All Categories

Differing stances on dollarisation have made this issue into a significant point of contention ahead of Ecuador’s February 2021 general election. In particular, debate has centred on the question of how dollarisation has influenced the country’s response to the current economic crisis, with critics contending that it reduces resilience in the face of external shocks and can undermine export competitiveness.

Ecuador’s export-oriented economy, dollarised since 2000, might have been expected to be among the hardest hit by the coronavirus (Covid-19) pandemic. But robust demand for non-oil exports, and a corresponding reduction in Ecuador’s imports, have mitigated the economic recession, and improved the country’s balance of payments. Defenders of dollarisation argue that Ecuador’s economy has even benefitted from the currency stability that it provides.

At first glance, Ecuador had seemed dangerously ill-equipped to face the global economic crisis brought on by the pandemic. Having already entered into recession in the final quarter of 2019, the crash in international oil prices in March this year dealt a further blow to the country’s oil-dependent economy. It was also feared that dollarisation – by not allowing Ecuador to make monetary policy adjustments, and undermining export competitiveness due to the appreciation of the US dollar – could accentuate this crisis.

Ecuador’s economy was indeed hit hard, GDP contracted by 12.4% year-on-year in the second quarter of 2020. And yet, this performance contrasted favourably with many of its neighbours, including Colombia (-15.8% in the second quarter), Bolivia (-21.7%), and Peru (-30.2%). Accordingly, the International Monetary Fund (IMF) recently revised up its economic growth forecast for Ecuador in 2020, from an 11% contraction to a 9.5% contraction.

This better-than-expected performance was driven by the strength of Ecuador’s non-oil exports (despite the high value of the dollar), which to some extent offset declining domestic consumption (-11.9%) and government spending (-10.5%) in the second quarter. While total exports fell by 15.7%, influenced heavily by the drop in oil exports, there was greater external demand for leading non-oil exports, such as shrimp and seafood (which grew in value by 10.4%) and agricultural export crops such as bananas, coffee, and cacao (3.4%).

Robust demand for non-oil exports was complemented by a 20.8% drop in imports year-on-year, as financial pressures on the Ecuadorean public served to curtail consumption. This combination of dynamics meant that for the first time in two decades, Ecuador registered a trade surplus in the first eight months of the year, maintaining stability in the balance of payments. Consequently, concerns that the country could face an involuntary ‘de-dollarisation’ – due to a severe and sudden reduction in the number of dollars in circulation in the country, which could have made the system unsustainable – appear to have been unfounded.

While dollarisation has undoubtedly constrained the government’s response to the economic shock caused by the pandemic, it also has provided currency stability. The crisis has not led to currency depreciation, thereby preventing incomes and savings from losing value. This stands in contrast to the devaluation seen by some emerging economies this year, and that was experienced by Ecuador back in 2000. The current crisis has highlighted the benefits of dollarisation as well as its drawbacks, and the system’s future looks likely to be decided by political motivations rather than by economic necessity.

On 28 April, Belize’s parliament approved a new national budget, the General Revenue Appropriation Bill for fiscal year 2021/22. It includes 10% salary cuts for the public sector. It is the first budget from the ruling People’s United Party (PUP), led by Prime Minister John Briceño, since returning to power in November 2020 in a landslide 26-5 seat victory over the United Democratic Party (UDP), which ended 12 years in the political wilderness.

The government defended its budget proposals on the grounds, first, of necessity but secondly because going to the International Monetary Fund (IMF) ‘cap in hand’ would be much worse. Speaking for the government in the senate on the final day of debate, Senator Eamon Courtenay said that the IMF’s prescription would include reducing the number of items zero-rated for the general sales tax (GST) and to increase the GST rate to 19%. With regard to the public sector, Courtenay added: “Let’s not misunderstand their coded language. Reduce the wage bill. That is not only a cut, but they are also advocating a cut in the number of persons employed in the public sector, and they have warned that unless something is done, there will be a disorderly adjustment to the peg. That means devaluation. The Honourable Prime Minister rejected the IMF road, and we have chosen, Madam President, to adopt a carefully calibrated and designed plan that is homegrown, and we believe that will get us to a better Belize”.

This is indeed an accurate assessment of what the IMF was proposing. The latest IMF pronouncements on the Belizean economy came in March, with its Concluding Statement following its 2020 Article IV mission to Belize. The picture it painted was bleak. The pandemic had led to a 72% decline in tourist arrivals in 2020, a loss of huge significance given that tourism accounts for around 60% of the country’s foreign-exchange earnings and 40% of GDP. As a result, the economy contracted by 14.1% in 2020.

The biggest worry is debt. The economic collapse was accompanied by “a sharp fall in revenue and a rise in expenditure”. This led to an increase in the primary fiscal deficit from 1.4% of GDP in FY2019/2020 to 8.3% in FY2020/2021, and a rise in public debt from 98% of GDP in 2019 to 126% in 2020. And the problem is compounded because, in the words of the IMF, “the recovery from the pandemic is projected to be protracted”. Belize’s economy is not expected to return to its 2019 level until 2025. The IMF’s view in March was that GDP will grow by 1.9% 2021, 6.4% in 2022, and “return to potential growth of 2% over the medium-term”.

This lacklustre recovery means that public debt could rise to 133% of GDP in 2021 and fall only to 128% in 2031 – yet the IMF wants Belize to target a debt level of 60% of GDP by 2031. To achieve this, the IMF is urging the adoption of a Fiscal Responsibility Law (FRL) “with explicit fiscal rules”.

In the key passage in its March statement, the IMF declares: “Implementation of an FRL with explicit fiscal rules in the future would strengthen the commitment to restoring debt sustainability. This framework would make the debt reduction process transparent and predictable. Its key features could include: (i) a public debt anchor of 60% of GDP by 2031; (ii) a gradual increase in the primary balance to 3% of GDP from FY2024/2025 onwards; (iii) an escape clause for major shocks, such as natural disasters, triggered with approval by Parliament and a fiscal council; (iv) an automatic correction mechanism to be triggered by large cumulative deviations from the primary fiscal balance target; and (v) an independent fiscal council that produces unbiased forecasts and evaluates compliance with fiscal rules”. The IMF is urging Belize not just to target a primary fiscal deficit of 3% of GDP for FY2024/2025 but to “keep at that level until FY2031/2032, which…implies a fiscal consolidation of 3.9 percentage points of GDP over the next four years”.

On the specific issue of the GST, the IMF says: “On revenues, the authorities should focus on reducing the number of zero-rated items of the general sales tax (GST), taxing them at the standard GST rate instead, and raising the standard GST rate to a level in line with peer countries. GST revenue could also be expanded by taxing the hotel sector at the standard GST rate instead of the 9% hotel tourist accommodation tax levied on room revenue administered by the Belize Tourism Board. Other options to mobilise revenues include lowering the threshold for exemption in the personal income tax, increasing excise taxes, and enhancing revenue and customs administration”.

Nor is that necessarily all. The IMF adds: “Moreover, the adjustment needed to reach the primary balance targets could be larger if the cyclical recovery of revenue is weaker than expected. In this context, it will be important to elaborate contingency plans in case the rise in the primary balance is not proceeding as expected, including further increases in the GST rate and larger cuts to nonpriority expenditure. A less ambitious fiscal consolidation effort will require larger efforts in other areas, while failure to restore debt sustainability would put the fiscal position and the currency peg at risk of disorderly adjustment”.

The IMF acknowledges that what it is proposing would be politically difficult, and there can be no question about that given the adverse reaction to the budget. With an element of IMF diktat thrown in as well, there would be uproar, particularly given the UDP’s successful resistance to IMF recommendations during earlier (but admittedly less severe) crises. The UDP government presided over two sovereign debt restructurings (in 2006-2007 and in 2012-2013) without recourse to the IMF, and when, in mid-2014, the IMF urged Belize to carry out substantial reforms, then-prime minister, Dean Barrow (2008-2020), responded by saying: “I wouldn’t put too much store by what the IMF says…I am in no programme with them, have no need to get into any programme with them, and we therefore in this government and in this country are our own masters”.

Politically, the one thing going for the PUP is that it has a strong and recent popular mandate from the 11 November 2020 general election which was franked by further successes in the March municipal elections. And it can, as it has already done, warned that a homegrown austerity programme will always be better than an IMF-imposed one. Nevertheless, the Belize government is in a desperate position. While the resistance to the budget cuts is strong, so too is the pressure from the so-called ‘Superbond holders’ for the government to agree to an IMF programme.

Belize is facing its fifth debt restructuring in 15 years as it looks to restructure the US$550m Superbond that came out of the 2006-2007 restructuring. The leading bondholders have been signalling that they will not agree to another restructuring without the IMF invigilating. In a statement issued on 5 May, the creditors said: “The…implementation of Belize’s economic policies would be more durably addressed in the context of an IMF-supported programme”.

Of course, the local unions are well aware of all this as they seek some dilution, if not full reversal, of the approved budget cuts. After a curtailed meeting with government negotiators on 6 May, Gerald Henry, president of the Public Services Union (PSU), commented: “I would imagine that the pressure has to be great on them for them to seem to be sticking to the 10% cut at this time. That’s the reason why the discussion has been very difficult, and we’ve not been able to move as fast as we would have liked. So the pressure is on them, I believe, but we are still hopeful that we will break through and get a reduction, at least, in the 10%, but we have to wait and see”.

Guatemala’s President Alejandro Giammattei last week declared a two-week state of prevention to begin on 14 July. He claimed that the measure, which suspends certain constitutional guarantees and restricts public gatherings, was necessary to curb the rise in coronavirus (Covid-19) infections as new cases continue to surge, with a record 4,233 new daily infections registered on 18 July. His critics, however, point to increasing discontent and protests calling for his resignation in recent weeks over the government’s poor handling of the pandemic and vaccine roll-out. This is also a cause for concern for the Pan-American Health Organisation (PAHO) which, on 14 July, pointed out that, along with Honduras, Guatemala had “yet to vaccinate 1% of its population”.

On 13 July President Giammattei announced plans to implement a state of prevention, which, among other things, limits outdoor meetings where those present fail to comply with physical distancing, the use of masks, and other biosecurity measures. This came three days after the latest protests calling for his resignation took place in Guatemala City which produced a turnout of some 300 people. Also upping the pressure on Giammattei, on 1 July the human rights ombudsman, Jordán Rodas, publicly called for his resignation, citing incompetence over various issues, including the government’s handling of the pandemic - a complaint which has emerged in earlier protests over the lack of transparency regarding the use of public funds [WR-20-33]. These demands were echoed in an open letter published on 2 July by local human rights platform Convergencia por los Derechos Humanos, which comprises 11 human rights groups.

The current focus of discontent is the lack of transparency regarding vaccine procurement and the sluggish roll-out of the government’s vaccination plan. According to the latest (19 July) estimate from the Our World in Data platform, Guatemala has administered just 7.19 doses per 100 people, the second worst rate in Central America after Nicaragua (6.27 as of 16 July). These concerns centre on the acquisition of 16m doses of Russia’s Sputnik vaccine (just 860,000 doses have so far arrived). This led the comptroller general’s office to file a criminal complaint against the health minister, María Amelia Flores González, on 1 July, citing a lack of transparency in relation to the purchase, while on 4 July Acción Ciudadana, the local branch of anti-corruption NGO Transparency International (TI), filed a complaint before the attorney general’s office against Giammattei, Flores, and the foreign minister, Pedro Brolo, for the crimes of illicit association, fraud, and embezzlement in relation to the same case.

Appeals against state of prevention

The decision to decree a state of prevention itself has subjected President Giammattei to fresh criticism and complaints of acting illegally. On 13 July Jordán Rodas and AC both filed appeals against the measure before the constitutional court on various grounds, such as the fact that it violates constitutional rights, including the right to the freedom of assembly, and lacks the necessary approval by congress.

The release of Ecuador’s fiscal statistics for the first quarter of 2022 evidenced two divergent trends. Public investment plunged to just US$67m in Q1, at the same time as state revenues went in the opposite direction, hitting significant highs. The investment statistics were generally received poorly, coming amid growing discontent with the state of public infrastructure and accusations that the government is doing too little to tackle rising crime. President Guillermo Lasso’s government has since indicated that planned investment spending will increase this year, and his proposals for increased spending have been backed by Ecuador’s main creditor, the International Monetary Fund (IMF). In addition to serving a political purpose, targeted greater public investment could also bolster economic growth which is expected to slow down somewhat this year.

According to figures released by the finance ministry, public investment amounted to just US$67m during the first quarter of 2022. This figure represents a significant reduction on the same period in 2021, when public investment totalled US$380m. In response to strong criticism of these figures among opposition legislators and the media, the government scrambled to explain the decrease. It cited both a change in methodology, given that public investment no longer includes certain recurring expenditures, such as payrolls, and the fact that public investment tends to be lower during the first quarter of the year.

Even factoring in the revised methodology, which experts estimate would shave off around 50% of the public investment total for 2022, the difference between the first quarters of 2022 and 2021 remains significant. A less generous explanation for the collapse in public investment in the first three months of the year is that the government, specifically the finance ministry, has been inefficient in dispensing and signing off on financing for public investment schemes. Proponents of this theory highlight that the US$67m spent constitutes less than 3.6 % of the US$1.87bn originally allocated for public investment in 2022 – an amount which seems extraordinarily low regardless of the government’s claims that the bulk of spending will come later in the year.

Whatever the reason behind the dramatic fall in public investment in the first quarter, lower government spending is generating clear political costs for the Lasso administration. The government is committed to achieving fiscal sustainability – the main objective of the agreement struck with the IMF in September 2021 – and has made significant progress toward this goal, reducing the deficit to 3.5% of GDP last year. However, it faces increasing public demands to relax its tight fiscal policy.

Over the last few months, discontent with the state of public infrastructure, particularly the country’s roads and educational institutions, has increased. Exemplifying the mounting backlash to the Lasso administration’s economic policy, Ecuador’s powerful indigenous organisation, the Confederación de Nacionalidades Indígenas del Ecuador (Conaie), launched an “indefinite” wave of protests on 13 June. With similar protest action by Conaie having forced Lasso to water down plans to liberalise fuel prices in October 2021, and having nearly toppled former president Lenín Moreno (2017-2021) in 2020, the latest mobilisations could have real impacts on the government’s economic agenda.

According to polls, however, the growing list of public concerns is topped by a major violent crime surge, which is turning into one of the most serious crime waves in Ecuador’s modern history. The deteriorating security situation has revealed the country’s security and police forces to be woefully unprepared, in part due to a lack of investment in technology and equipment. All of this has fed a narrative that the government is out of touch with the problems faced by the population.

This sentiment is accentuated by the fact that public investment has been on a downward trend for several years, as a result of fiscal adjustment policies mandated by the IMF. Thus, while total public investment totalled US$4.7bn in 2017, it fell consecutively in 2018 and 2019, when it reached US$2bn. The coronavirus (Covid-19) pandemic interrupted this trend, with increased state spending on health infrastructure and social support programmes causing public investment to increase to US$2.8bn in 2020, and US$3.3bn in 2021. Nonetheless, these increases have not compensated for the wide-ranging cuts of previous years, given that they were largely destined towards the emergency pandemic response.

In recent months, mounting pressure to restore government spending has become even more acute as high oil prices and tax collection have boosted state revenues. Indeed, in the first quarter of 2022, government revenues grew by around 25% year-on-year, generating a fiscal surplus. That surplus was primarily due to increased tax collection following the fiscal reform approved in November 2021, with the tax haul amounting to approximately US$4.5bn – an increase of 29% on Q1 2021. Meanwhile, oil revenue in the first quarter of this year totalled around US$670m, a threefold increase on the same period last year.

The combination of years of dwindling investment and a healthy surplus in the treasury has made it much harder for the government to defend spending cuts. Pressure to up spending has led to a certain shift in policy direction in recent weeks. Notably, the IMF publicly stated in late April that high oil revenues have given Ecuador some fiscal room for “investments that spur on growth”. Following these comments, the finance ministry confirmed that the government was in talks with the IMF to increase public spending targets.

These talks appear to have been successful, and they were followed by a government announcement in early June that public investment planned for this year would increase by 7%, from the initial US$1.87bn to US$2bn. Of this US$2bn, the areas which will receive the most investment are road infrastructure (US$314m), hospitals (US$295m), and security (US$213m).

As well as being politically astute, the limited increase in public investment should also bring with it some economic benefits. After unexpectedly high GDP growth of 4.2% in 2021, most banks expect economic growth to slow somewhat this year, with Ecuador’s central bank (BCE) predicting 2.8% growth. According to the BCE, this owes principally to the Russia-Ukraine war, given that Russia is a key destination for Ecuadorean banana and shrimp products [EB-22-04].

There are other worrying signs on the horizon, including a stronger US dollar which poses a threat to the competitiveness of Ecuador’s exports, and rising inflation. Both of these could further impact growth. In this context, and in the absence of a significant increase in foreign direct investment (FDI), more public investment could help to prop up growth in 2022 to a certain extent, as the IMF recently indicated.

It is doubtful, however, whether the 7% increase in public investment in 2022 will be sufficient to address widespread accusations that the state has been largely ‘absent’ under Lasso and Moreno. As long as high oil prices and tax revenues continue to generate budget surpluses, Ecuadoreans will likely demand to see this income distributed more widely in the form of public investment and social security. The Lasso government’s key challenge, therefore, will be balancing these demands with its promise to balance the books.

MEXICO | Remittances up. On 1 November, Mexico’s central bank (Banxico) released new figures showing remittances to Mexico reached US$5.03bn in September 2022, an annual increase of 14.1% and up 4.2% in monthly terms. Remittances are on track to exceed the record US$51.59bn sent to the country in 2021, with US$42.97bn sent between January and September 2022, 15% more than the same period in 2021.

MEXICO | GDP growth up in Q3. On 31 October, Mexico’s national statistics institute (Inegi) released the latest figures on its quarterly estimation of GDP growth, showing that economic activity increased 1% in the third quarter of 2022 in real terms, as compared to the previous quarter. This represents the third consecutive quarter of growth.

MEXICO | Unemployment edges down. On 27 October, Mexico’s national statistics institute (Inegi) released its latest national employment survey (Enoe) which showed that the unemployment rate in September 2022 stood at 3.3% of the economically active population, equating to 2m people. This represents a year-on-year decrease of 0.8 percentage points in the unemployment rate. In monthly terms, the unemployment rate decreased by 0.1 percentage point.

MEXICO | 2023 budget passes another hurdle. On 26 October, Mexico’s federal senate approved the draft revenue budget (ILIF), the income side of the 2023 budget proposal, with 65 votes in favour, 44 against, and two abstentions. The ILIF, which has already been approved by the lower chamber, expects revenue of M$8.29trn (US$415bn) in 2023. It is based on a GDP growth projection of 3%, an exchange rate of M$20.6/US$1, and an oil production forecast of 1.872m barrels per day (bpd). It now goes to the executive for promulgation.

Mexico: GDP growth
Percentage variation (year-on-year)

Mexico: unemployment rate
Economically active population

Mexico: inflation rate
Percentage variation (year-on-year)

We made two points about the Russian power struggle last week. The first was that it was real and intensifying, the second was that the difference between Prime Minister Vladimir Putin and President Dimitriy Medvedev might not be as great as it is being portrayed. Further evidence supporting both these conclusions can be found in the resignation of Deputy Prime Minister Igor Sechin as chairman of the state-owned oil company Rosneft.

Medvedev, who is presenting himself as the liberal option for the ruling party in 2012, set out a 10-point strategy for improving Russia’s investment climate on 30 March. The measures include extra protection for minority shareholders, a three-year plan to privatize major state shareholdings, and the removal from compnay boards of ministers and deputy prime-minister who have a regulatory role in the sectors of the companies in question, with a mid-year deadline.

Those affected by the measure concerning ministers include Finance Minister Aleksey Kudrin (bank VTB), First Deputy Prime Minister Viktor Zubkov (agro-business Rosagroleasing), Deputy Prime Minister Sergey Ivanov (nanotechnology business Rosnano), Transport Minister Igor Levitin (Aeroflot), and Energy Minister Sergey Shmatko (hydroelectric company RusHydro, pipeline company Transneft, and gas giant Gazprom).

The speech, in which Medvedev virtually accused major state corporations of corruption, was seen as an attack on Putin and his associates and a further deepening of the power struggle. Sechin, who is one of Putin’s closest associates and thought to have been the chief architect of the downfall of jailed oligarch Mikhail Khodorkovskiy, took the hint and duly resigned on 11 April.

So far, so good. But sources in Moscow say that Sechin’s permanent replacement as chairman of Rosneft is likely to be Sergey Shishin, the vice-president of the bank VTB – and there is nothing reformist or liberal about Shishin. He is a former major-general in the Federal Security Service (FSB) who is said to be close to Sechin, to current FSB chief Alexander Bortnikov, and to his predecessor Nikolay Patrushev. As one commentator put it, Shishin’s appointment would represent a “nominal personnel rotation as a result of which there will be no change in the dominant actor”.

BRAZIL | Rio deputy flees, fearing for his life. A Rio de Janeiro state deputy has fled Brazil along with his family, saying he fears for his life following a series of death threats from local militias (right-wing paramilitary groups comprising active and former military police and fire officers). Marcelo Freixo, 44, of the Partido Socialismo e Liberdade (PSOL) left on 1 November, declaring the militias “a direct threat to public power in Brazil”. The general sense of impunity with which these groups operate was underlined by the assassination in Rio in August of a high-profile judge known for her tough sentencing of militia members. Her death, for which a local garrison military police commander and several of his officers were detained, led to the resignation of the head of the military police in Rio.

Freixo said he received seven death threats in October alone. According to reports, he has a R$400,000 (US$230,000) price on his head. A former member of a Rio-based human rights group, Justiça Global, Freixo was elected to the state parliament in 2006. His brother was assassinated that same year. In 2008 Freixo headed up a state parliamentary investigative committee into the militias, which led to some 500 arrests. Since then, he has had regular threats.

The NGO Amnesty International (AI) organised safe passage for Freixo to Europe, during which time he intends to reinforce his round-the-clock security detail, which includes bodyguards and a bullet proof car. Calling Rio’s militias an “established mafia”, Freixo said they represent “a direct threat to a state of democracy and law. They have already tortured journalists, they have already killed a judge and now they are threatening my life as a congressman”. Freixo, who has mayoral ambitions in the 2012 municipal elections, said he would be back in late November from his temporary exile.

• Militias 

The Rio militias now rival the local drug gangs they originally formed to tackle for sheer criminality, racketeering, drug-trafficking and armed violence. Many local favela residents are more afraid of the militias than the gangs.

Development: On 5 March Chile’s President Sebastián Piñera officially inaugurated the 2012 school year with a declaration that last year’s lengthy student demonstrations amounted to a “second earthquake”.

Significance: Piñera’s comments will not endear him to the student movement, not least high school students, who have already launched a new round of protests. University students may decide to follow suit. The Piñera government is still struggling to find a solution to social protests in the southern region of Aysén.

Key points:

• In his speech, Piñera recalled that the 2010 earthquake and tsunami had battered Chile’s infrastructure, noting that the government had to “roll-up its sleeves” to rebuild the country’s schools. According to the president, three-quarters of these reconstruction efforts have now been completed. “What is really hard to understand is that there was a second earthquake, the damage and destruction caused by the taking of our educational structure”, he went on, in a clear barb at the student protests. “Who can think that by destroying our schools...we are going to improve the quality of education in Chile?”, he asked rhetorically. The progress of the reconstruction effort is contested by the opposition, which claims that the government has not done enough and that the efforts have been concentrated in certain areas for electoral reasons

• High school students have already launched protests in the Santiago metropolitan area, mainly in the municipality of La Providencia, where some 93 state-school students accused of causing damages during the 2011 protests discovered that their enrolments had been cancelled. The students marched to the city hall, demanding to see Mayor Christián Labbé. Labbé did not meet the students, but sent his director of education and social development, Karla Frauenberg, in his stead. Frauenberg, however, said that schools were independent and made their own decisions.

• Separately, Chile’s energy minister Rodrigo Alvarez returned to Santiago after failing to make progress in the negotiations with protestors in Aysén. Ominously for the government, the new president of the University of Chile’s students’ federation (Confech), Gabriel Boric, said that Confech backs the protesters in Aysén and is at their “disposal to collaborate...in demonstrations or in developing proposals”.

PANAMA | Tensiones de seguridad en lo alto. El Presidente Ricardo Martinelli enfrenta una crisis en ciernes después de que las tensiones entre el ministro de seguridad, José Raúl Mulino y el jefe de policía Gustavo Pérez de la Ossa hicieron que el primero presentase su renuncia ‘irrevocable’ el 9 de marzo, sólo para retirarla luego. La riña fue provocada por el rechazo de Pérez de un proyecto de ley apoyado por Mulino para crear un tribunal de asuntos internos para casos contra oficiales de policía. En lo que Mulino describió como un “inaceptable acto de insubordinación”, Pérez salió en contra del proyecto, alegando que “sólo la policía puede juzgar a la policía”. Habiendo servido en la temida unidad ‘anti-terrorismo’ del ex gobernante militar Manuel Noriega (1983-1989), Pérez permanece como una figura controversial [IL-11-50] y su posición hizo poco para apaciguar las constantes dudas acerca de su influencia en el gobierno. Martinelli, quien designó a Pérez en el 2009, buscó desactivar la crisis en ciernes cambiándolo con Julio Moltó, el presidente del consejo nacional de seguridad del estado, del ejecutivo. Martinelli, sin embargo, ha retirado el polémico proyecto de ley.

Another prison riot has raised the number of deaths in Venezuela’s prisons since President Hugo Chávez took office in 1999 to 5,370, of which just under 11% took place since a special ministry for prisons was created in mid-2011. This has been taking place against a backdrop of rising violent crime in the country at large: the number of murders in the first half of this year was the highest on record.

On 19 August a clash between rival inmates in the Yare I prison, south of Caracas, left a toll of 25 dead and 43 injured. According to Iris Varela, minister of penitentiary services, the fracas began when one inmate accidentally fired a gun. The Observatorio Venezolano de Prisiones (OVP) had already reported 16 deaths in Yare I since the beginning of the year. This latest incident comes only a month after the end of an episode at the Centro Penitenciario de la Región Andina (Cepra), where the authorities lost control of the establishment for three weeks, and where NGOs reported that more than 20 people had been killed (the authorities have acknowledged only 12 deaths attributed to health problems).

The OVP reports that the number of deaths among prison inmates since Chávez took office in 1999 has risen to 5,370, and the number of injured to 15,131. In July 2011, after incidents lasting a whole month in the Rodeo I and Rodeo II prisons claimed at least 22 lives and demanded the deployment of 5,000 soldiers, the government created the ministry of penitentiary services, appointing Varela to head it. Since her appointment the OVP has tallied 567 deaths in prisons.

Opposition presidential candidate Henrique Capriles has pounced upon the situation in the prisons as yet another example of the Chávez government’s shortcomings in the area of security. ‘The transformation of the Venezuelan penitentiary system is another great lie,’ he tweeted. ‘After 14 years in government, who are they going to blame? How many more deaths?’

Minister Varela said after the Yare I incident, ‘The prisons are a time bomb. If there are problems out on the streets, what could not happen in a penal establishment where so many people are confined for different reasons?’

But she rejects the criticisms coming from the opposition. She noted that only days earlier there had been a jailbreak ‘with shootouts’ at the Marite prison in the state of Zulia — which is governed by Pablo Pérez, who contended with Capriles for the opposition presidential nomination. It is undeniable that the overcrowding of Venezuela’s prisons remains the principal cause of the repeated breakdowns in their internal security. There are about 45,000 inmates in a system built to hold only 15,000.

With her reference to ‘problems out on the streets’ Varela actually strengthened the opposition’s main argument: that the public security situation has been worsening steadily. On 15 August the Observatorio Metropolitano de Seguridad Ciudadana (OMSC, which monitors the situation in the capital) reported that in the first half of the year there had been 9,510 homicides countrywide, of which 2,305 (24%) took place in Caracas — making this the worst semester on record in both the capital and the entire country. Oddly enough, a Caracas councillor says the most violent month in Caracas, May, coincided with the release of 500 inmates of the La Planta rehabilitation centre.

The OMSC notes that Libertador is still the most violent municipality, with 1,934 homicides in January- June, which translates into a rate of 91 per 100,000 inhabitants (as against 71 per 100,000 for Caracas as a whole).

SECURITY | Massive cargo seized inside Colombian semi-submersible. On 20 September Colombian authorities said they had seized 1.25 tonnes of cocaine inside the semi-submersible captured on Tuesday (19 September). This is only the second time that authorities have seized a semi-submersible load with a cargo of drugs; the previous one was detected in 2008.

POLITICS | Peru anti-mining protest turns deadly. On 20 September police in Ancash, northern Peru, reported that one person had been killed and four wounded during clashes with police during a protest against Barrick Misquichilca SA, a local subsidiary of Canada’s Barrick Gold, which exploits the local Pierina gold mine. According to the US-based Human Rights Watch (HRW), 15 people have been killed in confrontations with the police since President Ollanta Humala took office in July 2011 (prior to confirmation of the latest fatality). José Miguel Vivanco, HRW’s Americas director, yesterday sent a letter to President Humala in relation to the use of force to suppress protests. HRW also holds that 165 civilians and 30 police agents were killed in clashes during the previous administration led by Alan García (2006-2011).

SECURITY | Four Barrera associates captured in Venezuela. On 20 September the Venezuelan attorney general’s office released a formal statement confirming that two Colombian and two Venezuelan citizens had been arrested in the states of Táchira and Portuguesa “after finding convincing elements that link them to the illicit activities of [Daniel] Barrera”. Colombia’s ‘El Loco’ Barrera (Daniel Barrera Barrera) was captured on 18 September in an unprecedented joint operation involving security forces from four countries.  In the latest raids, authorities seized six computers and 12 mobile phones, which may lead to further arrests in Venezuela and Colombia.

ECONOMY | Arreaza calls for debate on gasoline prices. On 9 December Vice President Jorge Arreaza called for the start of a debate on the price of gasoline in Venezuela, which is so heavily subsidised it’s cheaper than bottled water.  In an interview with the private TV channel Venevisión, Arreaza stated: “There needs to be big debates in Venezuela, for example about the fiscal [situation], about the price of gasoline”. He added that the government was going to open consultations with "all sectors, including the business sector", to “discuss actions and policies to definitively balance the economy in Venezuela”.  A litre of petrol in Venezuela costs just over one US dollar at the official exchange rate, and the fuel subsidy costs the government some US$1.5bn a year. However, Venezuelans consider cheap fuel a birthright and memories are still fresh of the fatal riots against government austerity measures – including a controversial fuel price rise – in the 1989 ‘Caracazo’. With oil prices at a record high from 2004 on, the late president Hugo Chávez (1999-2013) had no need to touch the fuel subsidy. However his legacy is a ballooning fiscal deficit (of anywhere between 7% and 15% of GDP, depending on the estimate), after years of uncontrolled spending (and alleged widespread official corruption). This time last year, the former finance and now planning minister Jorge Giordani had also said that Venezuela had to put an end to ‘giveaways’ (‘lo regalado’), including gasoline. However such a move at a time of runaway inflation and a severe domestic economic crisis would be very difficult to sell to Venezuelans of all stripes.

*** Now Taiwan becomes an issue between China and Japan.  As if there wasn’t enough cause for tension between China and Japan, on 17 February 70 Japanese parliamentarians from the ruling Liberal Democratic Party (LDP) met to discuss bringing forward a law that would strengthen economic ties between Japan and Taiwan and which would be analogous to the US’s Taiwan Relations Act.  The group included Prime Minster Shinzo Abe’s younger brother.

China responded with a statement from the foreign ministry saying: “We firmly oppose the attempt to institute a so-called Japanese version of the Taiwan Relations Act by some Japanese lawmakers to strengthen ties with Taiwan.  We express grave concerns about the move.  The Taiwan issue concerns China’s core interests.  It also concerns the political basis of China-Japan relations in handling Japan-Taiwan relations.”

*** Russia agrees with US assessment on numbers of Syrian rebels.  On 17 February, a source in the Russian General Staff confirmed that Russia believes there are 110,000-120,000 rebels fighting the Syrian regime.  The source said: “Our assessment of the number of anti-government formations is about the same as the figures that were recently voiced by the US National Intelligence director James Clapper.”

On the question of foreign fighters in Syria, the same source said: “The most worrying symptom is the rapid growth in the number of foreigners that are fighting on the side of anti-government formations in Syria.  If the rate of growth of their number continues, then Syria could exceed the indicator of Afghanistan, where up to 35,000 foreigners fought against Soviet forces on the side of the mujahideen.”

*** Turkish public support corruption investigation.  The corruption enquiry in Turkey that came to light on 17 December and which has implicated members of Prime Minister Recep Tayyip Erdogan’s inner circle has wide public support.  In a survey published on 17 February, 62.3% of respondents said that they did not believe the probe had an ulterior (anti-government) motive and that they view it as a legitimate judicial enquiry.  Further, 66.7% said that they believed the inquiry had not been allowed to proceed as smoothly as they would like.  In a further sign of public disquiet with the government’s handling of the scandal, 65.1% said that they believe the government is interfering in the judicial process and 63.6% said that they believe the government is applying systematic pressure to the media.  Curiously, however, only 12.1% said that they thought the 17 December bribery allegations would damage the ruling Justice and Development Party’s standing in the country.

Brazil’s state oil company, Petrobras, has cut its investment budget for 2015-2019 by around 25%. On 12 January the company announced that it would invest R$98.4bn (US$24.5bn) over the next four years, down from a June target of R$130.3bn. It’s the third time in six months that Petrobras has reduced its investment target. The decision will have a knock-on effect on the Brazilian economy as a whole. According to a study published last year by the ministry of finance, every R$1bn cut in spending by Petrobras leads to a R$2bn fall in Brazil’s GDP.

June’s projected investment budget was based on an assumption that the price of a barrel of oil would be around US$60 in 2015 and US$70 in 2016-19. Petrobras also assumed that the Real would only weaken steadily, from around R$3.10/US$1 in 2015 to R$3.56 in 2020. In fact, oil is now trading at around US$30 a barrel, its lowest level for 14 years, and the Real is over four to the US dollar. Even now, Petrobras’s projections could be considered hopeful, with the company believing that oil will rebound to US$45 a barrel in 2016 and that the currency will remain roughly stable.

With the largest debt load of any oil company in the world, most of it in US dollars, Petrobras had few options but to cut spending. A plan to divest US$15.8bn in assets in 2015-16, announced in the middle of last year, has so far fallen flat as oil’s global slump has reduced the value of assets in general. On 13 January, the Brazilian media reported that Petrobras is trying to sell its R$5.8bn (US$1.4bn) stake in Braskem, Latin America’s largest petrochemical company. Some analysts have expressed concern that Petrobras could harm future oil production—and, consequently, its cash flows—by cutting spending too much.

The market did not react well to the news. Preferential shares in the company fell over 9% on the São Paulo stock exchange (Bovespa). On Wall Street, Petrobras shares fell almost 6%. Of particular concern is the 26% cut to the company’s exploration and production programme. Before ‘Operation Car Wash’ exposed the corruption at the heart of the company, Petrobras planned to produce 4.2m barrels per day by 2020; its target now is 2.7m bpd by 2020. In 2007, Petrobras was valued at around R$230bn; its market value now is around R$83bn, a fall of 63%.

Vale, Samarco charged
Brazil’s federal police have decided to charge Samarco, Vale and Vogbr, a geotechnical consultancy firm, for their roles in the environmental disaster that followed the collapse of the Fundão dam in Minas Gerais in November last year. The accident resulted in the deaths of at least 17 people and led to a vast tide of toxic mud flowing into the Rio Doce. Plant and animal life along an 800km stretch of the river was decimated, and the future of the communities living along the Rio Doce is now in doubt.

Seven individuals from Samarco were indicted by the police, including the company president, Ricardo Vescovi, as well as senior managers. In a statement released to the press, Samarco expressed disappointment at the decision, pointing out that no conclusive study into the causes of the accident had yet taken place. Vale’s response was more aggressive. “The assumptions of the federal police on the theoretical responsibility of Vale are based on assumptions that have no actual causal link to the accident, as will be demonstrated in a technical and timely manner, by Vale.”

Vogbr declined to comment. It came in for strong criticism last month, when it emerged that as well as holding the contract to monitor the dam’s safety, it had also won work to design an expansion of the structure. Under Brazilian law, such an arrangement is considered a conflict of interest.

• Internet access

Ninety-eight million Brazilians do not have access to the Internet, according to a study by the World Bank. As such, the country ranks seventh in the world for the number of its citizens without Internet access. Still, it comes just behind China, the US, India and Japan for the number of its citizens online. Overall, the World Bank estimates around 60% of the world’s population, or 4.2bn people, do not have Internet access; around 2bn, the report estimates, do not have a mobile phone.

Two days before Christmas, the government led by President Juan Manuel Santos finally got full congressional approval for its tax reform bill, which has now become law. The changes are designed to do three things: to make up for the steep loss in oil and gas revenues suffered since hydrocarbons prices slumped in 2014; to deter international ratings agencies from withdrawing Colombia’s investment grade in 2017; and to lay the basis for increased social spending in the hoped-for ‘post-conflict’ era. It is not yet clear if the law will be able to deliver all of that.

The final version of the tax reform bill was approved in the lower house by 78 to 14 votes, and in the senate by 46-16 in favour, with opposition parties on both the Left and the Right voting against. Possibly the key measure from the business point of view is that Colombia’s extremely high corporate income taxes are being reduced in phases, from a maximum of 43% down to 33% by 2019. The income tax burden is being shifted slightly away from corporates and toward wealthier individuals. In response to widespread tax evasion, the law introduces tougher penalties. Those who don’t pay taxes now face possible prison sentences of four to nine years. For the population at large, the biggest piece of bad news is that the Value-Added Tax (VAT) rate increases from 16% to 19%, although a number of basic products such as food and medications will be exempt (also exempt are bicycles, to encourage a reduction in urban pollution). A government proposal to introduce a new ‘health tax’ on soft drinks was eventually dropped as part of the congressional negotiations on the bill, meaning that revenues will be lower than originally had been planned. On the other hand, proposals to increase the thresholds at which certain taxes begin to apply were also dropped, which will mean a small rise in expected revenue.

Overall, the finance ministry calculates that without the reform, 2017 tax revenues would have been COP126,900bn (US$42.3bn). With the reform, revenues are now projected to be higher by COP6,200bn (US$2.07bn), for a total of about US$44bn. This will help reduce the fiscal deficit, estimated at 3.9% in 2016, down to 3.3% in 2017. But it is clear that the reform falls short of making up for the loss of oil and gas revenues. Depending on assumptions about the GDP growth rate this year, it will boost revenues by less than 1% of GDP.

In comparison, oil and gas related tax revenues represented 3.3% of GDP in 2013 and have now dropped to virtually zero. It is expected that oil prices will recover moderately in 2017, so there may be some small revenue upside from that quarter. But from any perspective, Colombia will remain worse off than it was before the oil slump. The government’s own growth projections are modest. After real annual GDP growth of 3.1% in 2015, officials now expect that economic growth cooled to around 2.0% in 2016, a rate that will pick up to 3% in 2016. Even that may be over-optimistic. Consultancy BDO Colombia says any stimulus derived from the lower corporate tax rate is likely to be cancelled out by the negative effect of the increase in VAT, which will boost inflation and constrain consumption.

It remains to be seen how the ratings agencies will react. Fitch Ratings and Standard & Poor’s (S&P) both assigned Colombia a negative outlook in 2016. Fitch dropped Colombia’s long-term rating to BBB, down from BBB+, just two notches short of non-investment grade. Finance Minister Mauricio Cárdenas told Bloomberg, “we’re going to introduce all the decisions that are necessary to keep our BBB rating”. But Sergio Clavijo, president of Colombia’s Asociación Nacional de Instituciones Financieras (ANIF), has been more sceptical, arguing that the tax reform should have been implemented years ago, as far back as 2012. Speaking before the law was approved, he observed: “It’s going to be vey hard to avoid at least the reduction of one of the two notches keeping us above investment grade”. He suggested that by October next year (2018), “once markets realise that the expected additional tax revenue is coming in too late and too little, one notch will be gone”.

It is also clear that the tax reform on its own will not generate the extra funds needed to meet all the government’s commitments to higher social spending associated with the peace settlement. Nevertheless, President Santos tweeted congratulations to his finance minister and to congress for approving a law which, he said, “will allow more social programs to benefit more Colombians”. In the government’s defence, the process of funding the peace settlement with the country’s left-wing guerrillas will stretch out over various years, and will depend on sustained fiscal and macro-economic management over that period, not on one single tax law. This does not alter the fact, however, that the tax reform itself will be politically unpopular. Finance Minister Cárdenas admitted as such. “I am the first to recognise that it is a difficult measure, which will require a large sacrifice from all Colombians – but it is necessary”, he emphasised.

The so-called bullets, beef and bible caucus is growing in number and stature. Already, they have converted around 300 federal legislators to their cause. Their most outspoken member, Jair Bolsonaro, could become Brazil’s next president. But they are not all-powerful and received a major blow this week when the federal senate snubbed their attempts to liberalise gun laws.

On 8 February, the senate approved an arms treaty to prevent Brazil from exporting arms to countries which violate international human rights laws. Although Brazil signed the Arms Trade Treaty (ATT) sponsored by the United Nations in 2013, this agreement needed the approval of congress to be legally binding. But the bill remained stuck in congress for years, partly thanks to stalling tactics from the bullets, beef and bible caucus. Having finally been approved by both chambers, it now passes to President Michel Temer for promulgation.

Arms trading is a big business in Brazil, as the world’s third largest exporter of small firearms after Italy and the US. The industry is worth around US$591m, according to the latest report from the NGO Small Arms Survey published in September 2017 based on data from 2014. But information about where Brazil’s gun exports end up is difficult to come by, ringing alarm bells for human rights groups. The last time Brazil’s transparency laws for exports were updated was during the military dictatorship (1964-1985).

Brazil also has a strong internal demand for arms. One common misconception is that most of Brazil’s weapons come from abroad, partly thanks to images of gangsters wielding AK-47s splayed on the front pages of major media outlets. In fact, however, 61% of weapons seized by local police are made in Brazil, a 2016 survey by NGO Sou Da Paz, based on public security statistics from four different states, found.

Currently, gun sales are legal in Brazil – but these are strictly regulated. Registered firearm owners can only buy a restricted number of weapons and need to apply for a permit.

Arms must be re-registered with the authorities every five years to check they have not been sold onto the black market. The minimum age for gun ownership is 25 and those who have previous criminal convictions are barred from applying.

In recent months, the bullet, bible and beef caucus has also tried to water down these regulations, with limited success. They argue that carrying a gun is a legitimate form of self-defence, using the refrain: ‘good citizens do not commit crimes, only criminals’.

This argument is refuted by Sou da Paz. In 2015, 72% of lethal deaths in Brazil were committed using firearms, while those carrying a gun were 52% more likely to die than those who were unarmed.

Despite being forced to back down on the gun laws, the bullet, bible and beef caucus can claim one minor victory this week. Temer ceded to their request to create a new department for national security (see sidebar), which should be formalised after Carnival.

This is seen as a bureaucratic change which does little to address public security concerns. One priority for the new department will be to strengthen state police forces. After state police forces suffered from budget cuts and corruption scandals, the army has been acting as a kind of substitute police force in some states since last year.

Brazil seals security accords with Guyana

Brazil and Guyana have signed bilateral agreements to reinforce security to combat narco-trafficking and other transnational crimes at the shared border, and to pool their defence resources. This comes after a visit by Brazil’s defence minister, Raul Jungmann, and a team of cabinet ministers to meet Guyana’s President David Granger.

Talks also turned to the territorial dispute between Venezuela and Guyana over the area to the west of the Essequibo river. The oil-rich area currently belongs to Guyana but Venezuela has urged the country not to begin drilling there until the territorial dispute is settled. Jungmann said Brazil would only accept a peaceful resolution to the longstanding dispute through diplomatic channels. “For the sake of regional stability, any forceful exit cannot be condoned,” he said.

• Crivella and Pães

Rio de Janeiro mayor Marcelo Crivella’s anti-hedonistic stance contrasts sharply with the attitude of his predecessor Eduardo Pães (2009-2017). Pães revelled in Carnival and used it as a platform to boost his publicity, but he is now in jail for corruption. These days, politicians are increasingly being excluded from Carnival as anti-establishment sentiment grows. São Paulo mayor João Doria learnt this lesson when he was humiliated on social media after samba singer Zeca Pagodinho refused to take a ‘selfie’ with him.

• New department for public security

The department for public security will control the police, the national prisons department and government security body, which are currently working under the ministry of justice. The new department will be tasked with developing policies to combat drug trafficking, recover assets hidden abroad, deal with immigration and refugee policy, and defend the consumer in relation to anti-trust matters, according to Justice Minister Torquato Jardim.

ARGENTINA | Drop in industrial and construction activity. Argentina’s national statistics and census institute (Indec) released two reports on 4 April, indicating an 8.5% fall in industrial activity and a 5.3% decrease in construction activity in February 2019 with respect to the same month of 2018. However, both industrial and construction activity showed monthly gains in January and February 2019. The industrial sector had a 4.8% monthly increase in January and a 2.4% monthly increase in February. The construction sector showed monthly expansions of 4.6% and 8.3% in January and February respectively. According to Argentina’s finance ministry, this provides evidence that the country’s domestic economy is recovering.

PARAGUAY | Tax reform. On 4 April, the business associations that make up Paraguay’s technical tax commission (CTET) asked the finance ministry to delay until the end of this month the presentation before congress of a tax reform bill. According to the deputy finance minister for taxation, Fabián Domínguez, increases in the excise tax rate and the value-added tax (VAT) rate for agricultural products are some of the main points still under discussion in the CTET. However, the CTET has reached a consensus on the corporate income tax (IRE) rate and the personal income (IRP) tax rate (figures that have not been made public). Domínguez explained that the ministry could either present to congress a project agreed with the CTET or let the legislature approve tax rates unilaterally, which would most likely lead to higher tax rates.

Manuel Ferreira, Paraguay’s former finance minister (2012-2013), noted that the consensus reached on the IRE and IRP rates was significant enough that the government should reconsider its intentions to increase the excise tax rate due to the current economic slowdown and low public spending. The Unión Industrial del Paraguay (UIP), a sector lobby, has been insisting that tax increases will not be enough to reduce the fiscal deficit if government spending is not reduced. On 10 April, Paraguay’s finance ministry reported that in the first quarter of 2019, 76% of tax revenue went towards the payment of public salaries.

The de facto government led by Nicolás Maduro has decreed yet another huge increase in the minimum wage in Venezuela. The measure will only further feed the hyperinflation that has been decimating Venezuela’s domestic economy for several years and resulted in a dramatic fall in living standards. The political opposition decried the move as another example of the failed economic policies pursued by the Partido Socialista Unido de Venezuela (PSUV) administration. But the opposition remains powerless to stop the government from implementing harmful economic policies that further entrench Venezuela’s economic problems.

The minimum wage increase was announced on 14 October not by Maduro, as is customary, but by Francisco Torrealba, the president of the workers’ commission in the national constituent assembly (ANC), a body controlled by the PSUV that has appropriated legislative powers from the opposition-controlled national assembly (AN). Torrealba said that the minimum salary would increase from Bs40,000 per month to Bs150,000 per month, a massive 375% increase. Torrealba, who did not specify when the salary increase would come into effect, added that with the Bs150,000 ‘cesta ticket socialista’ food bonus paid to workers by the government the minimum monthly income would increase to Bs300,000.

But as impressive as the increase may sound it amounts to just a US$5.58 increase to US$7.60 per month at the official exchange rate (with the minimum wage equivalent to US$15.20). This remains the lowest minimum salary in US dollar terms in Latin America. More problematically, the increase (the third this year) will add further upward pressure on the price of goods in Venezuela, which are already sky-high due to the chronic loss of value of the Bolívar and falling domestic production levels.

Pointedly, Torrealba’s announcement was slammed by Juan Guaidó, the leader of the opposition in the AN and widely recognised interim president. Guaidó noted that, despite the increase, the minimum wage is insufficient to buy a basic food basket. According to the opposition, the price of a basic food basket for an average family (four members) currently stands at US$250, out of reach for those earning the minimum wage.

Opposition deputy Cipriano Heredia said that the salary increase would only produce “an exponential increase in inflation”. Heredia explained that the increase will be funded by printing more money and not by any increase in economic output. “There is no basis for paying these increases because there has not been an increase in production. Today the [domestic] economy is only 20% of what it was five years ago,” Heredia said, adding that any increase in workers’ purchasing power resulting from the minimum wage boost would “soon be diluted” due to rampant inflation.

Venezuela’s central bank (BCV) stopped publishing inflation data last year when it said it stood at 130,060.2%. The unofficial inflation data from the AN puts the accumulated inflation figure to September this year at 3,326%, while the International Monetary Fund (IMF) is predicting inflation of 200,000% this year. At this rate of hyperinflation, local economists pointed out that what a US dollar can buy in Venezuela is now less than previously (by some calculations a dollar now buys only 19% of what it did in 2018). All of this is bad news for struggling Venezuelan households, which have become reliant on the remittances sent to them from abroad, as increasingly these will not be enough to cover even basic necessities such as food and medicine.

Giammattei incident

In addition to criticising the minimum wage increase, Venezuela’s opposition has also slammed the de facto government for refusing Guatemala’s President-elect Alejandro Giammattei entry into the country. Giammattei arrived at Maiquetía international airport near Caracas on 12 October. He was due to meet opposition leader and interim president Juan Guaidó, who invited him to Venezuela to discuss the domestic political situation. But Giammattei was refused entry by Venezuelan immigration officers.

The official explanation was that Giammattei, who holds dual Guatemalan and Italian nationality, was denied entry after he failed to present Guatemalan identification documents, providing an Italian passport instead. Giammattei said that he travelled with his Italian passport as that would allow him to enter Venezuela without a visa. Guatemalan nationals must apply for a visa to enter Venezuela, a process that could take up to two months.

Guaidó accused the Maduro government of denying entry to Giammattei, who does not recognise Maduro as the legitimate president and has called for the staging of general elections in Venezuela, for political reasons. “This is an unprecedented and unnecessary diplomatic aggression against a president-elect who is concerned about the humanitarian crisis… and wants to help Venezuela,” Guaidó said, adding that the aim of the visit was to provide Giammattei with further evidence of the violation of human rights committed by the Maduro administration in Venezuela.

Giammattei also criticised the move and after expressing his support for Guaidó said that once he assumes office on 14 January 2020, his administration will sever all ties with the Maduro administration and work with the Lima Group of Western Hemisphere nations and the Organization of American States to push for the restoration of democracy in Venezuela. Giammattei said that Maduro has turned Venezuela into a “narco-state” that is destabilising all Latin America and that this could not be allowed to continue.

No remedy

The minimum wage increase was also rejected by local business organisations, which argued that it would not help resolve hyperinflation in Venezuela. Ricardo Cusanno, the president of the main business lobby group Fedecámaras, complained that the business sector was not consulted about the increase that is “unsustainable” and has not been accompanied by concerted macroeconomic policies designed to incentivise domestic production and to resolve the problem of loss of purchasing power. Adán Celis, the president of Conindustria, another business lobby, added that far from being a remedy for hyperinflation, the increase will only “feed it, completely destroying purchasing power”.

MEXICO | Banxico lifts growth projection. The central bank Banco de México (Banxico) raised its GDP growth prediction for 2021 to 6.2%, from a previous estimate of 6%, on 31 August. In its April-June quarterly report, Banxico reduced its most optimistic growth prediction for 2021, however, from 7% to 6.7%. It also stressed that “the persistence of certain disruption in global supply chains and the recent increase in the number of Covid-19 infections [in Mexico] means a high uncertainty in the rhythm of recovery”.

Nearly six weeks after President Daniel Noboa declared that his government was “at war” with criminal gangs, questions are beginning to be raised about the authorities’ long-term strategy. Whilst the initial state of exception declared by Noboa on 8 January was due to last for 60 days, it is unclear whether Noboa’s subsequent formal declaration of an “internal armed conflict” will extend the timeline of the nationwide military deployment. As the number of arrests continues to climb, scrutiny is intensifying over the treatment of detainees in prisons which are now largely run by military authorities. On 11 February a judge in the port city of Guayaquil ordered the human rights ombudsman to investigate allegations of torture by military officials in several prisons around the country.

Amid uncertainty over how long the country will remain under these emergency security measures, it is questionable just how many more detainees can be accommodated by Ecuador’s already overstretched prison system. On 14 February the national police announced that 7,925 people had been arrested since the government’s crackdown began in earnest the same day the previous month. The prison system was already overcrowded by 13.45% last year, holding 31,273 inmates according to interior ministry figures cited by national news outlet Primicias. With no sign of a slowdown in arrests, the incarceration rate looks set to climb significantly higher in the coming weeks, piling further strain on the prison system that will only be somewhat alleviated by President Noboa’s plans to build two new supermax facilities.

The plight of detainees is unlikely to elicit much sympathy among a population that remains highly supportive of tough security measures. But prison overcrowding played a significant role in fuelling recruitment by criminal groups and in gangs’ ability to gain control over much of the prison system. Allowing prison conditions to further deteriorate could potentially backfire on the government by leading to more prison riots and massacres of the kind seen repeatedly in recent years – most recently in early January, when over 140 prison staff were held hostage at seven penitentiaries for several days [WR-24-02].

Questions are also beginning to be raised about alleged human rights violations in prisons which are now under military control. On 11 February a Guayaquil judge, Manuel Peña, ordered Ecuador’s human rights ombudsman to launch an investigation into “acts of torture which have taken place in prisons” since the state of emergency was declared. Peña said that soldiers carried out “actions which violate the personal integrity of detainees by submitting them to mistreatment which could be considered torture”. He called on the authorities to provide inmates with drinking water, access to light, food, mattresses, medicines, and personal hygiene products.

Meanwhile, the discovery of a cache of weapons in Guayaquil’s Penitenciaría del Litoral on 12 February – nearly a month after the military took control of the prison – has suggested that the military may not be controlling prisons as tightly as has been suggested. The cache included a submachine gun, two pistols, five sticks of dynamite, and 42 mobile phones, according to a social media post by the armed forces.

Date set for referendum

Many of the Noboa administration’s security proposals will be put to voters in a referendum on 21 April. The national electoral council (CNE) confirmed the date for the 10-question referendum on 14 February. Noboa had originally sought to put 20 proposals to voters but his list of questions was whittled down by the constitutional court, which removed some of the most controversial proposals including the permanent mobilisation of the military against criminal gangs, and measures to shield security personnel from prosecution.

Despite this setback for the government, the referendum still aims to significantly increase the military’s day-to-day involvement in security matters by asking voters whether they support permanently authorising military checkpoints around the country. Other proposals would permit the extradition of Ecuadorean citizens; increase prison sentences for a range of crimes; reduce opportunities for early release from prison; create a new criminal offence for the ownership of firearms reserved for use by the security forces; allow the security forces to use weapons seized from criminals; and allow the state to use assets seized from criminals.

The referendum also contains three proposals which are not related to security matters. These seek to establish new courts specialising in constitutional matters; to accept international arbitration in contract and investment disputes; and to change employment law to facilitate hourly employment options.

For Noboa, the referendum offers perhaps his only chance of making progress on a wide range of issues before voters return to the polls for the next presidential elections in February 2025. Noboa, who is serving out the truncated term of his predecessor, Guillermo Lasso (2021-2023), was always up against the clock in this respect. Putting these proposals directly to citizens in the form of a referendum enables Noboa to circumvent the slow legislative process, but it also shields government proposals from a possible crumbling of his brittle legislative coalition, which spans parties on the left and right of the political spectrum. The cracks are already showing in this coalition, with the leftist Revolución Ciudadana (RC) and the conservative Partido Social Cristiano (PSC) voting against Noboa’s proposal for a three-percentage-point increase to the value-added tax (VAT) rate on 7 February. These divisions will only grow as the coalition’s members focus their sights on the looming election.

Prisoner repatriation plan

A high-level delegation led by Foreign Minister Gabriela Sommerfeld travelled to Bogotá on 14 February for talks with Colombian government officials on the Noboa administration’s plan to repatriate Colombian inmates being held in the prison system. The talks failed to produce a breakthrough that could accelerate the repatriation process; a joint statement announced that the issue would be addressed “in line with…[pre-existing] agreements and internal procedures”.

The crackdown in numbers

On 14 February the national police released its latest update on its actions since President Noboa declared a state of “internal armed conflict” on 9 January. In a social media post, the police said that 7,925 people had been arrested; 2,380 firearms seized; and 96,376 police operations carried out – of which 149 were against “terrorist groups”.

China FTA ratified

Ecuador’s minister for production, foreign trade & investment, Sonsoles García, said on 14 February that the country’s free trade agreement (FTA) with China should come into force within the next 90 days. The FTA was ratified by the national assembly on 7 February with 76 votes in favour, 23 against, and 35 abstentions.

This will enable 99.6% of Ecuadorean exports to enter China tariff-free, and it will enable the export of new products to China including dairy produce, pork, chicken, pineapples, mangos, blueberries, and processed food. In return, tariffs will be lifted on nearly 90% of Chinese imports to Ecuador. Chinese products which will remain subject to tariffs include textiles, tiles, tyres, furniture, sugar, rice, milk, potatoes, and corn.