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Chile’s President Sebastián Piñera’s approval rating has fallen sharply, according to the country’s eagerly anticipated biannual survey Centro de Estudios Públicos (CEP) released on 13 June. Just two hours later, Piñera carried out an extensive cabinet reshuffle. The timing looked deliberate. The CEP findings were not unexpected and were consistent with other pollsters. The cabinet changes helped Piñera avoid some unwanted headlines.

President Piñera’s approval rating sank beneath 30% for the first time, falling by 12 percentage points on the previous CEP survey to 25%. His disapproval rating climbed by 11 points to 50%, its highest level since taking office in March last year. The survey was conducted between 26 April and 3 June, coinciding with the nepotism allegations directed at Piñera after his two sons accompanied him on a state visit to China and attended business meetings. This did not help Piñera’s image and his foreign minister, Roberto Ampuero, paid the price, replaced by Teodoro Ribera Neumann, a professor of law who served as justice minister during Piñera’s first term first term in office (2010-2014). Ampuero has faced heavy criticism for the government’s strident Venezuela policy, notably Piñera’s ill-fated visit to the Colombian city of Cúcuta on 22 February to be present for the thwarted efforts to force humanitarian aid into Venezuela.

Piñera himself adjudged his government’s failure to deliver on his main campaign promise - to impel economic growth – to be the cause of his slump in popularity. His other cabinet changes were calculated to rectify this. Piñera jettisoned José Ramón Valente as his economy minister, entrusting Juan Andrés Fontaine, the public works minister, to reprise the role of economy minister he performed during Piñera’s first term. Piñera tasked Fontaine with helping to recapture growth through a US$20bn 2018-2022 investment programme, including a range of transport and energy infrastructure projects, which he began to flesh out on 6 June. Piñera said US$4bn of public works projects would be carried out this year. Fontaine was visiting Europe to drum up investment at the time of his appointment.

Alfredo Moreno, the social development and family minister, replaces Fontaine at the public works ministry, while Sebastián Sichel, the executive vice president of the Corporación de Fomento (Corfo), picks up Moreno’s post. Susana Jiménez, the energy minister, makes way for Juan Carlos Jobet, the deputy labour minister, who will have US$409m to improve electricity distribution in Chile.

At a swearing-in ceremony on 18 June, Piñera said the new economy, public works, and energy ministers, along with the transport and treasury ministries, had “clear and concrete goals” to pick up the pace of GDP growth. The economy grew by only 1.6% year-on-year in the first quarter of 2019, the lowest quarterly figure since the second quarter of 2017. Several key sectors of the economy suffered contractions: mining (-3.6%), agriculture (-1.2%), fishing (-3.1%), and electricity, gas, and water (-0.6%). Despite this, Piñera reiterated his goal “to create 150,000 new jobs, increase salaries, investment, and productivity”, as well as surpassing average global economic growth in 2019 and putting Chile at the forefront of regional GDP growth. “Despite external and internal difficulties… Chile will grow this year,” he added.

Piñera blamed an obstructionist left-wing in congress for holding up his government’s reform agenda. The opposition denounced the cabinet changes as cosmetic, but it does not appear capable of capitalising on Piñera’s declining popularity. It has no clear figurehead. Indeed, the best evaluated political figure in the CEP survey by a distance was Joaquín Lavín, the mayor of Las Condes in metropolitan Santiago, representing the conservative Unión Demócrata Independiente (UDI), with 50 points. If this remains the case, Lavín might eye up another tilt at the presidency in 2021, having lost the 1999 contest to Ricardo Lagos (2000-2006).

Public security experts and sociologists fear that the hard-line security approach adopted by Rio de Janeiro’s state governor, Wilson Witzel, is encouraging violence and emboldening criminal organisations whose modus operandi depends on spreading terror. Yet police have also been cracking down on the ‘milícias’, the paramilitary vigilante groups which control disaffected areas of metropolitan Rio de Janeiro to such an extent that they have sometimes been described as a ‘parallel state’ [SSR-19-04].

Itaboraí, a city with a population of 240,000 in Rio’s metropolitan area, is one such example of these disaffected areas under criminal control. Prosecutors believe that an offshoot of a milícia established in Curicica, a neighbourhood in Rio city’s West Zone, began operating in Itaboraí in late 2017 or early 2018, spying an opportunity for gain as a slow trickle of jobs began returning to the economically-depressed former oil town, home to the largely idle Comperj oil refinery. This criminal group, which is notoriously violent, has taken over Itaboraí’s local economy, controlling the distribution of utilities such as cooking gas and cable TV and the sale of products such as cigarettes and basic goods baskets; charging residents, local businesses and even schools a so-called ‘security tax’; and creating a climate of terror, torturing or killing anyone who does not abide by its rules.

• Ruthless violence

Rio state’s public prosecutor’s office (MPRJ) says that the milícia in Itaboraí is notoriously violent, responsible for at least 50 homicides and 40 disappearances since January 2018. In a TV report aired by SBT Rio in May, anonymous testimonies by residents describe the group’s murderous tactics and violent responses to those who fail to pay the ‘security tax’. Local media recently recounted that a moto-taxi driver was dismembered and had his heart ripped out after he was suspected of passing on information about the milícia to local drug traffickers.

Renato ‘Renatinho Problema’ or ‘Natan’ Nascimento dos Santos managed the group in Itaboraí on behalf of Orlando ‘Orlando Curicica’ Oliveira de Araújo, the known leader of the Curicica milícia. Both are now behind bars, and two military police (PM) officers are believed to be leading the Itaboraí operations since dos Santos’ arrest in late 2018.

On 4 July, Rio state’s civil police and the MPRJ’s organised crime unit (Gaeco) carried out 42 arrests (out of a total 77 warrants issued) and enforce 93 search and seizure warrants against suspected members of this Itaboraí milícia, including members of the police force, lawyers, and criminals already serving a prison sentence. The operation, code-named ‘Operação Salvator’, resulted in a further two arrests on 6 July. Police also uncovered a clandestine graveyard, where the milícia have been secretly burying their victims to keep a lower profile since a spike in murders led the local homicide division (DHNSG) to launch an investigation in March 2018.

A separate Gaeco-led operation on 3 July resulted in the arrest of six men suspected of being members of the ‘Liga da Justiça’, one Rio’s oldest and most powerful West Zone milícia groups. All stand accused of money laundering as well as criminal association. This operation specifically targeted the group’s financial operations, as the accused are believed to have laundered R$10m (US$2.7m) between 2012 and 2017 through local sand and gravel companies with links to the group. The current suspected leader of the Liga da Justiça, Wellington ‘Ecko’ Silva da Braga, has been on the run since a police operation in April 2018 failed to capture him.

Yet another operation, jointly led by the MPRJ and the police’s organised crime unit (Draco), has been going after people linked to milícia in Muzema, a favela also in the West Zone. In April, two residential buildings in Muzema collapsed after heavy rains, killing 24 people. It rapidly emerged that the buildings had been constructed illegally by a milícia group which controls the local real estate market. A further 16 illegally constructed buildings in Muzema have since been identified as being at risk of collapse and earmarked for demolition by the authorities.

On 16 July, police carried out 14 arrest against individuals suspected of investing in these illegal construction ventures. The MPRJ outlines that these real estate ventures exploited the urban housing deficit and absence of public authorities to the detriment of the local community, which suffers from this disorderly, dangerous, and illegal urban growth. The milícia’s control over Muzema and neighbouring areas was cited as an excuse by authorities for their failure to enforce orders to demolish the buildings, which had been issued on several occasions prior to their collapse.

Effective measures?

Recent weeks and months have seen a flurry of such police operations targeting milícia groups and different aspects of their criminal operations, but these are not new. The operation that failed to capture Silva da Braga last year resulted in 149 arrests, but most of those detained were later released due to lack of evidence and the Liga da Justiça’s operations have continued unhindered.

• City councillor linked to milícia

Rio police led yet another operation targeting milícia on 18 July, arresting 24 people linked to local milícia in Rio’s Baixada Fluminense region, including Davi Brasil Caetano, former municipal civil defence secretary and currently city councillor for Queimados, a municipality in the Baixada. Caetano is considered the leader of the Caçadores de Ganso milícia, which runs criminal activities in Queimados including the provision of services to houses which fall under the federal social housing programme ‘Minha Casa Minha Vida’.

Specialist website InSight Crime notes that a lack of sustained effort at containing milícia groups has allowed them to flourish. Barbara Lomba, from the DHSNG, says that these groups must be investigated and monitored without interruption if punctual operations are to disrupt them. Lomba also highlights the need to break their economic structure as much as target their leaders and everyday operations as part of security authorities’ wider efforts to bring them down.

Luis Alberto Lacalle Pou is the favourite to win Uruguay’s presidential run-off on 24 November, bringing to an end the 15-year tenure of the ruling left-wing Frente Amplio (FA). Lacalle Pou stitched together a five-party opposition coalition, ranging from the centre to the far Right, on 5 November. On the same day the first electoral poll released since 27 October, when he secured his passage through to the second round, gave Lacalle Pou a five-percentage-point lead (47%-42%) over his rival, the FA’s Daniel Martínez.

Lacalle Pou confirmed the anticipated ‘Stop the FA’ coalition while kicking off his second-round campaign in the departments of Treinta y Tres and Cerro Largo. The PN presented a series of proposals in areas such as public security, education, and social development, in the form of a 12-point accord, ‘Compromiso por el país’, to the presidential candidates Lacalle Pou beat to second place in the first round: Ernesto Talvi, of the right-of-centre Partido Colorado (PC); Guido Manini Ríos, of the populist right-wing Cabildo Abierto (CA); Pablo Mieres, of the centre-left Partido Independiente (PI); and Edgardo Novick, of the conservative Partido de la Gente (PG).

Each of these parties made some counterproposals, some of which were subsequently incorporated into the accord, which the presidential candidates then signed. Talvi promptly began campaigning on Lacalle Pou’s behalf in Fray Bentos and Mercedes, the respective capitals of the departments of Río Negro and Soriano.

Lacalle Pou said that the coalition would be “lasting”. However, while each of the five presidential candidates wants to see the back of the FA, preserving unity beyond the elections within such a disparate group of parties will be fraught with difficulty. It will not be easy even within his own party. Juan Sartori, the young tycoon and political neophyte who sprang from nowhere to push Lacalle Pou in acrimonious PN primaries in June, for instance, won a seat for the party in the senate and is promising to be “the voice of the people”.

It was also noteworthy that the accord was signed by each party leader separately. There was no symbolic signing ceremony. Mieres, pointedly, stressed that he had “a very big ideological divide” with CA, and intimated that he does not see the accord as forging a coalition so much as confirming a bilateral deal between the PI and the PN “which at the same time reached an agreement with other parties”. Guillermo Domenech, a CA party founder and senator-elect, described the accord as “loose and generic” and criticised the decision not to have a photo of the five leaders harmoniously signing the deal, saying CA would have been happy to do so. The unspoken criticism was that some of these leaders, especially Mieres, would have been holding their noses.

Lacalle Pou, however, cannot afford to have such scruples in his personal dealings with CA. Assuming he defeats Martínez in the run-off, Lacalle Pou will not just be beholden to Manini Ríos but the former army commander’s party will also be in a position to make or break him. If CA were to withdraw the support of its 11 elected deputies and three senators, Lacalle Pou would fall short of a majority in both the 99-seat lower chamber of congress and the 30-seat senate.

As such the PN made notable gestures to Manini Ríos and CA in the revised version of the accord published after the parties made their respective suggestions. It incorporated several of CA’s proposals, such as a complete state audit in 2020; the approval of anti-corruption legislation, including on illicit enrichment and asset forfeiture (extinción de dominio); a formal declaration of a national public security emergency; the construction of a maximum security prison for drug traffickers and dangerous criminals; the restructuring of the attorney general’s office, as well as the strengthening of ties between the police, the attorney general’s office, and the judiciary; a revision of the law on operational procedure relating to police use of firearms; and a new pay scale for the armed forces.

By contrast, the PC, which will have greater congressional representation than CA with 13 seats in the lower chamber and four in the senate, but whose support of Lacalle Pou is more assured, did not receive as many gestures. The PC (and the PI) secured the removal from the PN’s original accord of measures contained within the ‘Vivir sin miedo’ referendum, which was held on the same day as the general election. The referendum garnered widespread public support but fell narrowly short of surpassing the 50% threshold required for approval. The original PN accord had included two measures from the referendum - lifetime sentences for very serious crimes, and the elimination of the right to early release for those guilty of certain crimes, such as drug-trafficking.

In a nod to Talvi, the PN also removed from the accord a proposed reform to give the education ministry more power at the expense of teachers, who would have been stripped of decision-making power on the five-strong coordinating committee, Consejo Directivo Central (Codicen), of the Administración Nacional de Educación Pública (Anep), retaining a voice but losing a vote. The federations of primary and secondary school teachers had criticised the proposed reform in the accord, as well as the wider education policies contained therein, which they argued constituted the first step towards privatising education.

Bergara as economy minister

The FA’s presidential candidate, Daniel Martínez, confirmed that Mario Bergara would be his economy & finance minister if he wins election on 24 November. Martínez defeated Bergara in the FA’s primary elections in June. Bergara served as president of Uruguay’s central bank (BCU) between 2008 and 2013 and as economy & finance minister between 2013 and 2015. The PN presidential candidate, Luis Alberto Lacalle Pou, criticised the proposed appointment, saying that Bergara was partly responsible for “the largest fiscal deficit in the last 30 years after many years of bonanza”.

FA attacks accord

The FA responded to the signing of the multi-party accord by courting moderate voters who backed PC presidential candidate Ernesto Talvi in the first round. The FA accused Luis Alberto Lacalle Pou of essentially ignoring Talvi and moving sharply to the Right, pandering to Guido Manini Ríos and his CA. Lacalle Pou accused the FA of scaremongering.

It has been a roller-coaster first year in office for Argentina’s President Alberto Fernández. While Fernández started his presidency with high approval ratings and plaudits for his declared intention to diminish the political polarisation in the country by building a consensus with the political opposition over how to resolve the country’s extended economic crisis, things have gone downhill quickly with his administration being criticised by friend and foe alike in recent months. The unilateral imposition of increasingly controversial policy measures promoted by the more radical factions of the ruling Partido Justicialista (PJ, Peronists) have led to the breakdown of relations with the opposition. Meanwhile the poor economic results and deficient handling of the coronavirus (Covid-19) pandemic have upset many in the PJ, which is growing concerned that this could hurt the party in next year’s midterm elections.

The first half of President Fernández’s first year in office, which began on 10 December 2019, was positive. The president built bridges with the political opposition and received its support for his government’s plan to implement emergency economic measures to address the economic crisis and debt negotiations with bondholders and the International Monetary Fund (IMF). The opposition also backed the president’s decision to curtail civil liberties and impose one of the strictest national quarantines in the world (ongoing since March) to try to stop the spread of Covid-19. But Fernández’s failure to stand up to radical PJ factions, and in particular the Kirchnerista faction led by Vice President Cristina Fernández, who has been allowed to set the legislative agenda, produced frictions with the opposition.

Some of the more controversial legislative initiatives promoted by the government, including the attempts to nationalise firms, to advance a controversial judicial reform, and to reintroduce highly unpopular agricultural export taxes have all been attributed to the vice president. But the straw that broke the camel’s back for the opposition was Fernández’s September decision to reduce the level of federal tax funding for the Buenos Aires City government [WR-20-37]. This incensed an opposition that saw it as an attempt to undermine one of its most prominent figures and potential presidential candidate, Horacio Rodríguez Larreta. That the PJ upped the ante by tabling a bill in congress that cuts this funding even more (approved by the senate on 5 December and awaiting debate in the lower chamber) has further alienated the opposition, as has the approval of the so-called ‘wealth tax’.

• Wealth tax approved   

On 4 December Argentina’s senate gave final approval to the Aporte Solidario Extraordinario de las Grandes Fortunas bill, which introduces a one-time tax of 2%-3.5% on individuals or firms that have over Ar$200m (US$2.5m) in assets. The Kirchnerista proponents of the bill say that the measure is justified to help the government address the social and economic crisis produced by the pandemic. But the opposition and the business sector argue that it is a confiscatory ‘wealth tax’ that violates a constitutional prohibition on double taxation and will undermine the prospects of an economic recovery by increasing the tax burden on a business sector that is also struggling financially. Amid such warnings President Fernández has yet to sanction the bill.

Meanwhile, the poor economic results delivered by the administration, despite the debt restructuring and the adoption of widespread emergency measures, has upset members of the PJ political hierarchy, including the vice president. The Fernández executive claims that the economic crisis has been exacerbated by the quarantine measures it was forced to adopt in the face of the pandemic. But the rise of the poverty rate from 35% in 2019 to 40% in the first half of 2020 and an unemployment rate of 13.1% - the highest in 15 years - is hard for PJ leaders to stomach. Some of them have openly criticised the government for continuously extending the quarantine without offering sufficient financial support for businesses and households.

Moreover, the effectiveness of the quarantine in containing the Covid-19 outbreak is now being increasingly questioned due to the worsening infection rate and rising number of fatalities. On 8 December the health ministry reported that Covid-19 deaths surpassed 40,000, making Argentina’s death toll the 11^th highest in the world, while the total number of infections stands at over 1.4m, the ninth highest. This prompted criticism from some health experts, including former health minister, Adolfo Rubinstein (2017-2018), who commented: “The handling of the pandemic has been poor. Besides having 40,000 deaths we are suffering an educational tragedy, with no face-to-face learning and a sustained increase in poverty”. The handling of the pandemic could become a major electoral issue ahead of next year’s congressional polls, delivering an adverse result for the PJ and the Fernández administration. 

Ecuador’s umbrella indigenous organisation Confederación de Nacionalidades Indígenas del Ecuador (Conaie) launched an “indefinite” wave of protests on 13 June, threatening to bring the country to a standstill unless its long list of demands is met. Conaie has indicated that it is unwilling to reach a compromise with President Guillermo Lasso’s administration, and prospects for dialogue were further weakened by the arrest on 14 June of its leader, Leonidas Iza.

Among other things, Conaie is calling for increased fuel subsidies; debt moratoriums for 4m families; a guarantee that key sectors of the economy will not be privatised; public investment to reduce labour insecurity; and increased subsidies to ensure fair prices for agricultural producers. Conaie is also demanding a radical change in the government’s environmental policy, including a moratorium on new oil and mining projects, and the payment of reparations to compensate for the socio-environmental harm caused by the extractive sector.

Taken together, these demands represent a direct challenge to the Lasso administration. Lasso took office in May 2021 promising to undo the statist policies introduced under Rafael Correa (2007-2017), declaring that Ecuador’s sluggish economy would be unshackled by market liberalisation and aggressive expansion of the mining and oil sectors. Lasso is now facing the prospect of weeks of protest unless he can compromise on at least some of Conaie’s demands. But Conaie has taken a maximalist approach, with Iza saying on 13 June that it wanted its demands to be met not to hold negotiations.

The first day of protest was somewhat underwhelming, with the minister for government, Francisco Jiménez, saying that there had been “substantially less” disruption than the government had anticipated. Major roadblocks were only initially reported in the Andean highland provinces of Pichincha, Cotopaxi, and Imbabura, although protesters did force their way into an oil pumping station in the Amazonian province of Orellana, forcing a temporary suspension of operations.

However, the arrest of Iza on 14 June, for allegedly participating in the blocking of the Pan-American highway in Cotopaxi, has ignited the protests. In a tweet accompanying a video of Iza’s arrest, Conaie called on protesters to “radicalise” their actions. That call appears to have been met, despite Iza being conditionally released later that day. Protests have grown in size and become increasingly violent, with the defence ministry announcing that 10 soldiers had been seriously injured on 15 June while defending the Limoncocha oil facility in the province of Sucumbíos, bordering Orellana. On the same day, Interior Minister Patricio Carrillo said that seven police officers had been “kidnapped” by protesters in Cotopaxi. Violent clashes between police and demonstrators were also reported in Latacunga (Cotopaxi), where large numbers of students joined the protests.

The big test for the Lasso administration will now be whether trade unions heed Conaie’s call to join the protests and launch a wave of strike action. Ecuador’s umbrella trade union, the Frente Unitario de Trabajadores (FUT), has in the past joined forces with Conaie, most recently in protests against Lasso’s plans to eliminate fuel subsidies in October 2021. The memory of Conaie’s October 2019 protests, which threatened to topple Lasso’s predecessor, Lenín Moreno (2017-2021), will be steering the government’s strategy. Any heavy-handed response risks intensifying the unrest, particularly in light of the new citizen security bill approved by the legislature on 7 June, which introduced controversial regulations on the use of force by security personnel [WR-22-23].

Lasso’s response

Dismissing the protesters as “vandals that only want to provoke chaos,” President Lasso did little to calm the waters following Leonidas Iza’s arrest. In a brief video posted on social media on 13 June, Lasso declared that “arrests of the intellectual and material authors of these violent acts has begun”. The following day, Lasso released another video accusing protesters of “setting fire to police cars, invading farms, breaking windscreen wipers on private vehicles and school buses, attacking a petrol pumping facility, cutting off communities’ water supplies, and blocking and causing serious damage to state highways”.

While the previous article discussed the 1 September elections which produced a re-election victory for President Irfaan Ali and his People’s Progressive Party/Civic (PPP/C), this piece explores the economic background to it, along with President Ali’s proposed plans for the economy under his second term.

Offshore oil was first discovered ten years ago; production started up in 2019; and oil revenues have been gaining year-on-year ever since. On 22 September US oil giant Exxon Mobil announced it is investing US$6.8bn in Hammerhead, its seventh offshore project in the country.

In his first term President Ali has injected what are comparatively vast sums into the small country’s economy (the population is around 830,000). In 2022-2024 Guyana’s GDP grew by an incredible annual average of 47%, according to International Monetary Fund (IMF) data, making it the fastest growing country in the world. In the five years to 2024 GDP multiplied by a factor of five.

The government has pursued ambitious infrastructure plans, developing new hospitals, a US$260m Chinese-built bridge over the Demerara River, and a coastal highway. Hotel construction is booming. An initial US$2.1bn has been invested in a new sustainable urban development, known as Silica City. New roads and schools are being completed. Shopping malls are being built. The Ali administration has made university tuition free to all citizens. Cash grants are being provided to lower income groups. Last year there was also a universal cash payout of G$100,000 (US$480) to every Guyanese citizen, whether living at home or abroad.

This largesse was undoubtedly a factor in the election result. The PPP/C, which appeals to the majority ethnic group of Indo-Guyanese saw its share of the vote increase by almost five percentage points to 55.3%. This helped it win an extra three seats in the legislature to take its total to 36 out of 65, giving it an outright majority.

A new party, We Invest in Nationhood (WIN) became the second largest in the national assembly with 16 seats.  WIN, a populist group, is led by Azruddin Mohammed, a businessman sanctioned by the US for alleged tax evasion and bribing public officials. He denies any wrongdoing. A Partnership for National Unity (Apnu), which largely appeals to the Afro-Guyanese voters lost ground, gaining only 12 seats in total. Politically therefore, President Ali is in a comparatively strong position as he faces the challenge of managing his country’s growing oil wealth. He has outlined his plans for the economy on various occasions.

On 7 September in a speech at his swearing-in ceremony, Ali outlined a “strategic vision” for economic development, trade and sustainability. “Over the next five years we plan to establish shipping and logistics hubs linking Brazil and Caricom [the Caribbean Community], thereby creating new markets and new opportunities for our people,” he said.

He also promised manpower planning for the labour market, an agricultural sector designed to promote food security, and sustainable environmental management.

In his speeches on the campaign trail touching on economic policy President Ali stressed three broad themes. First, he called for investment in human capital and tools for wealth creation. The aim here is to foster entrepreneurship and small business growth as well as using the oil sector to create new jobs and manufacturing capabilities.

Second, Ali wants to use growing natural gas supply to build energy-intensive industries such as petrochemicals and data centres. Third, he says the government will continue investing in, and scaling up, projects in the non-energy sector of the economy, to diversify the economy and make it less vulnerable to future oil price volatility.

In fact, President Ali will have to deal with at least two energy-related conundrums. One is to avoid “Dutch disease” also referred to as the “resource curse”. This occurs when strong export-led growth of a single sector (such as oil or gas) strengthens the currency and makes other sectors such as manufacturing and agriculture uncompetitive, leading them to contract. The concept was first used to explain the negative effects of developing the Groningen natural gas fields in the Netherlands.

A particularly acute example of Dutch disease happened in Guyana’s western neighbour Venezuela, where extreme oil dependence ended up hollowing-out many sectors of activity including agriculture and manufacturing. President Ali’s challenge will therefore be to ensure the oil surplus is invested in long-term, non-energy sectors which are able to compete on global markets. Successive Venezuelan governments notably failed to do so, using energy windfalls for short-term political benefit.

A slightly different, and more present-day version of the dilemma facing Guyana is to achieve an energy transition starting from hydrocarbons and ending up with renewable energy such as wind and solar. In a recent interview with the New York Times President Ali was eager to make the case for using oil revenues to fund green projects.

As he put it, “Guyana is a new oil producer, but we are using the resource to finance our energy transition, to build resilient infrastructure, to support the region than we are in, to invest in livelihood options that will keep our forest standing, which stores many gigatons of carbon.”

Ali has pointed out that his country’s vast forests make it net carbon negative, meaning it takes more carbon out of the atmosphere than it puts in. He believes that the developed economies should pay a fair-market price for the protection of such forests, while adding “the world will need fossil fuel a long time into the future”.

Despite, or even because, of the oil boom, the new government faces a set of difficult issues. In domestic political terms there are worries over potential corruption and ongoing inequality.

Not everyone has more money in their pocket. Anand Persaud, editor of Guyanese daily Stabroek News, has been running reports on inflation and the cost of living, which he says, exposes “this big gulf between an ‘oil Guyana’ and a ‘non-oil Guyana’, and how they are not really meshing”. The regional political environment also carries risks.

While Ali has aligned himself with the US administration led by President Donald Trump – a defensive move in view of Venezuela’s hostile territorial claims to the Essequibo region – he also faces pressure from the US to limit relations with China.

Inflation

In a May report the International Monetary Fund (IMF) notes that Guyana’s inflation rate closed 2024 at 2.9%, up from 2% in 2023, and projects it will edge up to around 4% this year.

President Mauricio Funes appointed retired General David Munguía Payés as the new justice and public security minister on 23 November. Funes’ decision to move Munguía from the defence ministry was highly controversial. Civil society groups argued that not only did it violate the spirit of the 1992 Peace Accords which ended El Salvador’s civil war but it also confirmed their suspicions that Funes was determined to militarise public security. The new defence minister will be General José Atilio Benítez, who had served as Munguía’s deputy. Benítez commanded the Salvadorean contingent of troops sent to Iraq after the US-led invasion of the country until 2008.

President Funes is under huge pressure to address insecurity and violence in El Salvador. Indeed, earlier in November, El Salvador won the unwanted tag of “most violent country in the world”, just ahead of Iraq, in the second edition of the “Armed Violence and Development” report by the Secretariat from the Geneva Declaration on Violence and Development, with 60 deaths per 100,000 people. In fairness, the report covered the period from 2004 to 2009, the year Funes took office, but there has been no tangible improvement since then.

Munguía is a close ally of Funes, a founding member of the Amigos de Mauricio movement, which appealed to more moderate voters beyond the more radical left-wing Frente Farabundo Martí para la Liberación Nacional (FMLN) that brought him to power in 2009. He might be retired but ultimately he is also a military man. And it is this which has incensed the FMLN.

Former left-wing guerrillas who are now high-ranking officials in the Policía Nacional Civil (PNC) have apparently threatened to resign over his appointment, and a number of FMLN politicians have joined civil society groups, chief among them the umbrella Coalición Centroamericana para la Prevención de la Violencia Juvenil (CCPVJ), in accusing Funes of violating the spirit of the 1992 Peace Accords by putting civilian law and order under the control of a military man. The US think tank Washington Office on Latin (Wola) also argued that the Accords were expressly designed to keep the military away from civilian posts.

“We consider that General Munguía Payés, despite having retired from the military is a person with military training who lacks the requisite training to carry out functions corresponding to a model of democratic public security,” the CCPVJ claimed in a statement. Munguía sought to allay concerns on 23 November by denying that he had any intention of militarising public security and guaranteed the civilian character of the PNC. The distinction between the military and the PNC has blurred in recent years as the military has been involved in joint patrols with the police to crack down on organised crime and reduce violence and insecurity, by far and away the public’s main concern in opinion polls.

FMLN politicians claimed that the appointment of Munguía had been agreed by Funes with the right-wing opposition Alianza Nacionalista Republicana (Arena) and the private business sector, and answered to US pressure. Funes insisted that he had not succumbed to external pressure “either from foreign governments or from national political forces.”

Funes made this assertion in response to claims by the FMLN that the previous justice and public security minister, Manuel Melgar, had been forced out of his job because he was persona non grata with the US. Melgar is a hard-line member of the FMLN. He is the object of suspicion by the US due to his alleged part in the killing of four off-duty marines in 1985 by gunmen dressed as Salvadorean soldiers in the Zona Rosa nightclub area of San Salvador, when he was an FMLN guerrilla. He never took part in any official meetings with US diplomats or officials and was conspicuous by his absence when US President Barack Obama visited El Salvador at the beginning of the year.

The orthodox wing of the FMLN is alleging that the US conditioned the approval of Obama’s ‘Partnership for Growth’ with El Salvador on Melgar’s replacement. The Funes administration formally signed up to the ‘Partnership for Growth’ on 3 November. At the time, Munguía was at pains to deny that the new accord would lead to an increased militarisation of public security.

The objective of the ‘Partnership for Growth’ is to identify barriers for improved growth to spur development and help to reduce poverty. It is a key initiative as far as Funes is concerned and he would not have allowed Melgar to provide an obstacle to its implementation. His government is desperately lacking in resources and prospects for economic growth are grim. GDP growth in 2011 has just been revised down to only 1.4%. This is the lowest rate of growth in the region. It leaves the government with insufficient funds to combat organised crime, at a time when Mexico’s drug-trafficking gangs are growing in power and extending their reach, and to invest in the social initiatives required to provide young Salvadoreans with opportunities to reduce the appeal of crime.

Whether Melgar was pushed or whether he jumped (on principle because he disagreed with the US accord), the fact that the security situation has not improved much since he held his position, despite the government’s determined efforts, had heaped pressure on him. This would have been a hot seat for anyone, but given his past it will be particularly hot for Munguía.

• Hacktivists

The websites of El Salvador’s presidency, the justice and labour ministries, the Policía Nacional Civil (PNC) and the legislative assembly were hacked into by “Anonymous SV” on 6 November and forced to shut down. The economy ministry also admitted that it had come under a cyber attack but had held strong. “Anonymous SV” carried out the attacks under “Operation Justice El Salvador”. They coincided with the 22^nd anniversary of the brutal killings of six Jesuit priests, their housekeeper, and her teenage daughter. The case received much more coverage this year as a Spanish judge opened an investigation into the killings, and issued indictments against 20 retired Salvadoran military officials.

• Partnership for Growth

President Funes has created a national council for growth comprising businessmen and government officials. The new council is one of the recommendations in the action plan of the new ‘Partnership for Growth’, which El Salvador signed with the US on 3 November.

The Banco Central del Paraguay (BCP)’s policy of dealing with excess liquidity in the domestic financial system by issuing short-term bills (which pay the equivalent of 7.25% over a year) seems to be delivering results.

The bank wants to hold the annual inflation rate which hit 5.6% in November within its target of 5% plus or minus 2.5 percentage points. Currently there is about G$4.78 trillion (US$1.1bn) of such short term paper outstanding. The most recent auction in the second week of December sold G$510bn (US$112m) of two week paper.

The Guaraní is still rising against both the US dollar and the Euro. In the second week of December, when the Euro slid towards the US$1.30 mark, the Guaraní rose to G$4,360 against the dollar.

As monthly inflation in November was negative (the consumer price index fell 0.1%) interest rates are strongly positive. Underlying inflation is also falling, thanks to good supplies of meat, dairy products and sugar. Fuel prices are rising and so are the prices of consumer durables, suggesting that consumer demand is strong.

Cotton: There are signs that the cotton industry may be about to revive. The prospect of a decent cotton crop of about 100,000t has encouraged cotton processors to take about 30% of their capacity out of mothballs. The cotton industry, according to Marcelo Vaisembrut, from the Algodonera Guaraní reckons that the industry’s capacity is now about 350,000t down from 500,000t.

One reason why cotton has become a popular crop again in Paraguay is that the government has authorised the use of GM modified cotton seeds which produce their own pesticides (Bacillus thuringiensis). The advantage of these crops is that they do not need extra pesticides. Cotton is peculiarly susceptible to insects and other pests.

Beef: On 2 December Brazil partially reopened its beef market to Paraguayan produced cuts. The market had been closed following an outbreak of Foot & Mouth disease in Paraguay in September. Paraguayan beef has to come through one inspection point, at Ponta Porá, in Mato Grosso do Sul and can only come from farms which have been inspected by Brazilian officials.

MEXICO | The motor industry. In January total vehicle exports fell by 4% year-on-year in volume terms, thanks to sluggish sales to the US. Exports to Latin America, however, rose strongly, the Asociación Mexicana de la Industria Automotriz (AMIA) reported.

    Total exports in January 2012 stood at 158,342 vehicles. Exports to the US (which accounts for 62% of total vehicle exports) were down 14.9%. Exports to Canada were also down, 19% year-on-year. On the other hand vehicle exports to Latin America were up 23.5% year-on-year, at 23,693. Most surprisingly, exports to the European Union in January were also up, by 7%, year-on-year.

Almost half (11,030) of Mexico’s vehicle exports to Latin America in January went to Brazil, so the current and unresolved discussions over possible changes to the preferential terms Brazil offers Mexican vehicles have major implications for the Mexican motor industry. Volkswagen and Ford are big exports from Mexico to Brazil. Mexico’s next biggest Latin American market is Argentina which imported 3,226 vehicles from Mexico in January.  

• Vehicle production

Mexico’s vehicle production in January was up 1.2% year-on-year at 202,701. Domestic sales were up strongly (9.5%) year-on-year, at 75,297. The industry is expecting that domestic sales will top 1m in 2012.

Development: On 15 November Carlos Lozano, a journalist and member of Colombia’s communist party (PCC), said ‘Iván Márquez’ (Luciano Marín Arango), the lead negotiator of the Fuerzas Armadas Revolucionarias de Colombia (Farc) in Havana, Cuba, is considering offering the government a Christmas truce.

Significance: Lozano, who also is a member of the civil society group Colombianos y Colombianas por la Paz (CCP), is the only Colombian journalist who has had a one-on-one interview with Marín Arango and the announcement of the possible offer has become the cover story of this week’s edition of ‘Semanario Voz’, the PCC’s weekly publication. Just like the Axis and Allied troops in 1914-1915, the truce would cover the Christmas and New Year’s period, but it would not be unilaterally declared by the Farc. President Juan Manuel Santos and Minister of Defence Juan Carlos Pinzón have already rejected the proposal. The latter said that “the armed forces have the constitutional duty of chasing, without a break, any criminal who has violated the law or who has attacked citizens”.

Key points:

• It remains unclear whether the Farc would decide to go ahead with a temporary ceasefire even if the government formally rejects their Christmas truce proposal next week when the peace negotiations begin (on 19 November).

• President Santos said from Valencia, Spain, “If they want to bring forward a ceasefire or humanise the conflict, what we want is to end it and not humanise it, and the sooner we get to an agreement, the sooner the rifles will be silenced, it’s that simple”. Santos also said “neither the State nor its development policies” will be part of the discussions with the Farc. “The message to the Farc is one of common sense: if they want to be involved in politics, we will give them the space, but without weapons.”

• Lozano also said that the Santos government wants the talks to conclude within seven months; however, the Farc has not committed to any specific time limit. “If it took 18 months to set up the agenda, how can the government expect to agree on peace within seven months”, Lozano told the political weekly ‘Semana’ in an interview, adding that he thinks the government’s schedule corresponded to President Santos’s wish to run for re-election in 2014.

PERU | Pushing for TPP. On 20 May Peruvian business groups called on the representatives of the 11 countries taking part in the 17^th round of negotiations of the Trans Pacific Strategic Economic Partnership agreement (TPP) to work harder so that the negotiations on what may become the world’s largest economic free trade zone can conclude this year. The sealing of the TPP agreement would set the foundation for creation of the first free trade zone to cover the Asia-Pacific region, which in recent years has become one of the most dynamic geographic areas of the global economy (accounting for 30% of global GDP), and includes both developed economies such as the US and Canada and important emerging economies such as Vietnam, Mexico, Chile and Peru.

    The current round of negotiations, which began on 17 May, is taking place in Lima until 24 May. This is being taken advantage of by the local private sector, which is keen for the agreement to become a reality soon believing that it will open the way for new business opportunities and the creation of new jobs. As the president of Peru’s foreign trade society (Comex), Carlos Chiappori, said “This is something very important [and] we have to stress that we [businessmen] are interested and we are asking the governments to conclude the TPP before the end of the year”.

    The TPP negotiations are scheduled to conclude in October after the inclusion of Japan, the last country to express an interest in joining the economic agreement, at the negotiating table, which is expected to take place in July. The TPP negotiations are being conducted in private and the terms have not been made openly public by any of the parties. Nevertheless, Chiappori said that Comex hoped that the agreement would genuinely be one of free trade without any exceptions, eliminating tariff and non-tariff barriers, permitting the free exchange of goods as well as services, with flexible rules of origin and intellectual property provisions. This after rumours have been leaked that US TPP negotiators are looking to introduce increased regulations over intellectual property covering online material and the award of patents.

COLOMBIA | Giving shape to the Pacific Alliance. On 22 May the VII Pacific Alliance summit formally began in Cali, Colombia, with the meeting of the foreign and trade ministers of the four member countries (Colombia, Chile, Peru and Mexico). The Cali summit is significant for the nascent bloc as it is expected that during the heads of state meeting on 23 May, leaders will sign the bloc’s formal trade treaty setting the foundation for the immediate liberalisation of 90% of all inter-bloc trade, less than a year after the Pacific Alliance’s creation. Thus the Cali summit, in which Colombia is to take over the pro-tempore presidency from Chile, presents Colombia with an opportunity to exercise its leadership to advance the ambitious economic and trade integration project, which Colombia’s President Juan Manuel Santos has described as “the most important integration project in Latin America’s history”.

    Colombia’s trade minister, Sergio Díaz-Granados underlined the relevance of the Cali summit pointing out that while the Pacific Alliance members have answered the question of ‘why?’ when they opted for more integration in the Cali summit they will now answer the question of ‘how?’ this is to take place. Although the Pacific Alliance was initially envisioned as a way to energise the economic relations between Latin America and the Asia-Pacific region, Santos has also stated that he believes that the bloc could become a leading force for regional economic integration. In this context, Santos has expressed his government’s commitment to promote the development of the Pacific Alliance’s agenda in order to produce “tangible results” in all the agreed areas including trade and economic cooperation.

    Part of this agenda also includes the expansion of the bloc, which has raised a significant level of interest not just among other countries in the region but also further afield. Indeed the representatives of nine other countries that have expressed an interest in joining the bloc will also be attending the summit as observers.

    These include the presidents of Panama and Costa Rica, both of which have already been accepted as Pacific Alliance members and are in the process of becoming fully fledged members. Commenting on the high level of interest in the Pacific Alliance Colombia’s deputy foreign minister, Mónica Lanzetta, said that “five more countries have already applied to become members”. As a result Lanzetta said that the Colombian government believed that it was necessary to establish clearer guidelines for the admittance of countries during the Cali summit. 

• Ecuador gets money back from China

On 22 May Ecuador’s defence minister, María Fernando Espinoza, revealed that the Ecuadorean government had received US$39m from the Chinese government after activating a money-back guarantee related to the purchase of four Chinese-made radars. Ecuador purchased the air surveillance radars back in 2009 only to find years later that these were faulty. Speaking to journalists, Espinoza said that “the issue with the radars has been completely settled… as we recovered all the funds allocated to the purchase of the radars thanks to the guarantee”. According to Espinoza the money was transferred to the Ecuadorean central bank on 17 May.

MEXICO-US | Reaction to NSA spying grows stronger. The publication by the German magazine Der Spiegel on 20 October of new revelations about US electronic surveillance of Mexican targets has elicited a far stronger reaction from the administration of President Enrique Peña Nieto than the earlier reports. Der Spiegel reported that under an operation codenamed Flat Liquid, the US had been tapping into a Mexican presidency server that handled former President Felipe Calderón (2006-2012)’s messages, as well as traffic from members of his cabinet on diplomatic and economic affairs. As in previous instances, an NSA presentation said that it had successfully exploited this source.

Earlier reports last September had revealed that Peña Nieto’s communications had been tapped in 2012 when he was a presidential candidate and, later, President-elect.  The very day that the new revelations were published in Germany, Mexico’s foreign relations ministry issued a communiqué reiterating its ‘categorical condemnation of the violation of the privacy of the communications of Mexican citizens and institutions’. It added, ‘This practice is unacceptable and contrary to Mexican and international law.’

The ministry noted that US President Barack Obama had recently promised Peña Nieto that he would conduct a comprehensive investigation into the reported spying, and that this commitment had been reiterated by Secretary of State John Kerry to Mexican foreign relations minister José Antonio Meade.

On 23 October interior minister Miguel Ángel Osorio Chong announced that Peña Nieto had ordered an in-depth investigation to determine if there is evidence to back up the reports and if any Mexican officials or citizens had become wittingly or unwittingly involved in the violation of the privacy of communications of high Mexican officials.

The investigation has been entrusted to the cyber-crime unit of the federal police’s scientific division, in coordination with Cisen, the state intelligence agency. He added that the US had been asked to expand its promised investigation to encompass the most recent report. Osorio Chong said that since taking office the current administration had been tightening the security of communications of the presidency and throughout the federal government.

MEXICO | Attacks on power installations. Groups of armed men attacked 18 power substations and six petrol pumps in Michoacán with Molotov cocktails at dawn on 27 October. This interrupted the supply of electricity for several hours in a cluster of eleven municipalities: Apatzingán, Buenavista Tomatlán, Tepalcatepec, Aguililla, Sahuayo, La Piedad, Zinapécuaro, Uruapan, Zamora, Ciudad Hidalgo and Tuxpan.

The attacks came after demonstrations the previous day in Apatzingán, staged by members of several ‘self-defence’ groups, which degenerated into violent incidents in which at least one person was seriously injured. The day after the attacks on the power installations hundreds of people took to the streets in Apatzingán to protest against the ‘self-defence’ groups.

The federal and state public prosecution services have announced investigations into the incidents; the office of the federal chief procurator, PGR, has initiated five criminal inquiries.

Congresswoman Selene Vázquez (Partido de la Revolución Democrática) who chairs the justice commission in the state legislature, has attributed the firebombings of power installations to Los Caballeros Templarios (LCT), an offshoot of La Familia Michoacana which is embroiled in a many-sided struggle for territorial control with the ‘self-defence groups’ and the Cartel de Jalisco Nueva Generación (CJNG).

The new attorney general, Carlos Ramos Heredia, took office on 12 May amid a wave of media-fanned public suspicion. The suspicion stems in part from his familial ties (he is a cousin of First Lady Nadine Heredia) but mostly from the fact that he is the subject of a constitutional complaint in congress for the manner in which he dealt with the allegations of corruption, bribery and even orchestration of murder against the regional president of Áncash, César Álvarez Aguilar [WR-14-14]. Ramos takes office in the midst of a power clash between the constitutional tribunal (TC) and the council of magistrates (CNM), which has damaged Peru’s judicial credibility.

Ramos Heredia was elected last month to the post of attorney general for three years by four votes to one by his colleagues on the board of supreme prosecutors.

His appointment is controversial because recent developments in Áncash have exposed his decision-making regarding Áncash over the last two years as, at best, flawed. Ezequiel Nolasco, a candidate for regional president in Áncash in this October’s elections, predicted his own murder in mid-March after striving to expose the corrupt regime he alleged was being run by Álvarez. Ramos Heredia is not only being investigated by congress but also by the CNM in relation to the removal of four regional prosecutors in 2012 investigating ‘La Centralita’, a store in Chimbote, the capital of Áncash’s province of Santa, believed to be a front for a wiretapping operation against politicians, prosecutors and journalists critical of Álvarez. Ramos also refused to investigate Hugo Dante Farro Murillo, the president of Santa’s board of public prosecutors, for colluding with Álvarez.

Ramos made a series of media appearances this week to try and clear his name. In an interview published by the national daily, La República, on 12 May, Ramos promised “transparency, impartiality and objectivity”, and to fight corruption, narco-trafficking, money laundering and organised crime. During his swearing-in ceremony he said he would work with the comptroller general’s office and the ombudsman to tackle corruption, and strengthen ties with other state institutions as “the attorney general’s office cannot be an island”. Ramos denied any links with the government of President Ollanta Humala (see sidebar) or Álvarez. He also added, intriguingly, that “What is happening in Áncash is being repeated in Tumbes, Trujillo and Chiclayo. The north of the country is a very disturbing time bomb and we need to work hard before it blows up.”

Inter-judicial power clash

Ramos also expressed his hope that the power clash between the CNM and the TC would be resolved swiftly to restore “juridical stability” to Peru. The two bodies have been on a collision course for several years, since the TC began considering a case brought in 2011 by Mateo Castañeda Segovia who claimed he had been unjustly overlooked by the CNM to become a supreme prosecutor. On 30 April three TC magistrates signed a resolution annulling the CNM’s appointments of Nora Miraval and Zoraida Ávalos as supreme prosecutors and appointing Castañeda to the position. The CNM denounced the TC magistrates before congress for usurping its powers and called for them to be suspended.

On 8 May the TC annulled its resolution, confirmed Miraval and Ávalos in their positions and removed Castañeda, “in the interests of peace”, TC magistrate Gerardo Eto Cruz, one of the three who issued the resolution, said. But one of his colleagues, Carlos Mesía, is taking the conflict further. On 11 May Mesía denounced the Peruvian State before the Inter-American Court of Human Rights (CorteIDH) for the constitutional charge brought against him, Eto and Ernesto Álvarez by the president of congress, Daniel Abugattás, for issuing the resolution. Mesía said it was not within the remit of congress to object to judicial resolutions as it interfered with the TC’s “independence and autonomy”.

• Ramos Heredia and the First Lady

The new attorney general, Carlos Ramos Heredia, said his family had never had anything to do with the family of Nadine Heredia and that he did not even know they were distant cousins until President Humala took office. There has been press speculation that Humala stitched up a deal with the CNM in 2011 to clear the way for Ramos to be appointed as a supreme prosecutor and eventually as attorney general. While the CNM’s decision to overlook certain candidates for supreme prosecutor looks like it smacks of political interference, Ramos Heredia was appointed as a supreme prosecutor in January 2011 – six months before Humala came to power.

CHILE | Convención Lacnic. El 27 de octubre la Latin American and Caribbean Network Information Centre (Lacnic), la organización encargada de los registros direcciones de Internet para Latinoamérica y el Caribe, inauguro una convención de cinco días en la capital del Chile, Santiago. La convención Lacnic es el evento más importante para la comunidad de Internet en la región, pues reúne a expertos de toda la región para discutir el futuro de la ‘red de redes’ y su administración en la región. Este año la convención de Lacnic también fue sede de la convención 2014 del Latin American Network Operators Group (Lagnoc), que representa a la comunidad de operadores regionales de redes de Internet, y los reúne para discutir cuestiones relacionadas con la instalación y operación de redes de Internet a través de la región.

Uno de los principales tópicos de discusión de la convención de este año será la actualización del Protocolo de Internet Versión 4 (IPv4) en la región, el IPv4 es el actual sistema que asigna una única dirección alfa-numérica para cada servidor, página web y aparato que ayudan a ordenar el tráfico de Internet. Hace ya varios años ahora, la Internet Coorporation for Assigned Names and Numbers (ICANN), la ONG responsable por la coordinación y mantenimiento de bases de datos de identificadores únicos relacionados con el número de espacios en el Internet, ha estado advirtiendo que las direcciones en el IPv4 están llegando a su límite y que es necesario migrar al nuevo sistema- IPv6, desarrollado por Internet Engineering Task Force (IETF).

La migración de IPv4 a IPv6 representará el más significativo desafío para la red de Internet en la región durante los próximos años. Según Arturo Servín, el gerente de producción de contenidos para Google en América latina y el Caribe, el IPv6 ha sido adoptado actualmente por solamente el 4,5% de los usuarios de Internet en Chile, Brasil, y Perú; una cifra “positiva” comparada con el 2011. Sin embargo, Servín dijo que al parecer hay una “falta de sensibilización” en la región acerca de la importancia de migrar al nuevo sistema. Esta falta de previsión podría afectar particularmente a las empresas cuando el uso del IPv6 sea estandarizado. Los asistentes a Lacnic, tales como Patricio Poblete, director del centro de información de redes de Chile (NIC Chile), recalcó la necesidad de que los países participantes adopten el nuevo sistema. Poblete dijo que Chile hace tiempo está buscando adoptar el IPv6; algo que él puso a la atención de la amplia comunidad latinoamericana en la conferencia del 2007. Pedro Huichalaf, el viceministro de telecomunicaciones de Chile, elogió el rol de Chile en buscar transformar la red de Internet latinoamericana al ser anfitrión de Lacnic 22.

Authorities in the Ecuadorean capital Quito were gearing up for fresh pro- and anti-government protests on 7 April over the latest organic law for the equilibrium of public finances (Ley Orgánica para el Equilibrio de las Finanzas Públicas), which among other measures raises ‘sin taxes’ on cigarettes, alcohol and sugary drinks. Critics accuse the cash-strapped left-wing government led by President Rafael Correa of picking people’s pockets as weak oil prices bite harder. Correa argues that the latest law is designed not only for the fiscal but also for the physical health of the country.

The executive sent the organic law to the unicameral national assembly, which is controlled by the ruling Alianza País (AP), as a matter of urgency, meaning that the assembly has 30 days to debate it. The new taxes include a two-cent increase in the tax on cigarettes, a 12-cent increase on every bottle of beer, and a 25-cent levy per litre on fizzy drinks. But other, unexpected new tax rises have created a strong backlash. These include a steep 15% tax increase on fixed and mobile phone operators, a reduction in the amount of cash (i.e. dollars) people can take out of the country free of the 5% Impuesto a la Salida de Divisas, and, equally controversially, further cuts to local government offices and agencies.

In a clear sign of the dollar liquidity crisis in the country, the law includes incentives for people willing to exchange physical cash at the central bank for ‘electronic dollars’, which would be loaded onto their mobile phones for use for bill payments. The new electronic dollars, rolled out in 2015 by the central bank partially in a bid to encourage more low-income people into the banking system, have had a poor take-up, with people reluctant to let go of their precious cash.

With tax revenues down by anywhere between 8% and 12%, according to estimates by local economists, the government calculates that the measures will raise some US$300m for the treasury. With everyone from business chambers to mobile operators, consumer groups and sections of both the Left and the Right opposed, however, observers wonder if the political cost for the AP ahead of the February 2017 general elections is worth that relatively small return.

Yasuní drilling

Ecuador’s state oil company Petroamazonas has confirmed the start of drilling operations at the Tiputini C oil well, located on the edge of the pristine Yasuní Amazon national park and indigenous reserve. The Tiputini C is the first of some 200 wells planned to access the almost 1.0bn barrels of crude believed to lie underneath the Ishpingo Tambococha Tiputini (ITT) block. In a statement, the environmental NGO Amazon Watch demanded, “Why such urgency to exploit the Yasuni-ITT with an adverse oil market? By drilling Yasuní-ITT, the Ecuadorian government is threatening to destroy one of the most biodiverse and culturally fragile treasures on the planet, for what amounts to about a week of global oil supply,” noted the NGO’s director, Leila Salazar-López. Other activists also questioned why Petroamazonas is expanding its operations when at present it is losing an estimated US$15 on every barrel extracted.

Hundreds of university students defied the authorities by staging an unauthorised march in Santiago on 5 July to protest against the long-awaited final instalment of the education reform designed by the government led by President Michelle Bachelet. Students accuse Bachelet of reneging on a campaign promise to introduce universal free university education, the principal cause of their protest actions since 2011. The draft proposal sent to congress by the Bachelet administration a day earlier contains an ambitious outline for how free education could be reached but it is predicated on economic growth figures which might not be obtained for many years if ever.

The higher education bill is the last of the government’s legislative initiatives as part of its sweeping education reform. Amounting to some 300 articles, it includes new rules for universities and even a new admission system, and, crucially, sets out the plan for providing free education even for wealthy students at a distant date depending upon economic developments. It fell short of the expectations of Chile’s restive university federations.

“Education is a social right; it cannot be regulated by market criteria. The time has arrived for students to come out on to the streets and demand what has been taken from us,” the spokesman for Chile’s confederation of university students (Confech), Gabriel Iturra, said. There were some clashes between students and the militarised police Carabineros during the march in Santiago. The spokesman for the secondary school association (Aces), Diego Arraño, who supported the Confech march, called for the education minister, Adriana Delpiano, to resign for failing to understand the reasons behind the student protests.

Iturra said that under the proposed legislation it could take as long as 30 years to reach the goal of universal free education; that the proposed punishment for profiteering in education (fines or, in extreme cases, a short prison sentence), monitored by the superintendence of higher education, were not stringent enough; and that the higher education reform should be financed by renationalising Chile’s natural resources. He also lashed out at Chile’s discredited congress: “It’s not right that those that are being investigated for illicit campaign financing, those that have commercial ties to private universities, are those that are discussing the future for students”. The students are planning another march for 10 July.

The students are far from alone in opposing the bill, although its detractors raise very different objections. The private sector, supported by the right-wing Chile Vamos coalition, argues that the proposal is unaffordable and would require another tax reform or even two, and that Chile would face other financial imperatives in the coming years, including pensions and healthcare. Even the president of the radical left-wing Partido Comunista de Chile (PCCh), Guillermo Teillier, part of the ruling Nueva Mayoría coalition, said that the next government might need to approve a tax reform to fund the proposed reform. Both state and private university rectors also criticised the bill.

A total of 62% of respondents to a national survey by Cadem this week said they felt that Bachelet should either completely withdraw or modify the education, labour and tax reforms sent to congress. These provide the central spine of the Bachelet administration’s entire reform agenda. Meanwhile, 65% of respondents rejected Bachelet’s government programme and only 26% agreed with it. Her approval rating stood at 21% and disapproval rating at 69%, while a massive 74% felt her government was “on the wrong path”.

• Disapproval

A poll by Adimark this week put President Bachelet’s approval rating on 22% and disapproval rating on 72%. The most serious disapproval was reserved for corruption in state institutions (89%) and tackling crime (93%). The foreign minister, Heraldo Muñoz, was by far the most popular cabinet minister with an approval rating of 71%, while the education minister, Adriana Delpiano, had the second highest disapproval rating after the justice minister, Javiera Blanco (70%).

*** POSITIVE OUTLOOK FOR JAMAICA. On 31 January, Fitch Ratings Agency affirmed Jamaica’s long-term foreign and local currency Issuer Default Ratings as ‘B’ and revised its outlook from ‘stable’ to ‘positive’. According to Fitch, Jamaica will have a primary fiscal surplus of 7.0% of GDP in fiscal year 2017/18, which will mean a balanced budget.

Also on 31 January, Jamaica’s national statistics institute (Statin) reported that unemployment had declined to 10.4%, the lowest level since October 2008. Youth unemployment, at 25.4%, was also the lowest since 2008. This is good news for the Jamaica Labour Party (JLP) government led by Prime Minister Andrew Holness almost exactly two years after it secured an unexpected one-seat victory over the People’s National Party (PNP). However, it is still a long way short of what the JLP promised in its election campaign.

In its manifesto for the February 2016 general election, the JLP promised to create over 200,000 new jobs, including 10,000 from urban renewal in Kingston; 30,000-40,000 “over the next 5-7 years” in Business Process Outsourcing; 15,000-25,000 in construction of an “integrated multi-modal transport system”, with the same again to be created in logistics and tourism after completion; 20,000 in manufacturing and agri-business; 30,000 in the expansion of the hotel industry; 20,000 through the creation of small businesses; and 50,000 in the development of Jamaica’s ‘Sun Coast’ (from Port Royal to Morant Point), with 30,000 permanent jobs on completion of the project in such things as maintenance, landscaping, housekeeping, and management services.

The latest Statin report shows that the number of persons employed in October 2017 was 1,206,800, 27,300 more than in October 2016. It is a start, but there is still a long way to go.

*** IMF COMPLETES BARBADOS CONSULTATION. The International Monetary Fund (IMF) concluded its latest Article IV consultation with Barbados on 26 January. The headline finding is that economic growth is slowing following the recovery in 2016. GDP growth was 1.6% in 2016, but it is estimated to have slowed to just 0.9% in 2017 and it is projected to slow further to 0.5% in 2018 “due to the ongoing fiscal adjustment and policy uncertainty related to the forthcoming elections”.

On the positive side, there has been a decline in the fiscal deficit to 5.5% of GDP in FY2016/17, and this should fall further to 4.1% of GDP in FY2017/18. However, this is less of an improvement than planned due to a shortfall in revenues and higher transfers to state-owned enterprises (SOEs). Central government debt at end FY2016/17 was 137% of GDP. The IMF noted: “The larger than expected fiscal deficit is increasing funding challenges”.

For the IMF, the priority is “a comprehensive restructuring of SOE operations”, which it sees as “critical to address[ing] the structural imbalance in the public sector”.

None of this is good news for the Democratic Labour Party (DLP) government, led by Prime Minister Freundel Stuart, which has to face the electorate by the end of June this year. The DLP is coming to the end of its second term in power, having clung on for a second term with a 16 seat to 14 seat victory over the Barbados Labour Party (BLP) in 2013.

There is a long-established trend in Barbados of the electorate awarding lengthy alternating periods of power to each of the country’s two main parties. It seems all but certain that the BLP is about to get another turn.

*** CARIBBEAN DEVELOPMENT BANK LOOKS FOR POSITIVE GROWTH. In its 2019 economic outlook, the Caribbean Development Bank (CDB) says that it is expecting 2.1% regional growth in 2019. The bank said: “In 2018 most of the CDB’s BMCs [borrowing member countries] recorded positive growth. Growth averaged 1.9%, an improvement on 0.5% in 2017.”

In 2018, the fastest growing economy was Grenada (5.2%), and this is again expected to lead the way. For 2019, the CDB said that “construction, tourism, and the extractive industries, such as gold and oil, are expected to expand”.

The CDB’s 19 BMCs are: Anguilla, Antigua and Barbuda, Barbados, Belize, British Virgin Islands, Cayman Islands, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, St Kitts and Nevis, St Vincent and the Grenadines, Suriname, The Bahamas, Trinidad and Tobago, Turks and Caicos Islands.

*** BAHAMAS’ REVENUES BOOSTED BY VAT INCREASE. The tax-take in The Bahamas, whose dollar is pegged to the US dollar at one-to-one, increased by $60.7m to $430.2m in the second quarter of FY2018/19. The 16.4% boost was a direct result of the government’s 4.5% increase in the VAT rate to 12% last July.

*** MORE RESOURCES NEEDED FOR ANTIGUA & BARBUDA’S INTEGRITY COMMISSION. An Organization of American States (OAS) anti-corruption unit has called on Antigua & Barbuda to increase the amount of resources available for the country’s Integrity Commission. An OAS report says that the commission “continues to be limited” by its lack of resources, and it notes: “Between 2014 and 2018 there have been eight cases involving charges of Corruption in Public Office. Two cases were dismissed, three were withdrawn, and an additional three are still pending.”

As a country that is heavily dependent on tourism, Barbados is inevitably one of the worst affected by the coronavirus (Covid-19) pandemic. On the tourism-dependency index, Barbados is ranked 14 out of 166 countries, with tourism’s contribution to GDP calculated at 39%. Tourism is also responsible for 39% of employment. To make matters worse, the crisis comes at a time when Barbados has been struggling to reduce debt under the terms of the International Monetary Fund (IMF)-supervised Barbados Economic Recovery and Transformation (Bert) programme introduced in June 2018. An IMF team conducted a ‘virtual’ staff visit from 25-28 August “to discuss implementation” of Bert.

At the conclusion of its virtual staff visit, the IMF issued a statement acknowledging the difficulties faced by Barbados, with “a double-digit decline in economic activity projected for 2020”. The statement said: “In this very challenging environment, Barbados continues to make good progress in implementing its ambitious and comprehensive economic reform programme, while expanding critical investments in social protection. International reserves, which reached a low of US$220m (5-6 weeks of import coverage) at end-May 2018, are now in excess of US$1bn. All indicative targets for end-June under the EFF [Extended Fund Facility] were met. The targets for international reserves, net domestic assets and the primary balance were met with some margin, which bodes well for meeting the end-September EFF targets…Good progress also continues to be made towards implementing structural reform under the EFF. The two structural benchmarks for end-June 2020, related to tax and customs administration, were both met. A revised central bank law is expected to be ready to be sent to Parliament in September”.

This staff visit, and the relatively positive statement, follows on from the third review of the EFF conducted in June when it was reported that “all performance criteria for the review were met”. However, it was agreed that “resetting” of benchmarks for future reviews as a result of the pandemic would be required – and a “programme augmentation” of US$90m was proposed “to help the authorities accommodate the external Covid-19 related shock with a lower primary surplus”.

The structural benchmarks to be reset, include moving the target dates for the achievement of a new central bank law to end-December 2020 (it was originally scheduled for end-December 2019); for an actuarial review of civil service pensions from end-June 2020 to end-September 2020; for the achievement of a new public pension law from end-September 2020 to end-December 2020; for the development of plans to recapitalise the central bank and “address the medium and long-term challenges” for the National Insurance Scheme (NIS - originally scheduled for March/April 2020) “to a date yet to be defined”; and for the designing of a new fiscal rule with the help of an IMF mission, originally planned for March/April 2020, “to a date yet to be defined”.

One of the main achievements noted in the review was that the primary surplus target of 6% of GDP for FY2019/2020 was achieved even though tax revenues fell short of budget projections by close to 1% of GDP due to lower corporate tax receipts from financial institutions following the public-debt restructuring in December 2019.

The IMF believes that the restructuring agreement will still enable the government to bring debt down to 60% of GDP by FY2033/2034, however, the path to that goal has necessarily become less straightforward. Due to the collapse in tourism revenues, the primary surplus for FY2020/2021 is now targeted at 1% of GDP. According to the IMF: “The Covid-19 induced fiscal accommodation will need to be compensated by higher primary surpluses in the medium term to reach the 60% medium term anchor in FY2033/2034, while delaying by two years the achievement of the interim target of 80%, which will now be achieved in FY2029/2030”.

A two-year delay in reaching the interim debt target of 80% of GDP doesn’t seem too serious, but the IMF adds that a further deepening and lengthening of the Covid-19 crisis would jeopardise this. Indeed, it warns that “the debt trajectory could become unsustainable”. On the other (more optimistic) hand, the IMF points out that “the large share of domestic debt reduces rollover risks”, and it says “if growth turns out higher than projected, this would allow for more rapid debt reduction than is envisaged under the baseline, so long as the authorities preserve the savings”.

One area of reform that the IMF has been keen to re-emphasise as key is the reform of Barbados’ state-owned enterprises (SOEs). In FY2017/2018, the SOEs were consuming close to 8% of GDP and (in the words of the IMF) “had become a significant burden on the budget, and a major contributor to fiscal risks”.

Unfortunately, due to the Covid-19 shock, grants to SOEs will increase further during this financial year due to one-off expenditures mainly in health, tourism, and social assistance. Thereafter, the IMF says they should decline to 6% of GDP by FY2021/2022 “by a combination of: (i) much stronger oversight of SOEs supported by improved reporting and tighter control over SOE borrowing; (ii) cost reduction, including reduction of the wage bill; (ii) revenue enhancement, including an increase in user fees; and (iv) mergers and divestment”.

There has already been some progress with SOEs, including reducing the numbers from 60 to 52 through mergers and closures, the renegotiation of supplier contracts, an increase in some tariffs (bus fares and water rates), and new levies on sanitation, health services, and tourism. There has also been a strengthening of oversight. However, the IMF admits, “with the authorities fully focused on handling the coronavirus crisis” discussions over further reform of SOEs will have to be delayed until the next review.

Another area that the IMF is discussing with the Barbados’ authorities is the need for structural reforms “to unlock Barbados’ growth potential”. In its review paper, the IMF emphasised that these would “need to be accelerated” once the Covid-19 crisis recedes. Areas of concern will include improving the business climate by “(i) streamlining the process for setting up new businesses, (ii) eliminating the requirement to use a company seal, (iii) introducing a single business administration number, (iv) amending the company law to strengthen protection of minority shareholders, (v) reforming customs administration to facilitate trading across borders, and (vi) digitising property records in the land registry”.

Despite the generally positive tone of the review, there is no hiding the IMF’s concerns over the difficulties confronting programme implementation going forward. Obvious risks to the programme include a longer and/or larger than expected impact of the pandemic and slower than expected global recovery. The IMF also points to “limited implementation capacity and untested ability to maintain high primary surpluses over a sustained period required in the future to achieve the 60% debt anchor”. Concerns about “limited implementation capacity” also apply to the structural reform agenda.