previous	Current
		14.02.03	06.02.04	13.02.04
Argentina	peso	3.22	2.97	2.94
Barbados	dollar	2.00	2.00	2.00
Belize	dollar	2.00	2.00	2.00
Bolivia	boliviano	7.58	7.88	7.88
Brazil	real	3.65	2.93	2.90
Chile	peso	745.50	594.00	580.00
Colombia	peso	2,960.13	2,749.32	2,736.66
Costa Rica	colón	383.90	422.92	423.40
Cuba	peso	1.00	1.00	1.00
Dominican Rep.	peso	25.46	54.25	48.75
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	7.76	8.10	8.10
Honduras	lempira	17.24	18.04	18.06
Mexico	nuevo peso	10.91	11.20	11.02
Nicaragua	córdoba oro	14.92	15.80	15.84
Panama	balboa	1.00	1.00	1.00
Paraguay	guaraní­	6,990.00	6,020.00	6,015.00
Peru	nuevo sol	3.49	3.49	3.49
Uruguay	nuevo peso	29.75	30.00	29.90
Venezuela	bolí­var	1,600.00	1,600.00	1,920.00
Sources: EFE; Bank of America.

Inflation in the region
Country	Source	November	December	January	Last 12m	Jan-Dec 2003
Argentina	Indec	0.20	0.20	0.40	2.70	3.70
Bolivia	INE	-0.51	0.90	0.62	4.17	3.94
Brazil	FGV	0.34	0.52	0.76	7.71	12.53
Chile	INE	-0.30	-0.30	-0.20	0.80	1.10
Colombia	Dane	0.35	0.61	0.89	6.19	6.49
Costa Rica	DGEC	1.42	1.25	1.70	11.02	9.87
Ecuador	Inec	0.33	-0.04	0.41	3.92	6.07
El Salvador	Min.Ec.	0.07	0.20	1.11	2.43	2.50
Guatemala	BCG	0.45	0.58	_	5.85	_
Honduras	BCH	0.70	0.30	_	7.70	_
Mexico	Bco.Mx.	0.83	0.43	_	3.98	_
Nicaragua	BCN	0.82	0.76	_	6.48	_
Paraguay	BCP	1.30	0.90	0.30	5.50	9.30
Peru	INE	0.17	0.56	_	2.48	_
Uruguay	DGEC	0.16	0.65	2.19	10.39	10.19
Venezuela	BCV	1.90	1.80	2.50	26.10	27.10
US	DOL	-0.30	0.58	_	5.85	_
Previous: WR-04-06

The stockmarket in figures
Market	Index	06.02.04	13.02.04	Variation (%)
Buenos Aires	Merval	1053.26	1089.99	3.49
São Paulo	Bovespa	21968.81	22529.80	2.55
Santiago	IPSA	1424.71	1445.45	1.46
Bogotá	IGBC	2867.22	2927.98	2.12
San José	BCT	10281.70	9980.09	-2.93
Quito & Guayaquil	Interinvest	68.57	68.67	0.15
Mexico	BMV	9810.77	9982.87	1.75
Lima	ISVBL	2716.22	2770.86	2.01
Caracas	BC	28027.00	28032.54	0.02
Source: Daily market reports.

The breather President Lucio Gutiérrez had been granted by the indigenous organisations has been brought to a premature end -- by a failed assassination attempt on Leonidas Iza, president of Conaie, the umbrella Indian confederation. Several Indian leaders have suggested that the government is somehow behind the attack.

The attack on Iza took place on 1 February, as he and his family arrived at Conaie headquarters. Two gunmen, shouting, `We will kill you,' opened fire, but the party managed to take refuge inside the building. Though Iza emerged unscathed, his son Xavier was gravely injured and a brother and nephew received minor injuries. 

Iza ventured that the attack was an attempt to intimidate him — without explicitly identifying who was behind it. Several of his followers placed the blame openly on the government, but did not explain how it might benefit from killing Iza at this point in time.

The first practical reaction to the attack was the announcement by the indigenous organisations of Cotopaxi that they would launch a `provincial mobilisation' on 16 February, and then probably extend the action throughout the central sierra.

By 5 February, the core member organisation of Conaie, Ecuarunari, was issuing a call for the `mobilisation' of some 3m Indians in 15 provinces across the country. Their overriding aim: Gutiérrez's resignation.

Interference in the domestic affairs of a Latin American country is not a set phrase that one would readily associate with Japan, yet that is just what the Peruvian government is protesting about to Tokyo. The motive: a public endorsement by a leading Japanese politician of a reelection bid by fugitive former President Alberto Fujimori.

It happened on 3 February at a symposium held in Kumamoto, in the home province of the Fujimori family, under the slogan, `Let us revive Japan; the world awaits the samurai.' Fujimori, who is shielded from extradition and prosecution by his Japanese citizenship, was one of the speakers, next to the governor of Tokyo, a former Japanese security & intelligence chief, and former minister Shizuka Kamei, head of the fourth-largest of the eight families that control the ruling Liberal Democratic Party.

Fujimori, in his speech on terrorism, said he wished to run again for President (though he is currently barred). Shizuka, clearly enthused, urged his listeners, `Let us gather the strength of the Japanese citizens so that Fujimori can be President again.'

BOLIVIA | Interest in Atlantic outlet. There appears to be real interest in Brazil in providing an oceanic outlet for Bolivia's natural gas. Petrobrás and BG are reportedly to conduct a feasibility study on a scheme to set up a gas liquefaction plant at the port of Sepetiba, in Rio de Janeiro, with a capacity of 15m cubic metres a day. What makes this idea attractive is that it might take up the slack in Brazilian demand for the gas pumped along the duct from Bolivia, currently being used at about half its capacity. The most visible adverse factor is the high cost of transport, particularly on the Brazilian side.

Another piece of good news for Bolivia is that Argentina's President Néstor Kirchner has announced that his country will increase its purchases of Bolivian natural gas. Mindful of Bolivian political sensitivities, Kirchner has promised it won't be resold to Chile (though it would most likely make up for the gas from Argentine deposits that are sold to Chile).

COLOMBIA | Uribe wants faster growth. President Alvaro Uribe took to the air to urge his own economic team to achieve a GDP growth rate of 5%. He noted that last year, when the government had projected only 2% growth, the actual rate was 3.5%. The President noted that the head of the planning department, Santiago Montenegro, had proposed for this year a target rate of 3.8%, but added, `The truth is that this country needs to grow more than that. We must make the effort [...] It is difficult but not utopian to think of 5%.' His main difficulty will be convincing the central bank.

ECUADOR | Alarm on the energy front. The government has declared a `preventive' state of emergency in the energy sector, to last until March, to prepare for the prospect of the annual decline of water levels at the Paute hydro complex, which provides 65% of Ecuador's electricity. This means redirecting all available funds to build up thermal power generation. On this front, the problem is that Petroecuador's oil output has fallen to 191,000 barrels per day, the lowest level in a decade — just as export prices have risen to US$30.3 per barrel, the highest since Petroecuador's creation in 1989 and 15% higher than last year's record average of US$26.2 per barrel.

The Puebla meeting of deputy ministers negotiating the Free Trade Area of the Americas (FTAA) did not end happily, but everyone concerned was at pains to emphasise that it was not `another Cancún' — referring to the WTO meeting that collapsed when agreement failed on much the same set of issues as in Puebla.

The Mercosur delegation was the first to announce that the negotiations had had to be `suspended'. The reason, according to Martí­n Redrado of Argentina, was `the lack of willingness of some delegations' to advance on agricultural matters, particularly on subsidies and market access. US negotiator Peter Allgeier later insisted that it had not only been about agriculture -- but there was no getting away from the fact that this had been identified by Mercosur as a make-or-break issue from the outset.

The meeting witnessed a confrontation between two main groups: Mercosur and the G-14, the latter being the US plus two successive cohorts of seconders — first Canada, Mexico, Chile and Costa Rica, then Colombia, Ecuador, Guatemala, Honduras, Nicaragua, Panama, Peru and the Dominican Republic. This latter group includes countries which have either already celebrated, or are in the process of celebrating, free-trade agreements with the US.

The Puebla meeting was not about substantial negotiation but about defining the actual scope of what the nine negotiating groups should do between now and the launch of the FTAA. Whether the takeoff date of 2005 will still hold is now in doubt. The suspended meeting is now scheduled to resume, again in Puebla, in the first week of March.

"Vive Titid pou 5 An." (Long live Aristide, for five years more)

Pro-Aristide graffito on a Port-au-Prince wall.


"Qué felicidad, Hipólito se va." (What joy, Hipólito is going).
"Qué felicidad, cuatro años más." (What joy, four years more).

Pro and anti-Mejí­a baseball fans, politicising last week's Caribbean Series in the Dominican Republic.


"Don't we have a fence down on the Mexican border?"

US Senator Hillary Clinton, defending the wall which the Israelis call a `security fence'.

LATIN AMERICAN REGIONAL REPORT: MEXICO & NAFTA - NOW AVAILABLE

In this report we look at politicians north and south of the US border. In our Nafta Report we take a look at what policies John Kerry, the frontrunner for the Democratic Party presidential nomination, may propound for US-Mexican relations. In Mexico, we look at Marta Sahagún, the wife of President Vicente Fox, who seems to want to run for the Presidency in 2006. She recently came under sustained criticism over her charity Vamos México. Our Mexico Report also takes a look at the state of the economy and analyses the impressive strength of the government's fiscal position. We also report on church-state relations; crime and rural unrest, and the state of play in the forthcoming gubernatorial elections. Our Nafta Report also looks at the growing role of remittances in the Mexican economy and the swings and roundabouts of agricultural trade between Mexico and the US. An annual subscription to Latin American Regional Report: Mexico & Nafta (12 issues) is priced at US$225 (Discounted rates available to academics/NGOs). For details, please call LAN on +44 (0)20 7251 0012 or email: [email protected]

Latin American Weekly Report (Online) ISSN 1741-7422. Published weekly (50 issues a year) by Intelligence Research Ltd, 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.

On 15 February, before hearing the names of the new cabinet expected to rescue the Toledo government from its latest crisis, Peruvians were able to read the findings of a survey conducted by the polling firm Apoyo. It showed 73% of respondents convinced that popular pressure would force Toledo to resign, and the President's approval rating down to 7%. The announcement of the new cabinet, billed as `mainly independent', did little to dispel that mood.

It was meant to be a gabinete conversado, a `talked-over' cabinet that would attract the approval of all sectors. The talking, however, did not include all sectors. The biggest opposition party, the Partido Aprista Peruano (PAP), did not take part at all. The leader of another, Lourdes Flores of Unidad Nacional (UN), decided not to take part personally upon realising that Toledo had no intention of taking up her suggestion that he should `step aside' or `move upstairs', concentrating on the role of head of state and leaving the running of the government to the prime minister. That left any consensus lopsided.

[The prime ministerial position in Peru, as in Argentina, is not analogous to that of a parliamentary system. It was designed to provide a `fuse' should pressure mount for a change, shielding the President. The prime ministerial functions and powers, though substantial on paper, are normally overridden by the strong presidentialist tradition. It is the President who appoints and removes the prime ministers.]

Gaining support through spin
That Toledo was determined to hang on to his job was illustrated by his desperate efforts last week to secure institutional support at home and abroad. At home, he elicited the backing of 11 of the 25 regional presidents (those of Callao, Apurí­mac, Cuzco, Ucayali, Madre de Dios, Huancavelica, Puno, Juní­n, Pasco, Lambayeque and Loreto), embodied in a statement that reaffirmed their respect for `the constitutional term of office' and `constitutional order'. He also persuaded the umbrella labour organisation Confederación General de Trabajadores del Perú (CGTP) to proclaim its opposition to `anticipated presidential elections or any other precipitate outcome'.

Abroad, he got the Rio Group* to declare its `firm support for President Alejandro Toledo in his efforts to consolidate Peru's democratic institutional process' and `reaffirm that the stability of democratic processes in the region is a shared objective.'

He also got the permanent council of the OAS to issue a declaration of `full and determined backing' for Toledo in view of `the real crisis, lack of credibility and destabilising acts' that he was facing. OAS secretary-general César Gaviria added to this that Toledo's efforts were `perfectly attuned' with the Inter-American Democratic Charter [which commits the OAS to act against attempts to breach the constitutional order].

One of the arguments deployed by Toledo's government was that former President Alberto Fujimori was funding a destabilisation campaign. Peruvian intelligence chief Daniel Mora has been saying that a group of `mafiosos' linked to Fujimori has brought US$3m into Peru to finance the destabilisation of the Toledo government. He gave no further details, but Fujimori gave a measure of credibility to this when his press office in Lima distributed, on 13 February, a statement of his to the effect that bringing forward the general elections was `indispensable'.

Also, diplomats and government spin doctors did their best to conflate demanding the President's resignation (perfectly constitutional) with breaching the constitutional order — which another of the proposals bandied about, the celebration of early elections, might entail: the constitutional follow-up to the President's resignation would be to elevate whoever is next in the line of succession and have him complete the established term.

What has changed
The cabinet reshuffle — Toledo's fifth — involved only one major novelty: the reappointment as minister of economy & finance of Pedro-Pablo Kuczynski, who had held that position until July 2002, when he resigned due to the wave of protests against the privatisation of two power utilities [WR-02-28]. He replaces Jaime Quijandrí­a, who has returned to his previous post of minister of mines and energy. Prime minister Ferrero has underlined that the new cabinet, as a result of the seven new appointments, is now `85% independent'. Apart from Kuczynski and the appointment of the lawyer Javier Neves as labour minister, none of the `heavyweight' ministries has been touched.

Kuczynski has already served notice that he wishes to change one of his predecessor's measures: the tax on financial transactions, brought in to finance pay increases for teachers. The others will have to cope with impending protests by farmers and transport workers, and with this week's congress of coca growers in Lima, which interior minister Fernando Rospigliosi has predicted may be used to launch a `Bolivian-style' destabilisation campaign.

*Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Paraguay, Panama, Peru, Uruguay and Venezuela.

Toledo's new cabinet

Appointed on 15 February

New appointments Economy & finance: Pedro Pablo Kuczynski Energy & mines: Jaime Quijandrí­a* Justice: Baldo Kresalja Education: Javier Sota Health: Pilar Masetti Labour: Javier Neves Transport: José Ortiz Production: Alfonso Velásquez Confirmed Prime minister: Carlos Ferrero Foreign relations: Manuel Rodrí­guez Cuadros Defence: General Roberto Chiabra Interior: Fernando Rospigliosi Trade & tourism: Alfredo Ferrero Agriculture: José León Rivera Housing, construction & sanitation: Carlos Bruce* Women's affairs & social development: Nidia Puelles *Only survivors of the five Toledo cabinet reshuffles; Quijandrí­a has been moved from economy & finance back to his previous post.