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No head of state has gone on trial for corruption in El Salvador’s history, but all of a sudden the three immediate predecessors of President Salvador Sánchez Cerén have all been accused of embezzlement and illicit enrichment. Francisco Flores (1999-2004) died of a brain haemorrhage before he could stand trial for allegedly embezzling US$15m of Taiwanese donations. Cynics suspected this would mark the end for corruption cases involving heads of state in El Salvador but the supreme court of justice (CSJ) has since moved against Antonio Saca (2004-2009) and Mauricio Funes (2009-2014).

There is some speculation in the local press that the CSJ’s sudden thirst for pursuing former presidents owes not to the discovery of an independent streak but rather is in the interests of self-preservation. By showing it can prosecute former presidents for wrongdoing, the CSJ could argue that it has made a strong case for why El Salvador does not need an external body along the lines of the International Commission Against Impunity (Cicig) in Guatemala or indeed the Mission to Support the Fight against Corruption and Impunity in Honduras (Maccih).

The civil chamber in San Salvador officially began a case against Funes, as well as one of his sons Diego, in mid-February after the CSJ instructed it to investigate the origin of US$700,000 of unexplained personal income in Funes’ name (the majority of which [US$520,000] was accumulated during his term in office). It was a bitter irony not lost on Funes that it was he who launched the corruption investigation into Flores. Funes alleged that the legal action against him was the result of “a clear political vendetta by certain magistrates on the CSJ because of corruption accusations which as president I promoted against former administrations”.

Funes and Saca

Although Funes was elected on the ticket of the ruling left-wing Frente Farabundo Martí para la Liberación (FMLN), he was not a member and had strained relations with the party hierarchy so it will not shed any tears over his prosecution. The same applies for the right-wing opposition Alianza Republicana Nacionalista (Arena) which had a dramatic parting of the ways with Saca, an independent who won the presidency on the party ticket.

The CSJ ordered that Saca be investigated for US$2.9m in savings that he failed to disclose to the finance ministry between 2004 and 2014, although he stands accused of illicit enrichment of up to US$5m. The CSJ did not make clear whether its investigation of Saca would extend to the financial benefits his campaign received in 2004 from the Taiwanese donations which Flores was accused of embezzling and passing onto Arena. This angle of investigation would be far less popular with Arena as a number of senior party figureheads could well be found to be complicit in wrongdoing.

The CSJ has frozen Funes’ assets, including four personal bank accounts. It also froze five of Saca’s bank accounts in early March. There have been allegations against Saca ever since the whistleblowing website Wikileaks published a telegram from the US embassy in El Salvador in October 2009 which argued that “while the Salvadoran public may be inured to self-serving behavior by politicians, many in Arena believe that the brazen manner in which Saca and his people are widely perceived to have used their positions for personal enrichment went beyond the pale” (see sidebar).

• Saca

The Wikileaks wire went on to argue that the Saca administration “pushed laws and selectively enforced regulations with the specific intent to benefit Saca family business interests. Saca also accumulated conspicuous assets – including a mansion in San Salvador and large landholdings in La Union that do not square with the investments and income he had prior to assuming the presidency”.

A 24-hour protest known as the ‘resistance march’, organised by President Mauricio Macri’s most die-hard opponents, went off like a damp squib last week. But the government still believes that because of economic difficulties it needs to build a wider political support coalition.

Former president Cristina Fernández (2007-2015) and her supporters want to fight a war against the government led by President Macri. To this end they organised an aggressively named ‘resistance march’ on 26 and 27 August, designed as a 24-hour protest in the Plaza de Mayo in front of government house in Buenos Aires. Fernández’s son Máximo, a member of the militant youth organisation La Cámpora, said it was only a “media bombardment” of lies that had brought Macri into office, and he criticised what he described as an economic model “as icy and cold as the eyes of the president”. Banners proclaimed ‘not a step backwards’.

Kirchnerista threat

There is a real sense in which, nine months after the new government took office, the Kirchnerista threat to governability is turning out to be hollow. Too many top leaders of the movement, from Fernández downwards (and including Hebe de Bonafini, the leader of the Madres de Plaza de Mayo human rights group) are facing investigation in the courts on charges of corruption and money laundering. Public opinion has noticed. According to one survey (Hugo Haime y Asociados), 69% of respondents hold Fernández guilty of corruption, while only 17% deem her to be innocent. Another poll (Aresco) shows that 49% attribute the country’s current problems to the previous government, while a lower 31.1% say it is the current government that is responsible (16.8% blame both).

In day-to-day politics the Frente para la Victoria (FPV, Kirchneristas), the faction of the Partido Justicialista (PJ, Peronists) which was once the all-powerful party of the previous government, is becoming increasingly marginalised. The FPV itself is no longer monolithic. More leaders in the wider Peronist movement, particularly at provincial level, are willing to break ranks and do deals with the current government.

This does not mean it is all plain sailing for Cambiemos, the ruling centre-right coalition. It still lacks a majority in the federal congress. Recession and inflation have eroded its popularity and eaten away at its political honeymoon period: the government itself estimates GDP will fall by 1% this year before hopefully bouncing back by 4% to 5% in 2017. The recent supreme court decision to reverse unpopular gas tariff increases (ranging up to 400%) was a big blow [WR-16-33]. Although still significant, Macri’s popularity has fallen, with 46% describing his image as ‘positive’ in August, down from 50% in July (Poliarquía Consultores).

Macri’s overtures
Macri is now trying to shore up his position by building bridges in two directions: to the non-Kirchnerista Peronists and to the trade union movement.

Among the pro-dialogue Peronists, both Juan Manuel Urtubey, the governor of Salta, and Miguel Angel Pichetto, the (FPV) president of the federal senate, criticised the ‘march of resistance’. Macri has been generous with the governors on budget matters, and he will continue to consult them on a range of issues in an attempt to keep them onside.

Dealing with the recently re-unified labour movement, the Confederación General del Trabajo (CGT), may be more difficult. The CGT recently released a document condemning “higher utility tariffs, inflation, job losses, and increasing imports”. The government had earlier increased the income tax threshold on salaries (thereby meeting a longstanding union demand), but it is now making more concessions. Under new plans for the public health system, the government recognised a “historic” debt of AR$30bn (US$2.2bn) to the trade unions for the prior funding of social welfare programmes, which will be paid through interest-bearing treasury bills.

Some analysts, such as La Nación columnist Joaquín Morales Solá, suggest that with this new money in their hands “it is almost impossible” that the larger unions will endorse industrial action in the immediate future. Macri may have bought himself some more time.

• Low turnout

Hebe de Bonafini, the leader of the Madres de Plaza de Mayo human rights group, said that Macri would have sleepless nights because the opposition “is filling the streets and plazas”. That was, however, a rather unhappy turn of phrase: on a cold and rainy day at best 3,000 people turned out for the protest. The Plaza de Mayo, which can hold over 100,000, looked decidedly empty.

BRAZIL | Economy registers growth again. Brazil’s economy grew by 1.0% in 2017, slightly below government and market expectations of 1.1%, according to the national statistics agency (Ibge). This means that the country has exited recession following two consecutive years of contractions by -3.5% in both 2015 and 2016.

Brazil’s return to growth was largely driven by a 13% year-on-year increase in the agriculture sector from a bumper harvest. The corn crop increased by 55.2%, while the soybean crop expanded by 19.4%.

This year also saw a 0.3% increase in consumer spending. Overall, industrial activity remained stable, but there was a 4.3% increase in the extractive industry. The last time the industrial sector expanded was in 2013 when GDP grew by 2.2%.

In 2017, Brazil registered positive economic results in all four quarters, including 2.1% growth in the final quarter compared with the previous year. President Michel Temer celebrated the latest economic results, which he said represented a return to hope, during an interview with local broadcaster Radio Tupi.

However, the government has come under fire for abandoning its pensions overhaul and for failing to reduce the budget deficit, which stands at 7.8% of GDP, according to January figures from Brazil’s central bank (BCB). This recently resulted in further downgrades from major credit rating agencies such as Fitch.

Brazil’s future growth prospects for this year hinge on what happens during October’s presidential election. To guarantee a robust return to growth, the next government must continue to promote structural reforms and prioritise the pensions overhaul as an “urgent fiscal adjustment”, was the key takeaway of the Organisation for Economic Co-operation and Development (OECD) Economic Survey of Brazil 2018. Currently, the pensions system eats up 12% of Brazil’s GDP.

The damage that financial ‘de-risking’, most particularly through the reduction of correspondent banking arrangements, has done to the small nations of the Caribbean, and what may be done to reverse this damage, was the focus of a hearing of US House of Representatives Committee on Financial Services on 14 September.

The Financial Action Task Force (FATF), an intergovernmental organisation founded in 1989 by the G7 to develop policies to combat money laundering (and, since 2001, terrorism financing), defines de-risking as “situations where financial institutions terminate or limit business relationships with entire countries or classes of customers in order to avoid, rather than manage, risks in line with the FATF’s risk-based approach (RBA)”.

The problem is now widely recognised, but the solutions remain elusive. They range from a more imaginative approach to risk assessment to the greater adoption of technology and innovation.

The first witness, the chief executive of the Caribbean Association of Banks (CAB), Wendy Delmar, started her testimony by pointing out that the CAB has been sounding the alarm over the consequences of de-risking since at least 2015, and she quoted from a 2017 CAB research paper which argued that “the scaling up of efforts related to anti-money laundering and combating the financing of terrorism ultimately resulted in a deteriorated cost-benefit analysis position for the business of Caribbean banks and other financial institutions wherein the provision of correspondent banking services was no longer deemed profitable”.

She then added: “Yet, regrettably, and quite candidly, the current arrangements through which the international financial system has chosen to relate to Caribbean banks and other financial institutions has rendered the region disproportionately dependent on correspondent banking services. Consequently, the adverse effects of de-risking are exacerbated.”

Among the consequences highlighted by Delmar are the increased operational costs of banking in the region, “driven almost entirely by compliance related initiatives”, a reduced appetite for foreign direct investment, the limiting of participation in international trade, and (counter-productively) driving individuals to seek alternatives to mainstream banking “thereby limiting the ability of banks and regulators to track remittances through legitimate sources, adding yet another layer of complexity to the challenges already identified”.

The most-powerful testimony to the committee was provided by Prime Minister Mia Mottley of Barbados, who has been making an increasingly influential name for herself on the international stage. For Mottley, the fear of losing correspondent relationships “has created a highly risk-averse culture” a consequence of which has been “a decline in financial inclusion for the first time in our history”.

She points out in her testimony that 40 countries have lost 40% of their correspondent banking relationships, and 20 countries, many in the Caribbean, have lost over 50%. Some, like Belize, warns Mottley, “are down to just a few connections”.

Mottley, like Delmar, fears that this dynamic “will force legitimate transactions underground” and/or “towards the digital-yuan issued by the People’s Bank of China as a cheaper, less restrictive alternative system of international payments”.

For Mottley, much of the blame lies with the FATF which has listed many jurisdictions as countries requiring increased monitoring against money laundering without due cause, and this additional monitoring has disproportionately increased costs in small jurisdictions.

Fines, she says, are often related to the size of the institution deemed to have transgressed not to the profits from the jurisdiction in which it is said to have transgressed, thus “further worsening the attractiveness of small jurisdictions”.

In her testimony, Mottley’s sense of injustice was palpable. She pointed out that the “vast majority of laundering of sanctioned Russian money was found in the United Kingdom, United States, Switzerland, and Luxembourg”, yet these “larger money centres that money launderers prefer to lose themselves in are never on the list” while countries that are listed, such as Barbados, Burkina Faso, Jamaica, Mali, Senegal, and South Sudan “pose no risk to the integrity of the global financial system”.

Caribbean jurisdictions that have been placed on the FATF’s list for enhanced monitoring (the grey list) include The Bahamas, Barbados, Cayman Islands, Jamaica, and Trinidad and Tobago. The problem has been compounded by the European Union adding The Bahamas, Jamaica, and Trinidad and Tobago to its blacklist in May 2020.

The starting point for finding a solution, urges Mottley, is for the US Treasury to pay more attention to the principle of risk sensitivity “and not to participate in listings of countries where the lists pose a material risk to a country’s development and where there is no evidence that the country poses a risk to the global financial system”.

Mottley also turned her fire on the US State Department’s International Narcotics Control Strategy Report (INCSR) saying that it needed to be amended to include a section that shows improvements to the listed nations’ anti-money laundering regimes. And, at a minimum, “jurisdictions should be allowed to respond to the draft report so they can identify any factual inaccuracies prior to publication”.

With regard to actions that can be taken by Caribbean nations themselves, Mottley argues that government and central banks need to explore mechanisms to pool international payments to make them more profitable for correspondent banks. An alternative would be to support the establishment of a US-regulated institution “that specialises in correspondent banking for the Caribbean or small states more generally in the expectation that this expertise and narrow focus will lead to a better assessment of risk”.

• Persistence of de-risking

In her testimony, Mottley highlights that the persistence of de-risking has been attributed to several factors. These include:

1.  Low volumes of transactions and small profit margins
2.  Increased compliance costs associated with regulatory requirements
3. Concerns about the quality of AML management by respondent banks
4. Perceived risk about the jurisdiction
5. Crack down on tax havens and offshore centres
6. Changes in banks’ financial risk appetite; and
7. Concerns about reputational risk 

•  Caribbean food security continues to be key focus

The question of food security in the Caribbean continues to attract considerable attention. At the second regional Agri-Investment Forum in Trinidad & Tobago from 19-22 August, one of the private-sector delegates, Gervase Warner, the chief executive officer of Massy Holdings, warned: “Food security has clearly become front and centre, a critical issue for our own survival. It is very clear to us we are not going to get help from our colonisers of the past, we are not going to get help from big developing countries…This is our problem for us to address.” However, Trinidad’s Prime Minister Keith Rowley, along with others, bemoaned the apparent lack of commitment to the cause by the local private sector.

   In his remarks to the forum, Rowley urged the private sector “not to be resistant to these developments and these initiatives but to get on board and be the distributor of the local produce rather than the commission agent of imported produce”. And he called on Caricom leaders to “keep trying to become self-sufficient in food if we are to protect ourselves from the promise of the harsher months and years ahead.”

   The case for urgent action was most strenuously outlined by the secretary-general of Caricom, Carla Barnett. She prefaced her remarks by talking about the “grim reality” of food insecurity and reiterating the target of reducing the region’s food import bill by 25% by 2025. She said this was to be achieved through “a strong focus on innovation and technology transfer”. She added: “This encompasses water management, market information, application of technological solutions, climate resilient planting materials, sustainable land and soil management, as well as the preservation of the Region’s bio-diversity. The aim is to increase agri-food production in ways that will also ensure the sustainable development of the Region’s agri-food system.”

   Barnett also pointed out that this all needs to be achieved at a time when “higher temperatures, pests, reductions in the agricultural labour force, and more extreme events are reducing yields in the Caribbean and causing more crop losses”.

   On a more positive note, Barnett reported the approval of four “game-changing policy actions and strategies”:

• “CARICOM Trade Policy for Animals and Animal Products which will create a harmonized procedure for all Member States within the Region;
   
  • The Regional Agricultural Heath and Food Safety Policy;
     
  • The Alternate Sanitary and Phytosanitary (SPS) Dispute Resolution Mechanism; and
     
  • 19 Special Guidelines for the Trade in Animal and Plant Commodities.
• “Second, we have strengthened partnerships with and among our stakeholders, including the CARICOM Private Sector Organization (CPSO), the Food and Agriculture Organization (FAO), the Inter-American Institute for Cooperation on Agriculture (IICA) and several financial institutions.
   
• “Third, we moved closer to the free movement of agricultural workers to support this agricultural transformation when the Heads of Government agreed to a definition of agricultural workers at the July Meeting of the Conference.
   
• “Fourth, our work, through the Ministerial Task force and in collaboration with the CARICOM Private Sector Organisation, has led to agreement on the priority commodities for regional investment and further development.” 

The recent arrests in El Salvador of five environmentalists have raised concerns that, faced with poor fiscal prospects due in part to the impact of its adoption of cryptocurrency bitcoin as legal tender in 2021, the government led by President Nayib Bukele could reverse a 2017 ban on metals mining [WR-17-13], as part of efforts to generate new revenue. The five activists played a key role in securing the ban.

Environmentalists Miguel Ángel Gámez, Alejandro Laínez García, Pedro Antonio Rivas Laínez, Antonio Pacheco, and Saúl Agustín Rivas Ortega, who are members of local community organisation Asociación para el Desarrollo Económico y Social de Santa Marta (Ades), were arrested on 11 January. They stand accused by the attorney general’s office (FGR) of involvement in the alleged murder in August 1989, during the civil war (1980-1992), of María Inés Alvarenga in Santa Marta canton, Cabañas department, by the left-wing guerilla Frente Farabundo Martí para la Liberación Nacional (FMLN).

In a petition calling for the government to release the five activists, Ades and US-based think tank Institute for Policy Studies (IPS) highlight that the arrests, purportedly part of efforts to redress past civil-war atrocities, come as the Bukele government has chosen to “actively uphold decades of impunity”. There has been little progress [WR-22-03] in emblematic cases like the 1981 El Mozote massacre, in which over 1,000 villagers were murdered by El Salvador’s armed forces. And Bukele announced a year ago, on the 30th anniversary of the end of the civil war, that the 1992 Peace Accords, which he dismissed as a farce, would no longer be commemorated.

Meanwhile, Ades and IPS cite reports that “the government is considering annulling the mining prohibition”, a ban widely considered necessary given fears regarding water scarcity in El Salvador [WR-22-07], which is exacerbated by activities such as gold extraction. They cite civil society groups as saying these arrests are politically motivated and designed to silence “these water defenders and to demobilise community opposition at this critical moment”.

Ades and IPS explicitly link this to the fact that the Bukele government is under “enormous pressure to find new revenues” which comes amid ongoing fears that El Salvador could default on its debt and more general concerns about the country’s fiscal situation. This stems in part from restricted access to external finance amid the poor reception by institutions, such as the International Monetary Fund (IMF) and credit ratings agencies, of the adoption of bitcoin as legal tender.

Yet Bukele appears intent on pushing ahead with his bitcoin policy. On 11 January the legislative assembly, which is controlled by Bukele’s Nuevas Ideas (NI), approved a bill that regulates the issuance of other digital assets by both the state and private entities and provides the legal framework that would underpin Bukele’s plans to sell bitcoin-backed bonds. The law’s objective is to establish a juridical framework to provide legal certainty to transfer operations to any title of digital assets used in public issuance offers.

• Volcano bonds

President Bukele retweeted a post by El Salvador’s national bitcoin office (ONBTC), which was set up by the government last year, indicating that the law also “paves the way for volcano bonds which we will soon be issuing”. This is a reference to plans announced in 2021 by the government to issue ‘bitcoin bonds’ in order to finance the construction of the first ‘Bitcoin City’ in El Salvador, in La Unión department, to take advantage of energy from the Conchagua volcano.

Among other things, the law establishes the creation of a national commission for digital assets and a bitcoin funds administration agency (AAB) tasked with administering, safeguarding, and investing funds from public offerings of digital assets carried out by the government. 

Development: On 16 August Guatemala’s supreme justice court (CSJ) upheld an appeal by Harold Caballeros, the presidential candidate for the conservative Visión con Valores (Viva) and its left-wing ally Encuentro por Guatemala, against a supreme electoral court (TSE) decision to disqualify him from the 11 September presidential race.

Significance: The ruling ends the last uncertainty ahead of the election, following last week’s decision by the constitutional court to definitively exclude former First Lady Sandra Torres, of the ruling centre-left Unidad Nacional de la Esperanza (UNE). The inclusion of Caballeros, a former evangelical pastor, puts the total number of presidential candidates at ten, of which nine are aligned with the Right.

Key points:

• The TSE challenged Caballeros’s candidacy in July, on the grounds that it violated constitutional provision 186, which prohibits religious ministers and leaders from seeking the presidency. Caballeros countered that he had stopped ministering in 2006 in order to found Viva – an argument accepted by the CSJ, which ruled by 8:5 that the prohibition is not “perpetual”.

• The Costa Rican-based consultancy Borge y Asociados – the only pollster to correctly forecast President Alvaro Colom’s victory in the 2007 second round run-off – today published its first poll since Torres’s exclusion. The polls puts the frontrunner, right-wing former general Otto Pérez Molina, of the Partido Patriota (PP), on 44.8% of voting intentions, his best poll result so far and just short of the 50% plus one needed for an outright first round victory. Far behind in second and third place were Eduardo Suger, of Compromiso, Renovación y Orden (Creo), and Manuel Baldizón, of the dissident UNE group Libertad Democrática Renovada (Líder), on 11.7% and 10.7% respectively.  According to the poll, 18% of respondents were undecided.

• Local commentators felt that Pérez Molina was not necessarily the most obvious beneficiary of Torres’s exclusion. She has since called on her supporters to vote blank. There are strong ideological differences between the two: Pérez Molina has campaigned largely on a security platform more likely to resonate with the urban electorate, while Torres’s support base is concentrated among the rural poor.

• The ten candidates in rough order of popularity are: Pérez Molina (PP); Suger (Creo); Baldizón (Líder); Mario Estrada (Unión de Cambio Nacionalista); Patricia de Arzú (Partido Unionista); Caballeros (Viva-EG); Rigoberta Menchú (Frente Amplio de Izquierda - the one candidate representing the Left); Juan Gutiérrez (Partido de Avanzada Nacional); Adela Torrebiarte (Acción de Desarrollo Nacional); and Alejandro Giammattei (Centro de Acción Social).

*** Philippines and China continue to bicker.  On 8 January, the Philippines filed a diplomatic protest to China over separate incursions of two Chinese civilian ships and a naval vessel in the Sabina (or Escoda) Shoal in the South China Sea (or West Philippine Sea as Manila now calls it).  There have been references to a “creeping invasion” by China.  China has responded, as usual, by calling the complaints groundless and asserting its “indisputable sovereignty”.  The Philippines points out that the Escoda Shoal is just under 124 nautical miles from Palawan and thus “within Philippine sovereignty and maritime protection”.

*** Indonesia cautious about US ‘rebalance’ to Asia-Pacific.  The publication of the US Department of Defence’s Priorities for 21st Century Defence, with its emphasis on rebalancing US security posture towards the Asia-Pacific region and containment of China, has sparked a strong debate in Indonesia.  As we pointed out in our 23 November 2011 issue, Indonesia is the one important Asian country that remains cautious about being seen to side with the US against China.  Indonesia’s Foreign Minister Marty Natalegawa has warned against provoking “a reaction and counter-reaction that could create a vicious cycle of tensions and mistrust”.

China has been promising Jakarta huge support for infrastructure development, and the two countries have pledged to increase cooperation in energy and industry and even defence, and to develop a China-Indonesia strategic partnership.  Some Indonesian politicians are also suspicious of the US plan to base troops in the Australian city of Darwin.  People’s Representative Council Chairman Mahfudz Siddik speculated on 21 November that the stationing of US troops in Darwin “is a US manoeuvre in response to...the situation in the eastern part of Indonesia, particularly the situation in Papua and security concerns at Freeport [a US mining company operating in Papua]...” 

Now influential voices can be heard arguing that the US “rebalancing” will lead to escalating tension.  As Bantarto Bandoro of Indonesia Defence University put it on 12 January: “Indonesia must take a stance that won’t be regarded as support for US policy in the Asia-Pacific.  The Indonesian government must issue a statement telling the US that Obama’s new policy should not disrupt the situation and condition in the region.”

*** Israel looks to India.  India’s External Affairs Minister SM Krishna has been in Israel this week, the first Indian foreign minister to visit Israel for more than a decade.  The visit was exceptionally warm, and Krishna called India “a natural ally of Israel”.  Israel is India’s second biggest defence supplier after Russia.  The two countries are now trying to expand this relationship with joint research and development initiatives.  Israel’s Prime Minister Binyamin Netanyahu promised to look at “all areas of cooperation” and President Shimon Peres called India “the greatest democracy on earth”.

Development: On 30 January Peru’s President Ollanta Humala gave an interview with a Peruvian TV programme, Sin Medias Tintas, in which he refused to acknowledge whether there was a current crisis within the Gana Perú ruling coalition; saying that, in any case, such problems were not his concern but that of the political organization itself and he did not wish to be “distracted” from governing.

Significance: The Humala administration is increasingly alienating the left-wing members of the coalition that brought it to power, who are starting to voice their discontent. Since taking office, President Humala has taken pains not to appear in the media, discussing controversial domestic political issues, in an attempt to distance himself from them. However, his recent comments to Spanish newswire, Efe, presumably set off the rumoured political crisis within the ruling coalition, which the local press speculates could result in a split within the government-aligned bench in congress.

Key points:

• When asked about the existence of a crisis within Gana Perú, Humala said: “I don’t opine on those things; party issues are dealt with by the party; bench issues are dealt by the bench’s spokesman. Let me deal with government issues; I already have enough with that”. He concluded by asking the reporter “not to distract me with these issues”.

• When asked about First Lady Nadine Heredia’s regular involvement in official government acts - in fact she has appeared in the press commenting on relevant domestic issues much more frequently than her husband - Humala appeared annoyed and said, “that is what hurts us, to always look for three feet on the cat [sic], the important thing is to ask what have we accomplished here in Spain, that is what matters to the people”.

• Opposition members in congress have sensed the weakness of the ruling coalition’s bench and are calling for an investigation into a government-aligned congressman, Yehude Simon, for his participation in Módulo Perú, a government programme which organizes “civic fairs” through congress’s citizenship participation office. So far, Simon is the only congressman who has been invited to these events and the opposition argues they are nothing more than a personal campaign organised and run by Simon himself. Simon re-aligned himself with the government after the presidential election and recently voted against impeaching former second vice-president Omar Chehade.

• According to a ‘Fujimorista’ congressman, Alejandro Aguinaga, the case may involve “embezzlement and malfeasance of congress’ resources”.

In our 11 July issue, we noted that far from pushing Arab Spring-style uprisings in Central Asia (as Russia had feared), the US has been going soft on the human-rights abuses of the Islom Karimov regime in Uzbekistan in search of closer ties to help ensure a smooth pullout from Afghanistan, but also to help maintain influence in the region after the pullout.  As we reported, Washington’s hope is that President Karimov will allow the establishment of a US military base on Uzbek soil, particularly after Uzbekistan withdrew from the Russian-dominated Collective Security Treaty Organization (CSTO) in June 2012.

Now, following recent media reports that US-Uzbekistan negotiations are under way, Russia has been expressing its disquiet.  In our 11 July report, we quoted Central Asia expert Aleksandr Knyazev as warning of “a fundamentally new format of American military presence in the region, when within the next year all the countries of the region without exception might be covered by a whole network of American military facilities, including at specific points of Russian vulnerability – around the Caspian and in northern Kazakh regions”.  The disquiet expressed this week takes a different angle.

According to Russian military expert Lt-General Leonid Sazhin, the problem is that far from helping to keep the Taleban out of Central Asia, new US bases will have exactly the opposite effect.  He told the military news agency Interfax-AVN: “Setting up this American facility, whatever it is called, will have negative political and economic consequences for Russia and for Central Asia.  Although the Americans claim they are fighting against the Taleban in Afghanistan, it will be them after they set up their facility in Uzbekistan, who will bring the Taleban there.”

According to Sazhin: “Taleban ideologists will inevitably use the American presence in Uzbekistan to fan the anti-American sentiments of the local population and win over some of it.  As a result, anti-American sentiments will develop into anti-government protests.”

On 28 August, the chief of the Russian general staff, General Nikolay Makarov, announced that the CSTO’s military component is to be strengthened.  He said that at a meeting of the CSTO chiefs of staff, they discussed a whole set of issues related to the strengthening of our colletive forces, both combat and peacekeeping forces...”  He added: “In today’s very difficult and tense situation in the world [we] require a significant increase of the combat components.”  Plans for a major military exercise in Kazakhstan in October were discussed.

According to CSTO Secretary-General Nikolay Bordyuzha, the December summit of the CSTO Council “will be entirely devoted to military issues of our organization”.  Founded in 2002, the current CSTO membership comprises Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan.  Members are not permitted to join rival military alliances, and the opening of new third-party military bases in a CSTO members state is subject to consent by all members.

Joining the Pacific Alliance: While the image of the Laura Chinchilla government has come under question vis-à-vis corruption, the country’s international profile nonetheless continues to rise in other respects. As well as a recent visit by China’s president Xi Jinping (see sidebar), Costa Rica has been virtually admitted into the Pacific Alliance regional trade bloc (which includes Colombia, Chile, Peru and Mexico). This followed the inking of a free trade agreement (FTA) with Colombia on 22 May, which means that the Central American country has now fulfilled the requirement of having FTAs in place with all Pacific Alliance members before being allowed to join.

OECD invitation: On 30 May the Organisation for Economic Co-operation and Development (OECD) signalled its intention to open membership talks with Costa Rica in 2015 and to “work closely” with the country in the intervening period. So far Chile and Mexico are the only Latin American OECD members although the OECD has announced that it has formally invited Colombia to submit an application, the final stage in the accession process.

SECURITY | A drugs first in the DR. On 1 September the Dominican Republic (DR)’s national police and national investigations department (DNI) announced that they had dismantled the biggest and most sophisticated underground cocaine laboratory in the Caribbean. According to the DR’s attorney general, Francisco Domínguez Brito, and police chief, Major General Manuel Castro Castillo, authorities seized more than 230kgs of cocaine paste base during an operation which took place on an estate in the municipality of San Cristóbal, the capital of the eponymous southern province. The estate was first raided on 22 August and two Colombians, John Jairo Roldán Estrada and Ángel Fernández Vargas, are currently being held in remand on suspicion of drug trafficking offenses. Castro Castillo said that yesterday’s discovery of the laboratory, which is believed to have processed more than 7,000kgs of cocaine, marked a precedent as the first large-scale cocaine processing lab in the country to use Colombian techniques. The US government estimates that approximately 4% of the cocaine shipped to North America and Europe passes through Hispaniola Island, much of it through the DR. According to the most recent (March 2013) International Narcotics Control Strategy Report (INCSR) in 2012 Dominican authorities seized approximately 10 tonnes (t) of cocaine, a significant increase over 2011, when Dominican authorities seized 6.71t.

POLITICS| Santos reaffirms defence of San Andrés. On 19 September President Juan Manuel Santos reiterated that his government would not “cede one inch” of Colombian territory to Nicaragua despite President Daniel Ortega’s latest decision to take a new case to the International Court of Justice (ICJ) at The Hague seeking to extend its continental shelf platform in the Caribbean Sea. Santos made his remarks during a visit to the islands of San Andrés and Providencia islands, the two main islands in the San Andrés, Providencia y Santa Catalina archipelago which, along with other cays and atolls, comprise the eponymous Colombian department directly affected by the maritime dispute with Nicaragua. Santos arrived on San Andrés Island yesterday onboard the Colombian frigate ARC Almirante Padilla after visiting the 82^nd W meridian, which marks the historic boundary between Colombia and Nicaragua. Santos declared to the local community: “We are not going to cede a millimetre of our continental shelf”. Santos’s actions have been ill-received in Managua, where yesterday the foreign relations secretary of the ruling Frente Sandinista de Liberación Nacional (FSLN), Jacinto Suárez, accused him of “adopting a bellicose attitude” by ordering the Colombian frigates ARC Almirante Padilla, ARC 20 de Julio and ARC Caldas to remain and continue patrolling in the disputed waters. Suárez said that without any “judicial grounding” to refute the ICJ’s November 2012 ruling, which awarded part of that territory to Nicaragua, Santos was trying to “intimidate Nicaragua by deploying his frigates”.

ECONOMY | Ecopetrol says Caño Sur Este block commercially viable. In a 5 December press release Colombia’s state oil company Ecopetrol announced the viability of the oil block Caño Sur Este, in the southeastern province of Meta, which is estimated to hold a proven reserve of 22.4m oil barrels. The announcement by Ecopetrol, which is the sole owner of the block, comes after six years of exploration and is an important to address dwindling supplies. According to the release, Ecopetrol plans to drill 135 exploratory wells and invest US$656m in the block, with an estimated production of 25,000 barrels by mid-2016. Ecopetrol’s CEO Javier Gutiérrez Pemberthy said the find would “contribute to achieving Ecopetrol’s production target of 1.0 million clean barrels in 2015.”

JUSTICE | Lima judges still on strike. On 5 December Peru’s judiciary called on the congress to postpone discussion of a bill sent down by the executive on magistrates’ salaries until the the judicatura (judicial oversight body) had provided its institutional opinion. On 4 December, judges from Lima’s top court began a 48-hour strike in protest at the proposed bill and in demand of more funds for the court. The bill establishes performance-related pay in a bid to speed up the judicial process. The judges argue that this goes against Art.186 of the organic law of the judiciary and would undermine the autonomy of the judiciary. The judges are also demanding more funds and complain that they have yet to see any sign of the P$87m (US$31m) approved in December 2012 for salary increases. Iván Sequeiros, the president of the Lima court, told reporters that the court’s current budget is P$1.4bn (US$499m) but costs amount to P$3.5bn (US$1.2bn).

Almost a year after the formal creation of an energy & mining ministry, on 24 April President Danilo Medina appointed the first ever minister to lead the portfolio. In doing so, President Medina has established a new government institution that is set to play an increasingly relevant role in the Dominican Republic (DR)’s economic development for years to come. Those who believe that the continued exploitation of the country’s mining riches will help to boost the domestic economy have welcomed the new ministry. But those concerned by the negative environmental and other effects that mining activity often brings with it view the new ministry with a certain degree of dread, amid concern that it will be primarily focused on promoting the development of the mining sector.

President Medina promulgated law 100-13 creating the energy & mining ministry in July last year. The law stipulates that, among other things, the ministry will be in charge of “formulating, adopting, managing and coordinating the national policy for the exploration, exploitation and processing of metallic and non-metallic minerals”. It also states that the ministry must also “ensure the protection, preservation and adequate exploitation of minerals”. Despite the inclusion of such a disclaimer, those opposed to the expansion of mining activity questioned the need for a new ministry seemingly focused on fostering an economic activity with such a negative history in the country.

Last year the Medina government received national plaudits after it forced Canadian mining firm, Barrick Gold, to renegotiate the terms of the contract granting it the rights to exploit the DR’s main gold mine [RC-13-05]. The re-negotiation of the Pueblo Viejo mine contract reminded the local community of the problems associated with large-scale mining projects such as environmental risks and the threat that such projects will displace other economic activities in local areas. Since then activists have launched various campaigns aimed at preventing the development of other major mining projects, particularly in the country’s central area- the DR’s agricultural breadbasket.

The mining issue has remained very much alive, as congress still has to make a final decision on a proposal to create a new national park in the Loma Miranda area, where the local subsidiary of Anglo-Swiss mining giant Glencore Xstrata has been looking to dig a new major ferronickel mine. This may explain why President Medina took his time to appoint an energy & mining minister. The Medina government may not want to antagonise anti-mining activists, but it is also aware that large mining projects can provide an important economic boost and it does not want to close itself to this possibility. Instead the current Partido de la Liberación Dominicana (PLD) government would no doubt prefer to reach a broad compromise that would allow for the continued expansion of mining activity but with public consent. This made the selection of a new minister a politically sensitive matter that came under close scrutiny.

In the end Medina chose Pelegrín Castillo Semán, an experienced national deputy from the ruling PLD although the appointment prompted immediate questions due to Castillo’s party affiliation (see sidebar). The fact that hours prior to Castillo’s appointment, agriculture minister, Luis Ramón Rodríguez, presented his resignation for undisclosed reasons (Rodríguez has been replaced with Angel Estévez, the former president of local bank, Banco Agricola) also fuelled speculation regarding disagreements within the government over future mining policy. These differences have further emerged in relation to the Loma Miranda issue, raising further questions as to future policy: while environment minister, Bautista Rojas Gómez has said that the government had already decided that mining in Loma Miranda is unviable, Castillo told reporters that the government had yet to adopt a definitive stance, stating that as mining minister he would now consult with experts before making a recommendation.

• A dromedary and not a horse

On 26 April the president of the local industry lobby group, Asociación de Empresas Industriales de Herrera y Provincia de Santo Domingo (AEIH), Víctor Castro, responded to Castillo’s appointment as head of the new energy & mining ministry by calling for the immediate adoption of a politically unbiased national mining policy that takes into account the country’s frail environmental circumstances. Castro said that this was necessary in order to “overcome the bitter taste left by having a ministry conceived as spoils for political allies”. Castro added that “politics has interfered and influenced the creation of the energy & mining ministry so that instead of a horse what we have created is a dromedary”, an allusion to the ministry’s perceived lack of political independence that could make it unfit for purpose.

The Mexican government will present its 2017 draft budget to the federal congress in early September. With a zero deficit target, financing needs look tight.

Last month, Mexico’s finance ministry (SHCP), announced an additional budget cut of M$31.8bn (US$1.7bn), by way of a pre-emptive response to international market volatility on the back of the shock caused by the vote by the United Kingdom to leave the European Union (‘Brexit’) five days earlier. The SHCP stressed that the government’s objective was to ensure that it would remain on track to meet its 2016 fiscal deficit target of 3% of GDP. As earlier this year, the fiscal move was closely accompanied by a central bank (Banxico) move to increase interest rates in defence of the peso (see sidebar), the most traded emerging market currency.

The vast bulk of the new cut – 91.7% – the SHCP noted, would come from current expenditure, in line with a promise by President Enrique Peña Nieto that there should be no new tax increases in support of fiscal adjustment efforts. The SHCP also made very clear that none of the latest adjustment would fall on the struggling state-owned oil company, Pemex. Despite this latest adjustment, the SHCP said that it remained confident of meeting its zero deficit target (exclusive of investments) on schedule in 2017 (albeit this is already a year later than originally planned).

In late July, the finance minister, Luis Videgaray, gave more details of the latest cuts, saying they would impact current expenditure at the education (SEP) and health (SSA) ministries. Videgaray also reiterated that Pemex would be ring-fenced.

The Peña Nieto government has now slashed a massive US$18bn (M$339bn) off 2016 budget spending. While Videgaray insisted that combined expenditure cuts, the equivalent of about 3.8% of GDP in the space of 18 months (inclusive of a US$11.9bn cut in the 2015 budget), would not significantly affect the domestic economy, cuts of this scale to government spending inevitably have a dampening impact, and all the more so when the global economy remains volatile, and both domestic consumer and business confidence remains uncertain – in other words, the private sector is not likely to take up the slack (see sidebar).

In this context, Videgaray, who was addressing the national governors’ conference (Conago), warned that the government would have to continue its belt tightening in 2017 in order to safeguard macroeconomic stability, admitting that public spending would continue to feel the pinch. Videgaray therefore urged governors to contain spending and efficiently manage their finances as per the new (April) Ley de Disciplina Financiera de Estados y Municipios, which all 32 governors will have to work under when preparing their own budgets for next year.

Videgaray said that the federal government intended to focus its 2017 budget around the need to protect jobs and maintain low inflation. In a report presented to the federal congress on 1 April, Videgaray had already announced a pre-emptive reduction of almost M$175bn (US$10bn) in planned outlays for 2017, citing the need for Mexico to cut its coat according to its cloth. At that point, Videgaray said that the SHCP was projecting real annual GDP growth in a range of 2.6%-3.6% in 2017, with an average crude export price of US$35 per barrel (/b), up from US$25/b this year. Videgaray admitted that the SHCP was projecting national oil output to fall further, from 2.12m barrels per day (bpd) in 2016 to 2.03m bpd in 2017, a tacit acknowledgement of the difficulties at Pemex. Minister Videgaray also indicated that he planned another oil hedge for 2017, which is normally arranged in August and covers up to half of the country’s oil exports (roughly 212m barrels).

Four months on, those modest 2017 budget assumptions may be over-stated. While Mexican crude averaged US$37.4/b in May, the highest price to date this year, (it troughed at just US$23.9 in January), and in line with Videgaray’s 2017 draft budget projection, it remains well under its May 2015 average of US$54/b (and a world away from the heady May 2014 average of US$96.7/b).

At the same time, the federal government insists that it is making progress with its fiscal consolidation efforts. According to the latest SHCP data, the 2016 first half fiscal deficit came in at M$116.6bn (US$6.22bn), down by an impressive 68% over the comparable year-earlier period. Public sector income rose by 11.4% year-on-year in real terms, the SHCP emphasised. Non-oil sector revenues grew by 18.5%, thanks to a 10.7% increase in tax revenues, which helped compensate for the continuing fall in oil sector income. Income from the oil sector fell by almost a fifth (19.6% year-on-year) in the first half to M$314.96bn (US$16.8bn), which the SHCP said reflected a 40% year-on-year fall in the price of Mexican crude on international markets, a 27% fall in the price of natural gas and a 2.7% fall in Mexico’s crude output.

The debt question

Despite the reported increase in the tax take, Mexico’s federal government may struggle to finance its 2017 budget, given that oil prices remain stuck below US$40 per barrel (/b) and the global economic outlook remains distinctly blurry. And while the government may yet reach its zero deficit target by 2017-2018 (exclusive of structural investments) and keep President Enrique Peña Nieto’s pledge not to foist any more taxes on Mexican businesses and consumers, there is a cost to this fiscal probity, and that is a significant increase in total public debt. According to the Centro de Estudios Económicos del Sector Privado (Ceesp), a local think-tank, Mexico’s public debt/GDP ratio was 39.3% of GDP in 2012, the year Peña Nieto was elected, but now stands at an estimated 50.6%, an increase of 12 percentage points in four years and pushing the limit of what is acceptable for an economy the size of Mexico’s, the Ceesp argues. The Ceesp is not alone in raising this red flag. US investment bank JP Morgan’s latest (July) Mexico risk report noted that its in-house risk indicator for Mexico stood at 151 points in 2012, but has since risen by 142 points to 362, much of which also correlates to the increase in public sector debt.

• Business confidence dips

On 1 August, Mexico’s national statistics institute (Inegi) reported that its business confidence indicators (ICE), which measure sentiment in the manufacturing, construction and retail sectors, fell overall in July over July 2015. The construction sector ICE was down by 2.4 points overall, while that of the retail sector fell by 1.7 points over the previous year. The manufacturing ICE dipped by 0.3 points. In similar vein, Inegi’s business expectations index (EE), which measures forward-looking sentiment in the three sectors, was also largely down in July over the previous year, albeit with some positive sentiment for job stability in manufacturing and retail.

• América Móvil profits fall 45% in second quarter

América Móvil, the telecommunications firm owned by Mexican billionaire Carlos Slim, reported a net profit of M$7.7bn (US$4422m) in the second quarter of 2016, a fall of 45% year-on-year, with an 11% drop in its Earnings before interest, taxes, depreciation and amortization (Ebitda) to M$61bn (US$3.2bn). As market prices continue to fall quickly in Mexico following the government’s 2014 telecoms reform, the company’s profit margin in Mexico narrowed to 33%, from 41.4% a year earlier, accounting for much of the headline result. América Móvil, the largest telecoms firm in Latin America, still controls 70% of Mexico’s wireless market, but is now facing fierce competition from the US’s AT&T and Spain’s Telefónica, while smaller new entrants are also snapping at its heels.

The end of the commodities boom, slower global growth, the oil price slump – everything seems to have conspired against Latin American and Caribbean (LAC) exporters in recent times. But the first quarter of this year may be the first indication of a turn-around. LAC merchandise exports rose by 17% year-on-year, ending four years of consecutive contraction.

According to the Inter-American Development Bank (IDB), using data from 25 countries in the region, the value of goods exports in Q1 17 rose by 17%, after a 2.9% contraction in the same year-earlier period. The bank attributes the change mainly to a rebound in commodity prices. But IDB economist Pablo Giordano warns that the improvement remains unstable and restricted to a few key economies – particularly those traditionally reliant on oil and mineral exports.

Venezuela, which is almost entirely oil dependent, led the way with a 75% increase in the value of its overseas goods shipments compared to last year. This was followed by Peru (39%), Ecuador (34%), Colombia (31%) and Brazil (24%). As a sub-group, Mexico and Central America achieved an average of 11% growth in the first quarter.

The IDB says the return to growth marks the end of the longest trade recession in the region’s recent history. But export value is still below the peak level achieved in 2014. The IDB also argues that for the recovery to become sustainable, “factors that have been generating uncertainty in the global economy need to be significantly reversed”. It is looking for real growth in China, the US, and Europe to sustain momentum in the second quarter and beyond. It also calls on LAC countries to promote competitiveness and regional integration, and to resist the temptation of protectionist policies.

The US government’s suspension last week of private charter flights to all airports in Cuba, including Havana, is just the latest blow for the Cuban administration led by President Miguel Díaz-Canel which is facing a triple crisis posed by the coronavirus (Covid-19) pandemic and its impact on the island’s crucial tourism sector, US sanctions, and the ongoing economic collapse of its key ally Venezuela. Indicative of these pressures, which are expected to shrink Cuba’s GDP by at least 8% this year on the latest forecast by the Economic Commission for Latin America and the Caribbean (Eclac), the Díaz-Canel government unveiled new measures which signal a further change in state policy.

• Suspending charter flights

On 13 August US Secretary of State Mike Pompeo announced he had requested that the US Department of Transportation (DOT) suspend private charter flights to all Cuban airports. He was clear it was intended to “target and cut the revenue the Cuban government earns from landing fees, stays in regime-owned hotels, and other travel-related income”. On 10 January the US State Department had announced the suspension of public charter flights between the US and all Cuban airports except Havana, while in October 2019 the US banned commercial flights to all Cuban cities other than Havana.

Under the new measures, first announced on 16 July, as of 20 July new state-run shops began accepting US dollars for food, hygiene, and hardware products, rather than the two national currencies - the Cuban peso (CUP) and convertible peso (CUC) which was introduced in 1994 and is pegged to the US dollar. This follows a similar initiative in late 2019 which allowed the sale of household appliances in exchange for US dollars. President Díaz-Canel said the foreign exchange earned through these outlets would be fed into Cuba’s manufacturing sector, enabling the island to ramp up production and rely less on imports (which account for some 80% of what the nation consumes) that Cuba struggles to purchase with its own currency. In a further sign of the partial dollarisation of the economy and efforts to bring in more hard currency to address the liquidity crisis, on 16 July the government announced the elimination of a 10% tax on US dollar transactions (introduced in 2004).

The government has since signalled a further change in policy with regard to the fledging non-state sector whose growth it appeared to stall last year with the introduction of new rules restricting the creation of non-agricultural cooperatives (CNAs) [WR-19-35]. On 6 August Labour Minister Marta Elena Feito said the government was scrapping a list limiting the private sector to 123 permitted activities in order to “allow individuals to set up a far wider range of businesses” although Cubans must still apply for a license to work in the private sector, giving authorities a high degree of discretion over what is allowed.

Meanwhile, on 22 July, Trade Minister Rodrigo Malmierca announced that non state enterprises would be allowed to import and export goods although state enterprises would act as intermediaries. “We want to put all forms of management [state and private] on an equal footing; if we’re going to import, we’re not doing it for the sake of it, but rather we’ll import things that help us in production, in replenishing our supplies,” he said. Malmierca said the state would determine whether products could be exported, or if they were “necessary and important for the country”. Last month the government also announced that private restaurants would now be able to buy produce in bulk from a number of wholesale stores in order to allow for greater profit margins.

With uncertainty as to how the new rules are to operate in practice, however, the announcements, particularly pertaining to the currency changes, were met with complaints that they will exacerbate inequalities and favour Cubans with access to remittances, which in September the US Treasury Department capped at US$1,000 per quarter. (According to the latest [2017] estimates from the US State Department, remittances from the US to Cuba were worth US$3.5bn). Díaz-Canel appeared to acknowledge this anger, insisting that “measures must be applied which, in quotation marks, seem to favour few but, in the long run, they will help everyone”.

It was announced on 14 August that the subscription television service DirecTV would be returning to Venezuela after a three-month hiatus, following US telecommunications company AT&T’s decision to cease operations in Venezuela. AT&T had suspended its DirecTV channels in the Andean country on 19 May, to comply with restrictions imposed by the US government on businesses operating in Venezuela.

The initial problem for AT&T lay in the competing demands of the US and Venezuelan governments. Venezuela’s telecoms commission, Conatel, requires all subscription television services operating in Venezuela to transmit two channels. One of them is Globovisión, is a twenty-four-hour news channel. Although historically critical of former president, Hugo Chávez (1999-2013), Globovisión has more recently been described by political opponents as a tool of the de facto Venezuelan government led by Nicolás Maduro, broadcasting propaganda. Its owner, Raúl Gorrín, was charged with bribery and money laundering by the US government in 2018 and is considered a fugitive from justice. The second compulsory channel is Pdvsa TV, the official channel of state-owned oil company Pdvsa.

Restrictions imposed by the US government prohibit US-based companies from doing business with Venezuelan state-owned companies, meaning AT&T – which is headquartered in Dallas, Texas- was unable to comply with both governments’ demands. It thus announced that it would be suspending its services in Venezuela with immediate effect. Approximately 2m subscribers were left without a service that seen as one of the most reliable available in Venezuela, as many competing services are prone to frequent cuts in transmission. This also came while the country was in lockdown due to the coronavirus (Covid-19) pandemic, leaving many people angry that they were expected to stay at home without access to telecoms services.

Three days after AT&T announced it would stop operating DirecTV in Venezuela, that country’s supreme court (TSJ) ordered the seizure of assets belonging to the company, banned various members of its board of directors from leaving the country or accessing large sums of money held in Venezuelan bank accounts, and ordered the formation of a committee to re-establish DirecTV services. Three members of DirecTV Venezuela – Carlos Villamizar, Héctor Rivero, and Rodolfo Carrano – were subsequently detained at the headquarters of Venezuela’s intelligence services (Sebin), the Helicoide in Caracas.

Very little seemed to have come of this initial push by the Venezuelan government to force the return of DirecTV services, until an announcement was made on 14 August by Conatel that DirecTV Venezuela had been sold to Scale Capital, a private equity firm based in Chile, led by Jacopo Bracco, a former president of DirecTV Panamericana. It was confirmed that the service would be automatically restored to subscribers, who would also be granted a 90-day free period in compensation for the lapse in service.

The new DirecTV service is operating using the original AT&T infrastructure, and the restoration of the service coincided with the release of Olivares and Villamizar from prison, with Carrano having been released two days earlier. Alexander Elorriaga, the former director of DirecTV Venezuela, has been appointed as executive president of the new company. Initial reports claimed that the re-activated service did not include Globovisión or Pdvsa TV. However, Conatel has reported that DirecTV has come to an arrangement with the government and insists that its service complies with all legal requirements.

The Argentine government’s draft budget for 2022 is facing strong pressure in opposing directions. Economy Minister Martín Guzmán has drafted it on the assumption that the country will need to narrow the fiscal deficit as part of an agreement with the International Monetary Fund (IMF). But lobby groups within the government are demanding that he ignore the IMF austerity if necessary and concentrate instead on higher social spending. 

The political timing of the budget discussion has been awkward. After a poor performance in party primaries on 12 September, the government went into crisis, with the powerful vice president, Cristina Fernández, blaming the pursuit of fiscal austerity for the bad electoral outcome. During a bitter cabinet reshuffle Guzmán still had to meet a deadline to submit the draft budget to congress by 15 September. He did so with a document that predicts GDP growth of 4% next year (down from an estimated 8% this year), with 33% inflation, a primary fiscal deficit that will narrow to 3.3% of GDP, and a reduction of energy subsidies from 1.8% of GDP down to 1.5%. The total fiscal deficit – including interest payments – will fall from an estimated 5.4% of GDP this year to 4.9% in 2022. The government says it will fund the deficit by issuing public bonds worth Ar$1.2trn (US$12.1bn, 2% of GDP), by printing Ar$1.08trn (1.8% of GDP), and by transferring funds from other public bodies (1.1% of GDP).  

The budget also assumes a deal with the IMF will be done, since it makes no special capital account provision for re-paying US$19.1bn worth of debt to the Fund which falls due next year. The assumption on this key point is that the debt profile will be rescheduled. In fact, the draft budget attempts to pull off a Herculean feat by keeping both the IMF and Vice President Fernández happy. This may ultimately prove to be an impossible task. For the moment, however, there are sweeteners for both parties. Those for the IMF include the modest reduction in the fiscal deficit and the planned reduction in energy subsidies. Based on economic recovery, government revenues are set to increase strongly. Sweeteners for the vice president include the prediction that the wages of formal workers will grow by 38.3%, higher than the projected rate of inflation, meaning that if the forecast is accurate real purchasing power will increase for the first time since 2018.

The positive result for Guzmán was a phone call from Vice President Fernández to explain that she was not demanding his resignation but wanted to review and increase various social spending programmes in the budget. Guzmán also came under pressure from various factions within the quarrelsome ruling Frente de Todos coalition, all demanding a series of rapid-fire stimulus measures designed to try and head off a big defeat in the congressional elections due on 14 November.

• Stimulus

Stimulus measures to put cash in voters’ pockets ahead of the congressional mid-terms have already been announced, and include reductions in payroll taxes, a phased increase in minimum wages to 52.7%, as well as help for pensioners and wage subsidies for domestic workers.  

According to sources cited by national daily La Nación, budget negotiations between Guzmán and the government’s ‘Kirchnerista’ faction seem to be moving in the direction of boosting resources for social programmes favoured and controlled by the latter, which are to be funded by cutbacks elsewhere in health and employment spending. An example is that the ‘Tarjeta Alimentar’ food subsidy programme, managed by deputy minister for social inclusion Laura Alonso, a member of La Cámpora, a faction that supports Vice President Fernández, is in line to get a 68% budget increase next year, well ahead of expected inflation. The ‘Potenciar Trabajo’ labour development programme, led by Emilio Persico of the Movimiento Evita, is also in line for a big increase. Opposition parties claim the government is prioritising clientelist electorally motivated spending at the expense of genuine job creation programmes.

In response to pressure from opposition parties, municipal authorities and local residents in the north of the country, Chile’s President Gabriel Boric sent the army in on 27 February to try and prevent undocumented immigration flows on the northern border.

When President Boric took office in March 2022, he faced two big security problems, one in the south, and one in the north of the country. In the south, militant Mapuche indigenous groups continued their violent campaign for the return of their ancestral lands. Despite early attempts to favour negotiations and avoid militarisation, the new government was eventually forced to extend a rolling state of emergency in the ‘southern macro-zone’, which includes the regions of La Araucanía and Biobío. The army remains active there, securing highways and attempting to contain violence.

The ‘northern problem’, on the other hand, has been described as a surge in illegal immigration, causing tension with residents and higher crime rates due to the presence of people-trafficking and drug-trafficking gangs. Here too the government has turned to the army for support.

The legal framework for army deployment in the north is different, however. The government has invoked the provisions of a new law on the military protection of critical infrastructure approved in congress last January. Under its terms, the administration is deploying the army to the northern regions of Arica y Parinacota, Antofagasta, and Tarapacá for a 90-day period (which can be extended).

The military is authorised to patrol the northern regions and to arrest anyone lacking residence papers or found to be entering Chile through unauthorised border passes. It is also empowered to arrest anyone involved in criminal activities, such as people trafficking.

• Army detentions

In all cases, those detained by the army in Chile’s northern regions must be transferred to police custody within 24 hours. The regulations also allow the army to use proportional force, up to and including firing live rounds if directly under threat.

There are currently approximately 1.4m migrants in the country, about 7% of the total population. Most migrants are Venezuelans, Haitians, and Salvadoreans. A number have died attempting to come in through mountain passes where temperatures drop sharply below freezing overnight. People traffickers are reputed to charge between US$30 and US$40 to escort migrants through the illegal crossings.

Opinions are divided over how effective military deployment will be. Chile has 170km of shared border with Peru and a further 782km of shared border with Bolivia. The interior minister, Carolina Tohá, has defended the deployment but she claims the task is made much more difficult because her government inherited major deficits in frontier guards training and facilities, technology, and budgets.

Ricardo Díaz, the governor of Antofagasta, says that other things need to be done, beyond the immediate issue of military deployment, including a reform of migration law and stronger law enforcement. Residents, Díaz says, do not want an ideological debate, they want to feel protected from crime. A lobby group defending migrants rights, Fundación de Defensoría de Migrantes, says increased military patrols will continue “criminalising” migrants and increase the fees charged by people traffickers.

Some local mayors are arguing in favour of pursuing a harder line option - that the army should prevent migrants from entering the country in the first place - but this would require a massive presence in border areas, as well as presenting diplomatic problems. While Peru accepts returnees who have been expelled from Chile, Bolivia does not (because of their long-running territorial dispute, Chile and Bolivia have only consular-level relations, and cooperation between the two countries is limited). 

Undocumented migrants

The mayor of Colchane, a small town in Chile’s region of Tarapacá, across the border from the Bolivian department of Oruro, maintains that something like 400 undocumented migrants are currently crossing into Chile every day.