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President Néstor Kirchner has gambled on bringing out into the open the rift that had been bubbling just below the surface in the ruling Partido Justicialista (PJ). He has withdrawn all pro-Kirchner provincial governors from the new party leadership installed only days ago, on 26 March, and is now appealing to the grassroots, and to the public at large, for support against entrenched party bosses.

Kirchner pointedly did not attend the party congress, which was hallmarked by a bitter slanging match between congresswoman Hilda (Chiche) Duhalde — wife of former President Eduardo Duhalde, also absent — and senator Cristina Fernández, Kirchner's wife. Later, jeers and catcalls prevented Fernández from addressing the gathering. The 900 congress delegates ended by selecting a mixed representation of the various factions, but this did not satisfy Kirchner.

Starting that very day, the pro-Kirchner governors resigned their leadership posts: human rights secretary Sergio Acevedo (governor of Santa Cruz), party vice-president Mario das Neves (governor of Chubut), finance secretary José Alperovich (governor of Tucumán), and finally party president Eduardo Fellner (governor of Jujuy). Kirchner has already set in motion his alternative: a drive to select a new leadership through the direct vote of the party members — not an option favoured by many of the old guard — and an appeal to the general public to manifest its support for the government.

Will K's popularity hold?
One of those who oppose internal elections is José Manuel de la Sota, the powerful governor of Córdoba. He reminded Kirchner, `Every time the President needs laws, the only ones who respond decisively are the congressmen and senators of the PJ.' But de la Sota also issued a warning in the other direction. `Those who depict me as an adversary of the government,' he said, `are in for a surprise.'

It is not an ideal moment for Kirchner to rely on the public. His approval rating, as measured by the ICG index of trust in government compiled by the Universidad Torcuato di Tella, stands at 66%. This may be the envy of other Latin American rulers, but what matters is that it is five percentage points down from a month ago. Until February it had been steadily rising. One of the most important factors in the decline has been the growing mistrust in the government's efficacy in spending public funds. 

Now, Kirchner's popularity is seriously threatened by the power shortage which could lead to rationing, a slowdown in economic recovery, or sharp increases in electricity rates (see previous item). Another threat could come from the external debt front, if Kirchner is forced to back down from his `no reduction' stand on the `haircut' offered to bondholders.

Kirchner will face a real test very soon. He has asked congress to authorise federal `intervention' (replacement of the elected authorities) in the dirt-poor north-central province of Santiago del Estero, longtime fiefdom of the Juárez family, which has become embroiled in scandals involving murder and fiscal fraud. The way the votes fall will provide a crucial measure of factional strength within the PJ — particularly since the leader-from-afar of one anti-Kirchner wing, former President Carlos Menem, managed to `intervene' in Santiago del Estero in 1993.

President Lula da Silva said last week that `for many years [Brazil] hadn't experienced a moment of optimism such as this.' The claim did not jibe with the fact that Lula's popularity is falling and his old allies are on the warpath. The movement of landless peasants (MST) has launched a new wave of land invasions, the umbrella labour confederation CUT is threatening an all-out strike, and Lula's Vice-President has renewed his attack on the government's economic policies.

Starting on 25 March, the MST has occupied 15 fazendas that it claims are lying idle: 12 in Pernambuco (Lula's home state), and one each in São Paulo, Rio de Janeiro and Paraná. This, says the MST leadership, is only the beginning; the campaign will continue until 17 April. It wants the government to settle 47,000 families in the first half of the year (until mid-March it had settled only 11,000).

The Central Unica dos Trabalhadores (CUT), the labour confederation co-founded by Lula in 1983, has threatened to call all its members out on strike if the government does not improve the pay offer it has made to the government employees. One group of non-unionised public servants, the military, is sending out wives and daughters on a pots-and-pans protest.

The public at large still trust Lula more than his government, but a poll by Ibope shows that even he has suffered a nine-point fall in popularity since December (to 60%). The government's approval rating has fallen seven points in the same time, to 34%.

Apparently seeking to illustrate what he calls the `new spirit of liberation impregnating South America', President Nicanor Duarte found last week that his prior engagements precluded receiving White House envoy Otto Reich, who was on a tour soliciting votes to condemn Cuba at the UN Commission of Human Rights. Reich was hosted instead by foreign minister Leila Rachid, who told him that Paraguay had not yet made up its mind on the issue.

She later told the press that Paraguay `fears no reprisals of any kind' from the US for having refused to send troops to Iraq and possibly not voting on Cuba as Washington would like. `This,' she said, `is an independent government with attitudes towards the world. We are a country that shows seriousness and strength in all of its decisions.'

On the matter of Iraq, she said that President Duarte had decided to `mark a distinction between peacekeeping force and the forces of countries in conflict.' On Cuba: `All issues call for prudent analysis.' On Reich's visit: `Countries send their messages, and if they can be satisfied, so be it; if not, we can dialogue on other areas. We can't always agree on everything.'

Days earlier, Rachid had publicly disagreed with General Peter Pace, deputy chairman of the US Joint Chiefs of Staff, categorically denying that there was any terrorist activity in the Triple Border area.

MERCOSUR | FTA talks with China. Brazilian foreign minister Celso Amorim announced last week that negotiations for a free-trade association with China may get under way as early as May. Amorim is just back from Beijing, where he held four exploratory meetings with top Chinese officials. Brazil's two-way rate with China has increased from US$1bn to US$8bn over the past nine years.

BRAZIL | FDI rising fast. Foreign direct investment in Brazil in February reached just over US$1bn, almost 30% more than in the same month of last year. This took the accumulated total to just over US$2bn, up 19%. This trend is in line with the government forecast of US$12.1bn for this year as a whole.

Brazil's FDI inflow had fallen from US$32.7bn in 2000 to US$10.1bn in 2003.

BRAZIL | Unemployment rate increasing. Brazil's open unemployment rate in February was 12%, up from 11.7% in January and 10.9% in December. During his campaign, President Lula da Silva had promised to create 10m jobs, but with the economy in the doldrums and 400,000 people entering the job market, his government has been unable to arrest the rise in unemployment. The `First Job' programme targeting new entrants has failed to make an impact.

ARGENTINA | Poverty rate falls. At the end of last year the proportion of urban Argentines living below the poverty line was 47.8%, a fall of slightly more than six percentage points since mid-2003, and of just under 10 points since the rate peaked in October 2002. The proportion of indigents fell in the second half of last year from 27.7% to 20.5%.

URUGUAY | Back on growth track. Uruguay's economy last year grew by 2.5%, after having contracted by 11% in 2002. Last year was the first one of growth since 1998. For this year the central bank expects 5% expansion.

A serious challenge to the legitimacy of the new Haitian authorities has emerged from a quarter virtually everyone had overlooked: the 14 senators whose mandates did not expire in January. They have announced that they will resume their function as the legislative power — just as the seven-strong Council of Wise Men, the ad-hoc body set up under the wing of the intervention force, has begun to consider adding more members and to assume an oversight role akin to that constitutionally entrusted to the legislature.

One of the surviving senators, Dany Toussaint (a dissident of former President Jean-Bertrand Aristide's Fanmi Lavalas), formally resigned his seat on 19 March invoking the need to facilitate the political transition. Toussaint put his finger on the problem when he added that there was a duplication of functions between the senate and the Council of Wise Men.

Senate president Yvon Feuillé is adamant that `nobody, in any circumstance, can dissolve the senate or curtail the mandates of the senators.' He says that `although President Aristide resigned, the other institutions continue to function.' Indeed, this is the argument used to install supreme court president Boniface Alexandre in the presidency.

Feuillé has been taking on the mantle of visible political leader of Aristide's party, arguing publicly that what was supposed to be a transition agreed upon by all parties has become one imposed by all parties but Fanmi Lavalas. `Everywhere,' he said last week, `Lavalas is a victim. Apart from the physical massacres we can envisage a political massacre being prepared behind the back of Lavalas.' However, he warned, everyone should realise that `without Lavalas, there is no solution.'

Senator Martineau Guerrier has revealed that the surviving 14 senators have been meeting frequently over the past few days, and are readying a formal resumption of activities this week. `We have the necessary quorum,' he says, `and we shall resume our work in the senate without any problems [...] In the context of the separation of the three powers, we don't want to interfere with what the government is doing.'

Another former senator who broke away from Lavalas, Principe Pierre Soncon, has invited the remaining senators to follow the example set by Toussaint, since the continued existence of the senate is `incompatible' with the Council of Wise Men.

Aristide & friends
Meanwhile, Aristide has hardly disappeared from the scene. He has been granted temporary haven in Jamaica, within cellphone reach of his followers. His claim that he was forced out of office has been given credence by Caricom (which has asked the UN to investigate what actually happened), the African Union and Venezuela. Offers of political asylum have been made by Nigeria, South Africa (informally), Venezuela and Panama. This may be enough to raise the matter in the UN General Assembly, where Caricom and the African Union combined account for nearly a third of the members.

Caricom leaders, meeting at Basseterre (St Kitts-Nevis) last week, decided not to invite Haitian prime minister Gérard Latortue. Jamaican prime minister PJ Patterson proclaimed that the crisis in Haiti could not find a `lasting and permanent solution' if Caricom was not involved. In keeping with this stance, Caricom has refused to take part in the intervention force — but has deliberately not ruled out participating in a UN operation. Trinidadian premier Patrick Manning has said he will send 121 soldiers to Haiti in May, by which time the UN should be in charge. Kittitian prime minister Denzil Douglas has said that Caricom might even send a separate `humanitarian' force to help rebuild the country.

The internal security scene
Haitian prime minister Latortue raised eyebrows when, on a visit to his native Gonaí¯ves last week, he shared a platform with rebel leaders and described them as `freedom fighters' — a phrase which many associate with the US-backed Contras in Nicaragua during the Reagan years. Rights organisations say Latortue is clearly leaning towards recognition of the rebels, and the intervention force is doing little to prevent the rebels from acting as the de facto security force in many parts of the country. The organisations visibly playing that role are the one led by Guy Philippe, now known as the Forces Armées du Nord (FAN), which is coexisting with the French army in Cap Haí¯tien, and the allied Armée Kosovo. Human Rights Watch reports that these groups are holding prisoners, some of them clearly political.

The first step towards President Enrique Bolaños's `national deal' — a law to depoliticise the judiciary — degenerated into scuffles on 25 March when a group of judges and magistrates burst into the national assembly to protest. To complicate matters further, both Sandinista leader Daniel Ortega and jailed former President Arnoldo Alemán separately rejected Bolaños's call for an all-party `dialogue' on his scheme.

The Bolaños package is a mixed one. It proposes:

• Depoliticising the judiciary.
• Banning presidential reelection.
• `Professionalising' the electoral system (meaning giving the electoral authority a greater measure of autonomy).
• Unifying the legislation on property [an issue still bedevilled by past expropriations, confiscations and handouts] and entrusting its administration to a new ministry to be created for that purpose.
• Legislating a ban on financing fiscal deficits with inflation or public borrowing on terms other than concessionary.
• Adopting five-year budgets of revenues and expenditure.
• Setting specific targets for the improvement of pay levels for teachers, healthcare workers, police and military, and of the legal minimum salary.

Not all of this, though, is open to dialogue; two items must be approved first: the law on the judicial career, and the reform of the national budget. Ortega did not specify what he opposed in Bolaños's package, beyond calling him `corrupt' and `dictatorial'. Alemán, from his prison cell, said that a dialogue with two key items withdrawn makes no sense.

The law on the judicial career has already cleared committee stage, thanks to the new entente between the pro-Alemán and pro-Bolaños factions of the old Partido Liberal Constitucionalista (PLC). The 25 March fracas, mounted by judges associated with the Sandinistas, was triggered by the fact that passage of the law would demand the resignation of all judges of lower and appeals courts, as well as court clerks and other judicial officials, who would then have to reapply for their jobs under new rules that place the emphasis on professional qualifications.

The big difficulty is that Bolaños's entire edifice is built on very unstable foundations. He has only been able to keep the pro-Alemán Liberals on board with the threat that an entente between his faction and the Sandinistas would remove them from positions of power in the legislative assembly. That threat, in turn, is not credible without reliance on the Sandinistas. The next few steps will be worth watching.

Defeated FMLN presidential candidate Schafik Handal may pay the price for having insisted on running against the advice of some of his party's shrewdest political operators. Already a movement is afoot to bring forward from November the FMLN's general assembly congress and elect a new leadership.

The man most vocally demanding a change of leadership and policy is the mayor of Santa Tecla, Oscar Ortiz, who stood against Handal in the nomination contest, arguing that he would present too easy a target for the Salvadorean right. According to Ortiz, the elections were lost on the fatuous assumption that the FMLN could field anyone and win, and on the failure to spell out to the voters precisely what the FMLN would do if elected.

Also prominent among those calling for change is Roberto Hernández, former municipal coordinator in San Salvador, whose prize for opposing Handal was a decision of the party's ethics committee to strip him of his post and ban him from running for party office. A third group demanding change is headed by Gerson Martí­nez, of the tercerista faction.

The one thing they have in common is a determination to remove Handal's Corriente Revolucionaria y Socialista (CRS) from the leadership of the FMLN. Party coordinator Salvador Sánchez Cerén has been trying to hold the challengers at bay, but has been unable to halt the launch of a `consultation' drive among the FMLN grassroots across the country on the advisability of holding the general assembly early.

FMLN members with long memories recall that this was not the only electoral defeat for which Handal was to blame. In 1999, when the `renewal' faction led by Facundo Guardado won the FMLN nomination, Handal instructed his CRS followers not to campaign for Guardado and not to vote for the FMLN. He actually presided over a `victory' dinner when Guardado was beaten.

One other thing achieved by the new Liberal entente in the national assembly has been the announcement of an agreement to start getting rid of Nicaragua's arsenal of SAM-7 missiles — a move which the US government has been urging for some time. Formally, the decision remains contingent upon subregional moves towards a `reasonable balance of forces'. The unofficial word is that Nicaragua will eliminate, as a `unilateral gesture', half of its stock of SAM-7s — about 1,000 missiles — in three stages over the coming year or so. Others (read Honduras) are expected to follow suit.

The assembly will just approve the initiative in broad terms, leaving it up to Bolaños, as commander-in-chief, to take the necessary `administrative' decisions.

Long-ruling prime minister Lester Bird clearly sensed that his time had run out: the weekend before the 24 March general elections he had boxloads of documents carted away from his office. What he may not have anticipated was the scale of his defeat: the opposition United Progressive Party (UPP) led by Baldwin Spencer took 12 of the 17 seats in parliament. Even Bird lost his seat.

The electorate undoubtedly wanted to send a clear message: 91% of registered voters turned out, 40% more than in the previous general elections in 1999. Lester Bird had been prime minister since 1994, succeeding his father Vere, who had ruled since Antigua & Barbuda became independent in 1981. Lester Bird's tenure had been plagued by accusations of bribery, misuse of public funds and even sexual misconduct — though nothing ever stuck.

Bird had campaigned on his economic management record: Antigua & Barbuda's 4% growth was high for the region. Voters apparently paid more attention to the fact that little of this `trickled down'. His Antigua Labour Party (ALP) saw its parliamentary representation shrink from nine to four.

DOMINICAN REPUBLIC | Foreign investment on the rise. Last year, according to the Centro de Exportación e Inversión (CEI), foreign direct investment (FDI) slightly exceeded US$1bn — 9.5% more than in 2002 — and helped create 12,550 jobs. This happened against a backdrop of GDP contracting by 0.4% and unemployment on the rise. Just over a quarter of the FDI went to tourism, as sector which grew by 29.6% in 2003 and contributed 8% of GDP. For this year the CEI predicts an FDI inflow of US$2.75bn and the creation of 15,000 jobs.

DOMINICAN REPUBLIC | Power shortage going political. Ramón Cruz, superintendent of electricity, is accusing the power distribution firm AES EdeEste of using blackouts to `blackmail' the government into paying more in hard currency. `The blackouts,' he says, `show a lack of responsibility on their part; they are intended to harm the government.' AES EdeEste is the only remaining private power distributor, responsible for about a third of the country's power supply. In 2003, the government bought back Unión Fenosa, after it cut off the supply as a means of forcing payment. Blackouts in the area formerly served by Unión Fenosa have been reduced considerably since the renationalisation.

ANTIGUA & BARBUDA | WTO rules against US. The WTO has ruled, provisionally, that a US ban on Internet gambling breaches its rules, as argued by Antigua & Barbuda. An interim report states that Internet gambling is covered by the agreement on services, of which the US was a prime promoter. The office of the US Trade Representative has served notice that it will appeal. Antigua is one of the centres for Internet gaming; US residents are reckoned to account for more than 65% of the business.

HONDURAS | FDI upturn expected. Camilo Atala, the minister in charge of investment promotion, predicts that Honduras, one of the three poorest countries in Latin America, will this year attract about US$700m of FDI, and that this will be instrumental in achieving the GDP growth target of 3.5% to 4%. About US$300m is expected to go into the electricity sector, and US$150m into telecommunications.

Jorge Castañeda, foreign minister in the Fox administration until a year ago, has announced that he intends to run for the presidency in 2006. He believes he can capitalise on the discredit of the three main political parties among the voters. Before he can really get started, though, he will have to muster enough support to persuade congress to change the electoral rules so that an independent candidate can run.

Castañeda, 50, started out in politics as a communist, then switched sides with all the energy of a convert. His book Utopia Unarmed, published in 1993, was a strong denunciation of Latin America's revolutionary left and its heirs. Polyglot and prolific writer, he was a constant critic of the corporatist rule of the Partido Revolucionario Institucional (PRI), and took part in two successive attempts to remove it from power via the ballot box. In the first he acted as an adviser to the presidential campaign of Cuauhtémoc Cárdenas, one of the PRI defectors who set up the Partido de la Revolución Democrática (PRD). This only failed because the PRI government rigged the results.

The second was his participation in the winning campaign of Vicente Fox, of the Partido Acción Nacional (PAN). He had drawn close to Fox in a think-tank known in Mexico as the Castañeda Group (and further south as the Mangabeira Group), which had set itself the task of coming up with a left-of-centre alternative to neoliberalism.

Fox appointed Castañeda to the foreign ministry, where he imposed a policy of almost unconditional alignment with the US — a line which earned Castañeda much enmity in Mexico, and ultimately, compounded by Castañeda's public slanging match with Cuban President Fidel Castro, created the adverse climate in which he felt compelled to resign. Even his admirers see Castañeda's ability to rub people the wrong way as his main handicap.

The `winning' scenario
Castañeda's entry to the presidential race was true to style. He used two avenues: a brief TV spot on all leading Mexican channels, and a write-up by Miami-based pundit Andrés Oppenheimer. The latter included a description of the basic scenario imagined by `Castañeda's aides'. It goes like this: by the time campaigning is officially launched in January 2006, with the three main parties as divided as they are today, Castañeda will have built up support in the polls to 10-15% [from the current 6%]. This will make it hard for the big parties to exclude him from presidential debates — and in these, Castañeda, `by far the most articulate of all candidates', will gain an extra 10 percentage points in voter preferences. With four candidates in the running, and no provision for a run-off, Castañeda could win. Still unclear is how and when getting the electoral rules changed enters this scenario.

The discredit of political parties has, elsewhere in Latin America, indeed fostered the emergence of `outsider' candidates. The most recent examples are Venezuela's Hugo Chávez , Ecuador's Lucio Gutiérrez, Brazil's Lula da Silva and Argentina's Néstor Kirchner. Though Castañeda has adopted the term `outsider' to describe himself, he does not see himself in the same light as these.

Exchange rates
Local currency per US$1
COUNTRY	CURRENCY	Year ago	Previous	Current
		28.03.03	19.03.04	26.03.04
Argentina	peso	2.99	2.91	2.90
Barbados	dollar	2.00	2.00	2.00
Belize	dollar	2.00	2.00	2.00
Bolivia	boliviano	7.62	7.92	7.92
Brazil	real	3.37	2.90	2.93
Chile	peso	729.00	611.00	620.00
Colombia	peso	2,958.91	2,669.39	2,679.61
Costa Rica	colón	388.73	427.37	428.01
Cuba	peso	1.00	1.00	1.00
Dominican Rep.	peso	24.48	44.26	45.86
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	7.93	8.11	8.10
Honduras	lempira	17.34	18.16	18.18
Mexico	nuevo peso	10.81	11.08	11.19
Nicaragua	córdoba oro	15.03	15.89	15.90
Panama	balboa	1.00	1.00	1.00
Paraguay	guaraní­	6,900.00	5,990.00	5,965.00
Peru	nuevo sol	3.47	3.47	3.47
Uruguay	nuevo peso	29.75	30.15	30.15
Venezuela	bolí­var	1,600.00	1,920.00	1,920.00
Sources: EFE; Bank of America.

Inflation in the region
Country	Source	December	January	February	Last 12m	Jan-Dec 2003
Argentina	Indec	0.20	0.40	0.10	2.30	3.70
Bolivia	INE	0.90	0.62	0.19	4.59	3.94
Brazil	FGV	0.52	0.76	0.61	6.69	12.53
Chile	INE	-0.30	-0.20	0.00	0.00	1.10
Colombia	Dane	0.61	0.89	1.20	6.28	6.49
Costa Rica	DGEC	1.25	1.70	1.29	11.55	9.87
Ecuador	Inec	-0.04	0.41	0.69	3.84	6.07
El Salvador	Min.Ec.	0.20	1.11	0.44	2.63	2.50
Guatemala	BCG	0.58	1.53	0.74	6.26	5.85
Honduras	BCH	0.30	0.90	1.10	6.70	8.10
Mexico	Bco.Mx.	0.43	0.62	0.60	4.53	5.70
Nicaragua	BCN	0.76	1.59	1.24	6.92	6.48
Paraguay	BCP	0.90	0.30	0.10	3.80	9.30
Peru	INE	0.56	2.19	1.09	3.43	10.19
Uruguay	DGEC	0.65	2.19	0.02	9.07	10.19
Venezuela	BCV	1.80	2.50	1.60	21.90	27.10
US	DOL	0.58	0.50	0.50	1.70	1.60
Previous: WR-04-12

The stockmarket in figures
Market	Index	19.03.04	26.03.04	Variation (%)
Buenos Aires	Merval	1275.20	1211.30	-5.01
São Paulo	Bovespa	22260.64	21541.01	-3.23
Santiago	IPSA	1453.67	1433.87	-1.36
Bogotá	IGBC	3169.77	3204.92	1.11
San José	BCT	10077.95	9447.23	-6.26
Quito & Guayaquil	Interinvest	68.34	65.85	-3.64
Mexico	BMV	10039.68	10432.00	3.91
Lima	ISVBL	2926.41	2952.87	0.90
Caracas	BC	27553.21	26784.16	-2.79
Source: Daily market reports.

Just as Mexico was getting used to ever-increasing volumes of remittances by its expatriates in the US, an initiative has surfaced in the border state of Arizona that could squeeze, if not cut off, the flow. The state wants to tax remittances, ostensibly to recoup what it spends on illegal immigrants.

The bill has already cleared the state senate and is currently before the lower chamber. Its promoter, the Democrat Pete Rí­os, has presented it as a means of recovering what is spent on healthcare and prison facilities for the illegal Mexican immigrants.

Mexico's foreign ministry sees the argument as specious. It says that in 2001 the purchasing power of Mexican immigrants in Arizona was US$3.9bn, and their contribution to the state's fiscal revenues reached US$356m, while the cost they represented for the state was US$250m.

It also says that the proposed Arizona tax goes against the grain of what both the US and the Mexican governments are trying to achieve, which is to lower the cost of remittances so that their inflow creates opportunities in the most emigration-intensive communities in Mexico.

GROWTH OUTLOOK | Mining & farming lead uptick. Economic activity in Mexico in January was running 2.1% higher than a year earlier, according to the IGAE index, which foreshadows GDP data. This is being heralded as a very encouraging sign, after the mere 1.3% growth recorded in 2003 as a whole. The government has set itself a growth target of 3.1% for this year.

In January the highest sectoral year-on-year growth was recorded by mining (6%), followed by agriculture (4.2%) and construction (3%). Manufacturing was down by 0.1%.

INFLATION & MONEY | Bank sounds optimistic, but remains tight. Mexico's central bank says that the inflation outlook was not worsened in spite of pressures that took the annual rate in the first two months of the year to 4.3%. This, it says, will only have a `transitory effect' and the trend will turn downward in the next few months. Nonetheless, it also said that it would keep the supply of credit to the financial institutions unchanged -- that is, tight.

REMITTANCES | Influx slows down. Remittances by expatriates in the US in January totalled US$941m, only 1.5% more than a year earlier. Last year remittances rose to US$13.37bn, which made them Mexico's second-largest source of hard currency (after oil). Officials had predicted that this year the inflow would increase to about US$15bn.

FISCAL OUTLOOK | States warned of imbalance. The finance ministry has warned the state governments to moderate their demands for a greater share of federal tax revenues, arguing that the situation is already very unbalanced. It noted that the states and municipalities account for only 7.7% of tax receipts, but receive, in the form of transfers from the federal government, 45.1% of the total. The state and federal governments are discussing fiscal reform at the Convención Nacional Hacendaria, a rarely convened forum which is expected to come up with conclusions in six months' time.

"Indigenous America must again recover its mystique and protagonic role [...] Latin America and South America are today impregnated with a new spirit of liberation."

Nicanor Duarte, President of Paraguay.


"I bring independence. I am not a party hack, and have never been one. And I bring ideas."

Jorge Castañeda, former Mexican foreign minister, announcing his bid for the presidency in 2006.


"If you can't maintain the prisons, if you can't pay the teachers, if you can't pay the doctors, if there are deficiencies in healthcare, in public works, in security, the citizens begin to wonder what the State is for."

Jaime Nebot, mayor of Guayaquil, Ecuador.

In this month's Latin American Security & Strategic Review

The special focus of the latest issue of Latin American Security & Strategic Review is security & strategy in the Haitian 'solution'. With Aristide gone and a UN-mandated force on the ground, the priority in Haiti is to restore order, which means removing the weaponry of the armed rebels and the pro-Aristide gangs. This is no simple proposition: local politics and US strategic formulas for the region are involved. In the background, the international force has emerged at the stage where several actors, from within and beyond Latin America, are reaffirming their commitment to multilateralism in the handling of crises. Elsewhere, kidnappings see their steepest decline yet in Colombia, Brazil gets permission for shoot-downs, and in Mexico an `insider' people- trafficking ring is exposed. For more information or to subscribe call +44 (0)20 7251 0012 or send an email to [email protected]

LATIN AMERICAN REGIONAL REPORT: BRAZIL & SOUTHERN CONE - NOW AVAILABLE

The Brazilian government's refusal to accept a congressional inquiry into the campaign-funding scandal has clearly been damaging its credibility, even among its political allies. Additional revelations have made its position, which looks like a cover-up attempt, ever less tenable. The situation has even led its biggest partner, the Partido do Movimento Democrático Brasileiro, to start suggesting that it may pull out of the alliance. We consider the scandal and its possible consequences in detail. Elsewhere, in Argentina, the PJ dissolves under Kirchner, in Chile, the ruling coalition gets an unexpected boost, and in Uruguay, the economy shows its first positive growth in six years. An annual subscription to Latin American Regional Report: Brazil & Southern Cone (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]

In the latest issue of Latin American Economy & Business

In this issue we give our revised forecasts for the region's main economies in 2004. We note how the boom in commodity prices has boosted all the economies, but point out the risks and dangers that accompany the boom. We are still bullish on Brazil but worried by the outlook for Mexico. Our major revision is to raise our forecast for Chile, which is benefiting hugely from soaring copper prices and low interest rates. We back up all these forecasts with a detailed report on the current state of, and the key issues confronting, all the region's economies. Our commodity report looks at the bumper agricultural exports expected in Argentina this year, at the meat industry in Mexico, and at the question of copper royalties in Chile. An annual subscription (12 issues) to Latin American Economy & Business is priced at US$765/ £545 (discounted rates available to academics/NGOs). For details, please call +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 1 April 130,000 people took to the streets in Buenos Aires city and thousands more marched in several provincial capitals, to demand from the government more effective action against crime. The event was triggered by the kidnap and murder of a young man in an affluent suburb ― the third prominent case since 2002 of a kidnapping followed by murder.

The fact that the killing reportedly took place during a shootout between police and kidnappers, which foiled the delivery of a ransom payment, was all too readily interpreted by the public as a sign that elements of the police may have been involved in the kidnapping.

Felipe Solá, governor of Buenos Aires province, in whose jurisdiction the crime took place, promptly demanded an extra US$344,000 from the federal government `to put more policemen on the street'. In the meant time, he took 1,300 police officers off desk duty and sent them out of patrol. President Néstor Kirchner congratulated the father of the victim, Juan Carlos Blumberg, for having convened and led the mass protest. Then, through justice minister Gustavo Béliz, he let it be known that he would soon be unveiling a `national plan' against crime.

The noise made by officialdom drowned out the fact that what was being promised was a repetition of announcement already made over the past year or so. All the elements of Kirchner's `national plan' ― restructuring the federal police, removal of judicial obstacles to the investigation of kidnappings, a tightening of controls on police forces ― were supposed to have been under way for some time.

Roots deeper than crisis of 2001
Many have linked the rise in crime in Argentina, and particularly kidnapping, with the severe economic crisis of 2001-02. Actually, the country had been undergoing a quiet escalation of kidnapping long before the economic crisis of 2001-2002 was accompanied by the surge in the number of kidnappings that attracted international attention.

Nor is it a secret that organised kidnapping in Argentina can be traced back to the insurgency and ensuing `dirty war' of the 1970s; some of the gangs were formed by members of the counterinsurgency `task groups' drawn from the armed forces and police. The most brazen was led by Raúl Guglielminetti, a `dirty warrior' who had got himself appointed to a security post attached to the presidency during the government of Raúl Alfonsin, who inaugurated the return to elected rule in 1983.

A kidnap gang known as Los Arcángeles, that included policemen previously attached to army intelligence, was disbanded in 1991. The so-called `band of the commissioners', formed by members of the federal police, was responsible for at least five high-profile abductions between 1978 and 1991, including that of businessman and politician Mauricio Macri (ransomed for US$6m), before being broken up. Links have been suggested between that band and the one which kidnapped Macri's half-sister in 2003 (reportedly ransomed for US$1.5m).

Still active today
This connection has persisted. Kirchner has acknowledged the involvement of active police officers in kidnappings last year. His ministers have been less keen to accept evidence seemingly pointing to present-day criminal connections reaching into government house and the defence ministry. Last November, Eduardo de la Cruz, chief prosecutor of Buenos Aires province, announced that about 700 calls had been placed between telephones linked to the investigation of serious crimes and the defence ministry building, and another 3,300 such links had been found with the Casa Rosada, the presidential palace, which also houses the interior ministry, which is in overall charge of internal security.

These call logs covered a fairly lengthy period, beginning in 1997 (which means that they cover part of the Menem era and the entire de la Rúa and Duhalde presidencies). The calls are associated with the investigation into 200 criminal cases, embracing kidnappings, murders, and armed robberies.

Kirchner's first offensive
In late 2003 Kirchner ordered a two-track offensive against crime. On one hand, large numbers of police officers were redeployed on the streets, and a new ‚ anti-kidnap unit with federal reach was created, backed up by new legislation stiffening penalties for kidnapping and easing restraints on investigators. On the other, a far-reaching purge of the Buenos Aires provincial police force (the biggest in the country) led to dozens of criminal proceedings against corrupt officers. On a lesser scale, something similar began to take place within the federal police.

The new 100-strong `anti-kidnap brigade', headed by federal police commissioner Juan José Schetino, was intended to work in coordination with provincial police forces and would, according to the government, enjoy `total autonomy' to deploy anywhere in the country if the judge in charge of a kidnap case should deem it necessary.

It was noted at the time that the planned scope of action of the new unit could run into legal, even constitutional problems. At present, federal police and security forces can only be deployed outside the federal capital to deal with cases that are clearly within federal jurisdiction (border matters, interprovincial traffic) or when a provincial government requests their assistance. Unlike the US, there is in Argentina no legal provision for treating kidnappings as a specifically federal offence; they would only fall within federal jurisdiction if the victim were taken across provincial boundaries.

Within weeks officials of both the federal government and the province of Buenos Aires were proclaiming these initiatives a success, pointing to falls in such crimes as `express' kidnappings and car robberies. This is exceedingly hard to verify. Accurate, consistent statistics are scarce. The government has reported that in the Greater Buenos Aires area, which includes the federal capital and a ring of municipalities in the province of Buenos Aires, there were 207 reported kidnap cases in the first half of last year. This was said to represent 95% of the national total and 25% more than in the same period of last year. The government of Buenos Aires province said that in 2002, 135 kidnappings were reported in its jurisdictions, of which 49 were classified as long-term. Of the latter, 42 were solved.

Impact of police corruption
In December, though, a spate of kidnappings in the province of Buenos Aires was described by the government as a `message' to that state's security minister, who was stepping up his purge of police ranks. As many as 23,000 members of the force were by then under investigation for a range of irregularities, and 4,000 were facing court proceedings.

In that same month, prime minister Alberto Fernández suggested that a string of armed robberies in shops and restaurants in two districts of Buenos Aires might be `reprisals' by members of the federal police who had come under investigation. In both districts the local police commissioners had until recently served in the force's internal affairs division. Fernández's view was echoed by justice minister Béliz and internal security minister Norberto Quantí­n.

Béliz at the time also openly hinted at official collusion with criminals. Alluding to the district of Villa Urquiza, where neighbours took to the streets to protest an upsurge in criminal activity, he said, `There have been cases of criminal gangs that carried out hold-ups in the neighbourhood, who have been arrested only to walk free 48 hours later ― not once, but three, four or five times.'

The extent of corruption in the police forces was illustrated by an investigation last year into the personal assets of 149 officers of the 41,000-strong Buenos Aires provincial force. Two top-ranking officers, commissioners-general Julio César Frutos and Héctor Dí­az (respectively chief and deputy chief of operations), were dismissed and criminal proceedings were initiated against them. More were deemed likely to follow as 24 of the officers investigated failed to explain satisfactorily the provenance of their assets ― real estate, luxury cars, yachts and hefty bank balances, all beyond the reach of their official salaries.

In the federal police its chief, commissioner Roberto Giacomino, was dismissed and charged with misuse of public funds (chiefly an alleged manipulation of a computing equipment contract so that it was awarded, at an inflated rate, to a firm owned by an in-law). Giacomino had been the only top-ranking federal police officer to escape the purge conducted by President Kirchner immediately after taking office. He had held his position since end-December 2001, when his predecessor, Ruben Santos, was removed to face charges of excessive use of force against demonstrators during the demonstrations and riots that triggered President Fernando de la Rua's resignation.

It is worth noting that prime minister Fernández sees the situation in the federal police as far less serious than that of the Buenos Aires force. `Though I have not studied the subject in detail,' he said, `I do not detect in the federal force the same levels of enrichment we have found in the Buenos Aires police.'

This panorama of corrupt police forces with friends in high places and running out of control has led to calls for the military to be called in to act against crime; a course of action which, as we have been reporting, has been tried out in several Latin American countries, so far without lasting effect. Defence minister José Pampuro has dismissed any possibility of this happening in Argentina, because `the army is barred by law from any participation in internal security.' The precedent of the disregard shown for provincial jurisdictions with the new anti-kidnap unit suggests that this obstacle, given the right amount of public pressure, might be overcome. Whether calling out the army would work is an entirely different matter.

For a while last week it looked as if President Lula da Silva had been able to head off what threatened to become a major wave of land invasions by the Movimento dos Trabalhadores Rurais Sem Terra (MST, the movement of landless peasants) - with MST leaders retracting or toning down their most belligerent statements. Then, over the weekend, the MST and other rural organisations more than doubled the number of land seizures since the drive began in late March.

The MST had launched the new wave of invasions on 27 March, protesting the slow pace of government land-distribution efforts. One of the top MST leaders, João Pedro Stédile, had predicted a `red April' that would turn the countryside into `a hell'. Another, Jaime Amorim, addressing the rise in rural violence since the beginning of the year, vowed that the landless would kill 10 landowners for each fatality of their own.

Lula's response was to more than double the appropriation of public funds for land distribution this year, from R$1.4bn to R$3.1bn (US$480m to US%1.06bn) - which, said agrarian development minister Miguel Rosetto, would allow the government to meet its target of settling 115,000 families in land of their own by the end of 2004.

This was applauded by the MST. Stédile said his `red April' was an allusion to the red flags carried aloft by the MST land invaders, and that `hell' was just a colourful expression. He also apologised to anyone who might have taken umbrage at Amorim's ten-for-one threat.

Then Lula decided to sound a tough note, perhaps to compensate for having appeared earlier to have bowed to the MST. `We will carry out agrarian reform,' he said, `because it is a matter of social justice, but we will not do it under the pressure of shouts [...] neither the shouts of the rural workers nor the shouts of those who oppose them.'

What followed was the new weekend batch of land invasions: 23 in the northeastern state of Pernambuco. The MST vowed to keep up the pressure, with new land seizures in Bahia, then a return to the southernmost states.

All told, the number of land invasions since the beginning of the year has already exceeded 240, more than twice the 103 staged in the whole of last year. The occupations have been met with increased violence: in the first quarter of the year, according to a congressional commission, there have already been more deaths than in 2003.

The distribution shortfall
The government had promised to hand out land to 115,000 families this year, trebling what it had managed to achieve in 2003. As early as mid-January the agrarian development ministry had warned that it would need the equivalent of US$1.2bn to do the job, and that the budget approved by congress fell far short of that. In November 2003, at a meeting with MST leaders, Lula vowed to settle 530,000 families by the end of his term in 2006. With last year's shortfall, fulfilling that promise would have meant settling an average of 165,000 families a year over this year and the coming two. The target for this year was set 30% lower than that, at 115,000 families. Without the budget adjustment there was a risk that the actual number of beneficiary families this year might fall as low as 48,000 ― which would have entailed raising the annual average to 223,000 families in 2005-06.

With social unease peaking again, the last thing the Lula government wanted just now is a reminder of the data on which the ruling Partido dos Trabalhadores (PT) built its appeal to the electorate. A new edition of a study on social exclusion in Brazil has just caught the attention of the media with its finding that almost a third of Brazil's wealth is in the hands of 2.4% of the population.

The Atlas da exclusão social released by the Fundação Cepro is a new, abridged version of the two-volume study published last year. It says that 1.1m families in Brazil, 2.4% of the population, can claim to be really rich, with a 33% slice of national wealth, and enjoy an average monthly income of US$3,790.

The study reveals that the number of the rich has been growing, and that they have been getting richer. In 1980, half as many families — 1.8% of the population — could claim to be rich, with a 20% slice of the cake. About half of the Brazilian rich live in four cities: São Paulo, Rio, Belo Horizonte and Brasí­lia.

While the number of rich families was doubling, that of the poor was increasing by 18% — and that of the middle class was shrinking by 17%.

Márcio Pochmann, labour secretary of the São Paulo city government and coordinator of the Atlas, says, `The figures show a polarisation of society. There is a slow disappearance of the middle class, an increase in the number of the rich at the top of the pyramid, and a greater number of poor at the base.'

ARGENTINA | Signs of reactivation. An eloquent indicator of economic reactivation is the level of federal tax receipts. In March they reached Arg$6.6bn (US$2.3bn), or 37.1% more than in the same month of 2003 (and 44% more than in February). The total for the first quarter of the year is up 33.5% on 2003. Driving the increase was a 53.6% year-on-year rise in receipts of value-added tax (IVA).

Not all of the increase reflects a higher level of economic activity. The tax authorities claim that last year they managed to reduce evasion and payment arrears by Arg$2.75bn (US$958m).

Another sign of a more buoyant domestic market was the 74% y-o-y increase in imports in February. Though this far outstripped the 12% increase in export earnings, the balance still showed a surplus of just over US$1bn. The government has been projecting a trade surplus of US$16.8bn for the year as a whole.

ARGENTINA | Debt piling up. Argentina's public debt at end-2003 reached US$178.8bn, or 138% of GDP — 16.8% more than at the end of 2002. Repayment of about half the debt has been in default since then, but interest has been accruing on that portion. Another part of the increase can be explained by the movements of other currencies vis-í -vis the US dollar, and of the latter vis-í -vis the peso.

URUGUAY | Growth outlook. Though the Uruguayan government's official forecast of economic growth for this year is 5% (`as a minimum'), last week economy minister Isaac Alfie made a point of telling all who would listen at the IDB's annual assembly in Lima that private analysts were considering rates of 8% to 9% as feasible.

The first step towards giving a formal role in Haiti's security establishment to the armed rebels led by Guy Philippe has been taken in direct negotiations between him and the top police official in the northern department, Renan Etienne. Ignoring the objections raised by the US and human rights NGOs, the French military oversaw the proceedings.

Etienne had run into problems when, after taking up his post (Guy Philippe's old job), he tried to reinstate the police in the stations they had abandoned during the uprising. In some cases, the returning policemen had to leave again, when the local people protested that they would rather entrust their safety to the rebels.

After ugly incidents on 29 March, Etienne held a first meeting in Cap-Haí¯tien with one of the most controversial rebels, former paramilitary leader Louis Jodel Chamblain, who took advantage of the situation to announce that he would kill ousted President Jean-Bertrand Aristide should he attempt to return. Chamblain's record as a rights abuser during the period of military rule (1991-94) has made him a leading target for human rights activists within and without Haiti.

Philippe's `clean list'
On 31 March Etienne met Philippe at Cap-Haí¯tien's Hotel Mont Joli for a closed-door session under the protection of French soldiers. The police chief told Philippe he had no objections to taking some of the rebels into the police force, but only after they had been thoroughly vetted. The rebel leader had anticipated this: he said he had already submitted to interior & national security minister Hérard Abraham a list of 1,500 former soldiers who `have no criminal record and have not been involved in any malfeasance.'

He later told the press that his aim was to find a `holding' position for the former soldiers until such time as the government decides whether to recreate the army ― an initiative favoured by Abraham but opposed by the US. Philippe said he did not mind whether the ex-soldiers were assigned to the police or any other service, `as long as they are able to enforce security.'

The government has already shown open signs of sympathy towards the rebels; prime minister Gérard Latortue has publicly called them `freedom fighters'. There is ambivalence, though, towards the police force, seen as an instrument of the Aristide government's worst aspects. In Cap HaItien a senior police officer has been arrested for his alleged part in an attack on anti-Aristide demonstrators, in an incident in which seven were killed ― one of the a Spanish journalist. It must be said, though, that in the same city another five policemen have been arrested on charges of having killed five supporters of Aristide.

Playing the extradition card
The Latortue government, discomfited by the fact that Aristide, far from fading away into exile, has found supporters abroad and is now a mobile phone call away in Jamaica, is now seeking to haul him before the courts to answer a string of charges, ranging from embezzlement to involvement in the killing of political opponents.

Justice minister Bernard Gousse says his officials are compiling evidence to file formal complaints, after which Haiti will request his extradition. Latortue has jumped the gun, suggesting that Aristide will be held responsible for the embezzlement of about US$1bn and many of the 300 fatalities during the uprising that culminated with his departure.

Guyana's President Bharrat Jagdeo has also preempted the legal niceties by proclaiming that Caricom would most likely oppose any attempt to extradite Aristide. Caricom has so far withheld recognition from the new Haitian administration. Jamaica has offered him temporary refuge on humanitarian grounds, but not permanent asylum (though it has been actively seeking a permanent haven for him).

On 31 March one of Aristide's lawyers, Gilbert Collard, announced that he had filed suit against the French government on charges of `abduction, illegal detention and threats.' The Jamaican government quickly said that this was not a violation of the terms of Aristide's stay in the country. This notwithstanding, Aristide's spokesman in Jamaica, Hunter Medley, said that Aristide would not be responding to Latortue's allegations because `these are obviously issues related to Haitian politics and Mr Aristide, while he is here, has given an undertaking not to deal with Haitian politics.'