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The 2006 elections may be a long way away, but each time this is said, they are closer. This observation was made by an aide to one of the core of close advisers to rightwing candidate Joaquí­n Laví­n, after some of his colleagues tried to dismiss a new set of opinion surveys showing their man in a diminishing light. In one of them Laví­n appears no longer neck-and-neck with defence minister Michelle Bachelet but in second place, with his rival ahead by more than the poll's margin of error. The second shows Laví­n still ahead, but with support much lower than a year-and-a-half ago, and with Bachelet rapidly closing the gap.

One clear sign that Lavin is rattled was his recent decision to replace his team of campaign advisers, or samuráis as they have called by the local press. One of the cooler minds among them says that the most worrying development is that the certainty of a Laví­n victory has vanished, and that it will be hard to recover.

A survey by Mori released on 27 July showed Bachelet with 49% of voter preferences, followed by 45% for Laví­n. Reiterating what other polls have indicated, Laví­n appears in a stronger position vis-í -vis foreign minister Soledad Alvear (48:42 in Laví­n's favour). Oddly, in view of what the Laví­n team member said, the Mori poll also indicates that Laví­n is the candidate most people believe will win (42%, to Bachelet's 17%) and also the one most people would like to see as Chile's next President (again 42%, versus 25% for Bachelet).

The other survey, by the Centro de Estudios Públicos (CEP), puts Laví­n ahead with 31%, followed by Bachelet with 23% and Alvear with 10%. These figures only appear to be in an entirely different range to Mori's because Alvear is included in the choices offered - when Mori does likewise the result is closer: Laví­n 38%, Bachelet 25%, Alvear 8%. Actually, Laví­n will not be in a contest with both of them.

The significant development in the CEP poll is that it shows that support for Laví­n fell five points while that for Bachelet rose nine points. What analysts note in both surveys is that Laví­n's following has shrunk to very near his 'hard core' (40% in the Mori measurement, 30% in CEP's), whereas support for Bachelet can only be expected to increase if and when she is formally nominated as the presidential candidate of the ruling Concertación alliance. That is a situation should become clearer at the end of this year.

The Lagos effect
Whoever turns out to be the Concertación candidate is likely to benefit from a development revealed by another CEP survey. It shows approval of President Ricardo Lagos's government up to 57%, an increase of 10 points on last December. CEP researcher Carmen Le Foulon has noted that this level is comparable only to the highest mark achieved by President Patricio Aylwin (1990-94), also of the Concertación: 58% at the midpoint of his term.

The rise in esteem for Lagos comes mainly from the management of the economy (half the respondents see it improving) and of Chile's foreign policy (67% approve of the 'firm and skilful' handling of the dispute with Bolivia). The assessment of the incumbent almost always rubs off on the ruling party's candidate. This is more likely to be the case between Lagos and Bachelet, as both come - however distantly - from the same Socialist background.

INDUSTRIAL OUTPUT | Maquiladoras lead upswing. Industrial output in August was up 5.2% year-on-year, which with accumulated production this year has reached a level 3.8% higher than in the same period of 2003. The August upswing was led by a 5.7% increase in manufacturing - itself driven by a 9.6% rise in the output of the maquiladora (assembly) industry and one of 5.4% in that of the rest of the subsector.

Construction activity was up 5.5% year-on-year, exerting a strong pull on the supply of construction materials. Less brilliant was the performance of the mining industry, which recorded a year-on-year increase of only 0.6%, leaving the accumulated output at a level 3.3% higher than last year. This was largely the result of a 1.7% fall in the oil sector, which neutralised the 3.7% increase in other mining activities.

AUTO INDUSTRY | Home sales hit new record. Sales of motor vehicles in September in the domestic market (including those of imported cars) reached 81,256 units, a record for that month and 15.9% more than in the same month of 2003. The increase is attributed chiefly to improved credit facilities being offered. Accumulated sales this year are up 9.7% on last year.

Exports in September, while still higher than domestic sales at 93,133 units, were down 9.3% year-on-year, which left the total for January-September down 7.6% on the same period of 2003.
Domestic production in the first nine months was also down, by 2.9%, on last year, though September registered an encouraging year-on-year increase of 7.3% thanks to the pull exerted by home demand.

President Lula da Silva has begun the negotiating process which will lead to a cabinet reshuffle likely to be announced before he travels to Davos on 22 January to attend the World Economic Forum (WEF). His Partido dos Trabalhadores (PT), while politely urging him not to forget his initial 'base' of allies, has formally left the constitution of the new cabinet up to him.

Last week Lula received Senator Renán Calheiros, leader of the upper-house bloc of the Partido do Movimento Democrático Brasileiro (PMDB) - or rather, of the portion of the PMDB that rejected its leadership's order to abandon the ruling coalition [WR-04-50]. It is an open secret that the PMDB has been plumping for a third seat in the cabinet. All Calheiros would say at the end of the meeting was, 'I reiterated to President Lula that the PMDB is willing to collaborate as intensely as possible with the government.'

On 17 January the president of the PT, José Genoino, announced the ruling party's position on the impending cabinet reshuffle. 'The national directorate of the PT,' he said, 'has already taken a stance, which is in the latest resolution we have approved. We defend a coalition not only with the PMDB, but with all the parties of the allied base. The Lula government is the PT's government; therefore, the party leaves it up to the president to decide on increasing the participation of our allies.' 

Genoino also said that it would be up to the government to negotiate the details of the fiscal reform it wants approved this year - while the proposed political reform will have to emerge from negotiations between the parties.

The government of President Martí­n Torrijos is determined to re-establish the Panamanian armed forces, abolished by the constitution in 1994, according to former president Guillermo Endara (1989-94). He has arrived at this conclusion after hearing of a proposal by Gustavo Pérez, the director of the national police, to encourage the installation of a private (secondary-level) military academy on the US model, on the grounds of the old Fort Davis.

Endara had got hold of a letter by Pérez to ARI, the Interoceanic Region Authority which now owns the land and buildings of what was once the Canal Zone, asking for the concession or sale of the Fort Davis premises to install the academy. He made this request on behalf of a Panamanian association of military academy graduates, and said the new institution, with capacity for 600 cadets, would help prepare Panamanian youths for entry into US universities.

In a letter to former Costa Rican President Oscar Arias, Endara said this initiative 'coincides with the national government's already declared policy of launching the military conversion of our national police'. He dismissed Pérez's overt rationale as 'super-cynicism and hypocrisy'.

Pérez, away in Chile, told the press that the planned school 'will not breed militarism', adding that those who were criticising the idea were 'people who live 40 years in the past'. His boss, interior and justice minister Héctor Alemán, stated that President Torrijos had no intention of militarising the country and that Pérez had been acting in his personal capacity regarding the proposed military academy.

Torrijos could have had more to say: he himself studied in the US at a military academy similar to the one envisaged in Pérez's letter to the ARI (St John's Military Academy in Wisconsin). For that matter, Endara should know the difference between that kind of institution and a military academy meant to train regular military officers: he attended Staunton Military Academy, in Virginia.

Congressman Pedro Miguel González, of the ruling Partido Revolucionario Democrático (PRD), claims that Endara is being more than mischievous. He notes that the former president raised the issue the very same day that the PRD asked the national electoral tribunal to investigate the provenance of funding for Endara's campaign to register his new party, Vanguardia Moral de la República (VMP). 'His accusations,' says González, 'are just a smokescreen.'

Panama's army was first disbanded in 1904, at the prompting of the US, and replaced by a national police force. In 1953 it was transformed into a national guard, a designation it retained until 1984, when General Manuel Antonio Noriega transformed it into the Fuerzas de Defensa de Panamá (FDP). It was after the US invasion of 1989, which installed Endara as president, that the FDP was disbanded and replaced by the Fuerza Pública de Panamá (FPP), notionally civilian, which comprises the national police, the national maritime service, the national air service and the institutional protection service - all trained to standards which could be described as paramilitary, much like Costa Rica's civil and rural guards.

A string of paramilitary groups has rushed to announce their immediate demobilisation, apparently intent on beating any legal challenge to the 'justice and peace' law recently passed by congress [WR-05-25]. These include the second unit commanded by Diego Murillo and one of the largest groups, the Bloque Central Bolí­var (BCB), which operates across 11 departments. Tempering the enthusiasm of the authorities is apparent evidence that one of these groups has been inflating its numbers with new recruits.

The first in the series of surrender announcements came on 6 July, when the authorities reported that a location zone had been designated in the department of Bolí­var for the concentration of the reputedly 700-strong Bloque Montes de Marí­a, led by 'Diego Vecino'.

This was followed the next day by news that the Bloque Héroes de Granada would be concentrating soon in a 'location area' close to San Roque in Antioquia, about 450 kilometres northwest of Bogotá. This group, of undetermined strength, is the second of the units commanded by Diego Murillo (aka Adolfo Paz and Don Berna), the paramilitary leader recently indicted for his alleged part in the murder of a regional legislator. Murillo, who has already had a US extradition request put on hold, agreed to demobilise all his forces right away in exchange for being confined to a farm rather than a jail.

Celebration that he was delivering on his commitment was dampened when the government secretary of Antioquia, Jorge Mejí­a, claimed to have received credible reports that the Bloque Héroes de Granada had been recruiting new members - a ploy detected in the very first of the major demobilisations, intended to 'launder' the records of criminals, chiefly involved in the drugs trade, by passing them off as paramilitary combatants. Sergio Caramanga, head of the OAS observer mission, has asked the government to launch an urgent investigation into these reports.

On 8 July the leadership of the Bloque Central Bolí­var (BCB), the last of the paramilitary groups to join the negotiations and probably the biggest still in the field (with a reported 7,000 fighters), formally requested the designation of location zones to start concentrating its forces. The BCB is a constellation of groups that have been operating across 11 departments (Antioquia, Bolí­var, Boyacá, Caldas, Caquetá, Nariño, Putumayo, Risaralda, Santander, Norte de Santander and Vichada) - hence the request for a number of location zones. The communiqué signed by Javier Montañez, Julián Bolí­var, Pablo Sevillano and Ernesto Báez de la Serna promised: 'As soon as the concentration of all the troops gets under way, we shall entrust to the national government the totality of the territories occupied and controlled [by the BCB].'

Casualty
On 8 July defence minister Jorge Alberto Uribe handed in his resignation. Though he had always had a thorny relationship with the military high command, particularly over his plan to regroup the military under five joint-service commands, what appears to have decided him to quit was the government's public disavowal of remarks he had made about Venezuelan arms acquisitions, and the announcement by the pro-government bloc in congress that he no longer enjoyed their confidence. President Alvaro Uribe (no relation) promptly appointed Camilo Ospina, who had been serving as legal secretary at the presidency, as the new defence minister.

BRAZIL | Growth prospects upgraded, with caveat. The Confederação Nacional da Indústria (CNI), the umbrella association of industrialists, has raised its GDP growth forecast for this year from 3.2% to 3.5%, aligning it with that of the government. The CNI says that the main driving force will be industrial production, which it now expects to grow by 4.4% rather than 4.2%.

However the CNI notes that the current upgraded forecast is still half-a-point lower than the 4% it had expected at the beginning of this year. It says that the government's high-interest policy, which it sees as being eased too late and too slowly, is responsible for the gap. Indeed the CNI warns that the 2.5% decline in industrial output recorded between June and July could well be a sign of deceleration.

BRAZIL | Tourism earnings shoot up. In the first eight months of the year, earnings from tourism reached US$2.5bn, or 20% more than in the same period of 2004. Embratur, the state's tourism-promotion firm, is predicting for the year as a whole earnings of US$4bn which would more than double last year's US$1.8bn. It also expects the number of visitors to exceed 5m. Tourism is Brazil's third-largest hard-currency earner, after soya and minerals.

CHILE | Encouraging unemployment figures. While the unemployment rate for the running quarter June-August, 8.7%, was 0.1 points higher than that of the previous quarter, it was 1.2 points lower than a year earlier - and, most significantly, the lowest reading for this quarter in seven years. The significance lies in that this period includes the winter months, which are always the toughest in terms of employment.

Opinion surveys suggest that former president Oscar Arias will attract the most votes in the 5 February first round, but differ on whether he will muster the necessary 40% to be spared a run-off. One poll suggests that even in the best of cases, his Partido Liberación Nacional (PLN) will not enjoy a majority of its own in congress.

A poll by CID-Gallup shows Arias with 47%, comfortably positioned for a first-round win, but another one by Borge y Asociados gives the PLN only 37.4%, more than two points below the run-off threshold. There is little solid indication of what would happen in the event of a run-off, as leaders of the smaller parties are reluctant to show their hand prematurely, and in any case it is hard to predict how much their stance will be heeded by their followers.

The Borge y Asociados survey suggests that the PLN will certainly win 26 seats in the 57-seat, single-chamber legislature, and might even get two more; but that would still leave them one seat shy of a majority. This means that a victorious Arias would have to seek understandings with at least one of the smaller parties. The second-largest bloc in congress will be that of the Partido Acción Ciudadana (PAC), with 12 or 13 seats. Next, almost at par, come the Movimiento Libertario (ML; 6-11 seats) and the now-ruling Partido Unidad Social Cristiana (Pusc; 6-10 seats). A third tier would be formed by the Unión para el Cambio (UPC) and Patria Primero (PP), with one seat apiece. Depending on the shareout among the relatively bigger parties, there would be a smattering of seats left for even smaller groups.

Energy dilemma ahead
Whoever wins the elections will have to deal with a greatly increased burden from the country's dependency on imported oil. Last year, while the volume of imported oil increased by 5.7%, its value shot up by 45% to just over US$1bn. This is equivalent to almost 15% of Costa Rica's estimated total export earnings for last year (US$6.9bn), and to 5% of the country's GDP.

Costa Rica's biggest oil supplier is Venezuela, which accounted last year for 37.4% of the total, a sizable portion provided under the San José agreement and the Caracas Energy Accord. Other regional sources are Aruba (12%), Brazil (11%), the US (11%) and Ecuador (4%) - 13% of the total is also imported from distant France. 

This situation gives Costa Rica great stake in the planned trans-isthmian gas pipeline links from Colombia and Mexico and will provide an additional incentive to develop alternative energy sources. It will be interesting to see to what extent it makes Costa Rica amenable to Venezuela's 'oil diplomacy'.

A second attempt to hold the announced Vázquez-Kirchner summit on the dispute over Uruguay's two planned new cellulose plants [WR-06-14] failed on 5 April, again because of the inability to find enough common ground to build a solution. From then on it all went rapidly downhill with the immediate parties to the dispute ending their 'truce' and Uruguay announcing that it was giving up on the summit and turning to Mercosur in search of redress.

Immediately after the decision was taken to call off the summit, Uruguayan president Tabaré Vázquez sent a new draft agreement to Buenos Aires (details undisclosed), with a request for a reply within 48 hours. When this failed to materialise, on 7 April Foreign Minister Reinaldo Gargano announced that Vázquez had decided to call off the attempts to reach a solution through direct talks with his Argentine opposite number and to hand the matter back to the foreign ministry.

Gargano added that Uruguay had called for an 'urgent and special' meeting of Mercosur's Consejo Mercado Común, the council formed by the member-countries' ministers of foreign affairs and finance, which is Mercosur's highest political organ. 

The Uruguayan government had already served notice that it would take the dispute to arbitration within Mercosur, with an added complaint against Argentina for ignoring the regional forum and turning directly to the International Court of Justice (World Court) at The Hague. The council meeting requested by Uruguay must be convened by the country entrusted with the presidency of Mercosur, which in the current semester happens to be Argentina.

Uruguay also sent an 'informative note' to the World Court reporting on the dispute and the harm it is causing Uruguay, particularly as a result of the blocking of traffic over international bridges by Argentine protesters. Gargano explained that though Uruguay will not seek redress from the World Court, it will seek to 'keep it informed about developments, in case future measures are required'.

According to Gargano, relations with Argentina remain 'normal', and there is no question of any severing of diplomatic ties. He did reiterate, however, that Uruguay believes it has every right, 'even for reasons of sovereignty' to go ahead with the construction of the cellulose plants.

The dispute, about to complete one year of duration, is about the installation of two cellulose plants on the banks of the river Uruguay which marks the boundary with Argentina. Its importance to Uruguay is clear to see: the combined investment of US$1.8bn is the biggest ever for the country. Argentine environmentalists, backed by the government of Entre Rí­os province, maintain that waste from the plants will contaminate the river and endanger wildlife. Uruguay refutes this but has failed to agree with Argentina on commissioning an independent assessment. 

The two firms involved, Ence of Spain and Botnia of Finland, have already begun construction work and are understandably reluctant to accept any suspension.

Whatever else went on at the Mercosur summit in Córdoba, Argentina, it was hard to miss the presence of Cuban President Fidel Castro whose country is not even an associate member. It has been described as a political gesture, but commentators found it hard to discern what it was signifying, beyond implicit support for Cuba against the US embargo. It did provide Castro, together with Venezuela's Hugo Chávez , to engage in a spot of proselytising on the sidelines, though their message was not echoed in any of the summit's formal pronouncements.

There was, of course, a formal reason for Castro's presence: the signing of an agreement on mutual trade preferences which had been requested by Cuba three years ago, but had been held up due to opposition from Uruguay's then-president Jorge Batlle and lifted when Tabaré Vázquez was elected.

Even this is of more symbolic than practical content. Trade between Mercosur and Cuba is minimal: last year Mercosur exported goods worth US$364m to Cuba and imported US$41m. Cuba accounts for 0.17% of Mercosur's total external trade.

The host, Argentine President Néstor Kirchner, opened the event by inviting two countries to join: Bolivia, already an associate member, and Mexico, which had been seeking associate membership for some time, only to have run foul of Brazilian reservations. The Mexican foreign minister, Luis Ernesto Derbez, promptly ventured that Mexico could become an associate member before the end of the year (he said full membership was a medium- or long-term proposition, dependent upon a gradual harmonisation of tariffs, meaning a lowering of Mercosur's external tariff).

Bolivian Preident Evo Morales responded in an unexpected manner. Celebrating Castro's presence at the summit, he sad: 'If Fidel joins Mercosur, the peoples and the social movements will force me to join Mercosur.' If this was meant as a cue, it was not taken up: Cuba was not invited to join.

After the summit was over, Castro and Chávez were the main speakers at an alternative summit (also called 'summit of the peoples') attended by more than 15,000 people at Córdoba's Ciudad Universitaria. They both issued calls for the adoption of a Latin American socialism and predicted the end of the US empire and of capitalism. Chávez predicted that capitalism would not outlive the 21st century; Castro, proclaiming himself more of an optimist, said it would not last even 50 more years. Neither spelt out what they meant by Latin American socialism.

[On 20 July, back in Caracas, Vice-President José Vicente Rangel had given it a try. 'The characteristic feature of 21st-century socialism,' he said, 'is anti-imperialism [which] means confronting the empire, that is, the Bush government, as President Chávez is doing.']

It is interesting to note that Chávez had called off at the last minute a stop-over in Brazil to confer with President Lula da Silva about Venezuela's membership of Mercosur and about energy projects - presumably the Gasoducto del Sur, a Chavez scheme which Lula has been whittling down lately. 

This raised many eyebrows, as one of the features of the Córdoba summit was the transfer of Mercosur's rotating presidency from Argentina to Brazil.

The Arab and UN connections

Chávez had just come from harvesting the kind of recognition he relishes. On the sidelines of the second meeting of high representatives of Arab and South American countries, held in Caracas on 18 - 19 July, Ahmed Benhelli, joint general secretary for political affairs of the Arab League, announced that the Arab countries would support Venezuela's bid for a non-permanent seat on the UN Security Council, on account of 'the dynamism that the Venezuelan president, Hugo Chávez , has imprinted on international relations and the leadership he has promoted'. 
The Arab League also announced that it had granted Venezuela observer status, to be formalised in September when secretary-general Amro Musa visits Caracas.

The meeting in Caracas, meant to follow up the fulfilment of resolutions made at the Arab Countries-South America summit held in Brazil in May 2005, produced a declaration condemning Israel for its attacks on Lebanon and Palestinian territories and calling on the international community and the Security Council to 'assume their responsibilities to restore peace and security in the region'.

Venezuela claims to be well on its way to secure the 128 general assembly votes it needs to become the region's representative on the Security Council. Within the hemisphere it is supported by the Mercosur countries and the 15-member Caricom. 

Competing with Venezuela is Guatemala, which is supported by the US and has secured endorsements from Central America, Colombia and Mexico.

Last week Guatemala belatedly launched a diplomatic offensive to attract support beyond the hemisphere, led by Vice-President Eduardo Stein and Nobel Peace Prize winner Rigoberta Menchú.

"Being president is about doing good business for Bolivia and we have started to do that." That was how President Evo Morales described the natural gas agreement he signed with his Argentine counterpart Néstor Kirchner in Santa Cruz on 19 October. Under the deal Bolivia agreed to triple its sales of gas to Argentina to 27.7m cubic metres (m ³) daily over the next 20 years when Argentina's northeastern pipeline comes onstream.

The gas agreement was big on rhetoric and vague on details. Take the price Argentina will pay for the gas it imports: this was set at US$5 per million btu until the end of 2005, but then a new price scheme will take effect based loosely on international market prices.  

Desperate for some good news in the wake of the violent mining clashes at Huanuni (WR-06-40) and transport strikes, the government seized on the gas deal, which it branded "a strategic energy cooperation agreement". Vice-President Alvaro Garcí­a Linera said it was "the most important contract this decade, converting Bolivia into the energy centre of South America, supplying the two most important markets in the continent, Argentina and Brazil."  

This glosses over the problems with Brazil, of course, which is still very far from agreeing to pay more for Bolivian gas. President Lula da Silva is too engrossed in ensuring he wins a second term (see page 7) to give the issue his undivided attention but he looks likely to continue to take a tough line. Morales sought to reach out to Lula: "With Brazil, as with Argentina, we have an obligation to live together for our people_ like a marriage without divorce - because we need each other," he said. He also said that Petrobras would play an important role in Bolivia's gas industry and promised Brazilians would never be without gas.  

Given the problems with Brazil, Morales must have been delighted with Kirchner's fulsome support. "For those that have any doubts about this contract, if any rogues do not make the investments they are required to make, have no doubt that Argentina will be there to help," Kirchner said, in an habitual swipe at private investors.  

It is not clear who these potential "rogues" might be. The hydrocarbons minister, Carlos Villegas, said Bolivia needs some US$1bn of investment to increase production to honour the contract but he did not clarify where this investment would come from, beyond a vague promise that all would become clear after 28 October - the deadline for foreign companies to agree to new contracts with the government under May's "nationalisation" decree.

Villegas admitted that "there is some controversy" over the size of Bolivia's gas deposits but said that Bolivia would not sign up to a contract it could not keep. A report in January 2005 by the state-owned Yacimientos Petrolí­feros Fiscales Bolivianos (YPFB) concluded that deposits stood at 1.38bn m ³ (760m m ³ proven; 620m m ³ probable) but a report by a US consultancy firm in July said the figure for proven deposits was inflated and was more like 510m m ³.  

Opposition demands explanation
The opposition pounced on "inconsistencies" in the figures banded around by officials regarding the value of the contract. The leader of Podemos, José Aruquipa, said it should have been sent to congress for approval. He accused Morales of double standards by prosecuting former presidents Gonzalo Sánchez de Lozada, Jorge Quiroga and Carlos Mesa for failing to send gas contracts to congress.

Two allies of President Lula da Silva were elected on 1 February to lead the two chambers of congress. The congressional leadership contest, however, was as divisive as expected. In essence the results in the senate and the lower chamber of congress signalled that there will be a repetition of the conflicts that undermined Lula's first administration. In order to hold his "coalition" together Lula will be compelled to find positions in the government for all of his allies. 

At first glance it looks like Lula should celebrate the results of the congressional leadership contest. Indeed, his allies won both the presidency of the senate and of the lower chamber. In the senate Renan Calheiros, of the allied Partido do Movimento Democrático Brasileiro (PMDB), was re-elected with 51 votes to 28. In the lower chamber Arlindo Chinaglia, of Lula's Partido dos Trabalhadores (PT), won by 261 votes to 243 in the second round against another Lula ally, the communist Aldo Rebelo. The late challenge from the candidate for the opposition Partido da Social Democracia Brasileira (PSDB), Gustavo Fruet, did not carry him to the second round.

The results in congress were only possible because the two most important parties in Lula's governing coalition agreed to support each other. A closer look, however, reveals that distinct political factions within the PT and the PMDB were at odds with each other. For instance, Calheiros openly backed Rebelo against Chinaglia despite the preference for the PT candidate among most of the PMDB's deputies in the lower chamber. Also, sectors of the PT and, significantly, most of the federal government preferred Rebelo, including Lula himself.

These intra-party conflicts undermined Lula's first administration. A big chunk of the PMDB, notably most of the party's representation in the lower chamber, withdrew support for the government halfway through Lula's first mandate. The reason for this was not only the clashes with the PT but also differences with the group led by Calheiros over positions in the government. Sectors of the PT were also constantly criticising the government - Lula once described this as "friendly fire" - because of differences with the party's main faction, the Campo Majoritário, which held sway over most of Lula's first government.

It seems internal divisions within the PT and the PMDB will also destabilise Lula's second administration - especially now that, empowered by their success in congress, the hunger of both parties for positions in the government has increased considerably. Chinaglia, for instance, has publicly demanded more positions in the government for the Campo Majoritário and for his PMDB allies in the lower chamber.

Calheiros has already signalled that he will not give up positions reserved for his group, fearing that Lula will divide his share with the PMDB's lower chamber faction. The PT's leftwing factions, meanwhile, are feeling threatened by the resurgence of the Campo Majoritário, and internal squabbles have started ahead of the PT's national conference on 10 February.

Significantly, Chinaglia and Calheiros also promised posts for the right-of-centre parties that backed their candidacies. Such promises created further problems for Lula. His leftwing allies in the Partido Comunista do Brasil, Partido Socialista Brasileiro and Partido Democrático Trabalhista, which together hold 70 seats in the lower chamber and eight in the senate, fear losing influence in the government. The bloc was behind Rebelo's candidacy and feels "betrayed" by the PT-PMDB alliance. The three parties have signalled that they will wait for their "consolation prize" before deciding whether the governing coalition "has been damaged beyond repair". 

The national daily O Estado de São Paulo described Lula as being "hostage" to his coalition. It is certain he will have to go through great pains to negotiate the government's legislative agenda with his allies, despite facing a weakened opposition in congress. Considering the diverging concerns of Lula's allies, who come from across the political spectrum, it is unlikely he will gather enough support to have the government's bolder proposals approved now, just as he failed during his first mandate. 

Nominally the government's "coalition" of eleven parties commands 352 deputies in the lower chamber and 49 senators. This may suggest the government has enough support to pass most items on its agenda, including constitutional amendments, without any trouble. The reality, however, is that none of the allied parties can guarantee total support for the government when it comes to voting in congress. Studies reveal that as many as 20% of Brazilian congressmen do not vote according to the instructions of their leaders. If this figure is correct, Lula's majority is insufficient to guarantee the approval of his more important initiatives, such as the Programa de Aceleração do Crescimento (PAC) [WR-07-04].

The PT and Dirceu
Nothing illustrates better the difficulties ahead for Lula than the comment of a PT deputy, Cí¢ndido Vaccarezza, during the Campo Majoritário's convention on 3 and 4 February. Vaccarezza, who was one of the deputies behind Chinaglia's candidacy, declared that his victory proves that "the PT does follow Lula's orders". The comment exposed the Campo Majoritário's hostility towards other PT factions, which filled up the government after the Campo Majoritário became embroiled in the corruption scandals of 2005 and 2006, which threatened to undermine Lula's re-election bid. 

Vaccarezza's words show that the Campo Majoritário wants to regain its influence in the government and will settle for nothing less than that. The faction is already discussing the presidential elections of 2010 and wants to make sure it is in a good position to launch a candidate to run for the PT. 

The comments also reveal the ethical schism within the party. The PT's leftwing factions signalled they want to carry out "open internal discussions on political responsibilities" during the PT's forthcoming national conference. This means they want to talk about the cash-for-vote scheme allegedly mounted by the Campo Majoritário to recruit support for the government in congress - a traditional tactic in Brazilian politics, but which the PT was always critical of while in opposition. 

The Campo Majoritário has rejected outright any discussion on the matter. Significantly, Chinaglia celebrated his election in the company of several deputies accused of taking part in the scheme. One of the main advocates of his candidacy has been José Dirceu, the one-time strong man in Lula's first government who fell from grace over the scandal. It is no secret the Campo Majoritário wants to push for an amnesty for Dirceu, who lost his political rights (and his seat in congress) after being impeached by his peers. The prospect of this happening is worrying for Lula since it would dominate political debate in Brazil.

Dictatorship files disappear 
Files containing recently declassified documents relating to the military dictatorship that ruled Brazil from 1964 to 1985 have disappeared from the national archive, where they had been transferred in 2005 on the orders of President Lula da Silva. The files had been requested by the newspaper Folha de São Paulo. After being contacted by the newspaper, the Brazilian national intelligence agency said, "it is probable that the files have been destroyed if they ever existed in the first place".

The government has endured a bad week with its priority policy: offensives against organised crime. First the UN endorsed opposition criticism of the use of the army against criminals. Then, on 16 May, three senior law enforcement officials were either kidnapped or killed before a 12-hour chase and confrontation with gangsters in Sonora, which cost the lives of 22 people, six of whom were policemen.

The government has been trying to improve its strategy to tackle organised crime in Mexico. The first development, announced by President Felipe Calderón Hinojosa on 9 May, was of the creation of a new elite corps. This is the Cuerpo Especial de Fuerzas de Apoyo Federal, drawn from the army and the airforce, and answerable only to the president. The following day the government published the decree setting up the new force. Under the decree, the new elite corps has to be ready for deployment by 10 August.

The government said that the Cuerpo will be used in the war against violent criminal gangs, though the decree creating it says that it can be used "in exceptional situations which threaten the country's national security, public order; integrity; the life of its citizens or the stability of any part of the country."

Opposition politicians immediately claimed that the Cuerpo was unconstitutional because it gives the army powers that have been reserved for the police. The opposition also fears that the Cuerpo could be used to repress legitimate political protest.

Javier González Garza, the leader of the leftwing opposition party, the Partido de la Revolución Democrática, in the lower chamber of congress, said that the initiative was dangerous. The danger was underlined on 10 May when Ulises Ruiz, the controversial governor of Oaxaca, who withstood six months of protest against his administration last year, claimed that drug gangs were now active in Oaxaca. So far, political protests have not been used by drug gangs to undermine elected authorities.

The constitutional issues
The opposition claims of unconstitutionality may have some substance. The government argues that it is following the precedent endorsed by a supreme court ruling 10 years ago. Then the court ruled that the army can be used to support the police in anti-crime operations. Previously, the army also set up elite groups, such as the Grupo Aeromóvil de Fuerzas Especiales (Gafes), for the Chiapas uprising in 1994.

Arguably the Gafes were defending the country's territorial integrity, which is a legitimate use of the armed forces. The government's rhetoric suggests that it views organised crime (which, President Calderón has claimed on several occasions, controls swathes of Mexico) as a threat to the country's territorial integrity.

Ironically, substantial numbers of the Gafes troops have deserted and now work for the drug gangs, principally Los Zetas, the murderers employed by the Golfo gang.

On 11 May, Amerigo Incalcaterra, the Mexico representative from the UN's High Commissioner for Human Rights, said that it was not advisable for governments to use the army to fight organised crime. Incalcaterra, an Italian national, said that the army was not trained for internal security. He argued that the army was trained to focus all its force on achieving particular objectives and was not trained in taking preventative actions nor in gathering criminal intelligence.

Icalcaterra said: "The Mexican government has sufficient capacities to confront this most serious phenomenon of organised crime and we hope that it will use means under the structure of a democratic state. But if the army is used, then the Mexican congress should have much to say." This comment is aimed at the provision in the decree that Cuerpo is answerable only to the president.

Icalcaterra's warnings were echoed by José Luis Soberanes, the president of the Comisión Nacional de Derechos Humanos (CNDH), who had been dismissed as a government stooge by the opposition over his refusal to uphold accusations that the army raped and killed a 73-year-old Indian woman in Veracruz in February. Soberanes said if the army had to be used to tackle drug gangs, its use should be short-term, only until the federal police was ready to take over.

On 15 May, Soberanes added to the doubts about the wisdom of deploying the army when he said that the CNDH would investigate accusations that soldiers had raped four teenagers in Michoacán. The defence ministry took a conciliatory line over the accusation, saying that if there was any substantial evidence against any soldier the military justice system would take action. This statement arguably suggests that the army is prepared to let the civilian authorities investigate the accusations, though it is reserving the right to prosecute.

The girls told the CNDH that the soldiers made them inhale a substance which sent them into a deep sleep so that they did not know what was happening. They claimed that masked soldiers threatened them and their families if they told of what had happened to them. The CNDH says that it has plausible scientific evidence to back up the girls' allegations.

And Veracruz makes 10
President Calderón's second strategic move was to send the army into Veracruz on 11 May after four more policemen were gunned down in the state. This makes Veracruz the tenth of Mexico's 32 states in which the army is now deployed against organised crime. Around 30,000 troops have been mobilised to fight against criminal gangs in Mexico. Calderón started to deploy the army against organised crime almost as soon as he took office on 1 December 2006.

The government sent 1,200 federal policemen and soldiers to Veracruz after all four of the bodyguards protecting the three sons of Enrique Peña Nieto, the governor of the Estado de México, were gunned down in what the state government initially claimed was a case of mistaken identity.

One news organisation subsequently reported that the state authorities had been warned on 12 May of an attack on Peña Nieto in a note ice-picked to a head in bag booby-trapped with two grenades. Peña Nieto is a prominent member of the Partido Revolucionario Institucional: the Estado de México is the biggest and most important state in the country and has, so far, been largely free of drug-related violence.

The federal Secretarí­a de Seguridad Pública (SSP) said that the police and army would be sent into Veracruz in teams. First, intelligence gathering teams would go in and then tactical groups would go in to search and blockade key areas of the state. The goal, the SSP said, was to dismantle the gangs which are competing for control of the state. Fidel Herrera, the governor of Veracruz, said that the deployment was different from in other states and was "selective and surgical".

On 14 May it was the gangs who launched the surgical strikes, killing José Nemesio Lugo Félix, a senior official at the Procuradurí­a General de la República, in Mexico City and then Jorge Alatriste, the commander of the Agencia Federal de Investigaciones in Tijuana.

The killing of Lugo is a significant blow to the government: he was in charge of collating all the government's intelligence on organised crime: Lugo had previously been responsible for border controls at Policia Federal Preventiva. He had only been at the PGR's Centro Nacional de Planeación, Análisis e Información para el Combate a la Delincuencia (Cenapi) for a month. His killing prompted an eulogy about his anti-crime efforts from the US ambassador, Tony Garza.

These killings were followed on 15 May by the kidnapping of a senior law official in Coahuila, Enrique Ruiz Arévalo. He was responsible for investigating kidnapping and organised crime for the state Procuradurí­a.

Finally, on 16 May gangsters in Sonora raided Cananea, a town famous for its copper mine, and seized 13 hostages including seven policemen. The gangsters killed six of the policemen and one civilian as they were chased by the federal police to Arizpe which is 200km north of Hermosillo. There the gangsters, who numbered between 40 and 50 and the police, who numbered over 100 confronted each other in a five hour firefight, and another 15 people -all gangsters according to the police- were killed.

• US to increase military aid to Mexico
  The US and Mexico are negotiating over increasing military aid to Mexico. The US military call the aid "Plan México," according to a leak of the plan to the Dallas Morning News. This is a clear allusion to the highly controversial Plan Colombia, which militarised the war against drugs in that country costing the US$5bn since it began in 2000. Mexican officials prefer to call the scheme "Iniciativa de Seguridad Regional." Mexico has traditionally been loath to accept large amounts of military aid from the US. The US wants to increase military aid to Mexico and "other Central American countries" to fight drug traffickers; gangs and potential terrorists. Some of the US aid will be in the form of telecommunications and aerial surveillance equipment. The US is also planning to offer more training to the Mexican military.Mexico's attorney general, Eduardo Medina Mora, confirmed the report in the Dallas Morning News. He said: "What we're getting from the US does not correspond with the size of the challenge we are facing and this has to change if we both want to be more effective in fighting a common enemy." Medina Mora and other Mexican officials stressed that the negotiations are at an early stage.
• Yucatán elections
  The first significant election of the year, in the Yucatán, is on 20 May. The latest opinion polls suggest that the Partido Revolucionario Institucional (PRI) is virtually tied with President Felipe Calderón's Partido Acción Nacional (PAN) in the race for the governorship. A disputed and flawed election result is likely to produce protests and, possibly, unrest. The PRI claims that Calderón has campaigned for the PAN in the election. The president of the PAN, Manuel Espino, who is at odds with Calderón, has denied that the PAN will swap the governorship of the Yucatán for PRI support in the federal congress for economic reforms.

When Jamaican voters cast their ballots on 27 August they will be weighing up one factor: whether to vote for change in the form of the leader of the opposition Jamaica Labour Party (JLP), Bruce Golding, or continuity in the shape of incumbent Prime Minister and leader of the ruling People's National Party (PNP), Portia Simpson-Miller. 

The cornerstone of Golding's campaign is that the PNP, despite wielding power for 18 years, has failed to deliver, especially as regards economic growth. The PNP, conscious of the fact the polls indicate that most people who say they will vote for the JLP will do so, has spent much of its time attacking the credibility of Golding and the JLP's election manifesto. A three-part series of televised debates culminated in a show-down between Golding and Simpson-Miller on 11 August, which Golding shaded by virtue of his superior communicative skills and ability to think more quickly on his feet. Less personable than Simpson-Miller, however, Golding does not really have an answer to the "Portia factor" which is strongest among the poor majority. 

Golding argued that since the PNP came to power in 1989, Jamaica had failed to post as much as 3% GDP growth in two consecutive years and only 28% (1.4% a year) in all that time compared with 153% growth in Trinidad & Tobago. Simpson-Miller had no response other than to question how Golding planned to finance his manifesto, which she said would cost as much as J$60bn (US$870m). She tried to cast doubt on Golding's trust-worthiness by mentioning his decision to leave the JLP to form the National Democratic Movement in 1995 before returning to the JLP to run for the leadership after Edward Seaga retired in 2005. This issue is at the heart of a PNP negative advertising campaign, which urges Jamaicans "Don't vote for a flip-flop". Golding said he had no trust issue to answer to as former Prime Ministers P J Patterson and Michael Manley had "flip-flopped on their promises to the Jamaican people".

It has not been an easy week for President Michelle Bachelet. It started off well enough with the government and opposition agreeing on a key education-reform proposal. There was no such bipartisan cooperation, however, over the capital's inefficient transport system, Transantiago. The lower chamber voted, with the support of dissident members of the Democracia Cristiana (DC), to provide the grand total of Ch$1,000 (US$2) for Transantiago in the 2008 budget. On 19 November public sector workers staged a well-attended strike to demand higher salaries and then, a day later, the Senate compounded Bachelet's misery by following the lower chamber's lead on Transantiago.

The education reform, which must be approved by congress, would overhaul the unpopular Pinochet-era "Loce" education law, one of the reasons behind the massive student protests in the summer of 2006. This was early in Bachelet's term and her perceived weakness in dealing with the students, which trade unions have sought to exploit since then, set the tone for her government. Her popularity has never recovered. The latest strike involved some 450,000 public sector workers, demanding a 12% wage increase: the government has only offered 4% (below inflation) and an unspecified bonus.

Transantiago is a more serious setback for the government, coming a week after it snubbed an offer by Venezuela's President Hugo Chávez to provide subsidised fuel for the system. Chile's lower chamber voted by 54 votes to 49 to reject the government's proposed budget of US$145m for Transantiago, approving the symbolic but provocative total of US$2. The government then did its best to persuade the opposition to back the budget in the Senate. The opposition, however, is conscious of the damage Transantiago is doing to Bachelet's approval ratings and is keen to derive political capital from the fiasco. The Senate rejected the government's proposal by 18 votes to 16. Once again, DC votes were crucial, causing serious friction within the ruling Concertación (see sidebar).

ith Transantiago losing US$35m a month, failure to secure the budget put the government in the unenviable position of having to ask users to pay more for a service they dislike. Bachelet insists she will not do this which means her only alternative is to veto the legislation, produce a revised bill and then make concessions to the opposition and DC dissidents to try and ensure its passage.

Split in Concertación

• The president of President Bachelet's Partido Socialista, Senator Camilo Escalona, was furious with DC Senators for thwarting the government's budget proposal for Transantiago. He engaged in a bitter exchange with DC Senator Adolfo Zaldí­var. "Today a sui generis coalition took shape that changes the balance of power in the Senate, until now in the hands of the Concertación, in favour of this spurious new coalition that was born with a destructive intent," Escalona said. Zaldí­var criticised his "bullying attitude" as indicative of the current state of affairs in the Concertación, which he said had distanced itself from the people.

Citing logistical, constitutional and legal concerns, the national electoral court (CNE) this week suspended two national referendums on the draft constitution and land reform approved by congress, as well as the regional autonomy votes. It then urged congress to approve legislation setting new dates, arguably an attempt at restoring a sense of legality and credibility to the electoral processes. While President Evo Morales endorsed the court's decision, opposition prefects from the eastern "Media Luna" departments continue to press ahead with plans to hold autonomy plebiscites regardless.

After four days of deliberations by national and regional electoral officials in the eastern city of Cochabamba, CNE chair, José Luis Exeni announced the court's decision to suspend the referenda on the new constitution and land reform. As well as highlighting the impossibility of ensuring the "legal guarantees, sufficient time and adequate electoral environment" at such short notice, he pointed out that the referenda failed to meet a constitutional requirement that they be held at least 90 days after being approved by congress; on 28 February congress had approved laws which set 4 May as the date for the votes.

As regards the votes on autonomy, the CNE issued a resolution backing a law passed by congress, also on 28 February, that only the legislature was authorised to call regional votes. This renders illegal plans for regional votes called by prefects in La Paz, Santa Cruz, Cochabamba, Tarija, Beni and Pando.

Congress to decide

The CNE asked congress to set new dates for the referenda on the constitution, land reform and autonomy. It is far from clear what will happen now given the congressional divisions: the senate is opposition-led and the lower chamber is controlled by the ruling Movimiento al Socialismo (MAS).

While Morales endorsed the court ruling, the main opposition party, Podemos, maintained that it would only enter into dialogue if the referendum on the constitution were cancelled and only then if an international organisation were to mediate. The regional courts in Beni, Pando, Santa Cruz and Tarija refused to recognise the CNE ruling and are pressing ahead with their plans for them while Oruro, La Paz, Cochabamba and Potosí­ accepted the resolution, with Chuquisaca yet to declare a position.

As well as urging new legislation, in a further bid to strengthen the legal process, the CNE chair, José Exeni and Morales are demanding that congress appoint new constitutional court justices. The constitutional court is the only authority able to issue a final verdict on the constitutionality of the legislation and electoral processes underway in the country and has been completely paralysed since the resignation on 3 March of one of the two remaining constitutional court justices, Artemio Arias Romano. Exeni and Morales are also urging congress to appoint a further two CNE board members.

Recall vote shelved?

A development which has attracted little media coverage is a reported agreement by the government and opposition to shelve the recall vote initiative proposed by Morales last December. With no official explanation offered, one reason for the decision could be the failure of either side to agree on the voting threshold; the senate pushed for a recall to be triggered by just a simple majority of total votes against Morales or the prefects. The lower chamber argued that opponents to Morales and the prefects would have to at least match the votes won in 2005.

• Chuquisaca prefect

The government brushed off a challenge from local opposition in Chuquisaca over prefectural elections. In defiance of President Morales' announcement last week [WR-08-09] that current interim prefect Ariel Iriarte would continue in his post until 29 June, when elections for his replacement would take place, the Comité Interinstitucional (CI), declared Sabina Cuéllar to be Chuquisaca's new interim prefect by "popular demand". However the government announced it would recognise Cuéllar as a "candidate only", with Iriarte remaining firmly in charge.

President-elect Fernando Lugo placed the emphasis on pluralism in his cabinet appointments. This pleased the so-called “progressive" smaller parties in his umbrella coalition Alianza Patriótica para el Cambio (APC) but was less well received by the Partido Liberal Radical Auténtico (PLRA), by far the largest party in the APC, which felt that four out of ten cabinet posts did not reflect its presence in congress. Lugo performed a delicate balancing act, carefully apportioning ministries to different factions within the PLRA, in an endeavour to preserve the broadest possible support.

Having already missed out on the economy and defence ministries (awarded to Dionisio Borda and retired General Carlos Bareiro Spaini last month) the PLRA had hoped to pick up the foreign affairs, interior and health portfolios but these all went to representatives of small parties within the APC. The historian and sociologist, Milda Rivarola, of the Partido Paí­s Solidario (PPS) was the surprise appointment. She will preside over the foreign ministry. Rafael Filizzola, of the Partido Democrático Progresista (PDP), was given the interior ministry while Esperanza Martí­nez, of the Movimiento Popular Tekojojá, will be the new health minister. These three parties won only five congressional seats between them as against 43 for the PLRA.

Vice-President-elect Federico Franco (PLRA) struggled to conceal his disappointment: even the four ministries that were awarded to the party went to either rival internal factions or independents. The justice and labour ministry went to Blas Llano, a former president of the PLRA and inveterate rival of Franco, and the public works and communications ministry, which controls one of the biggest budgets, to Efraí­n Alegre, an estranged ally.

Lugo clearly calculated that Franco's Por el bien del Paraguay faction should be content with the influence it will gain through his designation as Vice-President. He needed to assign ministries to factions loyal to Llano and Alegre because of their relative weight in congress. Between them they hold nine of the 14 PLRA senate seats, as opposed to two for Por el bien del Paraguay, and 21 of the 29 PLRA deputies in the lower chamber, against four Franquistas.

Perhaps the most important position to go to the PLRA is the agriculture and livestock ministry. Lugo's choice of Cándido Vera Bejarano underlines his effort to select people with local knowledge to sensitive positions. Vera Bejarano hails from the department of San Pedro where much of the land conflict is being acted out and where Lugo served as a bishop. The final PLRA affiliate in the cabinet is Martí­n Heisecke, who will serve as industry and trade minister.

Franco will try to use what leverage he has with Lugo to win other important posts, such as the directorship of the hydroelectric dams, Itaipú and Yacyretá, and the presidency of other public institutions as well as junior ministerial positions. Lugo is also yet to name a minister for education and culture although he might decide to select a member of the one party in the APC which he has not given a cabinet ministry: the Partido Movimiento al Socialismo (P-MAS).

Delivering change

Lugo said he had chosen his cabinet ministers based on their honesty, dedication and efficiency. The man charged with harnessing these qualities is Miguel López Perito, who Lugo appointed as his “general secretary to the presidency" or cabinet chief. López Perito, who served as Lugo's campaign coordinator, was a guerrilla in the Organización Militar Paraguaya (OMP) which sought unsuccessfully to overthrow the dictator Alfredo Stroessner in the 1970s.

López Perito set out an ambitious 100-day plan, the traditional honeymoon period granted to a new government to set out its policy initiatives. The top priorities, López Perito said, would be combating insecurity and poverty and then tackling corruption. He did not go into any great detail as to how the Lugo administration intends to succeed where previous governments have manifestly failed, but certain ministers-designate were more specific.

Filizzola, for instance, promised a sweeping reform of the police force, which he said carried out a repressive rather than a preventative role. He proposed restructuring the police force and altering the training received by recruits to focus more on crime prevention.

• Lugo's cabinet appointments

• Lugo abroad

Shortly after naming his cabinet, President-elect Lugo embarked on a regional tour. He visited Bolivia to mark the 73rd anniversary of the end of the Chaco war but also to underscore his determination to end years of enmity between Paraguay and Bolivia. He then moved on to Quito and Caracas. Although he stressed that he would not model his government on that of any other country his choice of destinations showed his political and ideological preferences on the international stage.

The general assumption among politicians and commentators that the government would get some sort of useful reform to the state oil monopoly, Petróleos Mexicanos, through congress before Christmas is crumbling. The government's failure to get on top of the drug gangs, demonstrated by the grenade attacks in Morelia, Michoacán on 15 September, have complicated its relations with congress. All but one of the 33 senators from the Partido Revolucionario Institucional (PRI), the biggest opposition party in the upper house, refused to attend the testimonies given by the government's top two security ministers on 22 September.

The need for a reform to Pemex is becoming ever more apparent. Pemex produced some horrible production figures on 22 September. It reported that oil production in August was 19% below the level in August 2007. Over the first eight months of 2008 the country's oil production is down by 16.4% at an average of 2.834m bpd. This is the lowest for a decade. Exports in the first eight months were down by 19% at an average of 1.44m bpd.

What the government's mild reforms to Pemex are designed to do is to allow foreign oil companies to develop the deepwater offshore oil reserves Mexico probably has in the Gulf of Mexico. Pemex says that it has neither the financial muscle, nor the technological expertise, to develop these fields. Without these new fields, Pemex's production will continue to dwindle.

So far, the economic and financial effects of the collapse in production have been masked by the overshoot in prices. The average export price for the first eight months of 2008 was US$99.17 a barrel. As the government had budgeted on an average oil price of US$49 a barrel for 2008, Pemex reckons that there is a nominal oil windfall of US$35bn in 2008. The figure is only nominal because at least 50% of the windfall has been swallowed by the higher prices for fuel imports which Pemex does not have the capacity to produce.

The government has published its budget for 2009 and forecast an average oil price of US$80.3 a barrel. At current prices (on 24 September Pemex's export price was US$96.32 a barrel) the government has little margin for error. The finance ministry uses a formula, based on current prices, rather than guess about likely prices in 2009, to calculate the oil price next year. When crude oil prices rise, this formulaic method is fine, but when they are falling, it may create problems.

 Oil revenues supply the government with between 35% and 40% of its total revenues: price is now a bigger element in the composition of these revenues because production is plummeting. The government is budgeting on average exports of only 1.35m barrels per day (bpd) in 2009. For 2008 the government forecast a price of US$49 a barrel and exports of 1.68m bpd. In fact average export volumes for the first eight months of 2008 have been around 1.44m bpd.

The government's problem is that it has not driven the Pemex reform through congress. It allowed the Left to hold a national debate on the reform over the summer, and though comparatively few people bothered to take part in the leftwing Frente Amplio Progresista's referendum on the reform, congressmen and senators developed views on oil reform which have complicated the government's programme.

The assumption had been that the Pemex reform would get through both houses of congress by the end of October, although the government has not set any deadline. As the reform does not, the government says, involve any change to the constitution, it will not have to be approved by a majority of state assemblies. The Left may well call on the supreme court to rule on whether the reform infringes the constitution, ignoring the government's protestations.

What has happened is that congress has become over-involved in the detail of the reform without understanding the principles. Congressmen have stuck to involving themselves in things that they understand. So there was a heated debate over whether to mandate staffing levels at the proposed new refining subsidiaries of Pemex. On the other hand, in the debate on the reforms in the senate, no senator asked about the new technologies that would be needed to develop the new fields, so there was no debate on this crucial issue. 

Oil analysts argue that the government's reforms look badly thought-out and badly presented. The key element of the reform is to allow Pemex to offer “incentivised contracts" to private companies to help it find and develop new oil fields. The problem is that the framework under which these contracts would be offered is loose and, critics from all sides say, gives Pemex officials too much discretion. The two opposition blocs, the PRI and FAP have only complicated the reform further by demanding that Mexican companies be given preference when incentivised contracts are issued. Not only is this perplexing, since no Mexican company has the financial clout or expertise to develop the new fields, but it is probably also unconstitutional. What the PRI and FAP may have intended is for the big international oil companies to set up Mexican subsidiaries to take part in the new developments. As these subsidiaries would be subject to Mexican regulation, the government should then be able to see what is going on.

• Colombia
  The Procurador General de la República, Eduardo Medina Mora, said on 22 September that the government would not arrest Lucí­a Morett, the Mexican student who survived the attack on the Fuerzas Armadas Revolucionarias de Colombia (Farc) camp in Ecuador on 1 March. The PGR ruled that there was no evidence that she was involved in terrorism, and so no grounds to issue a warrant for her arrest. Morett, who is in Nicaragua, can now return to Mexico to resume her studies, though Medina Mora said that his department had not completed its investigation.
  

President Lula da Silva said in his first speech of 2009 that the government will boost investments in the first quarter to prop up key productive sectors, amid growing signs of a sharp deceleration in the real economy. The promise came as Lula forecast a “worrying" first quarter during his weekly radio programme Café com o Presidente.

“We will have to take the initiative, to make things happen in the first quarter, otherwise we run the risk of receiving a big hit from the [global financial] crisis," Lula said. He added that governors and mayors will also have to commit to boost investments, while promising to “put more funds into the Bndes," the National Economic and Social Development Bank, “to convince private businesses to continue investing." In addition, Lula said the government would work with banks to cut their spreads in order to ease access to cheaper credit for small and medium companies.

Lula promised that “there will be no shortage of money for investments," adding that no project in the government's Growth Acceleration Programme (PAC) would be stopped. “On the contrary, the government will invent new projects, discover new necessities, that are important for Brazil," Lula said. At the end of last year the government increased PAC investments to R$636bn (US$266bn), from an original R$504bn, to the end of 2010. It calculates that the PAC, centred mainly on much-needed transport infrastructure investments, will contribute one full percentage point to real GDP growth in 2009 and, importantly, create employment.

Lula's declaration showed that his relentless efforts to project optimism to Brazilians are starting to flag - as a series of economic indicators reveal a sudden and rapid economic deceleration. The government now admits that real annual GDP growth will not be 4% in 2009, but 2.5%. But, in a central bank report issued on 9 January, the private sector consensus GDP forecast for 2009 slipped to 2.0%, down from 2.4% a week earlier and the more bearish forecasts are now as low as 0.9%.

Deceleration and unemployment
Real annualised GDP growth came to 6.4% in the first nine months of 2008, thanks to thriving domestic demand and continued export growth. However, some analysts are now expecting an overall contraction (on a seasonally adjusted basis) in the final quarter of 2008. Industrial production (IP), the most closely watched indicator, fell by a worse-than-expected 5.2% month-on-month and 6.2% year-on-year in November 2008.

The fall was caused by a slowdown in both external and domestic demand. With investment credit scarcer and more expensive, domestic economic activity slowed rapidly in the final quarter of 2008, as demonstrated by a slew of negative figures in the past week.

As a result, industrial employment registered its worst result in five years, down by 0.6% month-on-month in November. The labour minister, Carlos Lupi, told journalists he expected even worse results in December, while a recent survey by the local Fundacão Getulio Vargas showed that a third (32.5%) of 1,086 Brazilian companies, employing a total of 1.3m workers, intended to lay off staff. Industry associations and labour unions demanded that the central bank cut the base interest rate, the Selic, which it kept at 13.75% annually in its latest monetary committee meeting in December.

• Rousseff

President Lula's chief of staff, Dilma Rousseff, made her first public appearance of 2009 showing a “fresher face" - after having plastic surgery over Christmas. The surgery was part of Rousseff's launch as the candidate to replace Lula in 2010. She might need more than a younger look to win, not least with the Lula administration facing the first economic crisis since it came to power. The latest CNT/Sensus opinion poll put the opposition governor of São Paulo, José Serra, on 46.5% of voter intentions, with radical leftwing former senator, Heloí­sa Helena, in second on 12.5% and Rousseff third on 10.4%.  

ARGENTINA | Trade surplus shrinks. The primary fiscal surplus (the budget surplus before debt payments) fell 60.7% to just Arg$895.6m (US$242m) in March compared with the same month in 2008, the economy ministry revealed. After debt servicing, the fiscal deficit was Arg$732.8m (US$198.6m). The primary fiscal surplus in the first quarter was Arg$4.50bn (US$1.22bn), down 49%. Separately President Cristina Fernández announced that the trade surplus in the first quarter was Arg$12.54 (US$3.43bn), up 6% on the same period in 2008. She said this was a sign the economy was in better shape than critics claimed. The increased trade surplus, however, is almost certainly a result of falling imports (and import barriers) due to a slowing economy rather than an increase in exports. The tax take in March increased by 23% year-on-year to Arg$21.77bn (US$5.9bn).

URUGUAY | Downturn. The government has revised its growth forecast for 2009 down to 2% from 3%, with a negative first quarter. The economy minister, Alvaro Garcí­a, made the announcement on 20 April when he also revised the fiscal deficit target up to 2% of GDP from 1%, and asked congress, where the ruling Frente Amplio has a majority, to allow the government to issue bonds. Days earlier, Garcí­a told a regional debt management meeting in Montevideo that Uruguay had improved its debt profile substantially since 2005, when President Tabaré Vázquez took office. He said the debt to GDP ratio had fallen from 66% in 2005 to 26% now. The net public debt was US$8.26bn at the end of 2008.

The government of President Evo Morales is facing protests over plans to resettle landless families in the opposition Amazonian region of Pando. Morales insists the move is in line both with the new constitution - which aims to redistribute land to the indigenous poor - and a wider resettlement plan in place since 2006. His opponents claim otherwise, arguing the initiative is political, with a view to general elections in December.

Last month, the deputy minister for land, Alejandro Almaraz told reporters of the government plan to move 2,000 families in early August, from La Paz and Cochabamba - where problems concerning land shortage are “most acute" - to Pando, where they would be settled on 200,000 hectares in three jurisdictions.

Almaraz said that the project is part of a programme of community settlements that aims both to establish Bolivia's sovereignty in sparsely populated border regions and to fulfil a constitutional mandate for land reform. The director of the national institute for agrarian reform (INRA), Juan Carlos Rojas, added that the institute plans to redistribute 600,000 hectares of land during 2009. The government drive follows the highly publicised handover of 38,000 hectares of land to the indigenous Guaraní­ community in the Caraparicito and Alto Parapetí­ areas of the eastern region of Santa Cruz in March this year [WR-09-11].

As was the case with the earlier handover of land, seized from a handful of large-scale landowners, the proposed resettlement in Pando attracted outspoken criticism from right-wingers such as Pandino senators, José Villavicencio (Unidad Nacional), Róger Pinto and Paulo Bravo (Podemos), who together with former Pando governor Leopoldo Fernández (still in prison for his alleged role in last year's massacre) and another ex civic leader, Ana Melena de Suzuki, reportedly own 16,734 hectares of land in the region.

The choice of Pando as destination for the resettlement initiative was also seized on by the opposition as evidence of Morales' political manoeuvring ahead of the December vote; Pando is Bolivia's smallest region, with a population of 52,525, according to the last national census in 2001, and, while traditionally aligned with the opposition, the August 2008 recall vote saw a surprising win for Morales (albeit by a marginal majority - 52%).

Although this was subsequently reversed in the January 2009 referendum on the new constitution - the most recent barometer of support for Morales - the change of heart was attributed to the state of siege and military rule declared in the region after the September massacre. Given that the electoral roll for the January vote showed 31,711 Pandinos were registered, an additional 2,000 voters who would most likely back the government, could prove critical.

Silala
The proposed resettlement drive is not the only government initiative sparking protests. The prospect of a deal with Chile over the Silala river has met with rejection, this time from Potosí­, a region firmly aligned with Morales and his ruling Movimiento al Socialismo (MAS).

Following the preliminary 12 July agreement over the Silala [WR-09-28], on 3 August the Bolivian government released the details of the draft agreement which Morales and his Chilean peer Michelle Bachelet are slated to sign later this month. The deal establishes that Bolivia owns at least 50% of the river - which rises in Bolivia but is used as a water source by Chilean-based mines - with the remainder to be subject to a four-year study.

The grass roots Comité Cí­vico Potosinista (Comcipo), which comprises 54 organisations and 16 provincial groups, is objecting to the fact the agreement neither recognises Bolivia's complete ownership rights nor forces Chile to provide compensation for what Comcipo dubs a 100-year debt. Some Morales supporters in the region back the deal, including its governor, Mario Virreira. But, the government is under pressure. It recently declared its readiness to hold a referendum on the matter - having previously rejected the idea.

• Indigenous autonomy again

Aside from the resettlement drive, President Evo Morales has also irked the rightwing opposition with his promulgation of a decree on 2 August to “facilitate" the indigenous autonomy process - another core provision of the new constitution. The decree establishes the rules and regulations for municipal referendums on indigenous autonomy (scheduled for 6 December, along with general elections). Morales celebrated the act in Camiri, a town in the opposition region of Santa Cruz which inevitably irritated the Cruceños who decried it as a “political show" and “illegal". The Santa Cruz lobby was still smarting from the pitiful turnout to a 28 July march called by the Comité Cí­vico to express support for those targeted in the government's crackdown on alleged terrorism.
   So far five municipalities (in La Paz, Potosi and Chuquisaca) have completed the paperwork to hold the plebiscites (out of a total 187 eligible to vote on indigenous autonomy). As is the case with the other levels of decentralisation envisaged under the new constitution, it is unclear exactly how indigenous autonomy will function in practice. The central government alone, however, will set foreign, fiscal, energy and security policies.

• Sendero

Three police officers and two female civilians were killed in an attack perpetrated by the guerrilla group Sendero Luminoso on 2 August. Guerrillas attacked a base of police special forces, charged with combating drug-trafficking and terrorism, in San José de Secce in the south-eastern department of Ayacucho.  The attack took place on the same day that the ruling Partido Aprista Peruano (PAP) was commemorating the 30th anniversary of the death of its founder Ví­ctor Raúl Haya de la Torre.

• Venezuelan ambassador

Venezuela's President Hugo Chávez fired his ambassador to Bolivia, Julio Montes on 29 July, in what came as a surprise and has yet to be fully explained. Montes had held the position since 2006. Just over a month earlier, President Evo Morales named the new Bolivian ambassador to Venezuela as General Gualberto Arámbulo - a move which attracted criticism from the opposition. Montes's replacement has yet to be named.