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Jostling has begun ahead of Panama’s May 2014 general elections. Last month two ministers, José Domingo Arias (health) and Rómulo Roux (foreign affairs), quit in order to compete in the ruling Cambio Democrático (CD)’s primaries which are due to take place on 12 May. The latest polls for the overall presidential race augur badly for the CD with former Panama City mayor, Juan Carlos Navarro (1999-2009), from the Partido Revolucionario Democrático (PRD) and Vice-President Juan Carlos Varela of the Partido Panameñista (PPA) well ahead. There have been other signs of apprehension on the part of President Ricardo Martinelli (who is constitutionally barred from running) regarding his party’s chances in next year’s vote.

As well as Roux, a former minister of Canal affairs (2009-2012), and Arias, the line-up of ten candidates due to compete in the CD primaries features another minister, Giselle Burillo (small and medium business). At the last minute, the CD’s presumptive candidate, Social Development Minister Guillermo Ferrufino, opted to run for Panama City mayor instead – the second most important political position in the country. The decision not to run by Ferrufino, Martinelli’s most popular minister, has been considered by some as a sign that the ruling party is less than optimistic about its chances in the presidential contest. The most recent poll by Dichter & Neira, published on 19 February, puts Navarro ahead with 24% of voting intentions, Varela on 15% and Ferrufino (then still the assumed CD candidate) on 6%. The survey interviewed 1,200 people nationwide between 15-17 February and had a 2.9% error margin. Navarro was confirmed as the PRD candidate in 10 March primaries, while Varela is expected to be formally selected in PPA primaries on 17 March.

The ruling party’s less than favourable prospects might seem surprising given the positive results in the two key areas of the economy and security. For the past two years, Panama has registered the highest economic growth rate of any country in Latin America & the Caribbean (closing 2012 with 10.5% on the latest figures from the United Nations Economic Commission on Latin America & Caribbean (Eclac). The government has also boasted improved security results; Panama’s national system of criminal statistics (Siec) registered 665 homicides in 2012, 94, less than in 2011, bringing the rate to 18 per 100,000 people, the lowest since 2007 (when it was 13.3, on figures from the United Nations Office on Drugs and Crime [Unodc]). While some attribute the CD’s current poor performance in the polls to high living costs, Dichter & Neira’s director, Leopoldo Neira Meléndez, had a different answer: transparency. He noted that just 19% of those polled consider the government to operate in a transparent manner. This perception has been fanned by scandals such as bribery allegations in April last involving Martinelli and Valter Lavitola, a former aide to the disgraced former Italian prime minister, Silvio Berlusconi (1994-1995; 2001-2006; 2008-2011) [RC-12-05] while more recently in January, allegations that Martinelli had links to Financial Pacific, a brokerage house under investigation for insider trading [RC-13-01], further fuelled corruption concerns.

• Anti “floor-crossing” law

Local commentators highlight as evidence of Martinelli’s anxiety about his party’s prospects, the ratification of the so-called “anti-floor crossing law” (bill 550) at the end of January. The law, which Martinelli promoted, allows parties to expel legislators who switch parties once elected to the national assembly and will take effect in July 2014, after Martinelli leaves office. The bill was approved by 40 votes in the 71-member national assembly in which Martinelli’s CD – one of the main beneficiaries of the practice – has 36 deputies (up from the 17 with which it was elected in May 2009).

• Inflation

The cost of living frequently features as the public’s main concern in Panama. In Dichter & Neira January poll, 32% of respondents cited it as Panama’s main problem, above insecurity (19%); unemployment (7%) and public transport (5%). Overall inflation closed last year at 5.8% while the price index of food and drink registered a 7.2% increase.

POLITICS| TC rules on judges’ salaries. On 12 December Peru’s constitutional court (TC) ruled that the government would have to raise the salaries of the country’s judges to bring them into line with those earned by supreme court magistrates, in accordance with the country’s organic law of the judiciary. The ruling comes after years of wrangling between the judicial and legislative branches of the State, and stipulates the release of PEN87m (US$31m) from the government to fund the salary increases. In a communiqué, the judiciary said that the TC’s decision represents a “fair and thorough compliance with the rulings and laws associated with the rule of law”. It also affirmed that the funds for the rise in salaries had been properly budgeted and would not, as the Economy Minister Luis Miguel Castilla and others within the executive had claimed in recent weeks, pose a threat to the country’s finances or trigger inflation. However, the ministry of justice (Minjus) has claimed that the TC’s sentence “cannot be applied” as it contradicts a new law passed by congress on the same day that spells reforms to the judiciary, including terms relating to the salaries of judges.

ECONOMY | S&P cuts Venezuela again. On 13 December the ratings agency Standard & Poor’s (S&P), cut Venezuela’s  sovereign rating for the second time this year, taking it down one notch to B- from B and assigning it a negative outlook. S&P previously cut the rating in June (to B from B+). In a statement the agency noted: “Sharp political polarisation, erratic economic policymaking that exacerbates both the economy’s oil dependence and the prevailing macroeconomic inconsistencies, and weakening external liquidity remain the main constraints to the ratings on Venezuela”. “We expect the results of the December 8 municipal elections to reinforce the recent trend towards more government intervention in the economy, creating greater uncertainty”, it added. Opposition leader Henrique Capriles Radonski at the weekend warned of a “hard year” in 2014, warning of another “paquetazo” (economic adjustment) expected to include another devaluation. The government led by President Nicolás Maduro has also suggested that fuel prices –subsidised (to the point of being practically free) and unchanged in 16 years – may need to go up at some point.

Uruguayan anti-narcotics authorities were delivered a belated Christmas present on 26 and 27 December 2019 in the form of two massive cocaine seizures, together totalling around six tonnes (t). This aptly rounded off a year of important drug seizures, during which a total 12t of cocaine were confiscated according to national daily El País.

Jaime Borgiani, the head of the Uruguayan customs authority (Aduanas), described the 4,418 kilos of pure cocaine which were found in containers in the port of Montevideo on 26 December as the “biggest seizure in Uruguay’s history”. It tops the previous record of three tonnes found in November in a shipment of rice, which was coming from Paraguay and bound for Benin in West Africa. This time the cocaine was hidden inside containers of soy flour which were destined for Lomé, the capital of Togo, via Spain’s Canary Islands.

Uruguay’s navy, which collaborated with customs officials on this, noted that risk analysis, new control measures and the use of a scanner in Montevideo’s port had enabled four soy flour containers to be identified with “anomalies.” During a press conference on 27 December, Borgiani stressed that the Aduanas authorities are now better prepared to face the problem of drug trafficking.

Borgiani’s predecessor, Enrique Canon, was forced to resign last August following large drug seizures in Europe which were traced back to Uruguay [SSR-19-10]. These seizures had also drawn attention to the country’s lax customs regulations (largely a consequence of cost-saving measures), and the Aduanas has been phasing in tougher export controls since 18 November. Customs officials now have the authority to open and physically inspect containers at any point in the export process.

The 4.5t seizure at the Montevideo port was followed by another drug haul on 27 December, this time on a rural establishment near the city of Dolores, 290km outside Montevideo in the south-western department of Soriano, where the soy flour containers had been loaded on to trucks. A further 1.5t of cocaine were confiscated. Overall, the six tonnes of pure cocaine seized over these two days would have been worth an estimated US$1.3m on the European market.

Shipment routes

In the mid-2000s, West Africa emerged as a major transit point in drug shipment routes, notably cocaine, from source countries in Latin America to consumers in Europe (via first transit points in South America such as Brazil, Argentina or Uruguay). Around 30% of cocaine flows to Europe were estimated to come from West Africa in the early 2010s, and there have been recent signs that West Africa is once again a major hub for cocaine trafficking.

Bolivia’s government has placed the scaling up of lithium extraction at the centre of its plans for the remainder of President Luis Arce’s term. Launching an international tender for a public-private partnership, on 30 April Arce declared that acquiring direct lithium extraction technology (DLE) is now a “national priority”.

Speaking at the launch of an international tender for a DLE contract organised by the state-owned lithium company Yacimientos de Litio Bolivianos (YLB), President Arce said that “the 2021-2025 plan for the industrialisation of lithium is now our priority”. He explained that, whilst the completion of paralysed lithium projects was one pillar of the government’s plan, there will be “an additional strategic element” consisting of “adding direct extraction technology that will enable us to innovate and accelerate our inclusion in the industry at a global level”. The deputy minister of industrialisation, commercialisation, transport, and storage of hydrocarbons, Álvaro Arnez, said that the tender would result in a partnership between YLB and a foreign company with DLE technology, and would dramatically scale up Bolivia’s lithium extraction.

DLE selectively removes lithium compounds from water extracted from lakes and underground reservoirs, which proponents say vastly reduces the ecological damage and carbon footprint of extraction projects. The adoption of DLE is part of a broader government plan for Bolivia to produce its own lithium-ion batteries, enabling the country to increase profits from its raw lithium deposits by providing a key component in the growing market for electric vehicles.

Key to manufacturing these batteries is the production of lithium carbonate. The energy and hydrocarbons minister, Franklin Molina, said on 30 April that he expects the construction of an industrial lithium carbonate plant in Uyuni in the southern department of Potosí to be completed in February 2022, after being paused during the administration of interim president Jeanine Áñez (2019-2020). According to YLB, the plant will be capable of producing 15,000 tonnes of lithium carbonate per year.

Vaccine patents

As part of the government’s push for the waiving of patents for coronavirus (Covid-19) vaccines, Bolivia’s deputy foreign minister, Freddy Mamani, announced an international forum on the subject to be held on 13 May. The meeting will include representatives from the United Nations Development Programme and the South Centre intergovernmental association of developing nations. These calls will likely intensify as a catastrophic coronavirus outbreak continues in India – the world’s largest vaccine exporter. Jarbas Barbosa, assistant director at the Pan-American Health Organisation (PAHO), said on 28 April that the epidemic in India could harm Bolivia’s vaccination plans, as the country is due to receive further batches manufactured by India’s Serum Institute over the coming weeks.

Peru’s lithium concessions swap hands

Peru’s lithium and uranium deposits will pass into the hands of the Canadian mining company American Lithium after shareholders of another Canadian firm, Plateau Energy, agreed to their acquisition for US$95m on 3 May. The absorption of Plateau leaves American Lithium with the Falchani and Macusani deposits of lithium and uranium respectively. Falchani is considered to be the sixth largest lithium deposit in the world, containing 4.71m tonnes of lithium carbonate, which the firms said was exciting “at a time of rapidly growing lithium demand in the context of increasing focus on electric vehicles, energy storage and renewable energy generation”. The acquisition comes in the midst of an electoral campaign in which the current frontrunner, Pedro Castillo, has stressed his determination to nationalise Peru’s “strategic resources”.

BRAZIL | Unemployment shows signs of improving. Brazil’s unemployment rate fell to 9.1% in the rolling quarter ending in July, the national statistics institute (IBGE) reported on 31 August. This represents a decrease of 1.4 percentage points on the preceding rolling quarter (February-April), and a drop from 13.7% a year earlier. It is the lowest unemployment rate since the rolling quarter ending in December 2015. “We can observe the continuation of a trend of growth in occupation and significant drop in the unemployment rate,” Adriana Beringuy, IBGE research coordinator, noted. Some 9.9m people are unemployed in Brazil, the lowest number since January 2016. Meanwhile, the average monthly income – which had been falling even as unemployment was improving – increased for the first time in two years, growing 2.9% compared with the preceding rolling quarter (although still 2.9% lower than the average income during the same period in 2021). “The last time there was significant growth [in the average income] was exactly two years ago, in the quarter ending in July 2020,” Beringuy said.

ARGENTINA | Mining exports up in July. Argentina’s mining exports totalled US$291m in July, according to figures released by the ministry for industry and productive development in August. This figure was up 15% year-on-year, and mining exports represented 4.2% of the total value of Argentina’s exports for the month. The total value of mining exports for the first seven months of the year stands at US$2.2bn, the highest value since 2013 and a figure that is up 31% on the same period of the previous year. Argentina’s mining exports have now registered 17 consecutive months of yearly increases. Switzerland (US$79m), the US (US$56m), China (US$38m), and Japan (US$38m) together accounted for 73% of Argentina’s mining exports in July – and 64% (US$1.4m) of the accumulated mining exports in the seven months to July. 

Brazil & Southern Cone: inflation rate
Percentage variation (year-on-year)

Brazil & Southern Cone: GDP growth (%)
Quarterly figures are year-on-year growth

Belize’s public debt as a proportion of GDP has been more than halved from 133% down to 64.1%, according to the concluding statement of an International Monetary Fund (IMF) mission to the country from 2-14 February. This eye-catching statistic came amid a general improvement in the economic outlook as the country emerged from the coronavirus (Covid-19) pandemic.

A combination of factors explains the remarkable reduction in Belize’s debt burden. One is the re-basing of the national accounts which shows GDP has been significantly larger than earlier estimated. This alone cut the official estimate of the public debt burden in 2020 from 133% of GDP down to 101%. Further fiscal consolidation, including a temporary 10% cut in public sector wages and a debt-for-marine protection swap with US-based not-for-profit organisation, The Nature Conservancy, as well as strong GDP growth, brought it down further to 80% of GDP in 2021. In 2022 there was in addition a “material discount” of US$129m (equivalent to 4.4% of GDP) on oil debts owed to Venezuela under its discounted oil initiative PetroCaribe programme, coupled with further economic growth, that took the total public debt burden down to 64.1% of GDP.

Overall, the IMF strikes an optimistic tone about the country’s economic outlook. After contracting by 13.4% in 2020 – the worst year of the pandemic – GDP rebounded by 15.2% in 2021 and by 11.6% in the first nine months of 2022, led by wholesale and retail trade, tourism, and business process outsourcing. Tourism visitor arrivals recovered to three quarters of their pre-pandemic levels. Unemployment halved, but inflation persisted (3.2% in 2021 and 6.3% in 2022) as a result of higher global food and fuel prices despite a government cap on petrol and diesel prices. 

The IMF expects economic growth to moderate as the Covid rebound plays out, with 11.4% expansion in 2022 slowing to 3.0% in 2023, and stabilising at around 2% over the medium term.  It expects medium-term inflation to ease to about 1.2% per annum. The primary fiscal balance will remain in surplus in fiscal year 2022 despite the reinstatement of the 10% cut in public sector salaries and the costs of Hurricane Lisa. The medium-term outlook is for the primary balance to remain at around 1.2% of GDP, with public debt falling to a sustainable 53% of GDP by 2028.

The current account deficit will widen to 8.5% of GDP, but it will be financed by foreign direct investment, meaning international reserves will remain at manageable levels.  The IMF warns, however, that risks to financial stability remain high, with non-performing loans (NPLs) rising from 5% of total lending in the banking system in 2021 to 7% in 2022. The Fund calls on the government to implement structural reforms to boost growth and make it more inclusive and resilient to natural disasters, while remaining vigilant over financial sector risks.

Blue economy

Interest in the blue or marine-based economy has been growing, with various initiatives underway including a World Bank project called Unleashing the Blue Economy of the Caribbean (UBEC) with an initial US$56m phase focused on the Eastern Caribbean. Private sector estimates are that the world ocean economy is worth around US$1.5tn and growing fast. Discussions in the Caribbean have focused on fisheries, tourism, shipping, energy, and natural resources. Proposals have include reducing plastics pollution and using sargassum to generate green hydrogen.

Small islands go blue

Trinidad and Tobago and Antigua and Barbuda could gain significant benefits by developing “sustainable blue economies”. That was the conclusion of a joint report published in March by the Commonwealth Secretariat, the United Nations (UN) Environment Programme (UNEP), the University of Portsmouth, and consultancy Howell Marine Consulting. The report provided a rapid readiness assessment (RRA) of the transition to a greater marine-based economy.

In the case of Trinidad and Tobago the RRA highlighted the role of the oil and gas sector, tourism, and fisheries, and called for more integrated cross-sector ocean polices and legislation. In Antigua and Barbuda, the government is working on a National Ocean Policy; the RRA called for marine spatial planning and better coordination.

El Salvador’s presidential election campaign is eerily silent with less than a month to go before voters go to the polls on 4 February. President Nayib Bukele took leave of absence for six months on 1 December, replaced by his private secretary, to enable him to stand in the elections in accordance with a creative interpretation of the constitution made by pliant magistrates. Bukele, who enjoys a huge lead in the polls, has not made a public appearance so far this year. He did maintain in a radio interview on 3 January, however, that he intended to stand for re-election just once.

Bukele should sweep to power on a tide of popularity, with his party retaining its resounding majority in the legislative assembly. He claims that would be it. “There is no indefinite re-election in El Salvador, and I am not even seeking this, the current law does not allow it and there is no provision for a plebiscite or a referendum to make such a modification,” Bukele said. “I am only authorised to run for a second term,” he added.

There was no constitutional provision for re-election at all - and yet he is standing. The constitutional chamber of the supreme court did his bidding by reinterpreting parts of the constitution and ignoring several articles that categorically ruled out re-election. Before he took office in 2019 Bukele affirmed that “the same person cannot be president for two consecutive terms in El Salvador”. Bukele would argue that his leave of absence means he is standing by that statement, but the kind of constitutional legerdemain required to enable him to stand now raises questions about the sincerity of his assertion that he only intends to seek re-election once.

Homicide rate

“El Salvador ends the year safer than at any time in its history and becomes the country with the lowest homicide rate in the whole of Latin America,” Bukele said after the publication of the official homicide figures for 2023. There were 194 homicides in 2023, the government reported, down 60.8% on the 495 it reported the previous year. The human rights observatory of the Universidad Centroamericana (UCA) of El Salvador put the figure for 2022 at 659. Government figures do not include the deaths of alleged mara gang members in clashes with security forces or the public, which were included in the figures produced by previous administrations.

BRAZIL | Government and markets raise growth forecasts. Brazil’s finance ministry released its latest GDP growth forecast on 13 September, which projected annual growth in 2024 of 3.2%, up from 2.5% in its previous forecast in July. Meanwhile, the central bank (BCB) released the latest edition of its Focus bulletin on 16 September, which contains the forecast of private sector economists. The bulletin had a slightly lower forecast compared with the government’s, projecting an annual growth rate of 2.96% for 2024. This marks an increase from the 2.68% forecast made by the market experts one week earlier and from 2.23% one month earlier.

Despite the rise in forecasts, the BCB released some less encouraging figures on 13 September, showing that the IBC-Br economic activity index, which is used as a proxy to anticipate GDP figures, showed a 0.4% monthly drop in July. This decrease comes after three consecutive months of rising economic activity.

DIPLOMACY | Bolivia and Iran shore up ties. On 19 June in La Paz President Evo Morales and his Iranian counterpart Mahmoud Ahmadinejad inked an agreement to deepen bilateral relations. Diplomatic relations were re-established in September 2007 at which point the Iranians pledged US$1.1bn in financial aid and loans for Bolivia. Ahmadinejad previously visited the country in 2007 and 2009, while Morales has travelled to Iran on two occasions, in 2008 and 2010. The latest agreement includes a 10-point document signed by Bolivia’s foreign minister, David Choquehuanca, and his Iranian colleague, Ali Akbar Salehi, the details of which were not made public, on a 2011-2015 strategy against narco-trafficking and reducing excess coca. The US has expressed reservations about Bolivia’s relationship with Iran.

POLITICS | Colombia’s VP in intensive care. On 19 June a medical team at the Reina Sofía clinic in Bogotá confirmed that Vice-President Angelino Garzón had suffered a “cerebral vascular accident” (CVA) a day earlier (18 June). Following emergency surgery, Garzón remains under observation in the intensive care unit (ICU) at the same clinic. The clinic did not disclose any details of the incident and said that there would be no further updates for 48 hours.

Less than two years after it was threatened with suspension from the main hemispheric political forum in the wake of the political crisis triggered by the impeachment of then-president Fernando Lugo (2008-2012), Paraguay cemented its rehabilitated political regional standing by successfully hosting the 44th General Assembly of the Organization of American States (OAS). That the Assembly managed to deliver some positive results, particularly in the area of human rights, should also earn the government of President Horacio Cartes political credit across the region.

The Assembly, held in Asunción between 3 and 5 June, was attended by the highest number of top-ranking OAS member country representatives since the 39th General Assembly hosted by Honduras in 2009. A total of 28 foreign ministers from the OAS’s 35 member states attended the meeting in Asunción. Only the US and some Caribbean and Central American nations failed to send their ministers. In addition, 39 of the OAS’s 70 observer countries were also in attendance. Among these were the delegations of some major global powers such as the European Union (EU) and China. Meanwhile over 500 representatives of NGOs from across the hemisphere also converged on Asunción to take part in the event.

With such a large number of high-profile attendees, the Cartes administration was not only under pressure to ensure the smooth organisation of the event but also had the often tricky task of establishing an agenda and steering the Assembly debate towards some sort of consensus that could result in a final declaration of significance. It just about managed to accomplish this.

In a bid to avoid any major controversies, Paraguay chose the safe subject of ‘Development with Social Inclusion’ as the central theme for the Assembly. However, it soon became clear that controversy could not to be avoided. This stemmed from two proposals: one by Ecuador calling for a radical overhaul of the Inter-American Commission on Human Rights (IACHR), including moving its headquarters from the US to a Latin American country; and another by Brazil to include a resolution calling for equal access to all aspects of public life for everyone regardless of race, sex or sexual orientation. The proposals divided opinion among OAS members and also sparked large demonstrations, both for and against, by local and regional civil society groups and NGOs.

Human rights organisations from across the region rejected Ecuador’s proposal arguing that it was an attempt to emasculate the IACHR and that it would represent a major step backwards for human rights in the region. Meanwhile local conservative organisations held mass demonstrations against Brazil’s proposed declaration on the grounds that by adopting it the OAS would undermine the traditional values held by many of its member states and seriously damage their existing social fabric (the main concern centred on the possibility that the resolution could be used by civil society groups to lobby for the recognition of same-sex marriage across the hemisphere). This in turn prompted lesbian, gay, bisexual and transgender (LBGT) rights advocacy groups to take to the streets of Asunción in support of the resolution.

All of this produced concern that the disparate views on human rights would only succeed in driving a wedge between the OAS members and ultimately result in an unproductive Assembly. However, after two days of debates, the Assembly approved 50 documents and a final declaration that included 15 new resolutions (three presented by Paraguay) on various issues, among which were watered down versions of the two most controversial proposals. A resolution calling for changes in the way the IACHR functions was included, although only after the call to move its headquarters was scrapped and the proposal to limit its funding relaxed. Instead the resolution calls for the IACHR to hold more sessions in situ, as opposed to at its Washington headquarters. The ‘human rights, sexual identity and orientation’ resolution was also approved albeit with numerous reservations and formal objections from 11 different countries, including Paraguay and the US.

In opening the Assembly, the conservative Cartes called for the member states to “respect, protect and strengthen the integrity of the family unit” in a clear bid to assuage the concerns of those opposed to the equal access of opportunities’ resolution. Paraguay’s foreign minister, Eladio Loizaga, then explained that Paraguay would not back Brazil’s proposed resolution because it considered it to be unnecessary as Paraguay’s constitution already forbids all forms of discrimination (it is also explicitly clear that marriage can only be between a man and woman); but that in any event approval of the resolution should not provide a major source of tension due to the fact that these are not binding.

• Praise

In closing the OAS’s 44th General Assembly, OAS Secretary General José Miguel Insulza praised Paraguay for organising and conducting a “perfect” event. “It has been an absolutely perfect General Assembly from the organisational point of view [...] there have been no shortcomings and this has allowed for good work to be done,” Insulza said. He added that “We were able to discuss many resolutions, some with a certain degree of controversy... [but] I’m convinced that the resolutions that we have adopted will strengthen the Organization”. He then recognised and thanked the Cartes administration for “all the work done to ensure the best for our Organization”.

On 4 March, one US dollar was briefly worth just over R$3, putting the Brazilian currency at its weakest level for over 10 years. The Real’s fall in value was attributed to the decision by the senate president, Renan Calheiros, to block the government’s attempt to pass a tax-raising bill (see previous piece). Speaking to the daily O Globo, the economist Rodolfo Oliveira said, “the government is going to have difficulty making its fiscal adjustment and there will be political barriers in the way.” While the Real was already weakening against the dollar, due to Brazil’s deteriorating economic situation, political uncertainty is now undermining it yet further.

Since January the Real has lost almost 15% of its value against the dollar. Although the new economic team, led by finance minister Joaquim Levy, is attempting a process of fiscal retrenchment, the task is being complicated by Brazil’s sluggish growth, rising unemployment and 7% inflation. As part of the austerity package designed by Levy, the government put forward a provisional decree for the quick approval of congress to eliminate a number of tax breaks. The proposal, due to net the government R$25bn (US$8.5bn), is one of several designed to reduce a budget deficit that almost tripled during President Dilma Rousseff’s first term in office (2011-2015).

The government is now seeking other means of achieving its objective. Although congress can cause the executive a severe headache, the government can still pass significant cost-cutting and revenue-raising measures without the legislature’s endorsement. According to the financial newspaper, Valor, of the R$111bn in savings announced by the economic team, only 22%, or R$24bn, requires the explicit approval of congress. Still, other factors will affect the executive’s ability to force through its programme, not least Brazil’s overall economic performance and the significant possibility of social unrest.

Interest rates up

On 5 March, the monetary policy committee of the central bank (Copom), raised interest rates again by 50 basis points, to 12.75%. The decision was unanimous and means Brazil benchmark interest rate, the Selic, is now at its highest level since January 2009. The note accompanying the decision gave no further information as to the committee’s thinking. A majority of analysts believe there will be a further rate rise in April. Inflation is running at an annualised rate of 7.14%, way above the central bank’s target range of 4.5% plus or minus 2%.

According to a central bank survey, released on 2 March, a majority of economists believe that the economy will shrink by 0.58% in 2015. Analysts calculate that the revised 2014 figures will show that the economy flatlined in 2014, though most are optimistic that there will be a return to growth, of an average 1.5% in 2016. The survey also showed that economists believe that inflation will rise to 7.47% this year. If confirmed, this would be the highest since 2004, when it topped 7.6%.

Data released by the national statistics institute (IBGE) on 4 March showed that industrial output shrank by 5.2% in the first month of 2015, compared with the same period of 2014. Of the 79 sectors surveyed, 60 registered a fall in output. Among the worse performers was the car industry, with a decline of 18.2%.

Consumer confidence also fell to its lowest level since records began (in 2005) at the end of February, according to statistics from the Fundação Getulio Vargas. The consumer-confidence index polls 2,000 families in Brazil’s seven largest cities. It measures their willingness to make purchases of various types of consumer goods and gauges expectations about employment, income and economic opportunities.

Though jobs have held up well despite Brazil’s stuttering economy, that trend is expected to end soon. With severe delays in payment to the companies implementing the government’s infrastructure programme, Programa de Aceleração do Crescimento (PAC), February’s job figures are expected to look grim.

ECUADOR | Expecting negligible 2015 growth. The economy grew by just 1% year-on-year in the second quarter, Ecuador’s central bank (BCE) reported on 30 September. This is the weakest quarterly result for the country since 2007. A 0.3% quarter-on-quarter contraction compared to the first quarter of the year led the BCE to revise down its economic growth forecast for the year (made in June) from 1.9% to a negligible 0.4%. This latest forecast contrasts starkly with the 3.7% growth rate Ecuador posted in 2014 and shows to what extent the dollarised economy has been affected by the fall in international oil prices and the rapid appreciation of the US dollar this year.

Yet government officials including President Rafael Correa have sought to put a positive spin on the disappointing figures. Diego Martínez, the BCE president, said that although it is clear that Ecuador’s economy is experiencing a marked slowdown, it continues to grow, posting positive year-on-year growth figures for the past 22 consecutive quarters. Martínez also said that the quarterly contraction was fully explained by the 4.3% year-on-year fall in activity in the oil sector. Martínez pointed out that activity in the non-oil sector increased by 2.4% in the second quarter on the back of increased household consumption, government spending and exports.

In his weekly TV and radio broadcast on 3 October President Correa admitted that while 2015 is proving to be a “very difficult” economic year for Ecuador, the country would post positive economic growth this year as opposed to some other regional economies, such as Brazil, which are expected to contract. Correa said that the 0.4% growth projection at this point is even better than the regional average, now that the United Nations Economic Commission for Latin America and the Caribbean (Eclac) has said that it expects the region will contract by -0.3% this year. Correa was also adamant that his government would ensure that the poor economic results do not affect Ecuador’s poor. “We have been creating mechanisms all these years to make sure that our economic difficulties (…) do not affect the large majority,” Correa said.

• Inflation creeps up in Colombia

On 5 October Colombia’s central bank (Banrep) released its latest inflation figures. Banrep reported that inflation in September reached 0.72%, higher than anticipated and taking the cumulative inflation rate for the past 12 months to 5.35%, above Banrep’s target range of 2%-4%. Following the release of the figures, Banrep recognised that with the cumulative inflation in the first nine months of the year having reached 4.76% it was unlikely that year-end inflation would fall back within its target range. Last year cumulative inflation was 3.66%, nudging the top end of Banrep’s target range. Since then inflationary pressures have continued.

BRAZIL | Government concludes another leniency agreement. On 31 May, Brazil’s comptroller general’s office (CGU) and solicitor general’s office (AGU) announced that the government had reached a leniency agreement with Braskem, a petrochemicals company and subsidiary of the Odebrecht conglomerate which has been investigated as part of the ‘Lava Jato’ corruption probe. Per the terms of the agreement, Braskem will pay the Brazilian state a total settlement of R$2.87bn (US$739m) by January 2025.

            According to news agency Reuters, Braskem’s board had announced on 27 May that it had signed a leniency agreement with the CGU and AGU and that the company would pay a further R$410m to resolve the case of bribes involving contracts with Brazil’s state-owned oil company Petrobras, building on a 2016 agreement for a US$1bn settlement reached with Brazil’s federal public prosecutor (MPF), the US Department of Justice, the US Securities and Exchange Commission and Switzerland’s attorney general. According to the CGU’s statement, Braskem has already paid R$1.33bn, and will settle the balance of R$1.54bn in six settlements between 2020 and 2025.

             To date, the CGU and the AGU have reached seven leniency agreements with companies investigated for fraud and misuse of public funds (five of which were the result of Lava Jato investigations), with total settlements due amounting to R$8.93bn (US$2.3bn).

BRAZIL | Beef exports to China under threat. On 3 June, Brazil’s agriculture ministry (Mapa) announced that it had temporarily suspended the issuance of certificates for beef exports to China, following the confirmation of an atypical case of bovine spongiform encephalopathy (BSE), commonly known as the ‘mad cow’ disease, in the state of Mato Grosso. Brazil remains free of mad cow disease according to the World Organisation for Animal Health (OIE), but the Mapa was forced to halt beef exports to China temporarily in line with the terms of a bilateral health protocol reached by both countries in 2015. Brazilian beef exports to China will resume after Chinese authorities conclude an evaluation.

            In 2018 China was the largest market for Brazilian beef in value terms, and the second largest (after Hong Kong) in terms of total exports, according to the Associação Brasileira das Indústrias Exportadoras de Carnes (Abiec), an industry association. Between January and April 2019, Brazil exported 95,725 tonnes of beef worth US$442.4m to China – which represents 17.8% of the total quantity of beef exported and 22% of the value of total beef exports during this period.   

PERU | Economic recovery. Peru could be on for “a new historic record” for agro-exports in 2020 “in spite of the Covid-19 pandemic”, according to a statement released by the foreign trade ministry on 11 October. Agro-exports increased by 15.9% year-on-year in August to US$664m, meaning that the previous annual record of US$7.08bn set in 2019 was on course to be broken, the ministry reported. Sales of blueberries surged by 44% to US$112m and avocados by 39% to US$114m. Overall exports, however, were down by 19% year-on-year in August to US$3.02bn, and by 23.4% (US$22.97bn) over the first eight months of the year.

A recovery of the mining sector is necessary to drive economic growth. Gold exports increased by 20% in August compared with July and silver by 19%, while copper exports are almost at pre-pandemic levels, the energy & mines minister, Luis Miguel Incháustegui, reported last week. But Incháustegui conceded that copper production levels would be down in the final quarter of the year after falling by 2.5% in August month-on-month.

Incháustegui said production had fallen in August due to staff shortages. He said that some companies had reported a significant number of Covid-19 cases and had to suspend activities in the early stage of the pandemic, such as Antamina, a giant copper, zinc, silver, lead, and molybdenum mine in the north-eastern region of Áncash, but had resumed operations. Incháustegui expressed his confidence that the mining sector would be fully operational by November or December this year after reporting that almost 4,193 employees had been infected with Covid-19 up until 19 September.

Uruguay’s long planned referendum on President Luis Alberto Lacalle Pou’s omnibus reform bill, known as the Ley de Urgente Consideración (LUC), was narrowly won by the government with a likely positive impact on the economy.

The referendum was held on 27 March. At stake were 135 of the 436 measures included in the LUC, and first approved when President Lacalle Pou took office two years ago in March 2020. The left-wing opposition had called the referendum to revoke reforms it disagreed with, including those related to fuel prices, labour reform, education management, and a fiscal responsibility law. In the end the challenge was narrowly defeated. The ‘no’ vote (against repeal) reached 49.8% against 48.8% for the ‘yes’ vote (for repeal). A total of 1.2% of ballots were spoiled.

The result is best seen as qualified vote of confidence in Lacalle Pou’s economic policies. Voting totals were very similar to those in the closely run second round presidential ballot in November 2019. Given that two years have passed in which Lacalle Pou has been following a conservative fiscal agenda and cutting public spending, the polls suggest his popularity is holding up surprisingly well (a recent opinion poll showed his approval ratio at 52% with 28% disapproval). Despite ongoing political opposition, his administration is therefore likely to press on with plans to increase competitiveness and reform social security.

In general terms the referendum result is expected to underpin the economic recovery, already assisted by the end of restrictions related to the coronavirus (Covid-19) pandemic – in early April Lacalle Pou said he was about to repeal the Covid-19 health emergency decree after 752 days in force.

Data from the central bank (BCU) released in late March shows that the economy bounced back with 4.4% growth in 2021, after a contraction of 5.9% in the pandemic year of 2020. Fourth quarter 2021 GDP was up by 5.9% year-on-year, with strength across the board, but particularly noteworthy in commerce, manufacturing, construction, and agriculture and livestock. Aldo Lema of Vixion Consultores says there will be a statistical carryover effect, with a “floor” level of 3.6% growth expected for this year. For its part the ministry of economy and finance is predicting growth of around 3.8% for this year.

If there is a fly in the ointment, it is inflation, which is causing concern in the centre-right ruling coalition. Significantly perhaps, the government has not persisted with one of the LUC reforms targeted by the left – a clause requiring domestic fuel prices to be tightly linked to international energy price movements.  Given the international price shocks and supply chain difficulties that have been set off by the war in Ukraine, the government is giving itself a little more wiggle room.

Inflation in the 12 months to March rose to 9.38%, above the BCU’s target range, a band between 3% and 7%. Officials think that in the next few months the inflation rate may push above the 10% mark. To try and restrict price rises the BCU has increased its benchmark interest rate to 8.5%, up from 7.25%. Worried by rising fuel prices the government has also temporarily suspended VAT on bread and pasta products.

Undeterred by its referendum setback, the Frente Amplio left wing opposition is pressing for early meetings of wage councils (the tripartite bodies that help shape pay deals). The labour ministry has acknowledged that there have been falls in purchasing power which it now wants to reverse. The challenge will be to find a way of easing the cost-of-living squeeze without setting off a new price-wage spiral.

As US multinational bank and financial services corporation Citigroup Inc moves ahead with the sale of its Banamex unit, on 23 February it announced it had agreed to sell an additional 24% stake of the Mexican retail bank worth around US$2.5bn to several new investors.

The investors include US private equity firm General Atlantic, Brazilian investment bank Banco BTG Pactual, and Afore Sura, the Mexican pension fund of Colombia’s Sura Asset Management, as well as funds managed by US-based Blackstone and Liberty Strategic Capital, and the Qatar Investment Authority, Qatar’s sovereign wealth fund. The co-chief executive officers of Mexican media conglomerate Grupo Televisa, Alfonso de Angoitia and Bernardo Gómez, were reported to be among the Mexican family offices taking stakes.

“We are honoured to have the backing of these buyers as we prepare for Banamex’s proposed initial public offering [IPO],” said Ernesto Torres Cantú, head of international at Citi, of the sale which will bring its nearly 25-year ownership of Banamex to a close as it pulls out of its non-US retail banking businesses as part of an ambitious restructuring. “Their investment is a further endorsement of Banamex’s long-term strategy, market leadership and growth prospects, and their commitment solidifies Banamex’s foundational position within Mexico’s banking system,” he added.

The first phase of the spin-off took place last year, when Citi sold a 25% stake to Mexican billionaire Fernando Chico Pardo, who became the chair of Banamex’s board of directors and its largest individual private shareholder [EB-25-11]. The February sale was at a small premium to the initial stake sold to Chico Pardo, who has said he will lead Banamex with his sons, and participated in the selection of the new investors.

While Citi is planning an eventual IPO of its remaining stake in Banamex, there will be no additional sales in 2026 to allow “time to drive value creation” for the investors. With each one limited to a maximum purchase of 4.9% of Banamex shares, the transactions are subject to regulatory approval in Mexico and are expected to be completed this year.

General Atlantic

“We see Banamex as a foundational pillar of Mexico’s financial ecosystem, uniquely positioned to play a leading role in the country’s ongoing advancement and growth,” said Luis Cervantes, a managing director at General Atlantic, which acquired the largest stake among the new investors.

Since taking office in May, Costa Rica’s new government led by President Laura Fernández, the protégée of her predecessor, conservative populist Rodrigo Chaves (2022-2026), has announced various security measures as well as progress regarding the construction of a new maximum-security prison, Centro de Alta Contención de la Criminalidad Organizada (Cacco). Inspired by the notorious Centro de Confinamiento del Terrorismo (Cecot) in El Salvador constructed under Fernández’s ally, authoritarian President Nayib Bukele, the new jail forms the centrepiece of her hardline stance. The government’s new measures and its commitment to forging ahead with Cacco are in line with Fernández’s election-winning campaign pledge to tackle insecurity, with Costa Rica having faced soaring homicides in recent years, attributed to the presence of drug trafficking organisations [SSR-26-02]. It is the latest sign of the pivot from security policies pursued under Chaves’ predecessors, which had focused on social prevention and increasing the police presence.

In a 1 July update, Justice Minister Gabriel Aguilar said that construction of Cacco was 64% complete. Located in Alajuela province, the new high-security prison, construction on which began under Chaves (now serving as Fernández’s minister of the presidency and finance minister), will house 5,100 inmates when complete. Aguilar also revealed that prisoners would be required to wear orange uniforms, reviving a practice that Costa Rica has not used in its prison system since the 1970s. He was cited by the media as saying that the uniforms, which would enable prisoners to be more easily identified, would be produced by inmates at the women’s facility Vilma Curling Rivera, also known as El Buen Pastor, which is in the capital San José, with materials donated by private companies, meaning these would be produced at no extra cost to the State.

The progress update on the Cacco, which followed an earlier announcement regarding plans to more generally toughen conditions in prisons, came two weeks after President Fernández unveiled a legislative package aimed at tackling insecurity. Announced on 15 May, these reforms include the so-called ‘Gerson Rosales law’ (named after a member of the national police force, Fuerza Pública [PF], killed in the line of duty on 13 May), which seeks to strengthen legal protection for the PF. These include the presumption that officers’ use of force is justified when performing official duties. Under a further reform, participation in criminal organisations would become a criminal offence punishable with a prison sentence of 1-6 years, rising to 6-20 years depending on the role played in the organisation and the crimes in question. Fernández is also proposing stiffer penalties for repeat offenders and an expansion of prisoners’ participation in paid productive activities, citing a monthly cost to the prison system of US$1,000 per prisoner.

• Tougher prison conditions

On 25 May President Fernández revealed plans to further toughen prison conditions with a legislative initiative which proposes making audio and video recordings of visits received by inmates in prisons. She also said that the authorities had identified 260 criminal structures comprising 4,300 gang members in the country, and that police chiefs would be subject to polygraph tests – a policy which led her on 22 June to announce the dismissal of seven top officials (whose identities were not revealed) after they failed the tests.

Insecurity remains the chief public concern

In a poll published on 6 May by the Centro de Investigación y Estudios Políticos (Ciep) of the Universidad de Costa Rica (UCR), 49.5% of respondents listed insecurity and crime as their main concern, up from 45% in the previous Ciep poll in September 2025, and the highest level in any Ciep poll on record.

Far behind in second place was corruption (10.5%), poor governance (6.2%), and drugs and narcotrafficking (5.3%). The same survey showed that 59.2% of respondents thought that the new government led by Fernández, who served as Chaves’ minister of the presidency (2024-2025, 2026) and planning (2022-2025), would be an improvement on that of her predecessor. 

For over three decades Chile has been governed by a succession of mainly moderate centre-left and centre-right coalitions. Like Costa Rica in Central America, Chile in the South American context has a reputation for strong democratic institutions and low levels of political or criminal violence. Yet it is also the case that concerns over violence and crime have been increasing and that Chilean voters have become increasingly alienated from what they see as a self-serving political establishment. The election of the far-right José Antonio Kast in late 2025 is therefore seen as an important break with the past.

It is important to remember that Kast’s election was preceded by six years of what, by Chilean historical standards at least, was a period of extraordinary political turmoil. The starting point was the Estallido Social that began in October 2019 when students demonstrating against transport fare increases triggered nationwide protests over inequality, pensions, healthcare, education, wages, and what were seen as the privileges of the embedded political elite. The protests swept the country leaving a death toll of over 30, along with thousands of injured.

At the time, the right-wing government of President Sebastián Piñera had responded by declaring a state of emergency. It rapidly found itself, along with almost all the other major political parties, having to agree to a process of major constitutional reform. A new constitution was widely seen as a chance to revisit and rebuild basic rules of social co-existence and a shared understanding between all members of the community. There were in fact two attempts at fundamental constitutional reform, one led from the left (2022) and one by the right (2023). Both were ultimately failures, taking Chile back to square one and to reliance on the existing 1980 constitution, written during military rule but subsequently heavily amended.

The first attempt at reforming the constitution by electing a constituent assembly was approved by 78% voters in an “entry referendum”. The elected assembly that later emerged was dominated by left-wing, environmental, and indigenous lobby groups. It produced a radical, “progressive” constitutional draft which in the end went much further than public opinion was prepared to travel. As a result, in the “exit referendum” of September 2022 a majority of 62% of the country’s voters rejected the new draft. The government reacted by repeating the entire process with shorter deadlines and different, tighter criteria for the election of constituents, and a greater role for constitutional lawyers and experts. A much more conservative draft constitution then emerged which this time also failed to convince public opinion. In the “exit referendum” of December 2023 this too was rejected, by 56% to 44% of the total vote. Many analysts have concluded that “middle Chile” turned away, losing its appetite for change. From this viewpoint constitutional reform is now likely to be off the Chilean political agenda for a decade or more.

The complex and exhausting constitutional debate was played out in parallel with Chile’s familiar left-right political cycle. The coalition of right-wing parties, incumbent at the time of the Estallido Social experienced a sharp drop in popularity. By the same token Chile’s left-wing coalition seemed to be riding a wave of popular support. Indeed, the 2021 elections delivered victory for Gabriel Boric, a former left-wing student activist who became Chile’s youngest president. There were other important and contrasting developments. The Chile Vamos coalition of traditional right-wing parties, tainted by the memories of its mishandling of the Estallido Social, performed very poorly. Its nominated candidate, Sebastián Sichel, came fourth in the first-round ballot with 12.79% of the vote. Second, in what could be described as an early warning of an emerging change of mood in the country, Kast of the far-right Partido Republicano (PR) experienced an unprecedented surge of support to become the most-voted candidate in the first round, with nearly one third of votes cast (27.91%). Second place went to Boric with 25.82%, and third to Franco Parisi, a populist, with 12.81%.

The scene was therefore set for Boric and Kast to fight the second-round ballot in late 2021. In this poll Boric emerged victorious with 55.87% of the vote, defeating Kast who received 44.13%. In short, the 2021 election confirmed the advance of the left while showing that an important repositioning was taking place on the right, with Kast presenting a new and more radical version of conservative “anti-establishment” thinking. In power, Boric’s popularity reached something of a high-water mark in the early stages of his presidency but deteriorated rapidly thereafter as his government struggled with internal disagreements, issues of crime and security, and disappointing economic growth rates. With the benefit of hindsight, the constitutional deadlock did not help him at all.

It was only at the very beginning of Boric’s presidency that his approval rate exceeded those disapproving. By March 2025, the beginning of his last year in office, Boric had a 29% approval rate, which was dwarfed by a massive 64% disapproval rare, as measured by pollster Cadem.     

Kast had a difficult start to his presidency. He came to office arguing that he needed to lead an emergency government focused on three priorities: security, immigration, and economic recovery. The new government did in fact claim progress in all three of those areas with short-term reductions in the homicide rate, new physical barriers built on the northern frontier (including a ditch), and a “mega reform” of economic policy approved in congress. Progress was also made on a new draconian security reform designed to give the government increased emergency powers.  

Yet the administration also seemed at times disunited and disorganised. After only two months in office the new president was forced to conduct his first ministerial reshuffle, replacing his security minister who had publicly admitted that despite all the electoral promises made, the new government lacked an operational security plan. An abrupt removal of fuel subsidies along with the promised government spending cutbacks did not help the new president’s popularity. An ill-advised attempt to censure a former economy minister backfired and was rejected by congress. On the campaign trail Kast had promised to forcibly arrest and expel all undocumented foreigners in the country (estimated at around 360,000). In office, however, he said that such illegal immigrants would instead be “invited” to leave voluntarily and contribute to their travel costs.

Opinion polls captured the critical mood. Since inauguration in March Kast’s approval rating plunged by 20 percentage points to 36% in May according to Cadem. After reaching his first 100 days in office Kast’s approval rate stood at 44% with a higher disapproval rate of 53%. Respondents were asked what his main campaign promise had been: 44% said it was tackling insecurity, while 30% said it was pushing back irregular migration. When asked if the government had a concrete security plan, 36% agreed while 64% disagreed. Support remained strong for the ‘Plan Escudo Fronterizo’ (Border Shield Plan) however, with 57% approving.

Among political analysts there were mixed responses. Marco Moreno of Universidad Central de Chile, a private university, told Chilean current affairs radio programme ‘Palabras Sacan Palabras’ in June that the president’s initial political credit was beginning to run out. Kast, Moreno said, had promised order, decisiveness, and speed, but voters were questioning whether that was producing tangible results.

Osvaldo Rosales, the director of the international trade and integration division at the United Nations Economic Commission for Latin America and the Caribbean (Eclac),  siad in mid September that it was “fundamental” that the region’s two largest economies, Mexico and Brazil, increase economic integration in order to boost regional trade.

International trade is still suffering from the global slowdown, with developed world demand remaining weak. Eclac, along with international economic organisations, is concerned that diminishing levels of overall trade will only hinder the global economic recovery and so is advocating for emerging economies to boost trade with each other. Traditionally, the volume of intra-regional trade in Latin America has been low, as most countries concentrated on trading with developed economies. Compounding this, the onset of the global economic crisis saw the re-emergence of protectionist practices, particularly in South America, as some countries attempted to insulate their domestic markets. Such practices have hampered intra-regional trade. Rosales’s comments are part of the latest attempts to convince Latin American countries that liberalising trade is one way to ensure not only the region’s future growth but also possibly the recovery of the global economic recovery.

According to an Eclac report released in mid September, as demand for Latin America’s products soared over the last decade, exports from the region grew by an average 20% per year, the largest increase in exports in the world. However, this scenario is quickly changing. Eclac’s executive secretary Alicia Bárcena has pointed out that trade is “the main channel of transmission of the crisis” and exports to Europe, Latin America’s largest trade partner, decreased by 5% in the first half of this year. Eclac estimates that Latin American exports in 2012 will only increase by 4%, a big drop when compared with the 23% increase recorded last year. Despite this, Eclac believes that Latin American exports will continue to grow, even if at a slower rate of 5% a year, meaning that the region is still one of the most dynamic when it comes to global trade.

Eclac pointed out that a lot can still be done to unlock the region’s trade potential. Latin America still sells the majority of its exports to a very limited number of clients. Over 60% of exporting firms in the region sell a maximum of three products to an equal number of destinations, while only 4% sell 10 or more products to a dozen other countries.

The report also found that the region’s exports are still dominated by just a handful of firms and products. The number of export firms is less than 1% of the total registered companies in countries such as Mexico, Brazil, Chile, Colombia, Peru and Ecuador. Many of these firms are owned by the State or by a small number of individuals, and some retain as much as 70% of export earnings, which prevents profits from trickling down into the wider economy and having a more positive impact.

Rosales said that closer economic ties between Mexico and Brazil would improve the economic perspectives of all Latin America by promoting regional integration and opening up new and better trade opportunities, which could lead to new business partnerships and attract even more foreign investment. Mexico and Brazil represent two-thirds of the region’s economy and, according to Rosales, increased trade between them would help regional integration since “without a doubt, other regional integration schemes will also be involved”. Mexico and Brazil are members of different regional economic integration blocs. Brazil is a founding member of the Southern Common Market (Mercosur), while Mexico is not only a member of the North American Free Trade Agreement (Nafta) but also of the emerging Pacific Alliance and it has recently consolidated a Free Trade Agreement with its Central American peers.

Rosales’s comments came just a day before Mexico’s President-elect, Enrique Peña Nieto, arrived in Brazil as part of his Latin American tour. Throughout his tour Peña Nieto called for increased trade between Mexico and the rest of Latin America, declaring that “free trade is the way to make Latin America a more important global economic actor”.

Things may also be changing within Mercosur, which is seen as increasingly protectionist due to trade restrictions imposed by the largest partners, Brazil and Argentina. However, these have also affected exports within the bloc and all the Mercosur founding members have complaints about their fellow members. The partners are now looking for creative ways to revert this situation, albeit bilaterally rather than within the still underdeveloped Mercosur framework.

On 13 September, Argentina and Uruguay signed a letter of intent agreeing to create a bilateral payment system in local currencies to avoid some of the foreign currency controls imposed by Argentina. Brazil has also made important gestures to Uruguay: after promising to assist in the construction of a new deepwater port on the Atlantic, Brazil said it would seek to establish a “more ample” bilateral market. The rumour in Uruguay is that the two countries are negotiating the establishment of a ‘bilateral free trade zone’ somewhere on their shared border. Incidentally, on 20 September a cargo ship completed the first ever journey from Puerto Cabello, Venezuela, to Montevideo, Uruguay.

• “The region’s exports are still dominated by just a handful of firms and products. The number of export firms is less than 1% of the total registered companies in countries such as Mexico, Brazil, Chile, Colombia, Peru and Ecuador. Many of these firms are owned by the State or by a small number of individuals, and some retain as much as 70% of export earnings, which prevents profits from trickling down into the wider economy and having a more positive impact.”

The ruling Democratic Labour Party (DLP) came to power in Barbados in 2008 and it secured re-election in a close-run contest with the Barbados Labour Party (BLP) in February 2013. In last year’s poll, the electorate marginally preferred Prime Minister Freundel Stuart’s promise of “stability through austerity” to the BLP’s expansionary promise of “a fundamental change in macro-economic policies” and a rejection of the “IMF-type model”. With the December 2013 announcement that 3,000 civil servants are to be laid-off by March 2014, the electorate is getting what it voted for, including an IMF-type model.

The IMF was in Barbados for an Article IV consultation from 3-13 December 2013. Following the visit, IMF mission chief Nicole Laframboise gave a gloomy assessment, saying “the Barbados economy continues to face considerable economic challenges…Weak exports and tourism arrivals, slow growth, and expansive fiscal policy have led to a sharp increase in public debt and fiscal financing pressures”.

One significant factor highlighted by the IMF was that the central government wage bill had risen to 10.3% of GDP in 2012/13. It noted that this was the highest in the region, and that this together with interest payments “limits room for investment spending”. It was in response to this that Finance Minister Chris Sinckler announced on 13 December that at least 3,000 civil servants were to be laid off by 1 March 2014.

The necessity for change was further highlighted on 20 December when Moody’s Investors Service gave Barbados a two-notch downgrade, from Ba1 to Ba3, citing poor economic growth, rising fiscal deficits, an increasing liquidity risk for the government reflected in its greater reliance on short-term funding, and the sharp decrease in foreign-exchange reserves.

After zero growth in 2012, the economy fell back into recession with a 0.7% contraction in the first nine months of 2013. The fiscal deficit rose sharply from 4.4% of GDP in March 2012 to 8% in March 2013 and looked likely to reach 10% this year. The public-sector layoffs are part of a plan to get the deficit down to 3.3% of GDP by 2014/15. On the question of the risk to liquidity, the government’s short-term debt is now running at 27% of GDP compared with 18% in 2012, 14% in 2011, and 7% in 2008. The deterioration is obvious. And on the foreign-exchange front, reserves were down by 30% in the first nine months of 2013 as the current account deficit moved up to 9.3% from 4.8% during the same period of 2012.

Moody’s warned that “Barbados’s rating would face further downward pressure in the event that the government is unable to achieve its fiscal consolidation targets, or if growth continues to underperform the government’s expectations, and debt ratios continue to rise as a result”.

The prime minister has tried to sugar the blow of the public-sector lay-offs as much as he can, saying that the government will not just “sit down and by the elegant flourish of a pen or pencil throw people’s lives into disorder”. He has promised: “A careful analysis will be done and we will try to make sure that this process is run as smoothly as possible, that households are disrupted minimally but that the government’s objectives are achieved”.

The difficulties involved in the task were highlighted by the decision on 14 January to postpone the announcement of who was to lose their jobs. Stuart said: “Because of the constraints under which we have had to operate in even generating the list…the Ministry of the Civil Service has taken a little more time…[and] we target now the end of the month.” But, he added, “that deadline though is not negotiable”.

The former diplomat and veteran commentator Ronald Sanders has warned that the difficulties being faced by Barbados are of concern not only for Barbados but for other members of the Caribbean Community (Caricom) for two reasons. Firstly, Barbados has long been held up as “the model of good governance and stability in the Caribbean” and so “the region will suffer on the perception that if matters have reached a sorry pass in Barbados, it must be a lot worse in other countries”.

The second reason is the fact that Barbados is the second largest importer of Caricom goods, and a cut in Barbados’ demand for goods (resulting, inter alia, from the lay-off of over 3,000 public servants and consequential job losses in the private sector) will “have an impact on the quantum of Barbados’ imports from Caricom countries”.