Brazil & Southern Cone

Items

• CHILE: Piñera wields the axe

  LatinNews 22 July 2011 Hits: 1730

  President Sebastián Piñera was forced into making sweeping cabinet changes this week as the protests against his government pick up a momentum of their own. The most important changes were bringing in political heavyweights from his senior coalition partner, the ultra conservative Unión Demócrata Independiente (UDI): Pablo Longueira, a former UDI president and a senator, takes over as economy minister; and another veteran UDI Senator, Andrés Chadwick, as the new government spokesman. Piñera opted to keep his close confidant, Rodrigo Hinzpeter, on as interior minister, but chose to move Joaquín Lavín, the beleaguered education minister, to the planning ministry (Mideplan).

  Audibly frustrated that voters are not “proud of everything that has been achieved after one of the strongest earthquakes in our history”, Piñera took another decisive move away from the technocratic dream team he started off with when he took office in March 2010 towards a more conventional political line-up. Back in January he started this process by bringing in party stalwarts Andrés Allamand and Evelyn Matthei to the defence and labour ministries respectively. Now he has added further political clout with Longueira replacing Juan Andrés Fontaine at the helm of the economy ministry, although the more important finance ministry remains in the hands of Felipe Larraín, and Chadwick, who also happens to be Piñera’s cousin and a close adviser, stepping in for Ena von Baer, a favourite target of the opposition Concertación.

  Piñera was forced into the cabinet reshuffle to try and reverse the downward trajectory of his popularity. “I know the government has made some mistakes and we are working not only to recognise these mistakes but to correct them,” Piñera said after the third big student march in less than a month on 14 July. Up to 80,000 demonstrators marched to the La Moneda presidential palace to protest against higher education reform. Unlike the previous two marches, this one was unauthorised: 54 arrests were made, and 32 police officers were injured. Piñera, who said many other countries might have been blown off course by the protests, made a desperate plea for dialogue, appealing to the “maturity and patriotism” of the protesters.

  The student protests rendered Lavín’s position untenable. His approval rating fell 24 points from 70% to 46% in just one month (June). Piñera gave him the Mideplan, which should become a more important spending ministry when it is converted into the social development ministry shortly. Inequality lies at the heart of the protests against the government – and this is what the ministry is being designed to try and reduce. Felipe Bulnes, the justice minister, replaces Lavín, while Teodoro Ribera Neumann comes in for Bulnes at the justice ministry.

  The UDI had gunned for Hinzpeter, a member of its junior coalition partner, Renovación Nacional (RN), but he is more than just the interior minister (and cabinet chief) he is Piñera’s right-hand man. The UDI had questioned his decision to take a holiday in the midst of the government’s current political travails and said he was losing control of the streets.

  The energy and mining minister, Laurence Golborne, by far the most popular minister in the cabinet according to polls, takes over at the public works ministry, where he will be in charge of awarding contracts for new infrastructure works of more than US$8bn. This will give him greater visibility, with comparatively little risk, and boost his chances of running for president in 2014. The fact that the state-owned copper giant Codelco staged its first national strike in 18 years last week might have persuaded Piñera that Golborne’s plate was too full, and two men will now take over his previous job. Hernán De Solminihac moves from public works to mining, while the governor of Santiago, Fernando Echeverría, picks up the energy portfolio.

  The opposition scoffed at what it called “musical chairs” to address serious issues. Several of Piñera’s current problems, however, were inherited: his predecessor President Michelle Bachelet (2006-2010) also faced massive protests over education reform; her government also backed the proposed HidroAysén hydroelectric dam in Patagonia (another cause célèbre for protesters), although, in opposition, the Concertación is trying to leapfrog on the protests as if it had always opposed the dam. Protest groups have been encouraged by Piñera’s low 31% approval rating and empowered by social networking sites like Facebook and Twitter.

  And now the miners
  Piñera’s popularity reached its peak of 63% after the successful rescue of 33 miners trapped underground in Atacama last October. But now even this triumph is turning sour: 31 of the 33 miners, who spent 69 days underground, have announced a legal suit demanding US$540,000 compensation each from the state, a total of US$15.5m, for the poor safety standards of the San José mine, and inadequate inspections.

• URUGUAY: Mujica turns to veteran Tupamaro guerrilla

  LatinNews 22 July 2011 Hits: 2902

  President José Mujica has a new defence minister. Mujica appointed Eleuterio Fernández Huidobro to replace Luis Rosadilla, who resigned for health reasons. Despite the fact that Fernández Huidobro, 69, was one of the founders of the Tupamaro guerrillas and spent a decade and a half in prison, his appointment will have played well to the armed forces. He pointedly stepped down as a senator in April after being forced by the leadership of the ruling Frente Amplio (FA) to toe the party line and vote in favour of striking down the amnesty law shielding members of the military from prosecution for human rights abuses during the dictatorship.

  Rosadilla resigned on 15 July, days after Mujica made the first cabinet change since taking office in March 2010 by dismissing the social development minister, Ana Vignoli, for inefficiency. Rosadilla’s was the name that most frequently cropped up in media speculation over who might be the next in the firing line. He has had a difficult tenure. He wrestled with corruption in the navy, and late last year struggled to deflect embarrassing questions relating to Uruguay’s participation in UN peacekeeping duties, a key part of the country’s foreign policy, after retired members of the armed forces informed the local press that Uruguay’s air force (FAU) had falsified data on the flight hours completed by pilots in order to meet UN requirements.

  Rosadilla, a former Tupamaro, spent nine years in prison under the military dictatorship. Fernández Huidobro was imprisoned for 15 of the 16 years between 1969 and 1985 (he led a successful jail break in 1971 before being recaptured a year later), but much like Mujica and Rosadilla, he is remarkably free of rancour. Fernández Huidobro publicly shared Mujica’s reservations about annulling the ‘Ley de Caducidad’ (amnesty law) and resigned as a senator in protest immediately after casting his vote in line with party strictures in April. While their friendship goes back decades - they also co-founded the Movimiento de Participación Popular (MPP) in 1990 -, Fernández Huidobro has also carefully cultivated a solid relationship with officers in the armed forces (see sidebar).

  • Military
    

  Retired Colonel Guillermo Cedrez, president of the Centro Militar, which groups active and retired officers, said Eleuterio Fernández Huidobro’s appointment as defence minister made perfect sense. Cedrez said Fernández Huidobro understood and respected the armed forces and would be just and fair. He added that Fernández Huidobro was “qualified to offer an opinion because he was in the firing line; it is those that were hiding under the bed who now want to take revenge.”

• PARAGUAY: Lugo barred from seeking re-election

  LatinNews 22 July 2011 Hits: 1891

  President Fernando Lugo will not be able to seek re-election in 2013 – even if he wants to. The senate last week rejected a petition presented to congress on 26 June by Lugo’s Frente Guasú party calling for a referendum on a constitutional reform to introduce presidential re-election. The petition contained 100,000 signatures (more than three times the amount required under the constitution). Lugo has reiterated on several occasions that he had no desire to run for a second term in office, but the opposition was deeply suspicious of his intentions.

  Somewhat surprisingly, the motion to vote on the petition came from an opposition senator. A fairly heated debate ensued, with senators from the opposition Partido Colorado hyperbolically comparing Lugo with former dictator Alfredo Stroessner (1954-1989), who amended the constitution in order to stay in the post indefinitely. The petition was then emphatically rejected by 31 of the 34 senators present in the 45-seat senate. Senator Carlos Filizzola, a member of Frente Guasú, accused opposition senators of turning their backs on the people. He and his colleague Sixto Pereira left the building in protest.

  Vice-president Federico Franco, who belongs to a faction within the nominally allied Partido Liberal Radical Auténtico (PLRA), which is openly critical of Lugo, accused the Frente Guasú of looking to follow the lead set by Venezuela’s President Hugo Chávez. This is a familiar cry from Lugo’s opponents, who have sought to constrain the President and blocked his more populist reforms out of suspicion of his “real agenda”, some of them accusing him of pursuing a personalist agenda that is “absolutely anti-democratic”. Paraguay’s congress is virulently anti-Chavista, and is adamantly refusing to approve Venezuela’s application to become a fully fledged member of Mercosur.

  The country’s traditional parties, especially the Colorados, have also been hostile to any attempt to increase instruments allowing for greater participative democracy in Paraguay, which Lugo has been advocating since coming to power. Their hostility owes to the fact that a move away from the current system of representative democracy would naturally erode their own power. The Frente Guasú has everything to gain because it enjoys little congressional representation.

  The vote scuppers the hopes of the left-wing parties grouped within Frente Guasú of winning more congressional seats in 2013 on the coattails of a Lugo re-election campaign. It could also sound the death knell for the ruling Alianza Patriótica para el Cambio (APC) coalition, as Frente Guasú is very unlikely to throw its weight behind any candidate put forward by the PLRA.

  Officially the PLRA is no longer part of the APC after voting in a recent convention to pull out because Lugo had rewarded the party with insufficient cabinet ministries. The PLRA party president, Blas Llano, a Lugo supporter who nonetheless failed to throw his weight behind the re-election proposal because of fierce opposition to it within his party, said he believed the APC to be alive still if not kicking, adding that the PLRA would continue to seek more space within the government.

  Intriguingly, Llano said the PLRA was committed to forging a broader coalition, Alianza de la Nueva Mayoría del Paraguay, which the Frente Guasú was welcome to join. Feelers have been sent out to the Unión Nacional de Ciudadanos Éticos (Unace), the party of retired General Lino Oviedo, for whom political scruples are thoroughly subordinated to the quest for power.

  • Copa América
    

  President Lugo celebrated Paraguay’s triumph on penalties over the mighty Brazil on 17 July in the quarter finals of the Copa América regional football tournament. On 20 July Paraguay played Venezuela, whose performances President Hugo Chávez has been following closely on Twitter during his convalescence, in the semis. The full time draw was resolved in Paraguay’s favour in a tense 5-3 penalty shoot-out.

• BRAZIL: Keeping on top of it

  LatinNews 22 July 2011 Hits: 1720

  For all the dramatic talk of a simmering crisis in store for Brazil’s economic miracle, there is not much evidence of it to be found in official statistics.

  As expected, the central bank (BCB)’s monetary policy committee (Copom) this week voted unanimously to raise the benchmark Selic interest rate by 25 basis points to 12.5%, with a neutral bias, its fifth straight increase. The brief Copom statement suggests that the BCB may take a wait-and-see attitude from August, with one eye on domestic demand and the other on the evolving debt crises in the Euro zone and the US.

  Consumer price inflation is slowing, coming in below expectations at 0.10% in mid-July, the slowest pace in 11 months, amid lower food and fuel prices. The annualised rate was still above the 6.5% target ceiling at 6.75%, but the BCB president, Alexandre Tombini, insists that inflation will fall from August. In the BCB’s latest (15 July) ‘Focus Report’ of local economists, inflation expectations for 2011 were stable at 6.31%. The consensus for 2012 rose to 5.2%.

  The strong Real has helped counteract inflation but wage pressures remain to the fore in a very tight labour market. The official unemployment rate in the six main metropolitan areas was just 6.2% in June, down from 6.4% in May, according to the national statistics institute (Ibge), and the lowest rate for the month since 2001. End-year unemployment could be back at December 2010 levels (5.3%). In the 12 months to June 2011, 172,000 work seekers found jobs. More importantly, given the number of new entrants onto the labour market, 512,000 new jobs were created in the same period. Given that the economy is slowing, its continuing capacity to generate jobs is impressive. This is in stark comparison to the US, where since March 2011 (non-farm) unemployment has risen by 545,000, according to the US Bureau of Labor Statistics. Brazilian wages are still rising. Average salaries reached R$1,578 (US$1,000) a month in June.

  The authorities are trying to engineer a soft landing, but it’s not easy. Total outstanding credit grew 20% year-on-year in May to R$1.8trn (US$1.15trn), led by a 50% increase in mortgage lending.  In June, the BCB raised its forecast for credit growth to 15% in 2011, up from 13% previously. It recently tightened rules on credit card consumer loans backed by wages and pensions. Payroll-deductible loans have grown rapidly. On some estimates, households are now spending a record 24% of their disposable income on non-mortgage debt-servicing. Including mortgages, it may be as high as 40%. The average loan default rate remained unchanged at 5.1% in May (from April). Total credit will reach about 48% of GDP this year, on BCB forecasts.

  The Real, which hit its strongest level against the US dollar since 1999 earlier this month, was trading  slightly weaker at R$1.57/US$ on 20 July. So far this year the Real has appreciated by 6.2% against the dollar. The prospect of more quantitative easing in the US will complicate life further for Brazilian policymakers. Tombini has appeared to warn local companies to be prepared for a change in policy. His comments seem to point towards efforts to deter foreign companies from pushing the exchange rate up further. Tombini recalled that when the global financial crisis caused the Real to temporarily depreciate in late 2008 and 2009, many Brazilian firms experienced cash flow problems, as having previously taken advantage of the strong Real to borrow heavily in dollars.

  The BCB is intervening heavily and has spent over US$330bn in spot and futures market purchases to try to put a floor under the dollar against the Real, to little effect. In July it again raised selected reserve requirements (on banks’ short dollar positions). The finance ministry has hinted at an extension of the tax on financial transactions to foreigners’ purchases of local currency futures contracts. However, the problem is very difficult correct because the dollar is weak everywhere and real (inflation-adjusted) interest rates are low outside Brazil.

  • Exports holding up well
    

  Despite the strong Real, exports rose 31% year-on-year to US$94.6bn in the first five months. Imports rose 29% to reach US$86.1bn. More impressive are the current account figures: in the first five months of 2011 financial account investments in Brazil totalled US$62.7bn, up from US$36.9bn in the same period of 2010. Little foreign money is going into local financial assets: the stock market has been a dismal performer this year. Oddly, Brazilian companies, which spent US$26bn on foreign acquisitions in the first five months of 2010, have cut back this year, investing US$6.6bn abroad to May.

   

• TRACKING TRENDS

  LatinNews 22 July 2011 Hits: 1602

  BRAZIL | Falling like flies. The corruption scandal bedeviling the federal transport ministry and related public agencies has exploded in the past week, with 16 officials  removed at the behest of a furious President Dilma Rousseff, who has apparently ordered a total cleanup (‘limpeza total’) in response to the crisis. The clearance will not be limited to the transport ministry it seems, with rumours that the president is also on the warpath against other ministries including the cities’ ministry (run by the allied Partido Progresista) and the labour ministry (run by the allied Partido Democrático Trabalhista). The president’s spring clean has raised hackles in the ruling coalition, not least due to her decision to appoint replacements of her own making, but presidential advisors insist there are “no concerns about governability”.  The same advisors deny that the president is primarily motivated by a concern with her public image and her poll ratings. However, it is notable that Rousseff has seen fit to remove a minister and several senior officials on the apparent basis of press allegations – and prior to any judicial actions. Critics of Rousseff contend that her reaction to crises in her first six months in office amounts to nothing more than ‘crisis management’ and does not correspond to any genuine interest in reforming Brazil’s intensely clientelistic system. They also warn that her efforts may indeed seriously risk governability in the 15-party ruling coalition. Rousseff’s predecessor and mentor, Lula da Silva (2003-2010), came out in her defence this week, saying that Rousseff had acted “correctly” and that she has “the capacity to lead in this and in all situations”. He forecast another four years for his protégé beyond 2014.  Either way, Lula will probably be waiting in the wings.

  BRAZIL | "A bullet through the train". The build-operate concession tender for the long planned bullet train from Rio de Janeiro to São Paulo drew no bidders on 11 July, forcing the Rousseff government to revise the terms. It has now decided to break up the auction into two parts, and will first offer an operating license, followed by a separate tender for the construction work, which is expected to cost some R$35bn (US$22bn). The new auctions are provisionally scheduled for February 2012, assuming that the new proposal is available by October. The train will link Rio de Janeiro with São Paulo, a distance of 513km, with another branch to Campinas, about 100kms north of São Paulo. The government wants it ready for the start of the Olympic Games in 2016.
   Congress has already approved R$20bn in funding from the national development bank (Bndes) for the project and the government is reluctant to commit any more, but it may have to stump up in order get the project off the ground. Interested companies included South Korea's Hyundai Heavy Industries Co, Samsung SDS Co Ltd and a Brazilian construction group, CR Almeida, but they all apparently baulked at the bureaucratic hurdles involved. Transport analysts also say that the Rio de Janeiro-São Paulo route is well served by cheap airlines, casting doubt on the commercial viability of Brazil’s first high speed rail link. Critics of the Rousseff government say that the project is a massive white elephant. It’s worth noting that sceptics have said the same of other high speed rail links in Europe, only to be proven wrong. Examples include the very successful Madrid-Barcelona bullet train, and the Eurostar linking London and Paris, which is now doing well after a shaky start. Brazil’s first bullet train is projected to handle 22m passengers in its first year, rising to 100m a year by 2033.

  ARGENTINA | Beefing up China. This week, the government of China announced it will allow Argentine premium beef to enter its market; since China is sidelining US, Russian and EU beef imports in favor of Argentina, the latter is expected to make China a priority destination for its sought after meat. China imports some 40,000 tonnes (t) of beef per year, out of the 300,000 t consumed in the country; at present Uruguay, Australia, New Zealand and Brazil are the only countries allowed to export beef to China. The import of Argentine citric fruits, including oranges, grape fruits and tangerines, has also been approved by Chinese authorities.