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The government of President Hugo Chávez opened 2011 with a currency devaluation,  just 12 months after the last one. The devaluation will rebalance the budget and should signal the end of an awful couple of years for the economy.

Evidence that the government is moving towards a more orthodox mix of policies came with the announcement, on 31 December 2010, by the finance minister, Jorge Giordani, that  the two official foreign exchange rates would be merged into a single rate of BF4.30/US$. As the budget had been drawn up at the previous preferential rate of BF2.6/US$, receipts (derived from dollar-priced oil exports) should jump by over 40% in 2011 to BF290bn (US$67.4bn). In fact the actual boost should be much higher because the government is budgeting on an average oil export price of just US$40 per barrel in 2011. Currently, mid-January, Venezuelan oil is selling for US$85 a barrel.

Venezuelan oil prices are likely to jump following the news of the overthrow of the Tunisian president. The snap judgment of lots of geo-political risk strategists is that the toppling of such a long standing leader so quickly will make the Middle East even more unstable. For all his eccentricities and disapproval from right-wingers, President Hugo Chávez has retained the support of at least 40% of Venezuelans since he was elected in 1998 and he has tested himself frequently at the ballot box. As Colombia's new government now seems to have a less truculent approach to him and his government, Chávez is probably now more secure than at any time since the attempted coup against him in 2002.

The difference is substantial given that the country is exporting at least 2m barrels per day. Even if oil prices just hold at their current level the government will have an off-budget windfall of US$32.8bn to play with (the basic calculation is: US$45 x2m x 365). This money is likely to go into programmes such as the National Development Fund (Fonden), which the government uses to finance all manner of social and economic projects, particularly in election periods.

The effect of the extra oil money will be magnified by more government borrowing.

Orinoco: The government can afford to issue more debt because it has the biggest oil reserves in the region. President Chávez now claims that Venezuela is sitting on the biggest oil reserves in the world (based on a new figure of some 253bn barrels in the Orinoco belt. Saudi Arabia's reserves are estimated at 260bn barrels).

Inflation: In 2010 consumer price inflation was 26.9%. The central bank has estimated a 1.9% real annual GDP contraction in 2010, but expects 2% growth in 2011. The central bank reckons that private consumption fell by 2.8% in 2010, which underlines how important the state sector is.

Vehicles: Sales of new vehicles fell for the third consecutive year in 2010. The industry had hoped to sell 200,000 new vehicles in 2010 but only managed to sell 104,000. The Cámara Automotriz de Venezuela (Cavenez) reported that government purchases accounted for a third of total sales. It is worth noting that several carmakers (notably BMW, Cinascar and Tata) have given up importing  and now focus just on providing parts and servicing. These companies say that importing has become too difficult because of the government's controls on access to foreign exchange.

President Ricardo Maduro has come under pressure to resign. Bishop Luis Alfonso Santos said he was 'taking the country down a blind alley' and had failed to do anything to benefit the 79% of the population living in poverty. His comments came after several thousand protesters from various different social organisations marched on Tegucigalpa to demand that Maduro step down.

The so-called 'Marcha por la dignidad' reached the national assembly building, where protesters stopped to hurl stones and Molotov cocktails. At this point, the police fired tear gas and water cannon to disperse them. Protesters denounced the recent water and land legislation passed by the national assembly. They say that handing over administration of water to local councils is the first step towards privatisation. They also condemned the mooted plan to reform the civil service.

The timing of the march and ecclesiastical critique is still strange. Only last week the government announced that it would be unable to reach a much-needed agreement with the IMF because the Fund was demanding that it reduce public sector wages drastically. Maduro might have expected this to go down well with social organisations, who have opposed his protracted negotiations with the IMF from the start.

The first survey among congressmen of who they regard as the most important members of the chamber has put the ruling Partido dos Trabalhadores (PT) at the top of the list. It has 23 of the 100 most influential members of congress, according to a survey by the Departamento Intersindical de Assessoria Parlamentar (Diap). 

The Diap also found that the main opposition party, the Partido da Frente Liberal (PFL), has also increased its number of influential members, from 14 to 18. The Diap has been conducting this survey of congress since 1993. It asks the members to nominate the most influential members.

Top of the list as the most influential member is senator Antônio Carlos Magalhães (PFL, from Bahia). There are some oddities in the list: the leftwing senator, Heloí­sa Helena, who led the struggle inside the PT against the government's pension reforms, appears on the list, though she lost and has now been stripped of her party membership. It is also odd that Roseana Sarney, also a PFL senator, for the northern state of Maranhão, does not appear on the list. Her father is an influential former president and also a senator, but for the Partido do Movimento Democrático Brasileiro (PMDB). 

The PMDB itself has 16 influential members of congress and the Partido da Social Democracia Brasileira has 14.

With only days to go to the 9 November presidential and legislative elections, our prediction that no single candidate will muster sufficient votes in the first-round looks almost certain to be borne out, bar electoral irregularities. Less certain is who will compete in the run-off on 28 December. The momentum is undoubtedly with Alvaro Colom of the nominally left-of-centre Unidad Nacional de la Esperanza (UNE). Frontrunner Oscar Berger of the right-of-centre Gran Alianza Nacional (Gana) amassed a huge lead in early polls but the pendulum has swung very much away from him and towards Colom in recent weeks. Colom has surged up the polls to within three percentage points of Berger although whether he can sustain that run in the second round is open to doubt.

Colom came a distant third in the 1999 presidential elections, when he ran for the left-wing Alianza Nueva Nación (ANN), based on the former guerrillas of the Unidad Revolucionaria Nacional Guatemalteca (URNG). He has broadened his appeal this time by moving closer to the centre and picking off disgruntled supporters of the ruling Frente Republicano Guatemalteco (FRG), for whom retired General Efraí­n Rí­os Montt is running. Colom has added an innovative twist to a traditional election platform by promising to adhere to a strict timetable of fighting corruption and reducing violence. He said he would make Guatemala the most secure country in Latin America within eight months of assuming the presidency. He will also benefit from the support of all of the other parties competing in the elections if he makes it to a run-off against either Berger or Rí­os Montt.

It would be foolhardy to write-off Rí­os Montt even though his abysmal performance in the polls suggests he should not feature in the contest. The calm confidence with which his running mate Edí­n Barrientos recently said that 'The results of the opinion polls do not concern us because we are going to win the election in the first round despite what they say' is somewhat sinister. No local political commentators are prepared to dismiss Rí­os Montt, fearing that the FRG could have tricks up its sleeve. The consensus, however, is that he cannot win the elections without resorting to fixing the result.

If Rí­os Montt fails, then the FRG/PAN duopoly on power will be at an end. Berger abandoned the Partido de Avanzada Nacional (PAN) to run on the Gana ticket early in the campaign and the new PAN candidate Leonel López Rodas has failed to make any impact on the polls.

What tricks might the FRG have up its sleeve? Many commentators are concerned that the FRG will use the former paramilitaries, PAC, to disrupt the elections. However, the ex-PAC yesterday withdrew their threat to boycott the elections. They also said that they would put their protests on hold until after the elections (they are currently demanding compensation for their part in Guatemala's 36-year civil war). This has been treated with scepticism by electoral observers, who fear that they will renege on their promise and resume their recent road blockades thus preventing voters getting to the polls. The security forces yesterday dispersed a large group of ex-PAC blocking a major road to the Mexican border.

Some 22,000 police officers and 27,200 members of the armed forces have been sent on to the streets to ensure citizens' security and pre-empt any electoral disturbances. The problem is that the military is also discredited. It was heavily criticised for its failure to intervene in the violent protests in Guatemala City on 24 and 25 July, which led to the constitutional court registering Rí­os Montt as the FRG's candidate. The US State Department decried the violence then as 'a dangerous mockery of the right to protest' and blamed the FRG for 'planning and organising' the demonstrations and keeping the military from intervening.

The legislative elections are likely to be very closely contested. One thing is almost certain. Whoever wins the presidential elections will not enjoy anything like a majority in congress and will therefore have a weak mandate. The biggest single representation in congress is expected to go to Gana, according to the latest polls. Gana legislators received 21.8% of voter preferences, equivalent to 35 seats in the new 158-seat congress. Congress is to be enlarged from 113 seats to 158 seats. UNE had 17.1% support (27 seats). The FRG, which has a majority of 59 seats in the current 113-seat congress, is expected to return just 20 legislators, the poll suggests.

Former President Alvaro Arzú, running as an independent, looks a safe bet to win the important elections for mayor of Guatemala City, which has some two million inhabitants. Arzú, who, as head of state, signed the peace agreements with the guerrillas in December 1996, commands a sizeable lead in the polls on 34.2%. Jorge Briz (Gana) and Luis Rabbé (FRG), range between 13% and 19% in the polls.

President Alejandro Toledo has ended weeks of speculation by axing Prime Minister Beatriz Merino and asking the other 15 members of her cabinet to resign their posts.

Merino held sway for little over five months during which time she established herself as one of the only popular figures in Toledo's beleaguered administration. She fell out with the President when he refused to allow her a free rein in selecting her own cabinet; changes she wished to make based on merit rather than political allegiance. Toledo caved in to pressure from his own Perú Posible party and its important ally in the legislature, the Frente Independiente Moralizador (FIM), with whose leader Fernando Olivera, Merino had a prickly relationship. Both parties pushed hard for the cabinet to be loaded with more party members and allies.

The official word from the presidential palace was that Toledo took this decision 'in light of recent political events,' a phrase sufficiently vague to have been employed at almost any time during his tenure. The resounding message from the ranks of the opposition is that Toledo needs to find a cabinet based on consensus, running across party lines rather than being constrained by pressures from within his fragile coalition. Leader of the opposition Partido Aprista Peruano (PAP), Alan Garcí­a said that Toledo had ditched the person most capable of helping Peru develop and bring stability.

Ironically, Merino was far more popular with the opposition for her forthright and candid appraisal of Peru's economy. She sought cross party consensus to achieve important tax reforms. This directness and subordination of party concerns to national matters did not endear her to some within the ruling coalition and perhaps smacked of political naivety. Merino's popularity (soaring at 65%) provoked envy amongst PP bigwigs, who carried out a character assassination in recent weeks, accusing her of getting an old schoolfriend, and alleged lesbian lover, a job as a consultant when she was head of the national tax office, Sunat.

Toledo had seen his own approval rating steadily recover since appointing Merino. After he ditched Merino, it fell to 11%, its lowest-ever level, according to a poll rushed out by Apoyo. Toledo will announce his full cabinet today. He has three major vacancies to fill. Foreign trade minister Raúl Diez Canseco was hounded out of office recently on an influence peddling scandal, foreign minister Allan Wagner will become the new secretary-general of the Andean Community group (CAN) early next year and defence minister Aurelio Loret de Mola said that he has had enough.

Former head of congress, Carlos Ferrero, the perennial second-choice for the position of Prime Minister is favourite to fill Merino's shoes. The safest bet that Ferrero will take over, aside from the fact that no other politician fancies what is becoming a impossible position, is that Anel Townsend, the minister of Women and social development has resigned and asked for no further part in Toledo's plans. Ferrero has had frequent run-ins with Townsend in congress. Her loss is another blow to Toledo though as she was another of the few popular figures in his cabinet.

The PP bloc in congress had unsuccessfully advocated the appointment of Ferrero in June. Ferrero has a reasonable reputation as a consensus-builder from his stint as president of congress. That might not be enough however. There is no shortage of acrimony in congress over Merino's bungled departure, which served to expose once more Toledo's inability to balance party politics with national priorities. The fact that Toledo's nemesis Alberto Fujimori (widely perceived to be corrupt) attracts three times as much popular support in opinion polls is a bitter indictment of his government's failure to live up to its election promise to reduce Peru's high poverty level.

The island of Hispaniola is in turmoil. Daily protests calling for the resignation of Haiti's President Jean-Bertrand Aristide are now being mirrored on the other side of the island in the Dominican Republic. Yesterday, the first day of the 48-hour strike called by the Dominican umbrella protest group Coordinadora de Unidad y Lucha against the government's economic policies paralysed activity in the capital Santo Domingo and elsewhere in the country. One person died and 53 people were injured as protesters clashed with police and the armed forces patrolling the streets.

Most shops shut in Santo Domingo and schools across the country were closed. Protesters demanded salary increases, price cuts on basic food products, and an end to the US$600m IMF deal, which the government has recently signed. The peso is worth three times less than it was a year ago and inflation is rampant. Protesters used rhetoric sounding much like that coming out of Haiti, denouncing the 'demagoguery and repression of the authorities'.

The strike will continue today. The government has called for calm. Meanwhile, seven leaders of leftwing parties, including the president of the Nueva Alternativa, Ramón Almanzar, and the general secretary of the Partido Comunista de los Trabajadores (PCT), Manuel Salazar, have been arrested. The opposition Partido de la Liberación Dominicana (PLD), which supported the strike, condemned the arrest of the leaders, saying that they were merely participating in a legitimate demonstration against a government which is leading the country into crisis. The CNTU transport union says that over 40 members of the movement have been arrested. The president of the CNTU, Ramón Pérez Figuereo, called the arrests 'an act of repression'.

The central bank is fretting about inflation. According to reports in the Brazilian press, the bank held a series of private meetings with independent economists last week in which it admitted that inflation was not behaving as it should. Yet yesterday, the president of the central bank, Henrique Meirelles, hinted that the bank will cut interest rates at next week's monetary policy meeting.

Speaking just before a central bankers' meeting at the Bank for International Settlements' he said that the central bank was planning on a gradual reduction in interest rates. The central bank is under pressure from the government to get the economy moving again after the revelation, published last week, that the economy contracted by 0.2% in 2003. The easiest way to get the economy moving is to cut rates.

Cutting rates may mean that the bank is taking a risk with inflation. The bank has held rates at 16.5% for January and February because of higher-than-expected inflation. Its target for this year is to get the inflation rate down to 5.5% from 8.5% in 2003.

The government's pressure on the central bank is increasing because of the political scandals swirling around José Dirceu, President Lula da Silva's right-hand man. The government wants faster growth to take people's attention away from the corruption scandal.

The United Nations Human Rights Commission in Geneva is scheduled to vote today on a US-backed resolution condemning Cuba for human-rights abuses, but some believe the vote may be postponed until tomorrow (16 April).

The resolution, which condemns Cuba for its crackdown on dissidents, was brought before the UN Commission by Honduras. The document calls for an international human rights monitor to visit the island. Cuba, a member of the UN Commission, has expressed its disapproval of the measure. Earlier this month, President Fidel Castro criticized Honduras' President Roberto Maduro, claiming that Honduras was succumbing to US pressure. The two countries had scheduled maritime delimitation talks for this week, but Cuban officials cancelled the meeting.

Meanwhile, Honduras insists that it supports the resolution of its own accord and does not feel pressured by the US. Other countries in the region which plan to back the document include Peru, El Salvador and Nicaragua. Brazil, Argentina, and Paraguay have decided to abstain. Venezuela is expected to vote against the resolution. Mexico has yet to announce its decision, though foreign minister Luis Ernesto Derbez indicated yesterday that Cuba should allow human rights officials to enter the country.

In the spring of 2003 a similar resolution was passed by the UN Commission just days after Cuba imprisoned 75 dissidents, but last year's resolution did not openly condemn Cuba's human rights record.

President Hipólito Mejí­a has vowed to sign into law a highly controversial environmental bill that will pave the way for the construction of hotels and mining developments on national-park lands. President-elect Leonel Fernández has added his voice to environmental groups and ambassadors from the US, the European Union and Canada in urging the president not to ratify the law.

Congress, which is dominated by Mejí­a's Partido Revolucionario Dominicano (PRD), has made a series of changes to the Sectoral Protected Areas Bill, including doing away with the Estero Hondo mammal sanctuary, home of the endangered manatee, and opening up protected areas along beaches in the Parque Nacional de Este for tourism resorts. The bill, which will also permit mining surveys in some protected broad-leaf forests, was approved by both chambers last week. The Dominican Environmental Consortium, an umbrella group of environmentalist organisations, says it will challenge the bill in the country's supreme court.

Mejí­a insists that the environment will not be endangered by the new legislation. He says that the tourism and mining initiatives are crucial to the Dominican economy, which has suffered a sharp reversal in the last year with the peso plummeting against the dollar and soaring inflation.

Development: Argentina reacted angrily to comments from the US registering concern at the current unrest in the country caused by the piquetero movement. Foreign minister Rafael Bielsa declared on 29 June that he was 'fed up with [the US] intervention in the domestic affairs of our country', and he questioned whether an Argentine official had the right to criticise the 'barbarity' of US prisons in Guantánamo and Iraq.

Significance: The current Argentine government has never been afraid to stand up to the US, but this is the most outspoken response yet to comments from the White House. Even though the US's concern at the situation in Argentina was traced only as far as a high-level official, Bielsa immediately went after the subsecretary for western hemisphere affairs, Roger Noriega, whom he accused of engaging in diplomacy by bar-room chatter. The foreign minister also claimed that Noriega's comments were aimed at undermining the government and suggested he was doing so at the behest of opposition forces in Argentina.

Bielsa's comments, which he stressed were made on behalf of the president, Néstor Kirchner, might play well in Argentina but they do nothing to solve a situation which is deteriorating. The piqueteros have stepped up their demonstrations and roadblocks, buoyed by a rare period of unity between hardliners and moderates in the wake of the murder of fellow protestor Martí­n Cisneros, which they have classed as 'a political crime'. Bielsa himself said Argentina was at present 'a country on the edge of lawlessness'.

The foreign minister also reiterated the government's line that the way to solve the crisis was 'not by sticks, but by applying the law'. Noriega is not alone in calling into question the efficacy of a policy, which is at present patently failing to control the situation. By rebuking him so openly, the government has risked further distancing itself from an important ally, not least in its negotiations over its defaulted commercial debt

Development: Argentine police will receive anti-kidnap training in Colombia following an agreement reached on 4 August between the government of Buenos Aires and the Colombian vice-president, Francisco Santos. The co-operation will come into effect immediately, and will see Colombian security forces heading to Argentina also.

Significance: The co-operation indicates how seriously the province of Buenos Aires is taking the threat posed by the rise in kidnappings. Colombia has the world's highest number of kidnappings per year, and its security forces are highly experienced in dealing with what Santos concedes is 'a highly professional' industry in his country.

Santos said that Colombia's kidnappers 'have a doctorate while those in Buenos Aires are only just starting university' but he warned that the situation could worsen rapidly if the government failed to take action. The vice-president said the Argentine government should not be afraid to use legitimate force, and he called on the media to take a more responsible attitude towards kidnapping, criticising it for giving too much coverage to the crime.

Development: The northeastern Andean region of Cajamarca went on strike on 8 September to protest against the government's refusal to repeal a law allowing Yanacocha, Latin America's largest gold mine, to carry out exploration in Mount Quilish, near the provincial capital of Cajamarca.

Significance: The regional president of Cajamarca, Felipe Pita, has thrown his weight behind the strike. He said he shared the concern of population that mining in Quilish could contaminate the main reliable water source for the region. Some 1,500 protesting farm workers were involved in violent clashes with police last week.

The energy and mines minister, Jaime Quijandrí­a, said that Yanacocha was at fault for starting the exploration before consulting the population. Yanacocha has temporarily suspended its prospecting in order to carry out an environmental impact study in the area.

In a separate development, workers at Southern Peru's giant copper mines are expected to return to work tomorrow after a nine-day strike. Unions instructed workers to break off the strike for 30 days after the government said that it was illegal, allowing the company to dismiss workers.

Development: The country's executive vice president, José Vicente Rangel, said on 12 October, that the country would oppose the nomination of Francisco Flores to be the new secretary general of the Organization of American States.

Significance: Venezuela opposes Flores, a former president of El Salvador, because he is too close to the US. Rangel said that he expected several people to stand, but that Flores would not be acceptable to the government. The left-wing opposition in El Salvador, the Frente Farabundo Martí­ para la Liberación Nacional (FMLN), also opposes the appointment of Flores. So far, no-one has formally been nominated for the OAS vacancy created when Miguel Angel Rodrí­guez, a former president of Costa Rica, resigned on 8 October after being accused of corruption.

Rangel said that Flores was unacceptable because he had been one of the few heads of state to recognise the attempted coup in Venezuela in April 2002 which made Pedro Carmona (briefly) president.

The Venezuelan foreign minister, Jesús Pérez, said that he favours the former Chilean foreign minister, (now interior minister) José Miguel Insulza. Pérez argued that Central America had lost its chance of providing a secretary general. Pérez agreed that Flores was unacceptable because he had also expelled a team of Venezuelan rescue workers who came to help after the Salvadorean earthquakes of 2001. Flores said that the Venezuelans had been helping non-government groups.

Development: Congress failed to meet its deadline to pass a budget by 15 November.

Significance: Usually the budget is rushed through at the end of year, just before it comes into force. Congress and the government agreed to set an earlier deadline in an effort to get a better budget. When the deadline expired at midnight last night, congress had only approved the income side of the budget, not the (much more controversial) spending side.

Congress now says that it will meet on Wednesday (17 November), starting at midday, to consider the budget. The Partido Acción Nacional (PAN), to which President Vicente Fox belongs, was furious at the way the Partido Revolucionario Institucional and the Partido de la Revolución Democrática, which together have a majority in congress, plus the Partido del Trabajo and Convergencia, tried to railroad the budget through congress. PAN deputies said that they had not been allowed to read the PRI-PRD amendments to the budget.

Indeed there seemed to be several versions of the budget flying around. Factions in the PRI were pushing for different things: there were even rumours of a punch-up between supporters of Emilio Chuayfett, the leader of a major PRI faction in congress, and Manuel Beltrones, the leader of another faction and the president of congress.

The PRI says that the discussion on Wednesday will be a formality, and no substantial changes to the budget will be made.

Development: On 16 December Venezuelan President Hugo Chávez announced that his government 'looked favourably' on José Miguel Insulza's bid to become the next secretary-general of the OAS.

Significance: Insulza, who was already leading the race for the position, is now even further ahead. He can boast the backing of Argentina, Brazil, Venezuela and Chile itself, and, according to foreign minister Ignacio Walker, a number of other countries.

Despite the fact that diplomatic relations between Chile and Venezuela have been less than cordial throughout 2004, Chávez has come out in favour of the Chilean. One of Insulza's rivals, the former president of El Salvador, Francisco Flores, is disliked by the Chávez administration for his recognition of the presidency of Pedro Carmona, the man who overthrew Chávez for 48 hours in April 2002. Another of Insulza's rivals, the Mexican Luis Ernesto Derbez, appears to have got nowhere at all; no other countries have backed his bid.

The election will take place in June 2005.

Development: The US threw its weight behind the former president of El Salvador, Francisco Flores, on 27 January in his bid to become the next secretary general of the Organization of American States (OAS).

Significance: The US decision to back Flores could have serious consequences for the future of the OAS. Most importantly, it will put the US at odds with Venezuela again. Venezuela has made it very clear that it will never back Flores because he overtly backed the presidency of Pedro Carmona, the man who led the coup which overthrew President Hugo Chávez for around 48 hours in April 2002, and it has urged other countries in the region to do the same. Venezuela is backing Chile's interior minister, José Miguel Insulza, for the post.

Although Flores has the support of neighbouring Central American republics and OAS member states in the Caribbean, South America's heavyweights, Brazil and Argentina, are expected to back Insulza. The official line will probably be that as a fellow member of Mercosur Chile deserves their support. More likely is that they will be concerned that Flores' pro-US credentials will give the US undue influence in the OAS. Mexico is also annoyed that the US decided against backing the bid of its foreign minister, Luis Ernesto Derbez. Flores needs to win the support of a majority of the 34 member states of the OAS. A decision must be made by June.

The US Assistant Secretary of State for Latin American affairs, Roger Noriega, said that Flores represented a new generation of Latin American leaders, whom he described as "modern, dynamic, forward leaning, who view the challenges of our 21st century globalized world not as threats to be shunned but as opportunities to be embraced". He added: "He is a Central American visionary, fresh and creative in his outlook, who deeply appreciates the benefits of regional action and hemispheric unity."

Development: The presidents of the senate and the lower chamber of congress, Senator Renan Calheiros and Severino Cavalcanti, established a parliamentary commission on 2 March to discuss changes in the budgetary legislation.

Significance: The move comes after the government announced a R$15.9 bn (US$6 bn) cut in the 2005-06 budget last week. The congress wants to change the existing budgetary legislation in order to limit executive power over budgets approved by congress. Currently, the government can cut and transfer resources from most of the budget, once it had been agreed by congress, without consulting the legislature.

According to Calheiros, the existing budgetary rules "create a climate of uncertainty", for states and municipalities. Cavalcanti was less subtle in his comments, saying that the government "has an obligation" to handover resources promised to state and municipal administrations. Frequently, projects already in development are left without the funding promised by the government.

As expected, the government does not support he proposal. According to members from the economic team, reducing government's control over budget means limiting its powers to comply with primary fiscal surplus targets.

The commission's work will be based on a project presented to congress in 2000, which proposed prohibiting the government from making changes to the budget. According to Calheiros, however, the objective is to create mechanisms for the congress to veto budgetary changes, allowing only for indispensable adjustments. The commission will present its proposal within 30 days.

Development: On 7 April the Venezuelan government announced that its 2m army of reservists would be formed by volunteers, because the constitution forbids conscription.

Significance: On 4 April in his weekly television programme "Aló Presidente!", President Chávez had publicised his intention to create a reserve up of between 1.5m and 2m people. This force, together with Venezuela's recent purchase of 100,000 AK-47s and ten military helicopters, backs up the government's repeated claims of its readiness to engage in "asymmetrical warfare", should the need arise to defend the country.

Unlike the frontline Venezuelan armed forces, which have between 70,000 and 80,000 servicemen, not all of the reserve army will be armed. "The defence of the county takes many different forms," said Melvin López, secretary-general of the defence of the nation committee. "Those who are in front of a computer logically have to defend their country but they don't need a gun." López said that the government was not engaged in an arms race but was updating its defensive forces. He said that a number of legislators had expressed a willingness to join the reservists, who will receive instruction in facilities all over the country.

Development: On 12 May President Lula da Silva vetoed a measure granting a 15% wage increase to people working in congress.

Significance: The president's decision to veto the bill, which was introduced by the ruling Partido dos Trabalhadores (PT), has infuriated both his opponents and his allies in congress and will further worsen Lula's relationship with the legislature. Leading the dissenters was Renan Calheiros, the president of the senate and a key ally of Lula's, who claimed that in vetoing the bill the president had gone back on his word. “The executive has the power of veto and the legislature has the power of the vote," Calheiros menaced.

Aloizio Mercadante, the government's senate chief, defended the move saying that the wage increase was not compatible with the country's fiscal situation. There are some 34,000 people working behind the scenes in congress, and the pay increase would have cost some R$577m (US$233m) this year alone, the government said. “The government can lose popularity but not credibility," Mercadante said, although he did concede that the government should have made it plain from the start that it could not afford the measure.

Calheiros disputed this excuse, and in doing so was supported by the president of the chamber of deputies, Severino Cavalcanti. Severino conceded it would be hard for him to overturn the veto, however.

In a further sign that Lula's allied base is cracking up, disaffected supporters have rallied to the cause of Aldo Rebelo, the government's minister for political coordination. Rebelo, who belongs to Brazil's Partido Comunista, has been frozen out of the government since October last year when Lula first said he intended to reshuffle his cabinet. The PT has long believed it should be responsible for political coordination because it is the biggest party in the chamber of deputies.

Rebelo will meet members of Lula's disintegrating alliance on 17 May, whereupon he will discuss the government's recent conduct. According to sources in congress, the underlying reason for the meeting is that Rebelo is on the verge of being sacked (possibly this month), and the coalition parties are strongly against the idea of his being replaced by a member of the PT. The PT has not been invited to the meeting with Rebelo.

Development: On 16 June President Alfredo Palacio appeared on national TV to encourage his countrymen to participate in the process of political reform.

Significance: Palacio's speech dwelt on both the consequences of the failures of the past and his government's intentions for the future. In a week in which the new administration's plans became a little clearer, Palacio swore in a new energy minister, Ivan Rodrí­guez, and stated that he would not burden the business sector with new taxes and would exclude intellectual property rights from the free-trade talks with the US. On 15 June congress also approved a government-sponsored reform of the Feirep, the oil stabilisation fund, which will see more money spent on social projects and less on debt servicing.

In his television broadcast Palacio congratulated the Ecuadorean people for having finished with the "dictatorship, immorality and repression" of the past, and said that his first priority was political reform. The government is holding round-table discussions across the country for the next month with swathes of civil society to define the questions that will be put to a referendum on political reform on 11 December. Palacio described his vision as the refounding of the Ecuadorean nation.

The president lamented that in Ecuador, 33 out of 1,000 children do not survive their first year and that life expectancy, at 70, was 8 years less than that of Cuba, Costa Rica and Chile. This was a prelude to his unveiling of a plan of universal health insurance, which aims to give health cover to the 45% of the population on social security. He also pointed out that 19% of Ecuadoreans are illiterate. "To realise this vision of a new country, it is necessary to invest in health, in education, in social security and in the unpostponable recovery in production," he said.

It appears Palacio intends to realise his plans principally through oil revenues. On 15 June congress amended slightly, and then approved, a government-sponsored bill which cuts the percentage of money spent on debt servicing from the oil stabilisation fund, the Feirep, from 70% to 35%. As for the rest, 30% will be spent on education and health; 20% on stabilisation of oil income; 5% on scientific and technological investment; 5% on the improvement of the country's transport infrastructure and 5% on environmental regeneration.

The president appeared to rule out charging business for his social projects. He said he would create no new taxes for the business sector in order to speed up the development of the industry and increase private investment. "We need businesses and businessmen, big and small, which see the government as a facilitator allowing their businesses to prosper," he said. He also ruled out including negotiations on intellectual property rights in the free trade talks with the US. Various social groups in the three Andean countries involved in the talks (Ecuador, Colombia and Peru) fear the US will patent native medicinal plants which are part of the cultural heritage of the region.

On 16 June the president also swore in the new energy minister, Iván Rodrí­guez, who was previously head of the association of electrical and electronic engineers of Ecuador.