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The president-elect, Felipe Calderón Hinojosa, called for better coordination between the country's various police forces to reduce the number of drug related killings. In the past 20 months at least 2,500 people have been killed in drug related violence. 

A senior member of Calderón's transition team, speaking anonymously to the Spanish news agency, Efe, said on 22 September that the "dispersed and disorganised Mexican police forces were losing the battle against organised crime." On 21 September, Calderón himself said that the growing violence of organised crime was threatening the security of Mexico itself. The US concurred, talking of the "brutal criminality" in Mexico. 

Although Mexico has 385,000 policemen they are answerable to different authorities, mostly state and municipal. Only 21,000 of them work for the federal government's organised crime unit which is charged with combating drug traffickers, kidnappers and terrorists. Most security experts say that President Vicente Fox's much hyped México Seguro plan, which targeted three particularly hot trouble spots (Tamaulipas, Baja California and Sinaloa) before being rolled out more or less across the country has failed. In most states the murder rate has continued to rise after México Seguro started. 

Bribiescas: A court ruled that a book by the Argentine journalist, Olga Wornat, about the two sons of President Vicente Fox's wife, Marta Sahagún, by her first husband, had caused them "moral damage." Wornat accused the two Bribiesca brothers, Manuel and Jorge Alberto, of profiting from their mother's influential position as Mexico's First Lady. Wornat's claims were made in her book, Crónicas Malditas.

The astute leader of the Partido Revolucionario Institucional (PRI), Beatriz Paredes Rangel, has offered leftwing Partido de la Revolución Democrática (PRD) an alliance for the mid-term congressional elections in 2009.

The offer is likely to split the PRD further. The party is already braced for the radicals, led by Andrés Manuel López Obrador, to flounce out of the party after their candidate for the party presidency, Alejandro Encinas, was ruled by the national electoral authorities to have lost in the internal PRD election in March.

Paredes made the offer to the PRD at the Socialist International council meeting in Puerto Vallarta on 17 November. Paredes argued that together the PRD and the PRI could reshape the country. Both the PRI and the PRD are members of the Socialist International, which brings together leftwing parties from across the world.

What Paredes is proposing, in essence, is a return to the political situation before 1988 when Cuauhtémoc Cárdenas, the son of Mexico's greatest 20th century president, Lázaro, split from the PRI when he was denied the party's presidential nomination. Cárdenas's split from the PRI, arguably, divided the Left in Mexico and allowed the rightwing Partido Acción Nacional (PAN) to win the presidency in 2000 and again in 2006.

More importantly, a PRI-PRD alliance would mean that the minor parties in Mexico (the Partido Verde Ecologista; Convergencia; the Partido del Trabajo; and the Partido Alianza Nueva, which is dominated by Elba Esther Gordillo, the leader of the teachers' union) would become irrelevancies. Now, they are important in elections and in congress because no single party, or alliance, commands a majority.

It is worth noting that most of the smaller parties are virtually one person bands. Patricia Mercado, the one time leader and presidential candidate for the Partido Alternativo Social Demócrata y Campesino, has split with that party and is now heading a new party, Movimiento Alternativa. She is one of Mexico's most prominent feminists and is a leading campaigner for abortion rights. When she ran for the presidency of Mexico in 2006, her strong performance (2.7% support nationally) tipped the election away from López Obrador and secured national registration and public funding for her party. Mercado said that her new party will not participate in the forthcoming congressional elections next year. Meanwhile, Mercado's former party, now the Partido Socialdemócrata (PSD) is making overtures to Encinas.

Following Cárdenas's defection from the PRI, the PRI's candidates in the 1988 and 1994 presidential elections were both technocrats (Carlos Salinas and Ernesto Zedillo, respectively). When the PRI reverted to picking a populist politician, its traditional choice for the presidency, Francisco Labastida was defeated in 2000. His defeat, arguably, owed more to the mistakes made by the technocrats than anything else.

Cárdenas himself probably won the 1988 election, but refused to contest the result in the streets. He ran again as the PRD's presidential candidate in 1994 and 2000 but was replaced by López Obrador in 2006. López Obrador claims that he won the 2006 election, though the official result gave Felipe Calderón Hinojosa a narrow victory by 0.56% of the votes cast. Despite the closeness of the vote there was no full recount and the electoral authorities have only been stopped from burning the ballot papers by a series of injunctions taken out by Proceso, a leftwing news magazine. The 1988 ballot papers were burnt in 1991.

The tensions inside the PRD were obvious at Puerto Vallarta. Cárdenas, now a vice-president of the IS, said that he would walk out of the meeting if Porfirio Muñoz Ledo was invited to speak on the PRD's behalf. Muñoz Ledo had been one of the PRD's founders, along with Cárdenas, but is now aligned with López Obrador and his Frente Amplio Progresista faction.

The newly-elected president of the PRD, Jesús Ortega, gave a cautious welcome to Paredes' offer. He said that the party would discuss the issues that Mexico faced with Paredes, but doubted that it would go into a formal alliance for the mid-term congressional elections in 2009.

The problem for Ortega and the PRD is that it needs the PRI more than the PRI needs it. The PRD's own polling shows that its support is collapsing. In the past three years it has lost 42% of its voters and its own polls suggest that it would now win only between 11% and 13% of the national vote (less than Cárdenas won in 2000) if there was an election tomorrow. In 2006, López Obrador won 35.3% of the vote running in an alliance with two other parties, Convergencia and the Partido del Trabajo.

The PRD pollsters found that voters were put off by the party's squabbling after the disputed election in March and the antics of López Obrador's supporters in congress, who have tried on several occasions to interrupt congressional sessions which were likely to approve business which López Obrador opposed. 

Ortega heads the Nueva Izquierda wing of the PRD. He did offer Encinas the number two position in the party in an effort to prevent a split, but Encinas turned the offer down. The position, secretary generalship, has instead gone to Hortensia Aragón, who is close to Amalia Garcí­a, a former PRD party president and now governor of Zacatecas. Garcí­a's wing of the PRD is the Foro Nuevo Sol. Encinas's faction is Izquierda Unida.

The problem for Ortega is that the PRD in Mexico City is loyal to Encinas and López Obrador. Alejandra Barrales, the leader of the PRD in Mexico City, has already launched a movement against Ortega. Her movement is the Movimiento Nacional por el Rescate del PRD. This group rejects the principle that a national electoral tribunal, the Tribunal Electoral del Poder Judicial de la Federación, should settle who won the election for the party's presidency in March.

Although the PRD is fractious, it is dominant in Mexico City which is a key electoral battleground. In the 2006 congressional elections the PRD won 25 of the 27 congressional seats in the Distrito Federal; the PAN won the other two. There are 300 directly elected seats in the 500-seat congress.

The PRI is especially keen on negotiating a deal with the PRD over Jalisco: the state is one of the PAN's fiefs. The PAN won 18 of the 19 congressional seats in Jalisco in the 2006 congressional elections and has held the state governorship since 1995.

An alliance between the PRI and the PRD would be bad news for the PAN which in 2007 lost Yucatán, its only bastion south of Mexico City. Despite the PRI's defeats in the 2000 election (and its embarrassing third place in 2006), the party has remained hugely powerful in rural Mexico and in the east of the country. The PRI still runs 18 of Mexico's 31 states and 19 of the state capitals. The PAN runs eight states and the PRD four, plus Mexico City, which is technically a federal district, not a state.

Although the PRD retained control of Michoacán (the Cárdenas family's home state) in 2007, the PRI has won all but one of the other important elections since Calderón was elected. The PRI's only significant defeat was in Baja California in 2007, where its controversial candidate, Jorge Hank Rhon, was easily defeated by the PAN candidate, José Guadalupe Osuna Millán.

PRD: On 12 November the country's top electoral court ruled that a moderate, Jesús Ortega, had won the March election to head the country's main leftwing party, the Partido de la Revolución Democrática (PRD). The decision was a blow to the radical faction of the PRD, which is headed by Andrés Manuel López Obrador. This faction prefers direct protests (it tried, unsuccessfully, to stop congress considering the final element of the 2009 budget on 12 November by seizing the rostrum) over the more moderate majority of the PRD.

The moderates argue that the electorate is divided between the three main parties (the other two are the Partido Revolucionario Institucional and the ruling Partido Acción Nacional), and so the PRD has a duty to negotiate rather than, as the radicals prefer, simply oppose.

The unanimous decision by the Tribunal Electoral del Poder Judicial de la Federación (TEPJF) looks final, though the radicals do not like it. The radicals' candidate for the PRD presidency, Alejandro Encinas, criticised the decision on the bizarre grounds that national bodies had no role to play in resolving internal party elections. This argument is clearly anti-democratic, and will be seized on by López Obrador's many critics. Encinas's subsidiary point, that the TEPJF found that the election, on 16 March, was unsatisfactory, is much stronger. The TEPJF found that votes from over a fifth of the PRD's polling stations had not been properly counted. Encinas called on Ortega to reject the TEPJF's decision, but there is little chance of this happening.

• Opinion polls

The latest opinion polls show the PRI ahead in the congressional elections. A poll by Buendí­a & Laredo for a Mexico City newspaper, El Universal, found that the PRI was on 41%. The surprise is that the ruling Partido Acción Nacional (PAN) is only five percentage points behind on 36%. The Partido de la Revolución Democrática (PRD) is running third with 19%.The poll has a 3.5% margin of error.

In 2009 Mexico holds midterm elections to pick a new chamber of deputies and there are six gubernatorial elections and eight other state elections to elect state congresses and mayors. In 2008 the PRI won the state elections in Quintana Roo, Guerrero, Hidalgo, Coahuila and Nayarit.The next presidential elections are due in 2012. Beatriz Paredes, the president of the PRI who has presided over a recovery in the party's fortunes, must be a candidate for the nomination, though the favourite is Manlio Fabio Beltrones, a former governor of Sonora and currently the PRI's leader in the senate.

What is interesting about the Buendí­a opinion poll is that 55% of the respondents say that they would consider voting for the PRI. The PRI ruled Mexico from the Revolution, which ended in 1930, until 2000. The corresponding   figures for possible voters for the PAN and the PRD are 53% and 33%. The figures for people who would never vote for a particular party are: 55% for the PRD; 35% of the PAN and 33% for the PRI.

• PRD fine reduced

The Instituto Federal Electoral reduced the fine it imposed on the PRD for its post-election protests in 2006 by 50%. The fine is now M$39.5m.

• What election?

The only cloud in recent opinion polls by Buendí­a & Laredo for a Mexico City newspaper, El Universal, is that a mere 45% of those polled realised that there were mid-term elections next year.

On 21 February the official Instituto Nacional de Estadí­sticas y Geografí­a (Inegi) reported that GDP growth in the final quarter of 2010 was 1.3%, quarter-on-quarter and 4.6% year-on-year. This brought annual real growth to 5.5% for 2010.

It's unclear whether economic confidence in the economy is strengthening or has peaked. Our guess is that confidence has peaked, even though retail sales figures have been strong. The Inegi's Indicador Global de la Actividad Económica de México (Igae) for December was up only 0.07% on November.

The final quarter growth figure of 4.6% was substantially better than the consensus forecast of 3.9%. The main reason for the overperformance was a pick-up in exports to the US. On the other hand, the quarter-on-quarter figure was a bit less than the 1.7% consensus forecast.

The growth rate in 2010 was the highest annual rate since the Partido Acción Nacional (PAN) first won the presidency in 2000. In 2000 (all but one month of which was managed by President Ernest Zedillo Poncé de León's economic team) the economy grew 6% annually. In 2009, real GDP contracted 6.5% year-on-year. This was originally put as the worst contraction since the Great Depression, but subsequent revisions now put it as the second worst, behind President Zedillo's first full year (1995, -6.3%).

It's worth noting that the economy has done much better than most commentators (us included) expected. The consensus this time last year was for 4% real annual growth in 2010. The consensus forecast for 2011, co-incidentally, is also 4%. We think Mexico will be doing well to hit that.

In December, the best performing sector was agriculture (where output rose 12.5%). The chill in northern Mexico in January and February means that the agri sector will do badly in the first part of 2011. The winter maize crop in Sinaloa has been devastated and at least half of it will be lost.

The industrial sector registered decent output growth in December, rising 4.9% year -on-year overall, and the growth was pretty broadly based. Services were the comparative laggard in December, rising only 3.3% year-on-year.

Long term, we are bears on Mexico. The two PAN administrations in office since 2000 have failed to introduce the structural reforms (to the labour market, the pension system and to the state energy monopoly, Petróleos Méxicanos [Pemex]) that are so manifestly needed. Notably, the Mexican press has lately been full of complaints about a lack of prescription medicines at the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSSTE), which handles welfare for state employees. The government pushed through a reform of the ISSSTE in 2007, arguing that unless it reformed the ISSSTE the organisation would run out of medicines. The growing belief that the ISSSTE reform has achieved little or nothing undermines the government's other claims (never believed by us) that it has also pushed through transformational reforms in other areas. 

One revisionist view of the presidency of President Carlos Salinas de Gortari (1988-1994) is that his economic reform initiatives, principally the introduction of the North American Free Trade Agreement (Nafta) in 1994, which meshed Mexico into the US supply chain, laid the basis for the fast growth of the Zedillo years. Although 1995 was a write-off (thanks to a devaluation in December 1994), the economy bounced back and recorded the best postwar rate of GDP growth, 7.2%, in 1997.  Stripping out 1995, the average annual rate of growth in Zedillo's six years was 5.3%. Since 2000, Mexico's average annual growth rate had struggled to get above 1.5%.

Mexico's economy is horribly vulnerable to what happens in the US. Between 1995 and 2000, manufactured exports (of which up to 85% go to the US) increased by an average of 16% a year. In 2010, they were up 29.5%, compared with 2009.
In January 2011, exports rose 28% year-on-year to reach US$24.59bn. This is the highest figure for any January since records began. The year-on-year rate of growth was the highest since September 2010.

It is highly unlikely that exports to the US can keep on rising at the 2010 rate. There are two reasons for this. The first is that the winds behind the US economy have become gustier, so growth there may be a bit worse than it was in 2010. The second is that the security situation in northern Mexico, especially in the heavily industrial state of Nuevo León, has deteriorated over the past 12 months. Mexican companies, let alone US companies, are starting to avoid doing business in Monterrey, the increasingly violent state capital and the industrial heart of northern Mexico.

This problem, and its effects on investment decisions, could have long term implications for Mexico. The maquiladora belt, along the US border, has long been the best performing part of the economy, thanks to the appetite of US importers. Mexican economic policymakers had hoped that the maquilas' links to US end-users would enable them to gradually source more of their components and intermediate products from Mexican suppliers. This has barely happened. Most of the components used in Mexican manufactured goods are still imported from the US. Without a responsive Mexican supply chain, the Mexican maquilas can only really compete on price and convenience. Both selling points are now vulnerable. The violence is also a major threat to convenience.

The Mexican peso has been one of the strongest currencies in the region this year, trading at between M$12.1 and M$12.2 to the US dollar. That currency strength hurts Mexican competitiveness.

Tax breaks: On 14 February President Felipe Calderón infuriated the opposition Partido Revoucionario Institucional (PRI) by stealing one of their tax plans: the right to charge off education costs against income tax. The break is backdated to 1 January 2011, and so will provide a bit of boost to consumption.

The reform sets maximum annual deductions of M$14,200 (US$1,180) for pre-school payments, M$12,900 for primary school payments, M$19,900 for high school payments, M$17,100 for vocational studies payments and M$24,500 for undergraduate level payments. The government reckons that the move will help 3.3m students in the private education sector.

The opposition parties criticised the government's populist move on two fronts. The first was that by issuing a decree of a budget issue, the government was undermining congress, whose lower house vets public spending. The second line of attack was that the measure was unaffordable, as tax revenues will fall.

Inflation: The consumer price index was 0.49% in January. This was better than most local economists had expected. The 12-month inflation rate was 3.78%, down from 4.4% in December.

The good data also prompted the Banco de México to lower its inflation forecast for the first quarter of 2011 and to raise its GDP growth estimate for the year to a range of between 3.8% and 4.8%.

There must be some doubt, however, about whether inflation will remain low. The cold weather in northern Mexico in January has seriously damaged crops: the state of Sinaloa, a major maize producer, has reported that 500,000 hectares of maize may have been destroyed by the cold. Surprisingly in January, given the cold, the price of many fresh vegetables fell.     

Speculative flows: On 25 February, the Banco de México reported that financial inflows exceeded foreign direct investment (FDI) in 2010. This was the first time in 17 years that speculative inflows (which the central bank put at US$23.8bn) exceeded foreign direct investment (FDI, of US$17.2bn, according to the central bank). The inflow has contributed to a strengthening peso, which has appreciated 5.5% against the US dollar in the past 12 months.  Businessmen in Mexico fear that the peso strength is pricing them out of export markets. They note that while the peso appreciated, the Brazilian Real has barely budged against the dollar over the past 12 months, while the Chilean peso and the Peruvian Sol have both fallen marginally.

Local economists claim that the financial inflows have mostly gone to support domestic bank liquidity, so if the money were to be yanked out, some Mexican banks could face problems. The other potential economic danger is that inflation could jump in Mexico if the capital flows reverse and the peso comes under pressure.

Historically, the final two years of the six-year Mexican presidential administrations have created economic problems which either detonate before the elections (1982) or immediately after (1994). The next scheduled elections in are in July 2012.

FDI: In 2010 FDI was US$17.7bn, up 17% over 2009, according to preliminary figures from the Secretarí­a de Economí­a. The 2009 figure is also 53% higher than previously reported: the ministry's earlier estimate was US$11.4bn.

“No respectable president would allow a person in his territory to organize violence in another country […] Mr. Mbeki is not respecting international law."
Haiti's interim prime minister Gérard Latortue commenting on the decision by his South African counterpart Thabo Mbeki to offer asylum to former Haitian president Jean-Bertrand Aristide.

“We've decided to drive the candidacy of a Guatemalan (former ambassador to the UN, Gert Rosenthal) to the post of OAS secretary general […] we're going to look for the support of the rest of the Central American countries until we reach a consensus."
Guatemala's President Oscar Berger.

“To suspend suggests that things can either go on or come to an end. It's a decision of direction."
The moderate FMLN mayor of San Salvador, Carlos Rivas Zamora, trying to explain the decision of the FMLN to quit a key 
negotiating table with the government.

Haiti's president-elect René Préval will not be sworn in as scheduled on 29 March. The reason for the postponement is that the provisional electoral council (CEP) has been unable to deal with all the complaints from the first round of the legislative elections in time for the second-round run-off for the senate and lower chamber seats to be held on 19 March. If there is no legislature in place, there will be no-one to take Préval's oath.

The president of the nine-member CEP, Max Mathurin, said that the run-off, which will pit the two leading candidates for each of 30 senate seats and 99 lower chamber seats against one another, would have to be postponed until 23 April because complaints were only just being processed.

Allegations of fraud also surrounded the presidential elections on 7 February which were eventually awarded to Préval after some skilful, if legally questionable, arithmetic pushed him over the 50% plus one threshold required to win in the first round. Préval might have to wait until May to take office unless another ingenious compromise is reached.

In the meantime Préval has a hectic foreign agenda. He visited Brasí­lia on 10 March to meet Brazil's President Lula da Silva before moving on to Santiago, where he attended the investiture of Chile's president-elect Michelle Bachelet.

He will visit the US on 27 and 28 March when he will meet US President George W Bush and officials from the Organization of American States, World Bank and IMF. He will also visit the UN. He is expected to cram in a visit to Venezuela to meet President Hugo Chávez too.

What now for Aristide?

Préval took his time before addressing the press for the first time after he was proclaimed winner. He might have been preparing his response to the question he knew he would face: "What do you intend to do about former president Jean-Bertrand Aristide?"

When the question came, he was ready. "My position is simple on President Aristide and any other citizen who wants to come to Haiti. Article 41 of the Haitian constitution says that no Haitian needs a visa to enter or leave the country," Préval said. This response enabled him to avoid saying whether he would welcome Aristide home, still less whether Aristide would play a part in his future government.

The US has made it clear that it would prefer Aristide not to return. The spokesman for the State Department, Adam Ereli, said that the US did not consider Aristide's return a good thing as it would serve no purpose. "Aristide is from the past, we're looking to the future," Ereli said.

Aristide, speaking from his exile in South Africa, has made his intention to return very clear. "I have the right to be back. My determination is to be back in education, serving the people; not as a member of the public service but as a citizen. I am confident I can serve my country without being involved as president," he said.

Aristide also hinted that Préval would not be taking office if it were not for his close association with him in the past. He said: "The people voted the way they did because they wanted me back."

The Panamanian government continued the drive to reform the country's penal code in May and, according to leaks, is also planning to reform the police. For the opposition the measures reveal that President Martí­n Torrijos is attempting to resurrect Panama's authoritarian past. 

The opposition's charge may sound like a paranoid fantasy. However, Torrijos has recently sanctioned several tough anti-crime measures after his Partido Revolucionario Democrático (PRD) managed to push changes to Panama's civil code in congress. The opposition claims that these are "Big Brother measures" that gave more powers to the government and the PRD to clamp down on critics and stop corruption investigations. Indeed, in March we reported that Panamanian journalists complained that three governmental proposals regulating the circulation of information limited press freedom and undermined investigative journalistic activity in the country. [RC-07-03] These proposals are being reviewed by Torrijos. 

More concerning, however, are reports in the local press suggesting that the government is planning to dissolve the Policí­a Técnica Judicial (PTJ). The PTJ works under the jurisdiction of the attorney general's office, which is independent from the government. According to these reports, the government wants to transfer most of the PTJ to the Policí­a Nacional (PN), which is part of the ministry of government and justice. In effect, this would give Torrijos much more influence on the work of the police as the ministry of government and justice is directly controlled by the presidency. Ricardo Martinelli, the president of the opposition Partido Cambio Democrático, said that the move would lead Panama "down the path of civilian dictatorship". 

Torrijos is also said to want to merge the national maritime and the national air services, currently under civilian management, into a single Guardia Costera under a new kind of hierarchy similar to that of a traditional armed force. The government claims the Guardia Costera is necessary to guarantee the security of the Panama Canal and to fight drug trafficking and terrorism. The opposition, however, believe this is evidence of a PRD plot to give more powers to Torrijos -who is certain to seek re-election in 2009 - involving individuals linked to the authoritarian military regime that ruled Panama in the 1970s and 1980s. The fact that the PDR supported the military regime and that one of its leaders was Torrijos's father, General Omar Torrijos, make the claims sound not so implausible. 

• New toll charges
  The Panamanian government approved new toll charges for the Panama Canal in late April despite opposition from the waterway's users. The government decided to back the increase, adjusted by the Panama Canal's Authority (ACP) back in February, and announced the new toll fees "will be increased gradually" from July. The government expects the new fees will bring an additional US$500m in taxes in the next three years. The revenues will be used to finance the canal's US$5.2bn expansion project.
  

The elimination of sanctions against Cuba by the European Union (EU) at the end of last month [RC-08-06] did not result in the political dialogue some had hoped for. The lack of an official response from Raúl Castro's government, the recent crackdowns on dissidents on the island, and the condemnation of the new EU immigration directive are unlikely to improve Cuba-EU relations. Meanwhile, divergences in the approach adopted by the president and his predecessor and brother Fidel with relation to the EU directive have been seized upon as symptomatic of tensions within the Cuban Communist party.

The EU's decision to drop the sanctions - which were imposed in 2003 after the last major repressive wave by the Castrist regime which left 75 dissidents, intellectuals and journalists imprisoned - was met with indignation by Cuban dissidents. The sanctions, suspended since 2005, were finally eliminated after much debate on the basis that the EU could perceive an improvement in human rights on the island.

Martha Beatriz Roque, of the Asamblea para Promover la Sociedad Civil en Cuba, complained that “by turning a blind eye" the EU had effectively encouraged the Cuban government to continue imprisoning dissidents and violating the human rights of its people. The moderate opposition movement Arco Progresista, however, approved of the EU's decision. Its leader, Manuel Cuesta Morúa, said that the Cuban government no longer had any excuse not to hold meaningful political dialogue.

Fidel Castro promptly responded to the announcement by accusing the EU of “enormous hypocrisy" by reaching out to Cuba at the same time as the European parliament approved a “brutal measure" on illegal immigrants. He said the measure would punish Latin American countries, which - he added - are made up primarily of European emigrants. His outspoken attack may have been due partly to a clause inserted in the EU resolution to eliminate sanctions at the behest of the Czech Republic (which sees Cuba as an unrepentant Communist dictatorship) promising to review the situation in June 2009. Implicit in the clause is the suggestion that Cuba should reciprocate the EU's gesture by releasing more of the 75 political prisoners it summarily sentenced in 2003, 55 of whom remain behind bars.

The government response to the new immigration law was more measured than Fidel's. Yet, only three weeks after the lifting of sanctions, the Cuban congress approved a resolution on 11 July condemning the EU's “return directive".

Crackdown
In what could be seen as a gesture of defiance, within hours of the EU announcing the elimination of sanctions, the Cuban government had arrested seven political dissidents. Then, on 2 July, the ministry of exterior relations issued a statement denouncing “provocations" by the US Interests Section in Havana (USINT) - namely its support for members of the opposition - and threatening that there could be “consequences" if it continued to interfere in the country's internal affairs.

The statement warned that the government would not tolerate public expressions of dissidence, and they were not empty words: between 3 and 6 July some 60-80 dissidents were targeted by the police. Of these, however, only 30 or so were detained for any length of time before being released. According to Elizardo Sánchez, leader of the Comisión Cubana de Derechos Humanos y Reconciliación Nacional (CCDHRN), the police adopted a number of tactics to intimidate dissidents in order to prevent them from attending a meeting of the coalition platform Agenda para la Transición on 4 July and from participating in the celebrations for US Independence Day at the USINT office.

Splits within the Communist party?
The divergent response to the EU immigration directive from the government and Fidel Castro was seized on by some as evidence of a schism within the Communist party, suspicions fuelled further after Fidel issued an explicit denial that this was the case.

He also took pains to eulogise Raúl's reforms, and his praise was reported by state television on 24 June. “Fidel highly values the efforts of the leadership of the Revolution and in particular Comrade Raúl in the areas of unity, labour productivity, [and] the increase of agricultural production_ which are very important," it said.

This was significant because Fidel's opinion pieces, published in official daily newspaper Granma, often appear to be at odds with the reform agenda being enacted by Raúl to improve efficiency - the latest initiative being to boost production by providing greater incentives to workers and removing the salary cap, arguably undermining some of the core tenets of Socialism [RC-08-06].

Fidel's denial that there is infighting within the Communist party was unprecedented. There was never any official recognition of internal factions while he was in power, but his comments imply that they do indeed exist. Rumours will persist, particularly if Fidel's activities continue to increase - in recent weeks, the former president has entertained the leader of the Chinese Communist party, He Guoqiang, Venezuela's President Hugo Chávez and Uruguay's President Tabaré Vázquez.

Raúl has reciprocated his brother's attempts to quell rumours of divisions; on 13 July, he gave a speech before the national assembly, at the meeting for the first of its brief biannual sessions outlining various reforms (see sidebar). He made a point of emphasising that his speech had been pre-approved by Fidel, who had told him that it was “perfect".

• Taxis

Jorge Luis Sierra, Cuban minister for transport, announced on 8 July that Raúl Castro's government is to allow private taxi drivers to apply for licences to operate for the first time since October 1999. Paradoxically, although this may be good news for taxi drivers - most of whom have been forced to work illegally since new licence applications were suspended in 1999 - the measure is unlikely to improve freedom of movement for Cubans. Sierra said licences will be granted mainly in rural sectors, and some urban areas, to fill the gaps in the service offered by local bus services. “We will give [the taxi driver] the fuel, fix the tariff to be charged, and fix the route and schedule," he said.

• Pension reform

In his speech before the national assembly at the first of its biannual meetings, President Raúl Castro announced a pension reform, including an increase in the retirement age, to be rubberstamped by the national assembly in December. The retirement age will be lifted by five years, to 65 for men and 60 for women in response to demographic change, with official data indicating that by 2025, there will be 770,000 fewer citizens of working age than now.

Last month the supreme electoral court (CSE) authorised four alliances and three parties to compete in the scheduled March 2010 regional elections for the North Atlantic Autonomous Region (Raan) and the South Atlantic Autonomous Region (Raas) on the Caribbean Coast. The vote is the first test of  the country's heavily discredited electoral authorities since the November 2008 municipal elections, which saw the ruling Frente Sandinista de Liberación Nacional (FSLN) accused of widespread fraud.

Of the various political groupings, the only parties with any support on the Caribbean coast, which is home to various indigenous groups including the Miskitos, Mayangnas and Afro-Nicaraguans, are the FSLN (heading an alliance which includes the indigenous Yatama party) and the nominal opposition party of former president Arnoldo Alemán (1997-2002), the Partido Liberal Constitucionalista (PLC). The FSLN currently controls the Raan and the PLC the Raas.

The contest is attracting interest from the international community, not so much in terms of the battle between the different parties but rather the electoral process itself, given the outcry over by the November 2008 vote, which took place in the absence of authorised international and local monitors. This resulted in the US definitively culling US$62m (of a total of US$175m) in aid to the government of President Daniel Ortega through the Millennium Challenge Corporation (MCC). The European Union (EU) also withheld US$75m in funds amid transparency concerns. In early September, the EU confirmed it would release a US$10m loan for education as a gesture of “goodwill" in light of the progress made towards restoring credibility to the CSE. However the onus remains very much on Ortega to ensure that this confidence - which appears borne out of assurances regarding electoral observation - continues.

The Caribbean coast elections will also prove a test of support for the indigenous Miskito independence movement, led by the Miskito Council of Elders in Bilwi, the provincial capital of the Raan. The Miskito Council had announced in April this year that it was seceding to form an independent Nación Miskito and consequently would not recognise the elections [RC-09-05].

• Opposition flailing

In a recent voter survey by pollsters M&R Consultores, 50.3% of respondents considered themselves “independent" and unaffiliated with any political party. The survey put the ruling FMLN on 32.8% support, below the 38% with which it won the 2006 presidential election; the opposition PLC on 9% and the party of opposition leader, Eduardo Montealegre, Partido Liberal Independiente-Vamos con Eduardo, on 5.4%. The survey of 1,600 people was carried out between 23 September and 2 October and had a 2.5% error margin.

On 14 February the government announced that it would hold tenders to double the country's electricity generation capacity. The tenders for 800MW of generating capacity are due to come on stream by 2015.

Carlos Colom, the president of Comisión Nacional de Energí­a Eléctrica (CNEE), claimed that no previous government had ever tried anything as ambitious.

Colom said that 60% of the new capacity would be in the form of renewable energy. He added that companies from the US, Europe and South America had expressed an interest in taking part in the tender. Colom expected the tender to close this October and that the winners would have completed their projects to deliver the new power schemes by 2015. Currently 80% of the country's electricity is generated by the state-owned Instituto Nacional de Electrificación and the Empresa Eléctrica. They provide a total of 653MW in generating capacity. The private sector provides 170MW in generating capacity.

Food imports: The government has waived tariffs on 25,000t of wheat flour imports from the US in an effort to prevent food prices surging uncontrollably. Since the beginning of 2011 flour prices have increased by 18%, pushing up bread prices. At the beginning of February the government waived tariffs on imports of 82,000t of maize from Mexico. This move was also designed to prevent the price of maize products rising. Maize prices jumped by 15% in the final week of January as traders feared shortages.

Inflation: In January the consumer prices index rose by 0.82% bringing the lagging 12 month rate to 4.9%.

Argentina's President Néstor Kirchner has replaced his central bank governor, Alfonso Prat-Gay. In a surprise move, the government decided not to renew Prat-Gay's tenure, which expired on 23 September. He has been replaced by the current secretary of economic relations at the foreign ministry, Martí­n Redrado.

Another power play?
The government did not give any reason for Prat-Gay's departure, but there is no way that his performance in office was to blame. He has gained plaudits at home and abroad for managing inflation in Argentina, bringing it down from around 40% when he took over in late 2002 in the wake of devaluation to its current level of around 4%. His ability to control inflation without restricting growth endeared him to the financial markets, which reacted poorly to Prat-Gay's removal . Such dissatisfaction was heightened by the strong suggestion Prat-Gay had been the victim of the kind of power struggle which has come to define Kirchner's presidency.

The president said later that Prat-Gay 'didn't want to carry on' in his job, but such an explanation belies the clash of ideas which occurred when the pair met on 16 September to discuss the management board of the central bank which was up for renewal. Prat-Gay is believed to have wanted to promote his spokesman Pablo Curat and generally to increase the bank's independence from the government. Kirchner wanted the exact opposite. As tends to be the case, Kirchner got his way. Four other directors of the bank, including the vice-president Pedro Lacoste, were fired and replaced by allies of the president. 

At the same time, it was also suggested that Prat-Gay's position was no longer tenable because of his opposition to the way Argentina was handling negotiations over its US$88bn defaulted commercial debt. The central bank governor had, however, only once criticised the process in public even if he did disapprove in private. And while that comment did rile the economy minister, Roberto Lavagna, the relationship between the two men at the centre of Argentina's finances was positively rosy compared to that of their predecessors. Before Prat-Gay arrived, public clashes between their respective institutions were par for the course and four central bank presidents had been fired within 18 months.

Soaring number of political parties

Despite apparently losing all faith in their politicians as a result of the 2001 economic collapse, Argentines now have a record 696 legally recognised political groups from which to choose. At the start of 2003, the number stood at just 122. The reason for the sharp rise is legislation passed in June 2002 which made it far easier for parties to survive. The legislation scrapped the requirement whereby parties which gained less than 2% of the vote in two consecutive national elections lost their legal recognition. Optimists say that the surge in parties (41 of which operate at a national level and the rest of which are regional or specific to certain sectors and industries) is a sign that Argentines are engaging with the political system again. Critics point to the fact that many of these parties are single-issue pressure groups which contribute nothing to the wider national debate. They also serve to slow down the democratic process with a variety of self-serving alliances; in the chamber of deputies alone there are some 40 different blocs. It is also a cause for concern that all 700 or so political parties are entitled to money from the budget.

The new finance minister, Guido Mantega, argued on 20 April that disappointing tax receipts for March and even more disappointing retail sales figures for February, should not raise doubts about the state of the economy. The tax and retail sales figures were published on the same day as the central bank's monetary policy committee, Copom, announced its decision to cut rates by 0.75 of a percentage point. The publication of the Copom minutes on 27 April, was another dose of bad news. The minutes indicated that future interest rate cuts were likely to be smaller than the 0.75 point cuts of the last three Copom meetings. 

The March tax figure was flattered by one-offs such as the clearing of arrears by companies and an increase in capital gains taxes. Without these, the March fall in tax revenues would have been even more pronounced than the 0.9% fall in real terms, year-on-year. What concerns local analysts is that receipts are falling just as the government starts to spend. Whether the government likes it or not its spending will jump in May when the new minimum wage starts to be paid. 

Retail sales in February fell by 4.13% compared with January. For the first two months of the year retail sales were down by 1.95% on the same period of 2005. To be fair, retail sales are volatile. In January, they were up by 4% on December 2005. Year-on year, retail sales in February looked better, up 5.4% in volume and almost 8% in value. For the first two months, volumes were 6% up on the same period of 2005 and the value of sales was almost 9% higher. On the other hand, capital investment is weak. The number of agricultural machines sold in Brazil in the first quarter of 2006 fell 40% compared with the same period last year and was 80% down on the first quarter of 2004.

The IMF has also shown some doubts over the government's pledge to maintain fiscal austerity, and warned President Lula da Silva not to be tempted to ramp up public spending ahead the October general election. The weaker the economy looks, the greater the temptation for the government to try to generate a feelgood factor. It should be emphasised, however, that so far the government is still on track to meet its 2006 fiscal target of 4.25% of GDP. In the 12 months to February, Brazil posted an operating budget surplus of 4.38% of GDP. This is down from a surplus of 5.2% of GDP as recently as September 2005. 

Mantega rebuffed the doubts expressed by Fitch and the IMF. Mantega's arguments, however, seemed to confuse stocks and flows. He claimed that the latest data would show that Brazil has already achieved 40% of the budget surplus target for 2006. The analysts' worry is that increased spending and dwindling inflows will threaten the annual target. The determining factor in deciding whether the government will hit its 4.25% of GDP target is likely to be the performance of state-owned companies. Companies such as Petrobras and Banco do Brasil could have banner years (and should do if interest rates fall) which will help the government hit its target.

Copom: The Copom cut rates on 19 April to 15.75% annually, the lowest level in five years. This was the seventh consecutive cut and was agreed unanimously by the committee's members. Most analysts believe that the central bank will meet its 4.5% inflation target for the year.

Unemployment: In March unemployment reached 10.4% of the urban workforce, up from 10.1% in February and 9.2% in January. Still the average rate for the first three months of the year (9.9%) is better than the 10.5% registered in the first quarter of 2005.

The Banco Central de Paraguay announced on 18 September that it would not intervene in the foreign exchange market to break the fall of the dollar against the guaraní­. The president of the central bank, Germán Rojas, said that the bank did not want to distort the exchange rate. 

The dollar has fallen heavily in the past three weeks. On 24 August, the dollar fetched G$5,128. By mid September it was down to G$4,980. 
Rojas claimed that the dollar usually weakens at this point of the year as dollar export receipts from the soya crop, beef and remittances flood into the local money markets. The bulk of the US$600m Paraguay gets every year from expatriates comes from the US and Spain. 

Exporters are unhappy at the slide of the dollar. The Federación de Cooperativas de Producción said that the dollar's weakness was hurting competitiveness. More likely, it is squeezing their margins. Businessmen want the central bank to buy dollars to help them. Rojas said that the only businessmen who were being badly squeezed were those in the textile industry. 

Rojas said that the traditional exporters were benefiting from surging commodity prices. He noted that wheat producers were now getting over US$300 a tonne while maize prices were now US$140 a tonne. A year ago they had been between US$80 and US$90 a tonne. 
Inflation: Inflation surged by 3.4% in August, well above the 0.4% rate in July. This brought the 12 month rate to 10.9%. In 2006 the rate was 12.5%. 

The former president (1994-2000) and political heavyweight, Eduardo Frei (of Democracia Cristiana, DC) recently launched his campaign for the ruling Concertación primaries, scheduled for April, where he will face José Antonio Gómez of the Partido Radical Socialdemócrata (PRSD). Frei has the support of three of the four parties comprising the ruling alliance and, with polls indicating that the presidential candidate for the rightwing opposition, Alianza por Chile, Sebastián Piñera, is still the firm favourite, Gómez is under heavy pressure to step aside.

Polls - Separate polls, published in the left-leaning daily La Tercera on 28 February and in the rightwing El Mercurio the following day, showed Piñera leading Frei by 39%-19% and 47.6%-37.7%,respectively. The survey by La Tercera interviewed 686 people in 49 towns while the El Mercurio poll surveyed 800 people in urban areas across the country.

Both surveys came in the wake of  intense campaigning efforts by Piñera across the country last month. While the poll in La Tercera showed the rightwing candidate's backing up from 38% in January, while Frei's dipped from 21%, the survey in El Mercurio suggested a greater increase in support for Frei compared to the previous month (four percentage points compared to 0.6 percentage points for Piñera).

Both polls have fuelled calls from the leaders of the other Concertación parties (in particular the DC, and Partido Socialista [PS]) for Gómez to step aside and leave the presidential nomination to Frei, who kicked off his campaign for the primaries on 28 February in Talca, some 250km south of the country's capital.
The DC and PS complain that the battle for the primaries is consuming valuable energy, which should be directed at defeating Piñera. Gómez has little chance of success in the primaries; in the La Tercera poll 17% said they would vote for Goméz in Concertación primaries compared to 72% for Frei, while only 1% backed him as presidential candidate. The El Mercurio survey showed that only 3% of those questioned would vote for him as president.

Gómez, however, has insisted that he will not step down, billing himself as the more progressive option and insisting on the need for debate. Some consider his insistence on standing an attempt to raise the public profile of the PRSD, the smallest of the Concertación members. Cynics have also suggested that Gómez could step aside if the party is offered enough deputy and senatorial posts during the negotiations over the allocation of legislative candidacy positions among the four parties [RBS-09-02]. Most recently, an agreement was struck on 2 March between the four Concertación members over an addition to the regulations governing the primaries which would appear to signal an end to the controversy over Gómez's refusal to stand down. This amendment states that if the difference between the two candidates amounts to 20 percentage points or more, the frontrunner will immediately be declared the winner and further rounds suspended.
Election issue Frei is nevertheless using his primary campaign for wider political ends, taking the opportunity to publicise his electoral platform and highlight his policy differences with Piñera. He has focused particularly on his proposed measures to tackle the economic crisis, an area in which he differs markedly from his opponent.

During his campaign kickoff in Talca, Frei underlined his belief in the role of the state in addressing the crisis, in contrast to Piñera, who stresses the role of small- and medium-sized businesses. Here, Frei is arguably capitalizing on continued support for the government in its handling of the economic crisis; a survey at the start of February, which gave President Michelle Bachelet her highest approval ratings in two years (53.1%), indicated that 48.4% of respondents approved of her handling of the economy. Both Frei and Piñera are expected to reveal a series of proposals for tackling the crisis over the next few days.

Legislative agenda - With the government in an electoral year, the opposition is grumbling that the Concertación is using the legislative agenda for electoral ends, with complaints directed in particular at a bill to amend the voting system prior to the December contest. These reforms include allowing Chileans living abroad (of which there are just over half a million, mostly in Argentina or the US) to vote (currently a right denied); allowing voluntary voting (voting is mandatory, although registration is not) and automatic registration. The opposition opposes the changes, which would considerably widen popular participation in the electoral process, as they would most likely damage its chances - for example Chilean expatriates include dissidents forced to flee under the Augusto Pinochet dictatorship (1973-1990), while automatic registration would incorporate younger voters, more likely to be left-leaning.

The other item on top of the legislative agenda is a bill which requires those seeking public office to place any business interests in a so-called "blind trust", whereby a third party administers the assets while the owner holds public office. The government is proposing that the bill, which was first brought before congress in March 2008, be amended to tighten regulations on politicians with shares in companies that have dealings with the state, or are regulated by the state. This proposed move was decried by the opposition as an attack on the billionaire Piñera, who has a 27% stake in the flagship Chilean airline LAN and control of the television channel Chilevisión, among other interests.

Bachelet visits Cuba 

In what was undoubtedly one of the most publicised events of the year so far, Bachelet visited Cuba  in February, the first visit by a Chilean leader since the leftist Salvador Allende in 1972.   Although the build-up had been fraught with problems over Bachelet's refusal to meet Cuban dissidents [RBS-09-01], once on the island, the trip initially went smoothly. In a concerted effort to endear herself to her hosts, she not only refrained from alluding to human rights abuses allegedly perpetrated by the Cuban government but was also robust in her criticism of US sanctions against Cuba. While she met Cuba's President Raúl Castro, where both signed bilateral cooperation accords on agriculture and livestock, health and biotechnology among other areas, the highlight of her trip was clearly her 90-minute meeting with former leader, Fidel Castro. 

Bachelet's problems escalated upon her return to Santiago however, when hours after their meeting, Fidel penned one of his “Reflections" columns declaring that “Bolivia suffered an extraordinary historic humiliation" when Chile “tore away its coastline" in the 1879 War of the Pacific, a move which deprived it of extensive and very rich copper deposits that constitute the biggest reserve in the world […] bringing the Chilean economy some US$18.45bn a year."     His remarks, which were publicly welcomed by Bolivia's President Evo Morales, caused a political nightmare for the Chilean government. Chile maintains the issue with Bolivia is purely bilateral and the failure of Chile's foreign minister, Alejandro Foxley, to extract a communiqué from the Cuban government stating that Castro was not expressing the official view of the Raúl Castro administration aroused considerable contempt from the opposition and right-wing Unión Democrática Independiente (UDI) in particular.

• Anti-terrorism law In a move unprecedented since taking office in 2006, in February the Bachelet government  invoked the anti-terrorism law against a Mapuche militant, Miguel Angel Tapia Huenulaf. He was charged under the law, inherited from the Pinochet era, for his alleged involvement in the bombing of an office of the public prosecution service last December; and for possession of weapons, explosives and terrorist material. While left-wingers lambasted the move, the government argued it was necessary on the grounds that it was the first time a sufficiently serious threat had been encountered.
  

The Brazilian economic miracle continues apace, with the financial markets barely pausing over the surprise first round election result. Although there are concerns over the statist policy approach expected from the leading presidential contestant going into the second round run-off, the government candidate Dilma Rousseff, arguably, the opposition candidate José Serra represents a bigger unknown.

On 5 October, two days after the first round, the government lifted the tax on financial transactions (IOF) on foreign purchases of fixed income securities to 4.0% (from 2.0%) in an effort to stem the rise in the Real. The currency has surged this year on the back of a weaker US dollar, strong domestic growth and Brazil's commodity export bonanza and on some measures is now the most overvalued currency in the world. It came under additional upwards pressure in September on the back of the record breaking public share offering by the state oil company Petrobras. The central bank dramatically stepped up its US dollar purchases in an effort to cool the Real, to little avail.

Ahead of the 31 October run-off, José Serra argues that Brazil's high interest rates are partially to blame for the strength of the Real. Serra rattled investor nerves earlier this year with a rather non-committal stance on the nominal (but not formal) central bank autonomy. Fiscally conservative, he argues in favour of a comprehensive tax reform in order to lower Brazil's structurally high interest rates and reduce pressure on the Real, allowing for more export led growth and a much needed increase in domestic savings. Yet he also promised to lift the minimum wage 18% in 2011. Arguably, that promise, along with his proposed tax reductions, could risk overstimulating the Brazilian economy, leading to a bubble akin to the one just seen in Western economies.

Dilma Rousseff also argues for tax reform, albeit more limited, but she has been more explicit about leaving monetary policy in the hands of the hawkish central bank. She is also committed to the primary fiscal surplus target of 3.3% of GDP. While there are doubts about the PT government's 'use' of the primary surplus target to conceal an expansionary underlying fiscal stance, Serra is the one that will most need to clarify his economic policy stance in the second round debates.

Brazil fed up with weak global currencies
On 15 September, Brazil's finance minister Guido Mantega criticised Asian economies for deliberately running weak exchange rate policies. The strength of the Brazilian Real is eating away at the balance of payments position, driving up imports and hindering export growth. The trade surplus in the first eight months of 2010 was US$11.67bn, down 41.3% year-on-year.

Japan intervened in the foreign currency market for the first time in six years in mid September, buying US dollars to try to weaken the yen and lower the price of Japanese exports. It followed this up in early October with a cut in the benchmark interest rate to virtually zero. The yen has risen around 10% against the US dollar this year to reach a 15-year high, and Prime Minister Naoto Kan, recently re-elected, is under intense pressure from the local private sector.

Mantega signalled that Brazil “would not keep quiet" in the face of what he called a “currency war", a deliberate policy by Asian governments, as well as the US treasury, to artificially devalue their currencies in an effort to export their way out of the global crisis.

The minister said that there were several options on the table, including the use of the country's sovereign wealth fund to mop up dollars from the Petrobras offering, as well as reverse currency swaps, under which the central bank would buy dollars in the futures market. Under these instruments, the central bank would pay investors the Brazilian overnight interbank rate (10.75%), in local currency and receive a fixed rate in US dollars, an expensive way of sterilising excess dollars.

Its unlikely that the latest rise in the IOF will be enough to stem the Real's strength. As we went to press on 5 October it was at R$1.67/US$,   its strongest level since 2 September 2008 (before the global crisis), prompting the IMF to issue a stern warning that the 'currency war' between Western economies risked derailing the still nascent global economic recovery. Brazil's international reserves were at a record US$278.8bn on 4 October, on central bank figures.

• Petrobras breaks all records
  The Petrobras public share offering on 23 September raised R$120.4bn (US$69.97bn) making it the biggest-ever equity issue. The result surpassed the record established by Nippon Telegraph, which raised US$37bn in 1987; and was also well above the US$22.1bn raised by the Agricultural Bank of China earlier this year. The Petrobras board issued 2,294m ordinary (voting) shares priced at R$29.65 each (US$17.24) and 1,788m preferential (non-voting) shares at R$ 26.30 each (US$ 15.73). The capitalization increased the Brazilian government's capital stake in the company from 39.8% to 48%.

ECONOMIC OVERVIEW: BOLIVIA

The Unidad de Análisis de Polí­ticas Sociales y Económicas (Udape) forecast on 21 January that the economy would grow by 4% in 2005. Another business and economic commentator, the Cámara de Exportadores de La Paz, forecast that export revenues would be over US$2.5bn. The Udape reckons that growth in 2004 was better than expected because of the strength of the world economy. Udape admits that world growth this year is unlikely to match 2004's 5%, but nevertheless it is confident about Bolivia's prospects. Growth in 2004 was probably around the 4% mark, signalling an end to the four-year recession which had plagued the economy. OUTLOOK The Cámara de Exportadores de la Paz is equally bullish. It reckons that export revenues in 2005 would be up by at least 10% in 2005. According to Udape, exports came to US$2.073bn in 2004. The official figure, published on 25 January by INE, was US$2.16bn. This represents a 36% increase on 2003. The country's three main exports are hydrocarbons (principally gas) soya and timber. Informal economy: The Udape said that the country's informal economy was the biggest in the world as a proportion of the total economy. Inflation: Although the government is aiming for 3% inflation for the whole year prices rose by 1.37% in January.

Given the amount of effort President Hugo Chávez expended in his bid for a non-permanent seat on the UN Security Council, Venezuela's failure to win two-thirds of the vote in the General Assembly must have been particularly galling. Venezuela's ambassador to the UN, Francisco Arias Cardenas, refused to acknowledge it as such, describing US-backed Guatemala's failure to win as a lesson for Washington. The US, however, was clearly delighted; its ambassador, John Bolton, labelling Chávez 's "devil" speech at the General Assembly a few weeks earlier an act of "podiacide", a word meant to signify shooting oneself in the foot.

After 47 rounds of voting, neither Guatemala nor Venezuela were able to break the deadlock, though Guatemala was ahead of the South American country in all but one round, which was tied. Panama emerged as a consensus candidate as the result of a meeting held on 1 November between the Guatemalan and Venezuelan foreign ministers, who in previous meetings had been unable to come to an agreement over a course of action acceptable to both countries. Previous countries mooted for the post included Bolivia and the Dominican Republic.

Although there was some dissension from Chile and the English-speaking Caribbean, Panama appeared set to become the new member of the UNSC after the Brazilian and US governments backed its candidacy. The Brazilian government "congratulated Guatemala and Venezuela for its spirit of agreement". In a race which has been portrayed by the media as a battle of competing visions for the future of the UN between US and Venezuelan allies, it is fair to say that with the election of Panama, whose government is pro-US and pro-Cafta, Venezuela clearly lost.

The Ecuadorean government in general and the defence ministry in particular are responding to the more nuanced US policy to the Andean group of countries. President Correa and his colleagues are doing this partly to neutralise criticism from rightwing politicians that Correa is another President Hugo Chávez and partly to ensure that the country retains its trade privileges with the US.

The first sign of President Correa's determination to emphasise his differences with Chávez came on 13 January when Correa became one of the first regional leaders to dismiss Chávez 's controversial call for the Fuerzas Armadas Revolucionarias de Colombia (Farc) to be treated as a proper army rather than a criminal terrorist group. Correa criticised the Farc for its policy of kidnapping, arguing that this criminal habit destroyed any claim the organisation had to belligerent status.

The second sign was the success of the visit to Washington by the defence minister, Wellington Sandoval, at the end of January. The defence ministry highlighted the fact that the US had praised Ecuador's anti-drugs efforts during Sandoval's visit on 25 January. Few other countries in the region care how the US views their anti-drugs efforts. Indeed, Chávez and leftwingers such as President Evo Morales of Bolivia almost relish the strident US criticism of their anti-drugs efforts, largely because the US claims are often contradicted by data from the UN's Office on Drugs and Crime.

The praise for Ecuador's anti-drugs effort came from Robert Gates, the US Defense Secretary. Sandoval attributed Ecuador's success to the fact that it neither refines nor grows drugs. Sandoval noted that in the past couple of years Ecuador has seized 35t of drugs.

Sandoval also discussed with Gates and Christy McCampell, the assistant secretary in the international narcotics department at the State Department, the way Ecuador is policing its border with Colombia. Sandoval called this Plan Ecuador and implied that, rather than military force, it depended on "soft force", such as cross-border partnerships and economic development, to achieve its objectives.

Sandoval gave more details about Plan Ecuador at a meeting of the Center for Hemispheric Defense Studies. Here he drew sharper contrasts between the Plan Ecuador and the US-backed Plan Colombia, which funds the Colombian government's offensives against the Farc and other drug gangs.

The US government appeared to listen politely to Sandoval's Plan Ecuador but did not come up with any extra money. In President George W Bush's final state of the union address on 28 January, there was a ringing endorsement of the policies of President Álvaro Uribe, who uses the army to deal with the Farc.

Sandoval's cordial reception in the US, however, reinforces the consensus that US foreign policy in the region has become less confrontational since a career diplomat, Thomas Shannon, took over as assistant secretary of state for western hemisphere affairs in 2005. The US's key interest in Ecuador is its lease on the Manta airbase, which expires in 2009. The US uses the base for anti-drugs operations. President Correa has said repeatedly that the lease will not be renewed.

The warmth of Sandoval's welcome in Washington, and the fact that the US government has not ruled out the idea of extending the Andean Trade Preference Drug Eradication Act (Atpdea), which is due to expire at the end of this February, suggests that a deal may be done. If the Democrat-controlled US Congress blocks the free trade agreement with Colombia again, President Bush said in his state of the union speech that he will immediately resubmit it to Congress. If this happens, an extension of the Atpdea will be inevitable in order to avoid penalising Colombia. Ecuador and Bolivia currently benefit from Atpdea.

Correa might also be tempted to make a concession on the extension of the Manta lease, if only to put even more distance between himself and Chávez for domestic political reasons. Correa is under pressure to do that because of a clever campaign by the Right. Rightwing opponents are picking off various elements in President Correa's plans for 21st Century socialism and a citizens' revolution, rather than simply opposing everything en masse.

The new subtlety of the opposition appears to be paying off with the voters. A new opinion poll by Cedatos found that Correa, who has been outspoken about the "oligarchs" (a term of abuse also increasingly used by Chávez to demonise the right-wing opposition) is losing support. The poll found that 72% of the population wanted Correa to tone down his radical rhetoric.

The upcoming 28 July bidding round for three Carabobo concessions in the Orinoco belt, the first in a decade, may be delayed yet again, as interested companies struggle to agree to the stringent conditions being set down by the Chávez government.

The Carabobo round, which is worth an estimated US$60bn-US$80bn in total, was previously postponed by three months from an initial 28 April deadline. Nineteen companies, including Brazil's Petrobras, the UK's BP, the US's Chevron, China's National Petroleum Corp and Norway's Statoil Hydro, paid US$2.0m each for bidding materials in late 2008. The round will create three new joint ventures between international majors and the state oil firm Petróleos de Venezuela (Pdvsa), with Pdvsa holding a majority stake of 60%.

Under the terms set down by the government, the successful bidders would be expected to produce 400,000 barrels of oil each per day, finance the entire US$18-US$20bn estimated development costs of each project, pay an upfront fee of US$500m or more, relinquish international arbitration rights and pay taxes on all income of at least 50%.  

While Venezuela is one of the few remaining oil producers still awarding commercial production rights over its oil (albeit in a minority share and with hefty taxes), the fluid legal environment is a major source of concern. Companies worry that once the fields are up and running, a process that might take a decade, the government will simply turf them out. Most are simply hoping that Chávez will be gone by then.

The Carabobo area contains an estimated 32bn barrels of proven oil reserves, some way above US reserves at end 2007 (21.3bn on US Energy Information Administration calculations). Venezuela hopes that increased heavy crude oil output from the Orinoco belt will replace its declining light crude output in older fields.  

• Pdvsa bonds and government debt

Pdvsa sold US$3.0m in US dollar bonds in the local market in July in an effort to meet financing needs this year. The company is aiming to pay off its pending debt with contractors and suppliers (at least US$7.0bn) shortly. Similarly, the Chávez government has issued BF13.3bn (US$6.18bn) in bonds to date this year, absorbed mostly by local banks. Venezuelan banks increased their holdings of government debt to BF88.6bn (US$41.3bn) to end-June 2009, up by more than 50% from a year earlier, according to local economists, who also estimate that the government may tap local banks for up to one third of its budget needs this year.

On 12 February, the government of President Rafael Correa announced that it would accept a ruling by the International Court of Justice (ICJ) at The Hague in the 18 year old dispute with Chevron. Ecuador's attorney general's office (Procuradurí­a) said that it would abide by the ICJ decision ordering the Ecuadorean government not to take any action to enforce any judgment by an Ecuadorean court against Chevron.

The ICJ's ruling (on 9 February) came just days before a court in Sucumbí­os awarded US$8.6bn in damages against Chevron (on 15 February). The Sucumbí­os court award was for the damage Chevron (or more exactly, Texaco, a company Chevron had taken over) had caused during oil production in the region from 1964 to 1990. The US$8.6bn in damages was the highest ever awarded in an environmental case. Texaco had operated 350 wells during the lifetime of its concession, which was exclusive until 1990 but continued until 1992.

As Chevron has no assets in Ecuador, the plaintiffs - local environmentalists led by a human rights lawyer, Pablo Fajardo, backed by the Ecuadorean government - wanted to use the US courts to extract meaningful damages from Chevron. Chevron, naturally, realised this and argued from the outset in 1993 that the proper forum for deciding the case was Ecuador. In 2002, after seven years of courtroom argument, the Southern District Federal Court of New York dismissed the environmentalists' case, arguing that the case should be tried in Ecuador.

The case was heard in Sucumbí­os and it became increasingly obvious that Chevron was losing. In September 2009, Chevron infuriated the plaintiffs by apparently attempting to switch jurisdictions again and arguing that the   prosecution violated a Bilateral Investment Treaty (BIT) between the US and Ecuador. As part of the BIT dispute settlement process, an arbitration panel was called. This strand of the litigation led to the ICJ, which has yet to rule on the substantive issue of whether the litigation against Chevron violates the BIT.

Essentially, the Ecuador state is gambling that by accepting the ICJ's pre-eminence over national courts, other jurisdictions will enforce ICJ judgments when they are made. The ICJ itself noted that Ecuador had not yet accepted the ICJ's jurisdiction to rule on the terms of the BIT, signed by Ecuador and the US in 1993. By voluntarily agreeing to accept the ICJ's authority, Ecuador probably retains its rights to withdraw its acquiescence to the ICJ's temporary decision, should the substantive decision be in favour of Chevron (i.e. that its prosecution in Ecuador violated the BIT).

Ecuador's legal position is that by surrendering its domestic rights, which it has as a sovereign power, to punish Chevron for its alleged environmental crimes, international courts will have to uphold any judgment by the ICJ. Environmental lawyers claim that the ICJ ruling, also welcomed by Chevron, knocks away one of Chevron's arguments that the Ecuadorean courts are interfering in the core case over the scope of the BIT.

The substance of the core case, brought by environmentalists and human rights groups in Sucumbí­os, is over environmental damage. Chevron argues that it (and Texaco) has already paid for the clean-up and any subsequent damage is the fault of the Ecuadorean state oil company, Petroecuador.  

Environmentalists and human right activists in Ecuador say that Chevron/Texaco corrupted officials and politicians to sign off on the clean up, which had not in fact taken place. So far, seven former ministers have been warned that they may face criminal charges.

• International lawyers argue that the only chance Ecuador and the environmentalists had of extracting money from Chevron was by successfully suing Chevron/Texaco in the US courts. Although Chevron filed documents saying that it would accept and respect the Ecuadorean court's judgement, senior executives have clearly changed their minds.

El consejo electoral ha fijado las fechas para recolectar avales para las peticiones de referéndums; el voto sobre Chávez tendrá precedencia.

El movimiento para cambiar el mapa polí­tico de Venezuela se inició en serio. En otra decisión unánime, el 15 de octubre, el consejo nacional electoral, CNE, fijó las fechas para la firma de las peticiones de referéndums de revocación de mandatos. Primero, el 21 de noviembre, será para los 46 referéndums requeridos por el campo pro-gobierno contra legisladores, gobernadores y alcaldes de la oposición. Luego, el 28 de noviembre, vendrá la firma de los 34 referéndums pedidos por la oposición, contra el Presidente Hugo Chávez y 33 legisladores pro-gobierno. El CNE también anunció que el referéndum sobre el mandato de Chávez tendrá precedencia sobre los otros.

Aunque la decisión fue apoyada por los miembros de la CNE seleccionados por la oposición, hubo un coro de protestas contra el programa de fechas, que fue descrito como una maniobra orquestada por el gobierno para retrasar los referéndums. Algunos dijeron que el plan era retrasarlos hasta abril o mayo, y de esa manera, chocarí­an con las campañas por las elecciones regionales y municipales programadas para julio.

Otros afirmaron que el gobierno desea que se posponga hasta agosto, para que incluso si el mandato de Chávez fuera revocado, no se convocará a nuevas elecciones presidenciales, pues la constitución prevé su reemplazo por su Vice-Presidente hasta finalizar su mandato original.

En menos de 24 horas quedó probado que todo esto fue un juicio injustificado. El vice-presidente del CNE, Ezequiel Zamora, anunció que el consejo aprobó fijar la fecha del 27 de marzo para el primer referéndum, sobre Chávez . 'Sólo un caso de fuerza mayor,' dijo, 'puede impedir que ésta sea la fecha para el revocatorio presidencial.' La opositora Coordinadora Democrática, rápidamente aceptó esa como la fecha para avanzar.

La primera gran prueba tendrá lugar el mes siguiente a la recolección de firmas avalando las peticiones de referéndum. Cuando la CNE realice el escrutinio de las firmas, determine su validez, y compruebe si llega al requerido 20% del electorado -en el caso de Chávez , esto significa al menos 2,4m. Es muy probable que algunas de las peticiones no lleguen al número necesario, en particular las presentadas con el fin de causar irritación. Una muestra la proveen los 64 pedidos presentados por Acción Democrática (AD) contra legisladores pro-gobierno: 31 se rechazaron porque fueron preparadas desordenadamente.

Tácticas
El Movimiento al Socialismo (MAS), de oposición, agregó cuatro peticiones más de referéndum, contra legisladores pro-gobierno. Esto no es tan impresionante como las 33 peticiones aceptadas contra legisladores chavistas, hechas por AD, pero eso ocurre porque el MAS planeó su movida con más cuidado. Apunta a legisladores chavistas que no tienen reemplazo alternativo si su mandato es revocado, o cuyos alternativos son miembros de partidos de la oposición.

El propósito del MAS no es un secreto: lo que desea es inclinar el equilibrio de poder en la asamblea nacional, donde la mayorí­a del campo pro-gobierno es muy frágil: tiene 51% de las 165 bancas. La relación de fuerzas, por supuesto, puede cambiar si las peticiones presentadas por el campo pro-gobierno contra los legisladores de la oposición tienen éxito.