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BRAZIL | Strong internal demand increases commercial sales. The share of commercial sales in Brazil increased by 0.6% last January compared to a 0.4% decrease the previous December, the national statistics institute IBGE announced. In comparison to January 2012, sales rose by 5.9%, thus confirming that internal consumption remains the key driver of the Brazilian economy, reducing the effects set off by the continuing global recession, as internal demand has compensated for the fall in exports due to lower global demand.

    Seven out of 10 kinds of surveyed products being sold recorded positive growth amounts; for example, office, computer and communication equipment sales grew by 18.5%; pharmaceutical and medical goods, cosmetics and toiletries grew by 3.1%; and construction materials grew by 1.3%.

    Conversely, there was a 1.6% decrease in sales of vehicles and motorcycles, parts and accessories, and a 2.6% decrease in furniture and household appliances. In comparison to January 2012 though, all 10 sectors registered an increase in sales, and the hypermarkets, supermarkets, food products, beverages and tobacco was considered the most important increased sector, with a 3.4% recorded growth.

    In 2012, sales in the finished goods market grew by 8.4%, despite the overall low GDP growth of that same year, that was 0.9%, compared to the 2.7% growth of 2011, and the 7.5% growth in 2010. The IBGE report stated that the increase in food product sales was largely related to the general increase in wages across the country as well as continued employment stability.

    According to employment statistics gathered by the IBGE, the 2012 unemployment rate in Brazil was 5.5%, the lowest rate seen since 2002. The average unemployment rate in January 2013 stood at 5.4%.

*** INCB 2011 DRUG REPORT. The latest International Narcotics Control Board annual report was issued on 28 February. In its analysis of regional developments, it noted that, while Central American countries have continued to gain in importance as trans-shipment areas, the Caribbean has become less important as a trans-shipment area for smuggling drugs into North America. According to the INCB, “that appears to be attributable to increased maritime control in Central America and the Caribbean”. However, it adds that Caribbean countries are “playing an increasing role as secondary distribution points for cocaine shipments destined for Europe”.

Of the Caribbean countries, Jamaica is singled out as having vulnerable borders which have allowed increasing infiltration by criminal networks “which use Jamaica as a transit country and a country of destination for smuggling drugs, firearms, ammunition, and migrants”. As a consequence, Jamaica’s importance as a “country of departure” for cocaine shipments has increased. In 2010, 1,217kg of cocaine was seized in Jamaica compared with only 44kg in 2009.

As far as consumption is concerned, cannabis remains the major problem. There are approximately 2.1m cannabis users in the Caribbean, and prevalence rates for cannabis abuse in 2011 range up to an astonishing 17.5% in Dominica. Among students, the average age of first-time abusers of cannabis in 12 Caribbean countries is 13 years.

*** TRINIDAD & TOBAGO ON GROWTH TRACK. Following the completion of its 2011 Article IV consultation on Trinidad & Tobago, the IMF has said that it expects the economy to grow by 1.7% in 2012 following a decline of 1.3% in 2011, no growth in 2010, and a significant decline in 2009. Unemployment is 5.8% and inflation 5.3%. The IMF has said that the near-term focus of fiscal policy needs to be on reviving economic activity. Downside risks include the global economic environment and uncertainty about gas prices.

*** TOURISM ARRIVALS UP. The Caribbean Tourism Organization (CTO) says that stay-over guests totalled 23.8m in 2011, an increase of 3.3% over 2010. Cruise passenger arrivals were largely stagnant at 20.6m (up just 0.3%). As regards country of origin, Canadian arrivals were 6.8% up over 2010, US arrivals up 1.7%, and arrivals from Europe up just 0.6%. As for 2012, the CTO says: “Arrivals to the Caribbean are not expected to exceed a 3% increase in 2012, and visitor expenditure is also not expected to grow meaningfully during this year.”

*** CONSTITUTIONAL RUMBLINGS IN GUYANA. Guyana’s People’s Progressive Party/Civic (PPP/C) won re-election in November, but it lost its parliamentary majority for the first time in 19 years. As the majority party it chose the president – Donald Ramotar. The final count was 32 seats for the PPP/C, 26 for A Partnership for National Unity (APNU), and seven seats for the Alliance for Change (AFC). The PPP/C’s chief whip Gail Teixeira is now complaining that the APNU and the AFC have been combining in parliament to disregard basic conventions “saying all the time that they are a majority and trying to put the government out of government”. Teixeira has warned that opposition behaviour is taking Guyana’s parliament into “uncharted waters”.

*** BELIZE GOES TO THE POLLS ON 7 MARCH. The ruling United Democratic Party (UDP) led by Prime Minister Dean Barrow won the February 2008 election with a landslide, taking 25 seats against the six held by the ousted People’s United Party (PUP). The last election was about corruption and abuse of power; this one is more about economic issues, and although the economy grew by an estimated 2.9% in 2011, the government is struggling to meet popular expectations. Nevertheless, the feeling on the eve of the polls is that the PUP under its new leader Francis Fonseca has not entirely shaken off old habits and is not yet deserving of a return to power.

President Daniel Ortega’s decision to highlight the Puerto Rican independence movement at the summit of the Community of Latin American and Caribbean States (Celac), held in San José at the end of January, brought proceedings to a premature close. Ortega succeeded in irritating Costa Rica’s President Luis Guillermo Solís, the host, by breaking with diplomatic protocol by ceding his podium time to Rubén Berrios, the leader of the Partido Independista Puertorriqueño (PIP), which seeks the island’s independence from the US.

As a US territory since 1898, Puerto Rico has never been invited to join Celac. Nevertheless Puerto Rico’s status has long been of interest to left-leaning leaders in the region, like Ortega and Venezuela’s Nicolás Maduro. Ortega gave Berríos his spot at the Celac roundtable discussion, a place that is otherwise reserved for heads of state. Berríos used the occasion to make his point. “The continuance of colonialism in my homeland, Puerto Rico, constitutes an affront to the dignity of our America,” he said. “Let Puerto Rico be as free as Latin America.”

After Berríos finished, Solís said the act has broken with Celac protocol. Ortega reacted by accusing the Costa Rican leader of disrespecting his voice as president. “Here Nicaragua is speaking as a state, as a nation, and the voice of Puerto Rico is the voice of Nicaragua, so I’m asking you for a little respect,” Ortega said, interrupting the speech of the Panamanian president, Juan Carlos Varela. Nicaragua and Costa Rica are already at loggerheads over a territorial dispute about the San Juan River, which has been at the International Court of Justice (ICJ) since 2010.

Ortega, however, appeared relatively isolated in his decision to break protocol. Rafael Correa, the left-wing leader of Ecuador, who assumed the pro-tempore presidency of Celac after the summit, called the move “a bad precedent”.

Remittances at record level

Nicaragua received US$1.135bn in remittances from ex-patriots in 2014, according to figures released by Nicaragua’s central bank (BCN). Most of the money came from Nicaraguans living in the US, Costa Rica, Spain and Panama. The figure represents a 5.3% increase on the US$1.07bn recorded in 2013. Much of the money went to just five of Nicaragua’s 15 departamentos, with the major recipients being Managua, Chinandega, León, Estelí and Matagalpa.

• Nicaragua’s exports up

Nicaragua’s exports for the third quarter of 2014 were up 10% year-on-year. Not including free zone exports, the country has exported US$2bn up to September 2014, according to the Central Bank of Nicaragua. During this period, the most exported products were coffee, meat, gold, sugar and peanut. The top export destinations during the period were the US, Venezuela, Canada, Europe, and El Salvador.

On 29 June 2015, the governor of Puerto Rico, Alejandro García Padilla, announced the formation of a Working Group that will seek a final and sustainable solution to the territory’s well-publicised financial problems by the end of August. Discussions between the government and bondholders of in coming weeks will focus on four issues: government revenues, government expenses, structural reforms and a major debt restructuring. Among much else, the government will be seeking changes to the US Bankruptcy Code that will allow it to seek Chapter 9 protection – like municipalities in the US.

Towards the end of June 2015, Governor García Padilla openly recognised that the government of Puerto Rico, and its various agencies, will not be able to repay its outstanding debt. The debt amounts to around US$72bn, or roughly 100% of GDP: one third of the total corresponds to borrowings by public corporations such as the Puerto Rico Electric Power Authority (PREPA). In a state address on 29 June, the governor discussed how a lasting solution to the well-documented economic and financial problems of Puerto Rico might be achieved.

Part of that solution, in the governor’s view, should be provided by lawmakers in Washington DC. “Puerto Rico today is in a situation which is no different to that of New York City and Detroit some years ago. The success of New York City and Detroit came from an alignment of wills. All sectors – the unions, the governments, the banks, the bondholders and the men and women in the street – shared in the sacrifices, and now they share in the prosperity. The alternative – which is unacceptable in Puerto Rico – is that we continue to share in the crisis.”

The governor also announced the formation of a ‘Working Group for the Economic Recovery of Puerto Rico’, which is charged with reporting to the government by the end of August. The Working Group comprises the governor’s chief of staff, Victor Suárez Meléndez, the treasury secretary (and president of the Government Development Bank of Puerto Rico [GDB]), Melba Acosta Febo, the justice secretary, César Miranda Rodríguez, the senate president, Eduardo Bhatia Gautier, and the speaker of the house of representatives, Jaime Perelló Borrás. Separately, the GDB’s chairman, David H. Chafey Jr., announced his resignation, just six months into a two-year term, and Governor García Padilla announced the appointment of three new directors to that institution. The new directors replace three others, whose terms had been due to expire in September this year.

The government and the Working Group have sought help from external advisers. Citigroup will act as the lead broker-dealer in relation to potential liability management transactions. Millstein & Co. will act as restructuring adviser. Cleary Gottlieb Steen & Hamilton LLP will act as legal counsel. On 6 July, the GDP appointed Public Financial Management Inc. (PFM) as Independent Registered Municipal Adviser. PFM has a wide-ranging mandate, which is valid to the end of June 2016, to advise the GDB on capital financing transactions.

The Working Group’s mission includes several objectives:

• Design of a plan that will ensure the balancing of government-wide budgets over the next five years;
• Making of additional proposals to diversify Puerto Rico’s economy and to improve competitiveness;
• Promotion of private-public partnerships that build on the success of the Teodoro Moscoso bridge, the Luis Muñoz Marín international airport and Highway PR-22;
• Promotion of fiscal and economic reforms that promote economic development (including changes to labour and welfare laws);
• Tax reforms, including changes to Puerto Rico’s corporate and property tax regimes, and;
• Implementation of additional expenditure cuts.

The Working Group’s plan will also seek to ensure that “the aggregate debt burden of the Commonwealth is adjusted so it can be repaid on sustainable terms while ensuring pension obligations are honoured over the long term and essential services for the people of Puerto Rico are maintained”. Finally, the Working Group is charged with creating an apolitical Fiscal Oversight Board, which will guarantee the government’s meeting of its commitments through the adjustment process.

A clear indication of what the Working Group’s plan will include was provided in a presentation in New York City on 13 July of a report by Dr Anne Krueger, a former First Deputy Managing Director of the International Monetary Fund (IMF), Dr Ranjit Teja, a Deputy Director with the IMF, and American University Professor Andrew Wolfe[1]. The overall challenge is to extract Puerto Rico from a vicious cycle of debt and stagnation (see below).

The report argues that a reduction of the fiscal deficit must go hand in hand with the removal of structural obstacles to growth. Reduction of the fiscal deficit involves both changes to revenues and expenses. The authors believe that, if accompanied by structural reforms, their proposed measures could produce fiscal balance for Puerto Rico by 2020. In relation to revenues, the authors suggest: a revamping of property taxes, which are based on 1954 valuations, an end to tax amnesties and exemptions and higher sales tax.

In relation to expenses, the authors think that there is scope for the government to cut outgoings by up to US$2bn annually by Fiscal Year (FY) June 2020, with further savings by FY June 2025 year. Freezing spending in real terms and renewing the Government Fiscal & Operational Sustainability Act (No. 66 of 2014) alone would save an estimated US$1bn annually. However, there is a possibility that the Act, which enables the government to change contracts and to restrict legal judgements against it, will be challenged in US courts as being unconstitutional. The authors also argue for a reduction in the teacher-student ratio in Puerto Rico’s schools and a saving of around US$500m annually from a reduction of the subsidy to the University of Puerto Rico. A reduction in Medicaid benefits could also save an estimated US$150m each year.

Structural reform includes changes on many fronts. In particular, the report suggests that the government should try to reduce disincentives to the hiring of workers by securing a relaxation in the Federal minimum wage. It should also seek a downwards revision to federal welfare payments – which are more generous relative to the (low) incomes in Puerto Rico than they are in the rest of the US. A Federal law which places Puerto Rico at a disadvantage relative to other island nations in the Caribbean is the Jones Act (the Merchant Marine Act of 1920, as amended), which requires that all seaborne trade with the territory be carried out by US flagged and crewed vessels. The government could also seek an exemption from this. Finally, it could cut red tape, widely considered as challenging for businesses operating locally.

Crucially, Krueger, Teja and Wolfe argue for debt relief for the Puerto Rican government and its agencies. This could involve an extension of debt maturities and/or lower interest payments. “To achieve this, bondholders would need to be convinced that relief would support reforms that would result in a larger return than continuing on the present path,” they note. They also note that discussions would need to be coordinated with holders of the government’s General Obligations and holders of government agencies’ bonds.

Like the governor, the authors note that it would be helpful if Puerto Rico were covered by Chapter 9 of the US Bankruptcy Code, which covers municipal governments. This would require a change to the law by the US Congress. Whether or not such a change would be supported by powerful stakeholders remains to be seen. To the extent that creditors have greater protection under the Bankruptcy Code than they do in the current, rather uncertain situation, they should support the extension of Chapter 9 to the government of Puerto Rico and its agencies. In early July 2015, legal action by Franklin Templeton Investments, OppenheimerFunds and Blue Mountain Capital Management – which collectively own around US$2bn in bonds issued by PREPA,[2] resulted in a ruling that Puerto Rico’s own Recovery Act was unconstitutional. The Recovery Act had been passed in 2014 in order to facilitate restructuring by financially distressed municipalities in the territory. The three investment firms had been concerned that they would be disadvantaged if they ever had to engage in debt restructuring negotiations with PREPA. Under Chapter 9, they would have been in a stronger position.

Over the coming weeks, it is likely that all parties – the government and its agencies, Federal politicians and the bondholders – will raise additional proposals and counter-proposals. At this stage, it seems reasonable to expect that legislative change in Washington DC will extend Chapter 9 to the government of Puerto Rico and its agencies. This would strengthen the positions of the creditor and would make it easier for the Working Group to execute a plan along the lines proposed by Krueger, Teja and Wolfe. It would also reduce the risk of a disruptive default, an exacerbation of the vicious cycle; and a further wave of emigration from Puerto Rico to mainland US.

The vicious cycle of debt and stagnation

The recent report published by Krueger, Teja and Wolfe explains how Puerto Rico has long been in a vicious cycle of mounting debt and economic stagnation.

The Commonwealth of Puerto Rico is an unincorporated territory of the US. Its people are U.S. citizens, and have the right to live and work in the rest of the country. However, they are not liable to pay US federal taxes unless they work for the federal government. Income from bonds issued by the government of Puerto Rico, the GDB (its fiscal agent) or its agencies are not subject to federal or Puerto Rican income taxes. They have therefore long appealed to investors in the estimated US$3.7trn US municipal bond market[3].

In recent years, the mounting financial problems in Puerto Rico have been reflected in mounting yields on the bonds. Yields on the benchmark government General Obligations (GO) and the power utility PREPA stood at about 5% in mid-2013. At that time, yields on bonds of the GDB were around 6%. By April this year, the yields on the GOs were about 10%, while the yields on PREPA and GDB bonds stood at about 14% and 15% respectively. The major ratings agencies downgraded the government of Puerto Rico to below Investment Grade in early 2014.

As the report notes, it is very unusual for any government to establish fiscal sustainability when economic growth is low. This is because low growth restricts revenues and increased debt ratios. Puerto Rico’s economy has actually been contracting for nearly a decade, which, as the authors note, ‘is remarkable for an economy suffering neither civil strife nor overt financial crisis.’

The fall in activity has been due to both structural and cyclical problems. Falling house prices have been a major reason for a drop in investment of 10 percentage points of GDP over the decade to June 2014. The deterioration of the economy and the local housing market has been accentuated by the problems in the banking sector, and vice versa. Bank assets have been reduced by around one third since 2005. The doubling of the oil price over the seven years to 2012 represented a sharp deterioration in the terms of trade given that the territory is dependent on imports for almost all power generation.

The failure of Puerto Rico’s economy to participate in the solid recovery of the US economy since 2010 suggests that the territory suffers from a serious competitiveness problem. The World Economic Forum’s Global Competitiveness Report for 2014-15 rates Puerto Rico as being the 32^nd most competitive economy, out of 144. This is a respectable outcome by the standards of Latin America and the Caribbean (with Chile in 33^rd position) but a challenge given that the rest of the US is in third position. The businesses surveyed by the World Economic Forum reported that inefficient government bureaucracy; restrictive labour regulations, tax regulations and tax rates are the biggest difficulties that they face in Puerto Rico.

Other data validates these concerns. Krueger, Teja and Wolfe note that only 40% of adults in Puerto Rico are in the workforce (versus 63% in the US). This is partly because the Federal minimum wage is high (77% of per capita income versus 28% in the US) and applies to a greater number of workers (28% of hourly workers versus 3%). It is also because the local regulations that govern overtime, paid vacations and dismissal are more onerous than they are in the US.

In addition, generosity of the welfare system is a disincentive to find work. According to one estimate cited by the authors, a family of three who are eligible for food stamps, Aid to Families with Dependent Children, Medicaid and utilities subsidies could receive US$1,743 per month: a worker on the minimum wage would take home monthly pay of US$1,149.

The combination of diminished opportunities at home and freedom of movement to the rest of the US have contributed to large-scale emigration. The total population of Puerto Rico fell for the first time in 2006, and has since dropped from over 3.8m to around 3.5m now.

Other challenges include expensive energy costs, because of the inefficiency of PREPA and high transportation costs. Again, the transport costs are due partly to the aforementioned Jones Act.

These problems are reflected in the industrial structure of Puerto Rico. The relatively high cost of unskilled labour has constrained the development of tourism – a sector where the territory should have a competitive advantage – the number of hotel beds is about the same as in the 1970s. High transport costs have forced players in the manufacturing sector to focus on high-value and capital-intensive areas such as software and pharmaceuticals.

The weakness of the economy has hit the government’s revenues, even as it has offered tax breaks to attract businesses to Puerto Rico. Krueger, Teja and Wolfe note that tax revenues have fallen from 15% of GNP prior to 2006 to around 12% now. Revenue projections have tended to be optimistic, while the Office of Budget Management has had little power to enforce spending cuts.

Persistent deficits have caused public sector debt to rise from 62.2% of GNP in the (June) 2000 fiscal year to 71.2% in the 2005 fiscal year to 90.9% in the 2010 fiscal year to just over 100% now. In the meantime, deficits are also being posted by PREPA, the Puerto Rico Aqueduct and Sewer Authority (PRASA), the Highway & Transportation Authority (HTA), as well as the pension schemes for government workers (ERS) and teachers and judicial workers (TRS). The combined deficits were around 5% of GNP in the fiscal year to June 2014.

In addition, the authors highlight a long history of non-transparency and statistics that are dated or otherwise unreliable.

Why Puerto Rico is not Greece

It is reasonable to ask whether the crisis in Greece offers pointers for the situation in Puerto Rico. In both cases, the governments of relatively small entities of very large (and rich) polities have found themselves in financial problems as a result of structural and cyclical problems. In neither case do the governments have control of monetary policy.

However, the differences matter more. Greece’s government debt is a lot larger in absolute terms and relative to GDP than that of the government of Puerto Rico (and its agencies). Greece’s population was growing until 2009 (when it reached 11.19m, according to the IMF) and has since been falling (to 10.98m in 2015). The implication is that net emigration from Greece has been evolving a lot more slowly than the movement of people out of Puerto Rico.

The original (2010) bailout of Greece’s government was undertaken to prevent contagion in the bond markets of the ‘peripheral’ Eurozone countries. The latest negotiations are between (predominantly) government/supra-national creditors and the government. Dealings have raised questions over the rights of a sovereign government that used to preside over its own currency. Some parties have advocated heterodox solutions to Greece’s problems.

By contrast, Puerto Rican debt is held overwhelmingly by private sector investors within the US municipal bond market. Discussions are currently focused on the extension of Chapter 9 of the US Bankruptcy Code to include the government of Puerto Rico and its agencies: this would facilitate an orderly restructuring of the debt. Puerto Rico is not a sovereign nation and its government has never presided over its own currency. There are no questions of heterodox solutions to Puerto Rico’s problems: indeed, the identities of authors of the report that has been commissioned by the government mean that the Working Group is effectively following an IMF program. End box

[1] Krueger, Anne O., Teja, Ranjit and Wolfe, Andrew, Puerto Rico – A Way Forward, June 2015.

[2] Blue Mountain Capital Management LLC v García Padilla et al., case 3:14-cv-01569 and Franklin California Tax-Free Trust et al. v Commonwealth of Puerto Rico et al., case 3:14-cv-01518. Both cases were heard in the U.S. District Court for the District of Puerto Rico.

[3] Value of outstanding municipal bonds as at the end of March 2015, according to the Securities Industry and Financial Markets Association (SIFMA)

BRAZIL | Petrobras granted new oil licence. The ministry of mining & energy released a statement on 29 September announcing that the federal environmental regulator (Ibama) has approved a licence for the state-controlled oil company Petrobras to explore oil in offshore blocks in the Bacia Potiguar, a basin off the coasts of the north-eastern states of Ceará and Rio Grande do Norte. The ministry has estimated that the basin’s reserves could contain around 2bn barrels of oil.

The mining & energy minister, Alexandre Silveira, stated that the oil wealth could contribute to financing the green energy transition, in response to ongoing concerns among environmentalists that the government’s green ambitions could be hindered by its continued insistence on extracting fossil fuels. The Bacia Potiguar is located near the equatorial margin, and Silveira expressed optimism that Ibama would approve Petrobras projects in other offshore blocks around the ecologically sensitive Amazon Delta, also near the equatorial margin. In May, Ibama blocked a Petrobras licence in the area because of a missing environmental assessment document in the application.

BRAZIL | Drop in unemployment rate. The national statistics institute (Ibge), subordinate to the government’s planning ministry, released the latest unemployment figures on 29 September. In the June-August quarter, the jobless rate stood at 7.8%, around 8.4m unemployed people. This marks a decline from the 8.3% rate registered for the March-May quarter. Three job categories saw notable quarterly rises in employment: domestic services saw 164,000 new hires (+2.9%); public administration, defence, education, healthcare, & social services saw 422,000 new hires (+2.4%); and information, financial & professional services saw 275,000 new jobs (+2.3%).   

The national employment registry (Novo Caged), overseen by the labour ministry, also released its latest job creation figures on 2 October, which showed that in August around 2.1m people were formally registered as new hires, while 1.88m employees were dismissed. In terms of geographical distribution, the wealthy south-eastern states of São Paulo and Rio de Janeiro saw the most jobs created in August, registering 65,462 and 18,992 new hires respectively.

The story of the UK-based company, Cambridge Analytica, and the 2016 US elections, illustrates some of the power and the ongoing potential for political manipulation that could be unleashed by AI-based sophisticated data analysis. It has been established that for a number of years in the 2010s the personal data of millions of Facebook users was collected illegally by Cambridge Analytica without their permission. The data was gathered through an app called ‘This is your digital life’ which used it to build up psychological profiles of users and their Facebook friends. It is believed that the app harvested personal data from around 87m Facebook profiles. Cambridge Analytica then mined the data to advise the campaigns of US Republican presidential candidates Ted Cruz and Donald Trump, as well as some initial work in support of the Vote Leave campaign in the UK’s 2016 Brexit referendum. Information on how the data was hacked and used eventually became public largely because of the actions of investigative journalists, as well as former Cambridge Analytica employee, Christopher Wylie, who acted as a whistle blower. Under pressure, Facebook CEO Mark Zuckerberg testified in congress and apologised for the data breach. Facebook was fined US$5bn by the Federal Trade Commission and also had to pay a much smaller fine to the UK regulator for exposing its users to “a serious risk of harm”. In May 2018 Cambridge Analytica filed for bankruptcy.

The key to Cambridge Analytica’s political work appears to have been to build up detailed psychographic profiles of users allowing micro-targeting of potential swing voters on different online platforms by the Trump campaign team. Messages were tailored to different voter groups. Those considered to be Trump supporters, for example, received reinforcement messages such as triumphant visuals and details of how to get to polling offices. Less committed potential Trump supporters were sent negative graphics or ideas about his opponent, Democratic Party senator Hilary Clinton.

While the Cambridge Analytica scandal demonstrated a willingness to use stolen social media data for political ends, there is some scepticism over how effective the company was in actually winning votes for Trump. Academics agree that online activity and ‘likes’ can be used to build a psychological profile of individual users, including their religious beliefs and sexual orientation. There is also evidence from the commercial world that advertisements tailored to particular personality types can be more effective. One study found that ads could generate 40% more clicks if they targeted particular personality types. On the other hand, however, there is little hard evidence that micro-targeting personality types can actually deliver extra votes, and some evidence that voters, once they have made up their minds, tend not to be easily swayed by campaign messages in general.

URUGUAY | En buena forma. La economía creció fuertemente en la primera mitad de 2011, expandiéndose en 6,8% comparado con el mismo periodo del año pasado. El ministro de economía, Fernando Lorenzo elevó el pronóstico de crecimiento del PIB para este año a 6% de un pronóstico previo de 4,5%, gracias a una fuerte demanda interna. La inflación, dijo Lorenzo, es el principal desafío macroeconómico que afronta Uruguay, aunque predice que el incremento en los previos debería volverse más lento en los meses próximos. Descrita de manera memorable recientemente por el Presidente José Mujica como “una anguila jabonosa”, la inflación continúa trepando hacia arriba, llegando a 4,71% para los primeros seis meses del año. Lorenzo elevó el pronóstico de la inflación para el 2011 de 6% a 7,8%.

COSTA RICA | Fall in unemployment. On 4 April Costa Rica’s national statistics institute (Inec) released new figures which show that the national unemployment rate was 7.8% in the December 2023 to February 2024 rolling quarter, a drop of 3.2 percentage points on the same quarter the previous year. This is also down from the 7.9% unemployment rate in the immediately preceding quarter ending in January. The Inec report shows a high gender imbalance in unemployment, with an 8.4% unemployment rate amongst women in the December 2023-February 2024 quarter, compared with 7.4% for men.

PANAMA | WB approves climate change loan. In late March Panama’s economy & finance ministry (MEF) announced that the World Bank (WB) had approved a new US$350m project to continue reducing emissions and adapting to climate change. According to the WB, the Panama Second Climate Resilience and Green Growth Development Policy Loan (DPL) will “bolster reforms to decarbonise the transport and energy sectors and support Panama in building the capacity to adapt to climate change and mitigate its effect”.  The WB highlights that the US$350m project supports reforms organised under two pillars. The first “focuses on promoting a clean energy transition, socially inclusive low-carbon growth, and technological innovations for disaster preparedness”. The second pillar will “help Panama further develop its capabilities to manage its natural resources in a sustainable manner and plan for climate change. This includes support for instruments that enhance climate planning and governance, such as the National Climate Change Adaptation System and the Climate Change Scenarios, which will inform public and private investment planning going forward.” The operation builds on a previous climate resilience and green growth DPL approved by the WB in April 2023.

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Uproar over the relationship with the provinces, coupled with wider protests by labour unions, seem to have persuaded Milei to make a new attempt to get his reforms approved in a slightly more consensual manner. In a speech to congress at the beginning of March the president launched a new initiative, to be known as the “May Pact”. The idea is that in the run-up to 25 May (the anniversary of Argentina’s independence from Spain) a group including all 23 governors, the mayor of Buenos Aires city, former presidents, and other political leaders will discuss a government proposal to agree 10 “strategic” pillars for governance. However, the government position remains that, as a precondition, congress must still approve the omnibus law before the provinces sign off on the May Pact.

The government proposed ten May Pact points for discussion. These include the inviolability of private property; a “non-negotiable” agreement to balance the budget; a commitment to reduce public expenditure to 25% of GDP (it is currently over 37%); a reform to reduce the tax burden; and a renegotiation of the coparticipación system (which governs the allocation of federal and provincial funds). Also on the list are provincial commitments on the development of natural resources; a labour reform to promote formal employment; and pension reform. Milei also promised what he called an “anti-caste package” which would eliminate pension privileges for political leaders, require transparent trade union elections, and end state funding of political parties.

Despite this offer of consensual talks, the mood music between the president and the provinces remained tense. In widely reported comments Milei said on 6 March that he would “piss on all” of the provincial governors who were reluctant to adopt his reforms. He also said, “If they keep on screwing around, I will shut down congress”. Despite clear constitutional limits on presidential power, Milei repeatedly suggested his government might side-step congress. He said for example that “We won’t back down, we’re going to keep pushing forward, whether that is by law, presidential decree, or by modifying regulations.”

For their part, many of the governors also refused to ease the pressure. Santa Fé governor Máximo Pullaro (UCR) said his province would “not be extorted” or intimidated. Córdoba governor Martín Llaryora (PJ, Peronist) criticised the long wait until 25 May. Six Patagonian provinces (Chubut, La Pampa, Neuquén, Rio Negro, Santa Cruz, and Tierra del Fuego) said they were prepared to work collaboratively on the May Pact. Yet the governor of one of them, Alberto Weretilneck (of provincial party Juntos JSRN in Rio Negro), said “nobody is motivated by separatism or conflict. But the national government needs to understand that there is no Argentina without Patagonia, because we provide the hydrocarbons.”

PARAGUAY | Presupuesto del 2014 sub-financiado. El Presidente Horacio Cartes convirtió en ley el presupuesto 2014 de G$59trillones (US$12,89mm) el 6 de enero. A pesar del hecho de que desde que asumió el poder en agosto del año pasado Cartes urgió persistentemente al congreso a que se abstenga de introducir demasiados cambios a la balanceada propuesta de presupuesto sometido por el ejecutivo, los gastos en la versión aprobada del presupuesto exceden a los ingresos por G$3,8trn (US$842,3m), o el 2,7% del PIB. El congreso incrementó los gastos proyectados por unos G$640mm (US$139m).

Problemáticamente para el gobierno, el resultante déficit primario ya está por encima del límite (1,5% del PIB) establecido en la ‘ley de responsabilidad fiscal’ que el mismo Cartes impulsó en el congreso el año pasado en un esfuerzo por reforzar las finanzas del país [IL-13-42]. Abordando esta cuestión, una declaración presidencial que acompañó la promulgación del presupuesto en la gaceta oficial señala que el gobierno planea implementar un plan financiero que ayudaría a hacer algunos ahorros y reunir fondos adicionales de organizaciones internacionales tales como el Bando Interamericano de Desarrollo (BID), el Banco Mundial y el Banco de Desarrollo de América Latina de la Corporación Andina de Fomento (CAF) en un esfuerzo por reducir el déficit fiscal a 1,7% del PIB para final del año. La declaración agrega que el objetivo es continuar reduciendo el déficit del presupuesto para que así pueda caer dentro de los límites de la responsabilidad fiscal para el 2015.

Por otro lado, una nota del ministerio de finanzas destaca que el 53% del presupuesto ha sido asignado a programas de gastos sociales, como parte de los esfuerzos del gobierno de Cartes de reducir la pobreza y la desigualdad económica. También dice que el presupuesto asigna G$4,2trn (US$916m) a inversiones de infraestructura, Gs366mm (US$79m) más de lo planeado originalmente en el borrador de presupuesto del ejecutivo.

La administración Cartes necesitará ser cuidadosa para no ser sobre-dependiente de las fuentes externas de financiamiento, considerando que los niveles de la deuda externa han experimentado un crecimiento significativo en años recientes. De acuerdo con las últimas cifras del banco central (BCP), la deuda externa de Paraguay estaba en US$2,68mm en noviembre del 2013, un 19,2% más que en igual periodo del año anterior.

With less than a month left before the 21 April general election, the political campaign in Paraguay is in full swing. While this has involved all manner of political (and personal) attacks in the debates, the main candidates have failed to directly address the most pressing political issue in the country- the need for a comprehensive agrarian reform. This omission may owe to the fact that the two leading candidates are politically closer than they appear; and they may be happy to leave the issue on the backburner. Nevertheless, the issue will have to be tackled sooner rather than later by the new López Palace resident.

Arguably, the inability to resolve Paraguay’s highly concentrated land ownership, which has afflicted Paraguay for decades, is what ultimately led to the impeachment of former president Fernando Lugo (2008-2012) last year. Lugo’s unexpected rise to power in 2008 on the back of the support of various peasant farmer organisations that had long advocated for agrarian reform, sparked huge expectations that his government would be able to deliver results in an area long neglected by the traditional Asociación Nacional Republicana-Partido Colorado (ANR-PC), which held power uninterruptedly for 61 years until 2008. Yet once in office, Lugo and his progressive followers quickly found themselves hamstrung by the conservative political forces that still dominated congress, not least Lugo’s nominal allies from the Partido Liberal Radical Auténtico (PLRA). This made peasant farmer organisations, in particular the self-proclaimed landless farmers (carperos), increasingly frustrated with the Lugo government; and soon they began adopting increasingly bolder tactics, invading lands and demanding that the State take action. One of these invasions resulted in the fatal Curuguaty incident, which became the catalyst for Lugo’s impeachment.

The Lugo government’s mishandling of the Curuguaty incident not only resulted in the PLRA finally withdrawing its political support for Lugo, but other political organisations and movements on the Left, including peasant farmer groups, did so too. After the establishment of the new government headed by the PLRA’s Federico Franco, peasant farmer movements such as the Federación Nacional de Campesinos (FNC) welcomed the opportunity to work more closely with Franco to find solutions to their long held demands. Franco promised that solving the murky Curuguaty incident would be one of his government’s main priorities; and he also ordered the authorities to carry out the first official land registry survey in decades, so as to determine the existence of any idle or surplus lands. However, to date the Franco government has been unable to make much headway on either front. This is in some part due the problems it has had to contend with on the external front, with questions as to its legitimacy. Now that its time in power is nearing its end, agrarian reform proponents realise that it will be up to the next government to address the issue.

Not on the agenda

Although agrarian reform looms large over Paraguay’s current political situation, so far it has not been properly discussed by either of the leading presidential candidates. The electoral contest is quickly turning into the familiar two-horse race between the ANR-PC’s Horacio Cartes and the PLRA’s Efraín Alegre. Discussing agrarian reform is not in their interests, as neither of their respective electoral bases typically include peasant farmers.

Cartes’ failure to take on the issue is more understandable given the ANR-PC’s track record; and having a lead in the polls, he may not feel the need to have to go out of his way to endear himself to peasant farmers. However, Alegre’s failure to espouse a favourable stance on the issue is more puzzling.

Alegre is trailing in the polls by as much as seven percentage points and he and the PLRA are well aware that in order to improve his chances, Alegre must reach out beyond the PLRA’s electoral base.

In fact, the party has been actively looking not only to revive its previous successful electoral partnership with the Left, and also with others, all in an attempt to present the strongest possible challenge to Cartes. But these attempts have proven unfruitful [RBS-13-02]. In this context, peasant farmers represent an important source of votes that Alegre could easily exploit, particularly since he could just follow the lead set out by Franco on the matter and simply promise to deliver a reform based on the official land survey currently underway. However, Alegre has not yet publicly sought to take such a step.

Uninspiring debates

The first informal presidential debate was organised by Paraguay’s powerful agri-business lobby on 25 February. It featured four candidates: Cartes, Alegre, Miguel Carrisoza from the centrist Partido Patria Querida (PPQ), and Mario Ferreiro from the Avanza País (AP) coalition of small leftist parties. Cartes, Alegre and Ferreiro respectively are three best placed candidates in the polls. The fourth-placed candidate is Aníbal Carrilo Iramain from Lugo’s Frente Guasú (FG) coalition, but given that following AP’s departure from the FG the latter is now completely dominated by leftist radicals, it was not surprising that Carrillo failed to receive an invitation. The FG is identified with the Carpero movement and it would be expected that agrarian reform would be on Carrillo’s agenda.

During the mock debate, both Cartes and Alegre presented very similar government plans; vowing to fight poverty, which affects over 30% of the population, and to promote Paraguay’s economic development. But perhaps too conscious of their audience, both avoided broaching the issue of agrarian reform. The apparent differences didn’t stop Cartes and Alegre from launching vicious attacks at each other, with Alegre accusing Cartes of having links to organised crime, while Cartes accused Lugo’s former public works minister of corruption while in public office.

The omission in the debate was noticed by various civil society organisations including the Catholic Church, which on 10 March publicly called for the issue to be “urgently” addressed in the next debates, pointing out that the land issue it “perpetuated poverty in Paraguay”. Nevertheless, the mock debate proved the blueprint for the first official debate. This was held on 17 March by the communications studies & regulation centre (Cerneco), a local NGO. It also snubbed Carrillo, featuring the four candidates of the mock debate. This prompted FG to first try to stop the Cerneco debate from taking place, by lodging a legal complaint on the grounds that Cerneco was discriminating against the FG and Paraguay’s Left. After the complaint was thrown out of court, FG sympathisers staged loud protests outside the debate venue (see sidebar). In any event, Carrillo’s absence meant that the Cerneco debate largely resembled the previous debate, with Alegre and Cartes providing little by way of concrete proposals and dedicating most of their efforts to attack each other.

However, avoiding the issue of agrarian reform will become increasingly difficult in the next Cerneco debate, scheduled for 25 March. Just days after the first Cerneco debate on 22 March the FNC staged its 20^th annual national march in favour of peasant farmers’ rights. Some 3,000 demonstrators marched on congress in favour of a comprehensive agrarian reform, against genetically modified crops, and against “electoral lies”. The FNC secretary-general, Teodolina Villalba, explained that the FNC “has seen many governments come and go; but none has sought to resolve the land issue…that is why this march is against the electoral lie. Villalba added that “on 21 April we shall cast blank votes” as way of sending a message the political class.

• Cerneco debate problems

The Cerneco debate was held at the central bank (BCP)’s main theatre. While it was taking place hundreds of FG sympathisers staged a protest outside. At one point there was a power outage, restored thanks to the BCP’s own power generators. On 19 March a spokesman from Paraguay’s national electricity company, Ande, said that the company had not had transmission problems in the area and that a technical study suggested that the outage was the result of tampering; the FG protestors being the main suspects. Ande lodged a formal complaint with the public ministry calling for a criminal investigation.

• Unasur observer mission arrives

On 19 March an eight-member electoral observer mission from the Union of South American Nations (Unasur) arrived in Asunción tasked with accompanying the electoral process. The Franco government, which is not recognised by Unasur, refused to extend an invitation to the regional body to send an observer mission unless it lifted Paraguay’s current political suspension from the bloc. However, the mission was deployed after securing an invitation from Paraguay’s supreme electoral tribunal (TSJE). It promised to work with Unasur so as to ensure the transparency of the electoral process, which Unasur says is a pre-condition for the removal of Paraguay’s suspension. The mission, headed by Argentina’s Alejandro Tullio, includes representatives from Chile, Colombia, Ecuador, Uruguay and Peru; but pointedly not from Venezuela.

La presidenta Michelle Bachelet está tratando desesperadamente de detener la inexorable caída en su rating de aprobación. Después que su popularidad llegó a 24% la semana pasada, Bachelet anunció un incrementado enfoque social en el presupuesto nacional, que ella dijo que debía ser “sentido por el público”. La oposición política por su lado, buscó capitalizar las dificultades de Bachelet pidiéndole que abandone por completo su ambiciosa (y conflictiva) agenda de reforma, por el bien de Chile. Bachelet ha enviado diversos mensajes en semanas recientes prometiendo ‘realismo sin renuncia’, pero al parecer ubicando el énfasis en la segunda parte del eslogan, provocando la consternación no sólo del sector privado, sino también desde dentro de la gobernante coalición gobernante Nueva Mayoría.

La Presidenta Bachelet ha dicho que el principal énfasis del presupuesto para el 2016 sería sobre las cuestiones sociales, para salvaguardar al público de las repercusiones sobre Chile de la declinación económica global. El vocero ministerial, Marcelo Díaz, aclaró que eso significa educación, salud, seguridad pública, y empleo. “En la vida usted debe mantenerse empujando hacia delante ignorando los triviales cálculos de unos pocos,” dijo Bachelet en respuesta a las fulminantes críticas provenientes de la oposición por su cambio en el curso del gobierno (ver abajo).

La encuestadora nacional Adimark mostró a Bachelet perdiendo dos puntos porcentuales en agosto para quedar con un rating de aprobación de sólo 24%. El sondeo semanal Cadem, también puso su popularidad en 24%, con un rating de desaprobación de 68%, mientras que 54% siente que la reforma laboral propuesta conduciría a más desempleo en Chile, y sólo el 29% piensa que producirá más empleos. Un masivo 88% desaprueba el desempeño del gobierno en la lucha contra el delito, y 87% sus esfuerzos por erradicar la corrupción.

There are only so many times that the term ‘fiscal emergency’ can be applied to the state of Costa Rica’s finances before the words start to lose their impact. Costa Rica’s finance minister, Vice-President Helio Fallas, was using the term again in late November, insisting that fiscal reform could not be put off anymore. This has been the case for several years now and yet it is constantly put off: governments insist that the legislative assembly must implement its proposed tax reforms; legislators respond that the government must cut wasteful spending.

Costa Rica’s fiscal deficit reached 4.8% of GDP in the first 10 months of the year, up from 4.5% over the same period in 2014. Fallas said that unless the legislative assembly approved imminently the tax reforms set by the government, allowing a fresh source of income to enter state coffers, the infrastructure and social spending budget would suffer. In this way, he sought to hold legislators indirectly responsible for any popular protests due to enforced government spending cuts.

Fallas said that unless the fiscal reform was approved, international credit rating agencies would reduce Costa Rica’s rating, leading to higher interest rates on loans. “If a tax reform is not approved at the start of 2016, it will be impossible to sustain low interest rates. There will be an increase in spending on interest which will mean more debt and a deterioration in social services,” Fallas said.

In the first 10 months of the year, the fiscal deficit reached US$2.50bn, a 12.3% increase on the same period last year. State revenue over this period totalled US$6.00bn, up 8.5%, but it was outstripped by expenditure, which amounted to US$8.50bn, up 9.6%. Official projections are for the fiscal deficit to widen to 5.9% of GDP by the end of 2015, up from 5.7% in 2014.

• OECD

Costa Rica’s economy will grow by 2.9% in 2015 and 3.5% in 2016, according to the Organisation for Economic Co-operation and Development (OECD), which Costa Rica is hoping to join. The OECD also predicted that exports would recover next year “following the slump in 2015, which was caused mainly by the closure of a large electronics plant [Intel’s microprocessor assembly plant]”. It also forecast that “inflation will pick up in the next two years”, as the effects of falling oil prices wear off, and that unemployment will remain close to 10%.

A high-level Nicaraguan government delegation headed up by Nicaragua’s trade & industry minister, Orlando Solórzano, paid a recent visit to Spain aimed at promoting trade and investment. The efforts by the Frente Sandinista de Liberación Nacional (FSLN) government led by President Daniel Ortega to shore up ties come amid uncertainty about cooperation with one of its key partners – the US – given the ongoing threat that the US government will approve the so-called Nicaraguan Investment Conditionality Act (NICA) (see sidebar).

At the event which took place on 22 May, and was attended by over 70 Spanish private sector representatives, Solórzano presented a portfolio of investment possibilities in sectors which included infrastructure, agroindustry, fishing, and energy, among others.

One notable outcome of the meeting was the inking of a Memorandum of Understanding between Nicaragua’s official export and investment promotion agency, ProNicaragua, and the Spanish Institute for Foreign Trade (ICEX), an agency of Spain’s ministry of trade, tourism, and industry. According to Nicaragua’s export agency, Cetrex, Nicaragua’s exports to Spain reached US$14.9m in 2016 (out of Nicaragua’s total US$2.36bn worth of exports), down 22.8% on 2015. Meanwhile according to ICEX, Spanish foreign direct investment (FDI) in Nicaragua was worth 17.3m euros (US$19.3m) in 2016.

These efforts by the Ortega government to boost investment follow a June 2016 report by the United Nations (UN) Economic Commission for Latin America and the Caribbean (Eclac) which showed that FDI inflows to Nicaragua declined by 5% in 2015, to US$835m. The Eclac report noted that since 2014 Nicaragua’s maquiladora (assembly plant) industry has felt the effects of the change in US policy, which entailed removal of the tariff preference level (TPL) provisions. It is estimated that some 3,000 jobs have been lost and textile exports have fallen by 5% as a result of this change.

• NICA

The NICA was reintroduced in the US Senate on 27 April by US Senator Ted Cruz (R-TX), a companion to the bipartisan measure introduced in the House of Representatives on 5 April. It is the latest version of an initiative first debated last year which would prevent the Nicaraguan government from accessing international financing until reforms are implemented that “promote democracy, strengthen the rule of law, respect human rights…until Nicaragua holds free, fair, and transparent elections overseen by electoral observers”.

ARGENTINA | Procter & Gamble operations suspended. Argentina’s tax agency (Afip), has suspended the tax registration and import/export license of the local operations of US firm Procter & Gamble (P&G), the world’s number one producer of household products, following an investigation into alleged tax fraud and capital flight.

Afip accuses P&G, which runs three manufacturing plants and two distribution centres in Argentina, of overcharging on razors and other toiletries by US$138m in order to funnel money out of the South American country.

Argentina has tight restrictions on foreign currency in an attempt to shore up its central bank (BCRA)’s falling international reserves, down 17% in the past 12 months to US$28bn.

In September, the government changed the law so that Argentine banks must seek government authorisation for dollar purchases of US$150,000 or more. Previously, the threshold was US$300,000.

The punitive measures stop P&G from operating in the local foreign exchange market. “We need to put an end to these sorts of tricks by global companies”, complained the head of the Afip, Ricardo Echegaray. “Our main goal is for P&G to repay the central bank the stolen currency as well as the customs sanctions and the income tax that has been evaded”, Echegaray added.

Paul Fox, a P&G spokesman, said that the company is working to understand fully the allegations and to resolve them. “We don’t pursue aggressive tax/fiscal planning practices as they simply don’t produce sustainable results”, he said.

In 2006, P&G bowed to pressure from the Argentine government and froze prices of 31 products including shampoos, soaps and cream for at least a year in an effort to help the government combat inflation.

ARGENTINA | Tax accord. Argentina has signed a data-sharing agreement advanced by the Organisation for Economic Cooperation and Development (OECD) to close in on tax evaders. Under the accord, the 50 signatories pledged to exchange data collected by financial institutions automatically.

Most countries in the European Union (EU) as well as Mexico, South Korea and jurisdictions such as Bermuda and the Cayman Islands signed up to the accord.

“By enlisting in this initiative the Argentine national government is demonstrating its determination to be at the forefront of the fight for international tax transparency” the head of Argentina’s tax agency (Afip), Ricardo Echegaray, said.

ARGENTINA | New telecoms law. On 29 October the Argentine government sent a new telecommunications bill, ‘Argentina Digital’, to the federal congress. The current law on telecoms dates from 1972.

The new law will make telecom networks an “essential and strategic public service”, which will force infrastructure players to rent capacity on the networks at a rate fixed by the government. The measures are designed to promote competition, as well as a better quality of service and reasonable prices for consumers.

The law bill allows a single operator to offer bundled services, such as landline, mobile, cable TV and the internet. All fixed line phone calls, regardless of distance, will be charged at the same rate.

Net neutrality will also be enshrined in the new law as well as a minimum speed and quality for broadband services.

BRAZIL | Deforestation up. Imazon, an NGO, showed that the deforestation of Brazil’s Amazon rainforest had risen 191% in August-September 2014 compared to the same period of 2013; 838km² of forest were destroyed compared with 288km². The most severely affected states were Rondônia, Mato Grosso and Pará.

Brazil’s environment ministry refused to comment on the figures; its own statistics covering the same period will not be released until later this month.

• Argentina loses British Gas dispute

On 3 November the US Supreme Court ruled that Argentina will have to compensate British Gas Group for losses to the tune of US$185m incurred during the South American country’s 2002 financial crisis. One of the emergency economic measures imposed by the Argentine government during the crisis was a freeze on gas prices. British Gas Group successfully argued that Argentina’s actions harmed its investment and breached the terms of a 1993 treaty between Argentina and the United Kingdom.

A decision by the European Union (EU) on 12 March to add ten jurisdictions to its blacklist of territories using widespread tax avoidance schemes has been widely criticised in the Caribbean.

The list was set up by the EU in December 2017. Jurisdictions are listed if they are judged to have gaps in their tax systems which could favour tax evasion in other states. Those promising to address the issue are usually placed on a grey list, from which, if they become compliant, they may eventually be removed. Those delaying or taking no action are kept on the blacklist. Some countries have been moved between the grey and black lists. Being on either list is expected to attract some form of EU sanctions, although these have not yet been decided. Trinidad and Tobago and the US Virgin Islands were on the original blacklist. The blacklist as expanded in March now includes Aruba, Barbados, Belize, Bermuda, and Dominica.

The EU says the listing system has proven to be a successful tool for combatting harmful global tax evasion. It says that over the course of 2018 the European Commission assessed 92 countries based on criteria such as tax transparency, good governance, real economic activity, and whether or not they had a zero-rated corporate tax rate. A statement added, “Today’s update shows that this clear, transparent, and credible process delivered a real change: 60 countries took action on the Commission’s concerns and over 100 harmful regimes were eliminated. The list has also had a positive influence on internationally agreed tax good governance standards.”

Many Caribbean governments do not share that view. Their main objection is that the EU simply and unilaterally imposes its own view of what is, or is not good governance of tax regulations. A summit meeting of the Caribbean Community (Caricom) in February (before the expansion of the blacklist was announced) was highly critical. Government leaders said the appropriate way to deal with tax matters was through the OECD Forum for Harmful Tax Practices “which is inclusive in allowing other member states to be present and be consulted”. A joint communique went on to state, “It is an infringement of their sovereignty, coercive and harmful to the future of a key economic sector in Caricom for the EU to demand these political commitments. In addition, they have not provided any empirical evidence of tax evasion.” Sir Ronald Sanders, Antigua and Barbuda’s ambassador to the US, has argued that the EU is really objecting to low levels of taxation and using its political power to interfere with domestic legislation and dictate what small islands states should do.

These disagreements come after a rise and fall of tension between the EU and Panama. On 13 February the European Commission had added Panama to a separate blacklist of countries judged to have weak anti-money laundering and counter the funding of terrorism (AML/CFT) rules. Panama argued the decision was unfair, ignored progress it had made, and would cause its offshore banking sector serious reputational damage. The country recalled the Panamanian ambassador to Brussels to signal its displeasure. However, on 7 March EU members voted to reject the EC blacklist, with some saying the process to compile it had itself lacked transparency. Pleased by the outcome, Panama then sent its ambassador back to Brussels.

Cousins Carlos and Rafael Filizzola, the current and former Paraguayan ministers of interior respectively, are once again standing on opposite sides of the debate over the appropriate State response to the threat posed by the self-proclaimed Ejército del Pueblo Paraguayo (EPP). While Carlos believes that the military should play support and logistical role only, Rafael, with the benefit of hindsight over the failure of last year’s state of exception to facilitate the capture the group’s leaders, is more inclined towards direct military involvement.

Following a 21 September EPP attack on a police station in the department of Concepción, Rafael announced his presidential aspirations for 2013 and noted that he had not recommended his cousin as his replacement at the helm of the interior ministry, though he did wish him well. His cousin Carlos had backed (failed) moves by President Fernando Lugo to reform the constitution in order to seek a second mandate. That initiative (among other things) is thought to have prompted Rafael’s exit from the cabinet.

The attack on the police station was the second perpetrated by the EPP in a 48-hour period. In the early hours of 19 September, the office of the state prosecutor in the city of Horqueta was also attacked with an explosive device, but there were no casualties. It is thought that the EPP used grenades in addition to high-powered weapons in the second attack. Their intelligence was also good: they attacked the only station that had not received Special Forces (Fope) reinforcements following the first bomb attack, and in which there were just six police officers stationed, armed only with handguns and without any patrol car. Rafael claims that under his ministerial helm the EPP was severely weakened and police training and resources improved. However, he has only been out of the ministry for three months. It’s unlikely that there has been a massive deterioration in police readiness in such a short period. Rafael’s calculated finger-pointing appeared politically-motivated.

On 27 September, following a two-hour debate, the lower chamber of congress postponed “indefinitely” a vote on a declaration of a state of emergency in the northern departments of Concepción and San Pedro. The decision left an earlier senate vote in favour without effect. Notably however, the lower chamber issued a declaration calling for the deployment of the army to fight the EPP.

• Referendum to allow overseas vote

A national referendum on a proposed constitutional reform to allow Paraguayans resident overseas to vote in national elections is scheduled for 9 October.

The recent removals of a supreme electoral court (CSE) alternate magistrate, Julio César Osuna, and Deputy Police Chief Carlos Palacios amid suspected links to organised crime is threatening to undermine Nicaragua’s efforts to trumpet itself as a security haven amongst its neighbours – in particular the so-called Northern Triangle of El Salvador, Honduras and Guatemala

Osuna was stripped of his immunity and sacked following a 29 May legislative vote, amid accusations that he supplied members of what is believed to be one of the biggest gangs in Central America, reportedly led by Costa Rica’s Alejandro Jiménez (‘El Palidejo’, see next page), with false Nicaraguan identity cards. Jiménez made the headlines last year for reportedly being behind the murder of Argentine folk legend Facundo Cabral, which took place on 9 July; the target of the attack, however, was reportedly Henry Fariñas, a Nicaraguan promoter and nightclub owner who was travelling in the same car. Fariñas is awaiting trial on various charges, including drug trafficking and organised crime.

Osuno’s departure came less than a month after the 8 May announcement by Nicaragua’s popular head of police, Aminta Granera, regarding Palacios’s retirement. While recognising that he knew Fariñas, Palacios maintained that he had nothing to do with Fariñas’s alleged criminal activities and Granera’s insistence that “there is no reason…to suggest that…Palacios is involved in illicit activities”, failed to provide much reassurance to the public. The alleged corruption in the Nicaraguan judiciary is hardly new but the question marks over Palacios’s ties with Fariñas attracted particular attention given that, along with the armed forces, the police has been one of the strongest (and most trusted) institutions in the country, despite President Daniel Ortega’s recent efforts to strengthen his control over it – most notably with his presidential order extending Granera’s mandate [RC-11-10].

More clouds on the horizon

Granera has continued to trumpet Nicaragua’s apparent success with regard to security – as is often illustrated in its homicide rate of 12 per 100,000 inhabitants in 2011 compared with 86 homicides per 100,000 in Honduras, 71 per 100,000 in El Salvador and 39 per 100,000 in Guatemala. This has long been attributed in part to its success at preventing international drug trafficking organisations (DTOs) from establishing a hold in the country. While there have been signs in Nicaragua of the presence of DTOs such as Mexico’s Los Zetas and the Sinaloa DTO - and in September 2010, the US State Department added Nicaragua to its annual list of 20 major illicit transit or major illicit drug producing countries - as recently as March, the police spokesperson, Fernando Borge, reiterated that the Zetas had yet to establish a presence. Local security experts such as Roberto Orozco of the Instituto de Estudios Estratégicos y Políticas Públicas (Ieepp) also told reporters that while foreign gang members might enter Nicaragua via its border with Honduras, Nicaragua is used as a temporary hideout rather than an operational base.

Yet, both Granera and Borge have hinted that this situation could change; Borge told the press in April that isolated cases of foreign gang members picked up along the northern border with Honduras represented a “threat”, while back in February, Granera warned that the gangs from the Northern Triangle could move south. In the immediate term, regional disparities have also attracted increasing attention once again raising question marks over the government’s declared achievements. Granera last month acknowledged that the homicide rate in the impoverished indigenous South Atlantic Autonomous Region (Raas) is about 42 per 100,000, the highest in the country – an increase likely related to the presence of drug traffickers in the area (see sidebar).

• Drug trafficking in the Raas

On 27 June, 19 suspected drug traffickers were arrested, believed to be part of a 26-strong ring which, according to press reports, used the indigenous community Tasbaponi in the South Atlantic Autonomous Region (Raas) as a base. The arrests followed the announcement in April by Nicaragua’s military of the seizure of more than two tonnes (t) of cocaine following an operation 80 nautical miles south east of Corn Island in the Raas – one of the biggest seizures in the past three years. The interdiction highlights the growing use of the area as a transit zone for drugs from South America to the US. According to the March 2012 US State Department’s annual International Narcotics Control Strategy Report (INCSR), Nicaragua seized 8.80t of cocaine in 2011.

The US-based Wilson Centre in September published an interesting report on AMLO’s changing relationship with the Mexican armed forces, under the title ‘Militarisation a la AMLO: How Bad Can It Get?’ The author, Craig A Deare, highlights the key role played by military forces in the 1910-1917 Mexican Revolution, a period in which, according to the best historical estimates, somewhere between 1m and 2m people died in the violence.  Significantly, every single subsequent president, up to 1946, had played a role as an active service general during the revolutionary period. Miguel Alemán, the first real civilian in the job, reached a historic pact that still influences civil-military relations today. Essentially, the president would support military autonomy, and in exchange the military would defend the president against any internal or external threat.

The enduring pact, it is suggested, is one of the key reasons Mexico was not affected by the wave of military coups that spread elsewhere in Latin America between the 1960s and 1980s. Deare argues that during the long period of rule by the Partido Revolucionario Institucional (PRI) the military was able to draw up its own internal legislation (covering among other things budget, manpower, organisational structure, and rules of engagement), and send it to the legislature where it would be rapidly approved without scrutiny by the PRI majority. The transaction had the appearance of democratic process when in fact it was not. Over the years, the pact was challenged but not broken by the rise of guerrilla movements, student protests, and eventually the collapse of the one-party PRI system. It was also affected by the landmark decision by President Felipe Calderón (2006-2012) to militarise the war on drugs. 

AMLO took power with a critical view of the army. In opposition he had accused it of involvement in abuse, including the disappearance and presumed massacre of 43 students in Ayotzinapa in 2014. His policy of avoiding confrontation with the drugs cartels and focusing on the socio-economic causes of crime (known as abrazos, no balazos (hugs not bullets) garnered little enthusiasm in military ranks. Discreetly, senior generals expressed concern over AMLO’s proposed policies. During the 2018 campaign AMLO had promised to end the war on drugs, send the military back to barracks, investigate Ayotzinapa and other abuses by the armed forces, and appoint retired officers to the ministries for national security (Sedena) and Navy (Semar), which might be seen as interfering with military autonomy.

Shortly after his election victory and in the subsequent months, AMLO began to renege on all these promises. As early as July 2018 AMLO was quoted saying it would be “irresponsible” to send the military back to barracks. He also continued to develop his ideas for the creation of a civilian controlled National Guard that would take over the bulk of operations against the drug cartels. Although initially seen as an alternative to the military, the National Guard has morphed over time into a militarised force which AMLO now wants to place under the command of Sedena, thereby reversing his original position on civilian oversight.

Deare argues that in practice AMLO has expanded the security role of the armed forces without giving them the support needed to succeed in the expanded mission. As one example of this overstretch, he cites the incident known as the Culiacanazo in October 2019 when military forces captured Sinaloa cartel drug kingpin Ovidio Guzmán López (son of Joaquín ‘El Chapo’ Guzmán) but found themselves surrounded and outgunned by cartel forces, forcing them into a humiliating climb-down (Ovidio was released). AMLO, the head of Sedena, and other officials gave contradictory statements trying to explain what had happened. Although the army was at least partly responsible for errors of planning and execution, senior officers felt they had been “thrown under the bus” by the president.

Notwithstanding these and other setbacks AMLO has continued expanding the military’s role. The army, through Sedena, had already been contracted to build the new Felipe Ángeles international airport (AFIA) in Mexico City. Army engineers were given the job of building sections of the president’s Tren Maya, the southern Mexico tourist train. In an unusual feature Sedena will receive part of the profits of the eventual operation of the train, for use as a supplement to its existing budget. In July this year AMLO announced plans to place the national customs agency under the operational control of the navy. The army has also been ordered to run a controversial anti-poverty programme, the Tianguis del Bienestar (‘wellbeing markets’) which involves donating seized assets (such as smuggled and counterfeit goods) to local communities.

The report notes that AMLO’s security policies, including the creation and deployment of the National Guard, have notched up few real successes. The homicide rate, at 27.8 per 100,000 inhabitants remains the ninth highest in the world; the top five cities in the world in terms of murders per 100,000 inhabitants are all Mexican. By way of a first conclusion, Deare argues that “the good news in this otherwise bleak picture” is that the Mexican armed forces remain firmly subordinate to the president, and that “the deal put in place in the 1940s continue to hold”.

A second conclusion is that the expansion of military functions is the responsibility of the president and has not been sought by Mexico’s military leaders, who are not necessarily enthusiastic about taking them on. However, it is also true that most Mexican presidents have used the military for purposes beyond their primary function. While AMLO has continued that tradition, he has done so “to a disturbing and concerning new level”.

An interesting, related, issue is that despite its involvement in human rights violations, the public largely approves of the military. A recent survey by statistics institute INEGI shows an 86.2% approval rating for Semar, 83.1% for Sedena, and 71.3% for the National Guard. State and municipal police, with 49.5% and 44.6% approval respectively, come off worse. Deare says this suggests “society cares little about the nuances of civ-mil relations theory; they do care about violence and insecurity, and are more comfortable with the navy, the army, and the national guard that they are with any civilian law enforcement agency.”

The report also suggests that, despite his earlier positions, AMLO has simply reached the conclusion that the military are more trustworthy than many other civilian intuitions. As Deare puts it: “Why task Sedena to build an airport? Because you distrust the private sector. Why task Semar to run a port administratively? Because that is where precursor chemicals from China arrive, and endemic corruption of previous authorities ensured they were delivered to organised crime…Why take the Guardia Nacional…and place it under the control of Sedena? Because you believe that Sedena is likely to perform more effectively.” Another way of looking at this situation, of course, is to note that it highlights the failure of successive Mexican governments to build effective civilian law enforcement, police, and other institutions. Until that problem is addressed, over-reliance on the armed forces is likely to cause ongoing structural imbalances in the Mexican political system.

The reconciliatory noises to come out of the first meeting between President Daniel Ortega and his Colombian counterpart, Juan Manuel Santos, since the 19 November ruling by the International Court of Justice (ICJ) on the maritime and territorial dispute [RC-12-12], have failed to prove convincing.

Following the meeting between the two leaders, which took place in Mexico on 1 December, ahead of the inauguration of Enrique Peña Nieto as Mexico’s new president, Ortega made various assurances. He said that Nicaragua would respect the ancestral fishing rights of the Raizal, a Creole population on the Colombian islands of San Andrés, Providencia and Santa Catalina which are now surrounded by Nicaraguan waters following the ICJ ruling which ordered Colombia to cede 75,000km2 (or 40%) of its maritime territory to Nicaragua. He also said that there would be no drilling for oil in those parts of the area designated by the United Nations Educational, Scientific and Cultural Organization (Unesco) as the Seaflower Biosphere Reserve – reportedly one of Santos’ main concerns.

While doubts may surround Ortega’s reassurances regarding the latter point (see sidebar), Santos’s insistence that the meeting constituted a “positive step” and that Colombia would seek to keep communications open have similarly failed to mask underlying tensions. The commander of the Colombian navy, Admiral Roberto García Márquez, said that “the presidential order is to maintain our warships at the 82nd meridian” (the previous maritime boundary) while the commander of the Nicaraguan army, General Julio César Aviles, told Nicaragua’s legislature that if Colombian vessels were found in the area granted to Nicaragua by the ICJ ruling, the Nicaraguan naval force would have to “remove them in accordance with the ICJ ruling, which is not up for debate”. Both governments subsequently sought to downplay these positions however, declaring that their naval forces had been ordered not to resort to force or “provocative” actions. Armando Segura, the president of the Nicaragua chamber of fishing has, however, since told reporters that hundreds of Nicaraguan fishermen had complained of being harassed by Colombian military frigates and helicopters. The press office of the Colombian armed forces refused to comment on the complaints.

Roping in the US

At the end of November, Nicaragua’s legislative assembly approved a presidential decree authorising US troops to carry out joint anti-drug patrols with the Nicaraguan navy in the country’s newly assigned Caribbean waters, from 1 January to 30 June 2013.

  While the US, whose navy and coast guard regularly carry out security patrols in Caribbean waters with the cooperation of its Latin American partners, did not take any position on the situation arising from the ICJ judgment(since 1986, the US only accepts ICJ jurisdiction on a case-by-case basis, having withdrawn from automatic jurisdiction when the ICJ ruled that its Contra war violated international law), Ortega was quick to trumpet its participation in these patrols as an implicit endorsement of Nicaragua’s sovereignty over the area.

 The US ambassador to Nicaragua, Phyllis Powers, has since sought to distance the US from the dispute. She told reporters that following the approval of the decree, the US would continue to work “closely” with Nicaragua in the fight against drug trafficking, but in response to whether the US would increase support to Nicaragua given that it nearly doubled its territory in the Caribbean at the expense of Colombia, she said that the issue “is very complex…I don’t have the details and don’t wish to enter into discussion regarding new and old economic territory”. As regards the amount of resources assigned for cooperation with Nicaragua, she said that “it was the same as we have had in the area for some years…we will continue to work with these resources”.

• Ecosystems

Jaime Incer Barquero, an advisor to President Daniel Ortega on environmental and scientific affairs, was cited by the international press as saying that Nicaragua had yet to assess the ecosystems of its Caribbean waters “to define areas of absolute protection [and zones] where sustainable exploitation of shrimp, lobster or oil can be carried out”. He told reporters that the government is “barely aware” of the situation in the Miskito Cays area, some 13,000km² close to the coastline of Nicaragua’s North Atlantic region (Raan).