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GUATEMALA | PACs remain a threat. The former members of the paramilitary civilian self-defence patrols (PACs in the Spanish abbreviation) called off their threatened boycott (and disruption) of the 9 November elections after the government had paid out most of the promised first instalment on a compensation payment overdue since last year. The government only agreed to expedite payment after the PACs had briefly held hostage four journalists. 

President Alfonso Portillo had promised the 520,000 former patrolmen, an auxiliary force in the counterinsurgency campaign conducted by the military, a compensation package of US$640 apiece. This year he agreed to pay this in three instalments, the first just before the elections: by the time the PAC's called off their boycott, the authorities claimed to have paid out the funds to 400,000 former PACs. The disbursement of the remainder will be up to the new government, due to take office on 14 January. The PACs, it must be noted, have often provided `shock troops' for the ruling Frente Republicano Guatemalteco (FRG), which will almost certainly be in the opposition come January.

NICARAGUA | Troops to Honduran border. In an operation coordinated with the Honduran armed forces, the Nicaraguan army has deployed some 300 soldiers to the border with its northern neighbour, in an offensive against cattle rustlers, drug traffickers, gunrunners and timber smugglers who cross into the northern department of Chinandega. This is one of the biggest departments (provinces) of Nicaragua, and the national police only have 332 agents to cover it. Army intervention had been requested by the mayors of border municipalities.

Colonel Ví­ctor Boitano, commander of the army second region, says intelligence reports have determined that most of the illegal traffic is conducted through at least 18 unguarded border crossings. The gangs operating in the area have extended their activities to the Pan American highway: in the last quarter they have hijacked 19 trucks carrying merchandise.

NICARAGUA | Contras want compensation. Former Contras, who conducted a proxy war for the US against the Sandinistas in 1979-90, are seeking US$700m in compensation from the US. Salvador Talavera, president of the Partido Resistencia Nicaragüense (PRN, the party formed by the ex-Contras) says they are asking for the same treatment as the US gave to Vietnamese who fought on their side in the Vietnam War. Washington gave them some US$400m. 

The PRN leader says he will also be submitting to the Nicaraguan congress, supported by legislators of the ruling PLC, a bill earmarking 1% of the budget for aid to former combatants: 32,000 ex-Contras, 50,000 former members of the Sandinista army, and some 6,000 disabled veterans of both sides.

DOMINICAN REPUBLIC | Violent resistance to economic policies. Seven deaths (six civilians and one policeman) and a large number of injuries was the toll of the 24-hour general strike staged on 12 November to protest President Hipólito Mejí­a's economic policies. The authorities had made a big effort to prevent the strike and accompanying demonstrations. In the days just before the event the police made about 600 arrests and reported the seizure of 89 pistols, 18 revolvers, 12 rifles, 410 knives, and more than 5,000 tyres meant to be used in barricades. On the day of the strike itself, street demonstrations and clashes were confined to a number of `hot spots'; otherwise, most of the country came to a standstill, its streets deserted. The strike organisers have given the government a 30-day deadline to comply with their demands, which include lowering the prices of basic goods, ending the power blackouts and increasing the salaries of government employees.

Hurdles that had been blocking increased US funding for President Alvaro Uribe's war effort (including the demobilisation of the paramilitary organisations) are steadily being removed by the Bush administration. The results so far: some military aid has been restored by 'certification' of Colombia's human rights efforts, and a legal opinion appears to have cleared the way for US funding of the demobilisation process.

On 1 August the State Department issued the necessary human rights 'certification' to be able to free some of the funds that had been frozen since last autumn, the longest freeze on military aid since the launch of Plan Colombia. This happened despite a plea made a month earlier by a group of 22 senators had asked Rice to withhold 'certification' because progress was not being made on a significant number of cases. Nicholas Burns, undersecretary of State for political affairs made a short trip to Bogotá (26-27 July) and received from the Colombian government assurances that they would 'expedite resolution of the most critical cases of human rights abuses'. On the strength of this, Secretary of State Condoleezza Rice attested formally that 'sufficient progress' was being made.

Two-thirds of US military aid is not conditional upon 'certification'. That leaves 25% subject to two certifications after 31 July. Held back was 12.5% of the aid granted in financial year 2004; this is what was freed for disbursement by the 1 August 'certification' - and Rice also decided to release the first 12.5% corresponding to financial year 2005. When Uribe visited Bush on 3 August the US president urged congress to do everything possible to help Colombia: the House of Representatives had turned down at committee stage some of the requested increases on the grounds that they had not been specifically requested by the White House. Some of those funds were meant to increase fumigation of drug crops so as to tilt the balance back against the new planting, which in 2004 was almost catching up with eradication.

For now, though, Uribe gets the withheld funds plus approved aid roughly matching what he was given last year. He has also been given reason to believe that Washington will soon approve US$48m to help fund the demobilisations process - the first instalment of a package totalling about US$200m. This had been held up primarily because of the classification of the Autodefensas Unidas de Colombia (AUC), the umbrella paramilitary organisation, as an international terrorist organisation. After September 2001, the Patriot Act barred any material support to any such organisations, and financing their demobilisation could have been construed as providing material support.

It has now transpired that the Justice Department issued in late June a legal opinion saying that, subject to certain conditions, the US could fund the demobilisation of the paramilitary. The conditions have not yet been disclosed, but the Colombian government has been given assurances that disbursement has been cleared.  

On the political front, the Bush administration has decided to endorse the much-criticised 'justice and peace' law granting special penal treatment to demobilised fighters [SSR-05-06]. Addressing the Inter-American Dialogue on 3 August, undersecretary Burns said, 'Some have argued that the law is not tough enough on members of paramilitary forces. Ultimately, however, the balance between peace and justice is a decision for Colombians to make for themselves. The task before the Colombian government - with a little help from its friends - is to make it work.'

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VENEZUELA | Military unhappy with Chávez 's socialism? There has been much speculation in the Venezuelan media that an inordinately high number of requests for retirement by airforce officers reflects dissatisfaction in the service with President Hugo Chávez 's 4 February decision that the armed forces should take part in "the construction of 21stcentury socialism." They are said to have been particularly incensed by the installation in military barracks of signs proclaiming, 'Fatherland, Socialism or Death'. The government denies this, claiming that the retirement requests were all filed in late 2006 and early 2007, before the 'socialism' order. On 2 May an army captain was arrested at the Fuerte Tiuna barracks for distributing leaflets calling on the military to rebel against the politicisation of the armed forces.

PERU | Intelligence for sale. Three naval officers have been relieved of their duties while they are investigated on charges of having sold military intelligence reports to private security firms. The scandal was initially exposed in a press report which identified Commander Carlos Barba as the apparent head of a ring that had been selling classified information at least since 2004. Two other active-duty officers, named Vázquez and Solórzano, have fallen under suspicion as recipients of emails sent by Barba. Another two retired naval officers, have yet to be identified. 
The congressional intelligence committee has decided to investigate whether the ring had any connections with the other armed forces and the police. Defence minister Allan Wagner briefed members of the committee on the state of the inquiry on 7 May. The committee's chairman, retired Admiral Luis Giampetri, who is also first vice-president, resigned his post to avoid any suggestion of conflict of interest in an investigation initially centred on the navy. It is thought that the information being sold included reports and satellite surveillance of areas where movements of Sendero Luminoso guerrillas and drug traffickers have been detected. Investigators are also looking into information sought by mining companies on the activities of environmental activists.

COLOMBIA | Cocaine prices unaffected by antidrugs efforts. An international conference of the drugs trade held in Madrid in early May heard that the massive coca eradication effort conducted by Colombia with US assistance had not translated into price increases of cocaine on the US market. According to DEA chief Karen Tandy, there had been shortlived increases, but prices later fell again. This notwithstanding, Tandy argued that Plan Colombia was 'working', as coca production in Colombia has fallen to a historic minimum. John Walters, the White House's 'antidrugs czar', told the conference that Venezuela was increasingly becoming a transit country for Colombian cocaine.

BOLIVIA | UN official backs defence of coca. Jean Ziegler, the UN's rapporteur on the the right to food, has argued publicly that President Evo Morales's defence of coca does not breach international norms on drug trafficking. 'To disseminate, promote and legitimise the consumption of coca is not a violation of the international conventions on drug trafficking and the fight against organised crime. It would be a different matter if the state were to collaborate with drug traffickers, and this is not the case here,' he told the La Paz newspaper La Prensa.
Bolivia's counternarcotics force, FELCN, has reported that in the first quarter of this year it had seized 4 tonnes of cocaine, up from 2.7 in the same period of 2006. However, FELCN official reckon that first-quarter seizures amounted to about 40% of total production, which means that Bolivia exported 6t of cocaine during that period.

Police action in Rio de Janeiro claimed ten fatalities in a single day in early February, as governor Sérgio Cabral pressed ahead with his strong-arm anticrime drive which has brought down Rio state's murder rate by about 10% — but has also prompted renewed criticism of the Rio police for its trigger happy inclination. Almost simultaneously in São Paulo, the killing of a suspected robber by police led to violent protest riots, quelled by large-scale police repression that left many — mostly police officers — injured by gunfire.

The shootings in Rio took place on 4 February, when 300 police officers — a combined force of the military and civil police backed up by helicopters and an armoured vehicle — raided four favelas in the west of the city (Coréia, Taquaral, Rebu and Vila Aliança) to execute arrest warrants issued against suspected drug traffickers.
Five of those killed had, according to the police, opened fire on the officers as they prepared to raid a house. They were identified as gunmen in the pay of a drug-trafficking gang. Another two, also identified as criminals, were killed in gunfire exchanges elsewhere. Three more, also identified as narco gunmen, were killed as they were returning to the area and ran into a departing group of policemen.

Seven of those killed were between 18 and 24 years old; one was 16, another 15, and the only older victim was 37. The police managed to make seven arrests and seized seven pistols, one revolver, two grenades, two radio transmitters and an unspecified amount of cocaine.

Deaths at the hands of Rio police averaged just under four a day in 2008, and totalled about 6% more than in 2007. Last October, Philip Alston, the UN special rapporteur on arbitrary, summary or extrajudicial executions, issued a report strongly criticising the frequent recourse by the Rio police to 'summary executions', often classified as 'resistance followed by death', which often remain unpunished. Amnesty International also criticised the force for its 'indiscriminate killing' of civilians.

Governor Cabral, however, has defended his strong-arm policy by pointing out that it has reduced Rio de Janeiro's murder rate to the lowest level since statistics began to be compiled in 1991. He has promised not to relent, saying, 'Those who believe that with discourses alone they can confront bandits strongly armed with rifles and grenades are mistaken.'

A day before the Rio police operation, 160 police officers backed up by 60 patrol cars and motorcycle units descended upon the Paraisópolis favela in the Morumbí­ district of São Paulo (which also has some of the wealthiest quarters of the city) to repress violent riots that had been raging for almost a day. The riots were a response to the killing by police of a suspected robber: neighbours took to the streets, barricaded access routes with flaming tyres, held up passing drivers and torched cars. Three police officers were injured by gunfire, as was an onlooker. Another policeman was badly hurt by a stone.

The police arrested nine persons, who were later released, and said that a hunt was on for the instigators of the rioting, which they said were probably local criminals. The state's public security secretariat announced that the police contingent would remain in Paraisópolis 'for as long as necessary'; they were withdrawn a day later.

The governments of Ecuador and Colombia had expected progress towards the end of October on the 'sensitive issues' still preventing the full restoration of diplomatic ties — specifically the matter of what can be gleaned from the computer files of 'Raúl Reyes' regarding the Colombian raid on his camp inside Ecuador in March 2008. A crucial meeting of foreign ministers had to be postponed on account of the death of Unasur secretary-general Néstor Kirchner. Meanwhile Ecuador has gone on helping Colombia's fight against the Farc guerrillas.

Foreign ministers Marí­a Ángela Holguí­n of Colombia and Ricardo Patiño of Ecuador had scheduled a meeting in Quito for 28 October. Holguí­n was expected to provide Patiño with the solution to a snag that had held up the Ecuadorean inquiry: the means to decrypt the 'Reyes' hard disks.

Ecuadorean president Rafael Correa had said that access to the computer files was a necessary requisite for the full resumption of relations. Upon taking office, his Colombian peer, Juan Manuel Santos had handed over copies of the hard disks — but the Ecuadorean experts had been stumped by the encryption. A week before her scheduled meeting with Patiño, Holguí­n had announced, 'We are going with information; in the matter of the computers they have had technical problems and we are looking at how to solve them.' The day before the meeting, though, Kirchner died and both governments needed their foreign ministers elsewhere.

Funds & explosives for Farc
Just over two weeks earlier, another important development had to be postponed, on this occasion because of the police mutiny in Ecuador: the arrest of nine people in Ecuador suspected of being important links of a money laundering chain that funnelled drug-trafficking money from Spain via Ecuador to the Farc guerrillas in Colombia.

The Spanish police were put on the trail of this ring in August 2008, when their country's anti-laundering prevention unit detected unusual patterns in the flow of remittances, ostensibly from expatriates to their relatives across the Atlantic.

The Spanish authorities arrested 41 suspected members of the operation in September, then another two in early October. Ecuador was to have arrested another nine at the same time, but the police mutiny got in the way. The delay, though, was brief: on 13 October the arrests of the nine were announced. Several bank accounts in Spain and Ecuador were frozen. The investigation is now focusing on the Colombian end of the operation, particularly the link between bank accounts to which the funds were being wired and the guerrillas.

In a separate episode, on 21 October the Ecuadorean navy intercepted a boat in Rí­o Verde, in the northwestern border province of Esmeraldas and arrested an Ecuadorean and a Colombian. They had been carrying a cargo of bomb-making equipment: 540 sticks of dynamite, gunpowder, detonators, lead for shrapnel, fuses and 25 crates of ammunition. Their destination was Colombia.

The two detainees were handed over to the police. In official statements, the police said that they suspected that the explosives were meant for an 'irregular group' in Colombia, but did not venture the identity of that group. Unofficially police sources have said they are sure the intended recipients were the Farc guerrillas.

One of the oddities about Brazilian energy consumption is how little is generated by natural gas. Currently, only 7% of Brazil's energy comes from gas, despite the importance Brazilian policymakers have attached to developing natural gas deposits, first in Bolivia and then domestically. Brazil is the 10th largest energy consumer in the world and the third largest in the Western Hemisphere, behind the US and Canada. Total primary energy consumption in Brazil has increased significantly in recent years, amid sustained economic growth.

According to the US Energy Information Administration (EIA)'s International Energy Annual, almost half of Brazil's energy (49%) comes from oil and the next biggest contributor is hydro-electricity (36%). Coal is fourth at 5% and nuclear accounts for 2%.

There are two big problems with Brazil's current energy mix. The first is that until very recently Brazil was a net oil importer. The huge new offshore discoveries first announced in November 2007 will transform this position.  As generators run on fuel oil, the cost of using such facilities to produce electricity has increased sharply in the past 10 years. The second problem is that hydro-electricity is fine providing there is plenty of rain. Brazilian policymakers are peculiarly haunted by the prospect of blackouts and rationing should hydro-electric power stations run dry.

The press played up the last major blackout (10-11 November 2009), which left 70 million Brazilians without power for several hours. The Brazilian electricity system remains unreliable despite government claims of massive investment in the system - not least through its Growth Acceleration Programme (PAC, in the Portuguese acronym), which is coordinated by Dilma Rousseff, the most likely successor to President Luiz Inácio Lula da Silva.

The Lula government has benefited from heavy investment in energy after two big (and politically costly) blackouts in 1999 and 2002, during the administration of Fernando Henrique Cardoso of the (now) opposition Partido da Social Democracia Brasileira (PSDB). On average, a major blackout occurred every six years since 1985. Such a record undermines the government's claim that the system is 95% reliable.

Embarrassingly for Rousseff, she had told a group of foreign correspondents only one month earlier as she presented the achievements of the PAC, that the “era of blackouts and [power] rationing of the Cardoso years are now behind us." The two blackouts, and the rationing that followed, particularly in 2002, contributed enormously to Cardoso's failure to get his chosen successor elected - not least because the Lula's Partido dos Trabalhadores did not shy away from using it politically in the electoral campaign despite the fact that reservoirs were at very low levels that year because of drought.

The November 2009 blackout was the biggest in Brazilian history in terms of its geographic extent, leaving 16 of the country's 27 states from the southernmost Rio Grande do Sul all the way to Rio Grande do Norte in the northeast of the country in the dark, including the states of São Paulo and Rio de Janeiro. Overall, states which account for 80% of the country's GDP were affected.

Following the blackout, Rousseff kept her head down, leaving the task of explaining the reasons for the blackout to the mines and energy minister, Edison Lobão. According to Lobão, the reason for the blackout was abnormal weather conditions, namely strong winds and lightening.

The government's first attempt to reduce its dependence on hydro-electricity was to tap into Bolivia's natural gas deposits. This involved building a new pipeline from Bolivia via São Paulo to Porto Alegre. The decision by the government of Evo Morales to nationalise natural gas in Bolivia in 2005 prompted the Lula government to review this standing policy. As a result, the Lula government decided to commission some domestic LNG plants.

It is worth noting, however, that in the final quarter of 2009 Brazil was still taking a huge amount of gas from Bolivia; an average of 24m cubic metres per day (cmd). According to the hydrocarbons agency, ANP, Brazil imported 395bn cubic feet of natural gas from Bolivia in 2008, or 99% of total natural gas imports.

In 2009, however,  Brazil's imports were almost certainly lower than they were in 2008. The maximum Brazil can take under its contract with Bolivia is 31m cmd (1.1bn cubic feet per day). Bolivia has been unable to convince Brazil to increase the volume of gas it will buy, though the Lula government seems to have agreed to increase the price it will pay for the gas it is taking. Currently, Bolivia is charging Brazil US$7.8 per 1,000 cubic feet of gas shipped to Brazil. Bolivia's price for gas shipped to Argentina is US$5.7 per 1,000 cubic feet.

Brazil's own natural gas
Brazil had proven natural gas reserves of 12.9 trillion cubic feet (Tcf) in 2009. The Campos and Santos Basins hold the majority of these reserves, but there are also sizable reserves in the interior parts of the country. Despite these sizable reserves, natural gas production has grown slowly in recent years, due mainly to a lack of domestic transportation capacity and low domestic prices. In 2008, Brazil produced 446 billion cubic feet (Bcf) of natural gas, largely unchanged on 2007.

Natural gas demand is rising: in 2008, Brazil consumed 835 Bcf of natural gas, up from 701 Bcf in 2007. High oil prices have helped spur demand: natural gas is mostly used as a substitute for fuel oil in industrial and power-generating applications, and domestic prices for natural gas are much lower than international fuel oil prices. The introduction of natural gas imports has increased available supplies, helping to facilitate this growth in domestic consumption.

The state energy company Petrobras is the largest producer of natural gas in Brazil. The company reportedly controls over 90% the country's natural gas reserves. Other important participants in the sector include Sulgas and Britain's BG. The state agency ANP has tried to attract international investment to the sector, with recent exploration licensing rounds including many gas-prone areas. Petrobras is also the largest wholesale supplier of natural gas.

The industrial sector is the largest consumer of natural gas in Brazil, representing about 80% of total domestic consumption. However, the two fastest growing sectors are thermal electricity generation and vehicular compressed natural gas (CNG).

The largest share of Brazil's natural gas production occurs from offshore fields in the Campos Basin in Rio de Janeiro state. Most onshore production occurs in Amazonas and Bahia states and is mostly for local consumption due to the shortage of transportation infrastructure.

In order to meet rising demand, Petrobas plans to bring several new natural gas projects online over the coming years. The largest is the Mexilhao project, which contains estimated total reserves of 3 Tcf. Current plans call for production to come online in May 2010 at 100 Bcf per year, eventually rising to 190 Bcf per year.

Petrobras operates Brazil's domestic natural gas transport system. The network has over 4,000 miles of natural gas pipelines, mostly in the southeast and northeast parts of the country. The network consists of main systems in the southeast, northeast, and the state of Espirito Santo; these systems are not currently interconnected, which has hindered development of domestic production and consumption. In June 2006, China's Sinopec began construction on the 730-mile Gasene pipeline, linking the northeast and southeast networks. The construction of the third and final stage of the Gasene system began in 2008, and completion of the project is expected by March 2010.

A lack of natural gas transportation infrastructure has delayed exploration and production in the interior regions of the country. In particular, Amazonas state contains considerable reserves that remain unexploited, especially the Urucu field, which contains Brazil's largest onshore natural gas reserves. In 2005, Petrobras began construction of the Urucu pipeline linking Urucu to Manaus, the capital of Amazonas state. The project will convert an existing liquefied petroleum gas (LPG) pipeline from Urucu to Coari to carry natural gas and a new natural gas pipeline from Coari to Manaus.

Imports
According to the ANP, Brazil imported about 400 Bcf of natural gas in 2008. The country currently receives imports from three sources: Bolivia, Argentina, and liquefied natural gas (LNG). Natural gas imports have nearly doubled over the past five years, and Petrobras forecasts a continued rise in the medium term. Most of the additional import volumes will likely come in the form of LNG.

Brazil's first re-gasification plant is at Pecem port terminal in Ceara State, north-eastern Brazil. The facility is operated by Petrobras and it took delivery of the gas from Royal Dutch Shell. The Shell delivery was of 135,000 cubic metres. Shell said that the delivery was the first to South America. The delivery is part of an agreement between Shell and Petrobras signed in 2008, aimed at raising Petrobras' gas importing capacity as well as supplying power plants.

The second terminal is at Guanabara Bay in the southeast of the country. Both facilities are floating regasification and storage units (FRSU) provided by Golar LNG, with a combined sendout capacity of 740 MMcf/d.

The Pecem received its first LNG cargo from Trinidad and Tobago in July 2008, while the Guanabara Bay terminal came online in May 2009. According to ANP, Brazil received 1.3 Bcf of natural gas in the form of LNG in 2008, all of which came from Trinidad and Tobago.

Brazil's heavy investment in its own oil and gas reserves and now its commissioning of LNG re-gasification facilities has clearly signaled that it does not want to increase its dependence on Bolivian natural gas.

• ARGENTINA
  Brazil receives natural gas from Argentina via the Parana-Uruguayana pipeline. The 275-mile, 100-MMcf/d pipeline connects to a gas-fired power plant operated by AES. According to ANP, Brazil imported 4.8 Bcf of natural gas from Argentina in 2008.

Mexican policymakers are facing a range of problems. Their fears about the damage high oil prices would do to the US economy appear to be justified. In June and July, Mexico's non-oil exports to the US fell, year-on-year. The US accounts for 85% of Mexico's exports.

The fall in exports occurred despite a decent increase (5.3%) in industrial output, year-on-year. Month-on-month, the output figures point to an economy that is beginning to struggle. In June, the index of leading indicators used by Inegi, the official statistical agency, pointed down for the first time in 11 months. July's indicator confirmed the direction of the trend.

The car industry is a good indicator of what is happening to manufactured exports. Exports of cars in August were 110,070, the car manufacturers association Amia reported. Although this was 10.3% up on the same month of 2003, the industry did not hail the result. It noted that exports had fallen in every month (year-on-year) this year with the exception of March. This means that for the first eight months of 2004, exports at 742,639, are 7.3% down on the same period of 2003. For the first eight months of 2004, vehicle production was 1.009m units. This is 4% less than for the same period of 2003.  

The difficulties that the uncertain direction of the US economy poses for economic policymakers in Mexico is compounded by the central bank's pre-occupation with inflation. At the end of August the central bank tightened monetary policy again, raising the corto, which drains money from the money market, to M$45m a day.

The central bank is right to be bothered by inflation. In August the inflation rate was 0.62%, well above what analysts had been expecting. The rate was the highest for any August since 1998. The figure bought the lagging 12 month rate to 4.82%. The central bank is hoping for a rate of around 3.5% this year. Technically, the 2004 target is 3% with a one-point margin of error either way. In 2003 the inflation rate was 3.98%.

The central bank blamed jumps in fresh food prices (principally tomatoes, eggs and avocados) for the disappointing August figure. There were also jumps in the prices of higher education, cooking gas and electricity. The bank points out that its sub-index of non-underlying prices (ie, its index of goods and services whose prices are the most volatile) jumped by 1.48% in August. This brought this subindex (of the most volatile prices) to 7.4%. The bank pointed out that underlying inflation index (which is weighted with less volatile goods and services) rose by 0.22% in August bringing the 12 month rate to 3.66%.  

The central bank's decision to tighten monetary policy came before the August inflation figures were published. The bank did not tighten policy again after the inflation figure came out, but it may well do so later this month (September). The effect of the tightening of policy in August has been to drive benchmark interest rates (28 day cetes) up to 7.38% a year. This is the highest rates have been for over a year.

• The current account deficit in the first half of 2004 was US$2.27bn, 0.7% of GDP. In the first half of 2003, the deficit was 1.1% of GDP.
• Foreign direct investment is picking up. In the first half of the year it was 10.3bn. This was 64% more than for the same period of 2003.

TEPJF: Senators from the PRI and the PRD are trying to prevent Maria Carmen Alaní­s Figueroa becoming a member of the Tribunal Electoral del Poder Judicial de la Federación. They said that she should rule herself out because of her friendship with Margarita Zavala, the wife of the president elect, Felipe Calderón Hinojosa. Alaní­s said that she did not see how a personal friendship should disqualify her. "I believe in principles, and one of these principles is friendship. I do not deny my friendships, but I also believe in the principles of impartiality; objectivity and professionalism_ and I have always been guided by these principles." 

The TEPJF is the final arbiter of elections in Mexico. Six of the seven magistrates complete their 10-year term on 4 November. The senate will appoint the new magistrates from a short list of 18, including Alaní­s, drawn up by the supreme court. The senate began interviewing the candidates on 24 October and finished on 25 October. The senate denied that there will be any party-political appointments. Initially 160 people applied for the six places. This was whittled down to 32 and now 18. Essentially there are three candidates for each seat. For each seat, there is at least one candidate who was a judge in the federal courts and one who was a judge in the electoral courts.

The senate is disappointed with the list, saying that all the candidates are lawyers or officials in the current electoral machinery. Each candidate gets 10 minutes before the members of the senate justice committee. The PRD is pushing for the complete replacement of the TEPJF even though one of the seven magistrates, Alejandro Luna Ramos, has a term that does not expire until after the next presidential elections. The PRD is deeply unsure about the way Alejandro Luna Ramos was appointed to the TEPJF a year ago. The PRD argues that he should have been disbarred because his sister had already been involved with TEPJF. 

Carlos Fuentes: Mexico's Nobel laureate made some interesting points about historical parallels for President-elect Felipe Calderón. He suggested that Calderón could imitate Lázaro Cárdenas, Mexico's greatest president, who did radical things (such as nationalising the foreign-owned oil industry in 1938) while running a highly orthodox economic policy (rather like President Lula has done in Brazil, Fuentes points out). 

Fuentes argued that no government since Cárdenas's successor, Manuel Avila Camacho, has taken the trouble Avila Camacho did over the composition of the cabinet. Fuentes quotes Federico Reyes Heroles, scion of one of the most influential families in Mexican political life, accusing President Fox of putting personal friendships above ability when choosing the cabinet. This is a bit unfair: Fox's problem was not the appointments but his refusal to ginger things up by sacking cabinet ministers. Only the most egregious failures were fired. 

In Fuentes's view the Calderón government's biggest headache is its relations with the US. The decision by the US to build the walls along the border risks cooping up 500,000 Mexicans who would otherwise find work in the US. Fuentes argues that Calderón should focus on getting through the next couple of (President Bush) years and then hope that someone more sensible, such as John McCain, a Republican but border senator (from Arizona), becomes president. Then Fuentes advises Calderón to deal toughly with the US. The problem Fuentes claims is that relations with the US now involve what Mexicans do in Mexico as well as what "gringos" do in the US. Fuentes concluded his article in Reforma on 12 October by saying "The fundamental lesson from our history is that [Mexico] should only negotiate with Washington, standing on its feet and looking them in the eyes. Genuflecting [before the US] only merits contempt and failure."

President Felipe Calderón Hinojosa's initial hostility to making changes to the North American Free Trade Agreement (Nafta) may be misplaced. A study by the Universidad Iberoamericana of the first 15 years of Nafta found that Mexican exports had increased more to other countries than to the US.

This finding, by Arnulfo R Gómez, and highlighted by several leading newspapers in Mexico, suggests that Mexico has not benefited from Nafta, which began in 1994, as much as the treaty's proponents suggested. Gómez argues that the economic evidence is that every passing year weakens the trade links between Mexico and the US. He points out that fewer and fewer components come from the US and now Mexico imports more consumer goods from beyond the US.

Calderón appears to have taken this argument on board. After his final meeting in the Oval Office with President George W Bush on 13 January, Calderón said: “We have always been willing to revise aspects [of Nafta]." US based Mexican watchers say that President-elect Barack Obama's appointment of Ron Kirk, a former mayor of Dallas, as US Trade Representative, suggests that his administration is well aware of what is actually happening to trade between the US and Mexico.

Gómez argues that the maquila programme, which allowed US companies to set up cheap labour plants across the border in Mexico has run its course. The plants have not led to much technology transfer or the development of Mexican dominated supply chains. He also noted that several of the early maquila pioneers have moved on to even cheaper locations such as Central America and Asia.

A lot of Gómez's findings are the result of the surge in Chinese exports. China has overtaken Mexico (despite Mexico's crude oil exports to the US) to become the US's second largest source of imports after Canada. Before, and in the early years of Nafta, Mexico was easily the US's second greatest source of imports. Mexico remains the US's second biggest trade partner because it still imports more from the US than China does. Gómez points out that from 1993 to 2002, Mexico's share of the US import market increased from 6.87% to 11.59%. Since then Mexico's share has fallen back, and in 2007 stood at 10.7%.

This suggests that revising Nafta, to meet demands made by US environmentalists and trade unionists, would not have a decisively damaging effect on US-Mexican trade. Improving the lot of Mexican migrants in the US could benefit Mexico more by allowing Mexicans to improve their living standards by a degree they could not achieve in Mexico.

The killing of Jaime Zapata, the first US government official to be murdered while on duty in Mexico since 1985, has overshadowed what appears to be at least a stabilisation of the gang killing rate in Mexico in the first couple of months of 2011. This stabilisation, however, does not mean that the government can claim, finally, to be winning its self-declared war against the gangs.

The government's problem is more than ever one of public perception and trust. It is worth noting that in Ciudad Juárez, the most violent city in the country; more than 2,000 streets have been closed off to outsiders by their residents. Residents' associations have erected gates to prevent gangs members (and, significantly, the army and police) driving down their streets.

What is significant about this initiative is that it comes from the much-stigmatised municipal government. Fabiola Lara Gómez, the director of urban development controls, said that the municipality had authorised the closure of 2,011 streets in 20 areas of the city. Over the past three years, at least 7,000 people have been gunned down in the city. Residents pay for the gates and the guards that man them. Gómez admitted that in places where the municipality had denied permission, residents simply blocked the roads themselves and guarded the entrances on a rota.

The gate-ing of communities appears to have had some effect. According to the Chihuahua state attorney general's office, there have been 400 murders so far this year in Ciudad Juárez. That is about 20% fewer than in 2010, when at least 3,100 people were killed in the border city.

This fall is better than the stabilisation shown by national figures. In the first two months of 2011 around 1,850 people have been killed in gang-related violence across the country. In 2010 overall, 11,583 people were killed. Extrapolating the current trend to the end of 2011, about 650 more people (a 6% increase) will be killed by the gangs than in 2010. This represents a massive improvement on 2010, when the death toll increased 75% over 2009.

This Ciudad Juárez phenomenon of falling homicide rates is only partly good news for the government. The bad news is that the violence is spreading well beyond the places where it has been a major problem for the past two or three years. Equally alarming is how quickly gang killing rates can go up.

Nuevo Léon is the prime example. In 2009, 99 people were killed by gangs in the state, according to the daily Reforma's Ejecutómetro. In 2010, the death toll rose to 610 and in the first two months of 2011 (1 January-25 February) it was 206. The same sort of thing is happening in Jalisco (212 gang deaths in 2009; 545 in 2010 and 113 so far this year).

The big worry for the government is that the violence will spread to the heavily populated and politically important Estado de México and the Distrito Federal, but despite some pick-up there has not been the step change (in either state) that has occurred in Nuevo León.

The other indicator that the gang war is spreading geographically is the increase in the number of states and municipalities which employ either serving or retired soldiers as heads of public security or the police. On 28 February, an NGO published a well-sourced report pointing out that the army is now running the bulk of the police effort in 17 of the country's 32 states.

The militarisation of the police seems to be a reaction to the balloon effect, whereby gangs pushed out of one area by security forces (or a stronger rival gang)  move into another, upset the status quo there and make it more dangerous. The militarisation claim came from the Instituto para la Seguridad y la Democracia (Insyde). Its director, Ernesto López Portillo, claims that in 14 states, serving or retired army officers now head up the state law enforcement operations, while in another three (Chihuahua, Coahuila and Colima), they head the state police. Lower down the administrative scale, military officers now run municipal police forces in 25 states, generally the most violent, according to the Insyde.

The Insyde noted that the army has been running the police in Ciudad Juárez since March 2009, when a retired general, advised by a serving officer, took responsibility for security in the municipality. Police operations in the city are run by a retired colonel. In Ciudad Juárez there are 8,500 soldiers, 2,300 federal (i.e. paramilitary) federal police, and 1,600 municipal police officers, plus an unknown number of state police and agents from the Procuradurí­a General de la República.

The other big worry for the government is that the gangs will develop a political agenda. So far this has not happened, though the gangs have become much more prone to indulging in raw terrorism. On 14 February two separate incidents suggest that Mexican gangs are resorting to terrorism rather than, as the government claims, fighting largely between themselves.

Nine people, including a six year old girl, were injured on Valentine's Day when a grenade was thrown into a clothing store in a shopping mall in Matamoros, Tamaulipas. The grenade was thrown at about 7pm local time. Earlier the same day, 18 people were killed in Padilla, Tamaulipas. Some were killed when gang members opened fire on a bus and cars travelling along a road. The gang dumped seven of the bodies in the town square.

The argument over whether the gangs are largely fighting among themselves or trying to maintain no-go areas for themselves is far from academic. Michael McCaul, a US Republican congressman who is leading a charge against the Barack Obama administration's policy towards Mexico, claims that Jaime Zapata was targeted rather than, as his alleged killers claim, murdered by accident.

• Mexico rows with France
  On 14 February, Mexico cancelled the proposed 'Year of Mexico' in France. Mexico was reacting to the announcement made by the French president, Nicolas Sarkozy, dedicating the 'Year of Mexico', which was designed to celebrate links between the two countries, to Florence Cassez, a Frenchwoman currently serving 60 years in a Mexican jail after being convicted of kidnapping. In June 2009 President Felipe Calderón refused a compromise to allow Cassez to serve her sentence in France. The French government argues that Cassez's conviction and sentence is unfair and unwarranted. She was arrested (live on TV) on 9 December 2005. Genaro Garcí­a Luna, now minister of public security, was behind Cassez's arrest and he appears determined to keep her behind Mexican bars. If President Calderón were to pardon or release Cassez, the move would be a statement of no-confidence in Garcí­a Luna, who has been a fixture in the cabinet, despite the failure of the government's security policies.

Prominent dissident leader, Elizardo Sánchez, who heads the Comisión Cubana de Derechos Humanos y Reconciliación Nacional, released a document on 2 November claiming that between 5,000 and 6,000 Cubans had been shot since Fidel Castro launched the Cuban revolution in 1959. The report attributed most of these executions to 'crimes against the state'.

Cuba's dissident movement is struggling to keep itself in the headlines: the release of such reports serve as a constant reminder to the international community that it is still there. Sánchez has spent the best part of the last year rehabilitating his tarnished image. In September 2003, he was first accused of spying for the state by two government journalists in a book called El Camaján ('The Rogue'). At the time, Sánchez confessed that he had regularly met government agents over the years in a bid to secure the release of political prisoners. He denied the charges, made by journalists Arleen Rodrí­guez and Lázaro Barredo, that he was a government spy operating under the code names Juana and Eduardo, who informed on dissidents and foreign journalists, and exposed CIA agents.

Meanwhile, the leader of Cuba's main opposition movement, Movimiento Cristiano Liberación (MCL), Oswaldo Payá, condemned, this month, the treatment of 75 political dissidents who were imprisoned in March 2003 by the authorities. Payá said that 'the 75', many of whom belonged to the MCL, had been subjected to 'massive torture'.

The active participation of the US ambassador Paul Trivelli in Nicaragua's electoral process is eliciting comment in domestic political circles. Many within the Partido Liberal Constitucionalista (PLC), a traditional ally of the US, object to Trivelli stigmatising the party for retaining its allegiance to convicted former president Arnoldo Alemán; the opposition Frente Sandinista de Liberación Nacional (FSLN) accuses Trivelli of interfering in Nicaragua's domestic affairs and conspiring to keep it out of power. The government, meanwhile, is opting to defend Trivelli's right to express his opinion.

Trivelli has a clear objective and is working to a tight deadline. He wants to unify the divided political Right in Nicaragua before the 11 May, the final day for parties to register for elections on 5 November. The Right is currently fractured: the PLC, the Alianza Liberal Nicaragüense-Partido Conservador (ALN-PC) and the Alianza por la República (APRE) are each intent on fielding a separate presidential candidate. 

Trivelli refused to recognise the legitimacy of a series of nationwide conventions that culminated in the nomination of José Rizo as the PLC presidential candidate on 2 April. He branded Rizo Alemán's stooge. On 17 April Trivelli met representatives from the PLC to encourage them to hold fresh primary elections to choose a new candidate. He also met PLC dissident Eduardo Montealegre who is running for the ALN-PC. 

Montealegre leads the way ahead of November's elections with 22% of the vote, according to a poll released by CID-Gallup on 19 April. Montealegre, who was expelled from the PLC last year after falling out with Alemán, said he would not ally himself with the PLC while Alemán continued to pull the strings. Rizo has ruled out an accommodation with Montealegre, who he accuses of "staining the pure red" of Nicaraguan liberalism.

The third party which Trivelli wants to bring into a broad Liberal coalition, Apre, is yet to hold primaries pitting José Antonio Alvarado against Francisco Fiallos. Apre is made up of former PLC members who sided with President Enrique Bolaños after the PLC went into opposition when Bolaños had Alemán convicted for corruption in 2003.

"The obstacle to unification in this country, a big obstacle for democracy in this country is Arnoldo Alemán," Trivelli said after meeting Montealegre. Trivelli's words have caused the PLC to squirm but it has made no move to reduce the influence of Alemán. Trivelli admitted that he faced a very difficult task in a short time as there was "little common ground" between the representatives of the parties with which he had spoken. On 23 April both the PLC and the ALN-PC took up still more entrenched positions; both parties ratifying their candidates, Rizo and Montealegre, for the elections.

Interference or helping hand?

Ambassador Trivelli's involvement in the contest earned him criticism from politicians of all colouration. FSLN leader Daniel Ortega made it very clear that he felt Trivelli had overstepped the mark. "You have to have real cheek to speak the way that man does; it's incredible," he said. Jaime Morales, an independent said, "it's almost as if he (Trivelli) is participating in the electoral contest". He added: "You never see ambassadors in other countries interfering so much."

The foreign minister, Norman Caldera, however, leapt to Trivelli's defence. "Those countries that cooperate with Nicaragua on an economic level have the right to speak out," he said. The US, he added, was in a position to say "if you want to continue to receive our funds_ I am going to say under which conditions I offer this cooperation." The president of the supreme electoral council (CSE), Roberto Rivas, said that Nicaragua should pass a law punishing "as a traitor to the country all those officials that allow a foreigner to make comments interfering in the domestic affairs of the country." (The Bush Administration revoked Rivas's US visa in July 2005 for alleged corruption).

Polls give it to Montealegre_ just

The polls have come out with some wildly differing results in recent months but they have all put Montealegre on top. A CID-Gallup poll, released on 19 April, is interesting because it is the first time that Rizo has been included since he was nominated as candidate for the PLC. Rizo came fourth with 13% support behind Herty Lewites, the candidate for the Movimiento Renovador Sandinista (MRS) with 18%, and Ortega with 16%. Some business donors to Montealegre's ALN-PC are reputedly disappointed with his party's showing in the elections in the autonomous regions, RAAN and RAAS, in March (see RC-06-03), where the PLC was the star performer. They might decide to throw in their lot with Rizo, particularly if he starts to pick up in the polls. Montealegre is hoping that the "handpicked" selection of Rizo will prompt a further exodus of disgruntled PLC members into his ALN-PC.

Ruiz argues that the ratification of the free trade agreement with the US (Cafta-DR) will help. The government has agreed to submit the deal to a national referendum, though it is now unclear when the referendum will take place. He added that freezones should get a boost from a new law which conforms to new rules drawn up by the World Trade Organization. A third boost should come from a trade agreement with the European Union.

The spate of government dismissals which began last month with the departure of the health and agriculture ministers [RC-08-07] continued with the resignation of chief prosecutor, Juan Luis Florido, on 29 July. The move was welcomed by various sectors that accused him of being inefficient as well as contributing to the impunity which afflicts the country. Florido was not the only senior official to be replaced, however - two high level members of the defence ministry, the director of the tourism institute, and the head of the tax administration also featured among recent departures.

Human rights organizations and civil society groups such as Fundación Mack, Acción Ciudadana, and Seguridad en Democracia had been clamouring for Florido's resignation for weeks, pointing to his office's “disastrous" (2%) success record in terms of solving cases over the last four years. These calls had been echoed by the UN-backed international commission against impunity in Guatemala (Cicig), with Cicig head Carlos Castresena warning President Alvaro Colom that without a thorough purge of the attorney general's office there would be no hope of any progress in the battle against organized crime.

Cited as particular cause for concern was Florido's failure to address the banking crisis triggered by the bankruptcy of Bancafé, Guatemala's fourth largest bank in October 2006, as well as the so-called “Salvadorean" murder case. In the case, four senior police officials - who were arrested for the murders of three Salvadorean deputies in Guatemala in February 2007 - were themselves murdered in a high security prison near Guatemala City [RC-07-03].

Florido's replacement, district attorney José Amí­lcar Velásquez Zárate, faces a daunting task in addressing the country's soaring crime rates - recent figures cited at the Second Ibero-American Forum on citizen security revealed Guatemala to have the second highest homicide rate in Central America after El Salvador (45.2 murders per 100,000 inhabitants). Indeed, just hours before the announcement of Florido's resignation Ronald Eduardo Chang Apuy, brother of well-known human rights activist Helen Mack, was shot and seriously wounded by gunmen in the capital. Their sister, Myrna, was murdered by the military during Guatemala's 1960-1996 civil war.

• Violence

According to human rights organization, Grupo de Apoyo Mutuo, at least 1,387 murders were reported in the first half of 2008, of which 82 were cases of extra-judicial execution (acts perpetrated by the state) and three were lynchings.

The cause of the Caribbean Court of Justice (CCJ) has been given a boost from an unexpected source: Britain's Lord Phillips, the president of the UK's Supreme Court, has complained that dealing with cases from former colonies takes up too much of the time of Britain's top judges. In a late-September interview with the Financial Times, Phillips said that "in an ideal world" Commonwealth countries would stop using the Privy Council and set up their own final courts of appeal instead.

The CCJ is something of a hybrid institution. It exercises original jurisdiction over the interpretation of the Treaty establishing the Caribbean Community (Caricom); it also makes itself available as an appellate court of last resort. In its role interpreting the governance and workings of Caricom, the CCJ has jurisdiction over Antigua & Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, St Kitts & Nevis, St Lucia, St Vincent & The Grenadines, Suriname, and Trinidad & Tobago. In its role as a court of last resort for Caribbean Community countries, only two states have so far submitted to its jurisdiction: Barbados and Guyana.

The intervention by Lord Philips does appear to have had the desired effect. Although the attorney general of The Bahamas, Brent Symonette, responded to Philips by just suggesting a limitation on the number of appeals to the Privy Council, most other regional responses were in favour of a move to local appellate jurisdiction.  Ralph Gonsalves, Prime Minister of St Vincent & the Grenadines, welcomed what he called “a notice to quit colonial premises". Grenada's Prime Minister Tillman Thomas said he was “very happy to hear it being said". Belize and Dominica have also indicated their desire to drop appeals to the Privy Council. And, perhaps most importantly of all, Jamaica's Prime Minister Bruce Golding said on 6 October that while his Jamaica Labour Party (JLP) has harboured reservations about the CCJ “now we are in a position_where we can do a revaluation".

Although Jamaica launched the original proposal for a Caribbean Court of Appeal in 1970, it has been one of the most prominent laggards in switching to the CCJ. The JLP's concerns have included the idea that judges would be appointed by Caricom political leaders and that the court could become hostage to a lack of financing. These concerns have largely been addressed. The judges of the CCJ are appointed by a Regional Judicial and Legal Services Commission of 11 members. On the funding side, ministers of finance have been mandated to provide funding for the recurrent expenses of the Court, and a Trust Fund has been established with US$100m to enable the recurrent expenditure of the court to be funded by income from the fund.

Even stronger support for Jamaica's participation in the CCJ has been voiced by Seymour Panton, the president of Jamaica's Court of Appeal, who has said: “The only people who are interested in keeping the Privy Council are the very wealthy, murderers, and the ones with colonial mentality."

The reference to “murderers" is an important one as there has been a perception in some quarters that the motivation for joining the CCJ is to negate the Privy Council's objections to the application of the death penalty.  However, supporters of the CCJ say that revived interest in the court as the Caribbean's court of last resort can be dated back to the Report of the West Indian Commission in 1992, which predated the landmark Privy Council decision to commute the death penalty in the case of Pratt and Morgan in 1993.

In mid-September, four months after taking power, Trinidad & Tobago's new government presented its first budget to parliament. The IMF has just concluded its 2010 Article IV consultation and passed a generally positive verdict on the government's actions. For the IMF, however, most of the risks appear to be on the downside.

Prime Minister Kamla Persad-Bissessar's People's Partnership government had the misfortune to come to power on the back of the first annual decline in GDP for 16 years. Trinidad & Tobago's economy recorded a decline of 3.5% in 2009, but with a small 0.6% advance in the final quarter. This advance has proved to be a chimera, and the IMF says the outcome for 2010 will be a completely flat 0.0%.

Finance Minister Winston Dookeran had 2.5% growth pencilled in for 2011 in his budget, but the Central Bank is now forecasting a less bullish 2.0%. However, the expectation is for the non-energy sector to show positive growth for the first time in three years.

The difficulty for Dookeran is that despite the slack economy and unemployment up to 7.8%, inflation at the end of 2010 was 10.4%. Growth is expected to pick up during 2011, but the IMF warned that the near-term risks were “tilted to the downside" due to “fragile confidence, the weak regional outlook, and global uncertainty". For the IMF, “even with the expected firming of energy prices, economic prospects over the medium term are projected to be weaker compared to the strong growth period preceding the economic crisis".

Faced with these downside risks, the IMF takes the view that the current accommodative monetary stance is appropriate, and it would even support additional interest rate reductions in the event of further delays in economic recovery. Nevertheless, it does want to see a reduction of public debt over the medium term and argues that this can be achieved by reversing the large increases in current expenditures seem during the boom years.

The Central Bank concurs with the IMF on monetary policy, with Governor Ewart S Williams saying on 14 January that the bank “sees further room for lowering the policy interest rate".

The Central Bank shares the IMF's concerns about the global and regional environment, but it also has more parochial concerns, particularly a possible delay in the resolution of the Clico (Colonial Life Insurance Company) crisis and on industrial relations. Governor Williams has been calling for a “social compact" comprising five elements:

• The government to implement the fiscal stimulus and reduce the arrears owed to contractors;
• The Central Bank to increase its intervention in the foreign exchange market “as needed";
• The business sector to operate with “trust" and to avoid “the tendency to warehouse foreign exchange";
• The banks to accept the need for a larger reduction in interest rates and banking spreads;
• “All parties" to contribute to the easing of the industrial relations climate and “generally help to restore confidence".
  

On 6 October the Argentine economy ministry outlined its timetable for restructuring its US$88bn defaulted commercial debt. According to the schedule, the whole process will take place between 15 November and 17 December. By January 2005, the government reckons, no one will be discussing Argentina's defaulted debt any more.

Markets remain unconvinced
Such confidence is remarkable given that there has been no sign of a breakthrough in the stalemate between the government and international bondholders, who are still determined that Argentina will honour more than the 25% face value of the debt it is currently prepared to recognise. When the final debt offer is handed over to the US Securities and Exchange Commission (SEC) sometime before the end of October, there is little hope of a major improvement in the offer.

It is, therefore, difficult to see how the government will close a satisfactory deal by the end of this year, especially as it wants at least 66% of bondholders to accept the offer. Argentina's President Néstor Kirchner might give the impression that he doesn't mind how many creditors accept the offer, but he knows that Argentina's credibility, and its future access to the financial markets, hang on what happens over the next two months.

So while Kirchner is at home publicly defying criticism from abroad - for example, he called the IMF's managing director Rodrigo Rato a 'plantation owner' for criticising Argentina's debt negotiations - his ministers have been hard at work selling the deal. Most recently, Finance Minister Guillermo Nielsen and his deputy, Sebastián Palla, have been touring Europe to persuade banks and bondholders to accept the proposal to varying degrees of success.

A boost from the pension funds?
Despite the impasse, the government has one substantial achievement - the deal it struck in October with the Argentine pension funds, which hold around 17% of the bonds. The pension funds, otherwise known as the AFJP, were won over when the government offered to swap some US$1.6bn in defaulted treasury bills they were forced to accept in 2001 with new bonds with a shorter maturity than the bonds being offered to international creditors.

The AFJP's acceptance has kick-started the debt-swap, and increased optimism that a deal might yet be done. However, this might merely be because the government has at long last shown a willingness to compromise.

As Nicola Stock, who heads the influential Global Commission of Argentine Bondholders (GCAB), said on 15 October: 'If Argentina had to employ additional incentives to attract Argentine creditors over whom it exerts considerable regulatory control we can only speculate on the additional incentives it should afford to reach an accord with its global creditors.' The GCAB, which controls about US$38bn worth of defaulted debt, viewed the deal with the pensions fund as 'another violation of Argentina's commitment to the global credit markets to enter into good faith negotiations'.

The prospects for a successful deal are very unsure, especially after the province of Mendoza successfully completed its own debt-restructuring on 22 October, achieving a 64% acceptance rate for what has widely been viewed as a dry-run for the main process. The government was happy with the result, but others pointed to the fact Mendoza's offer was considerably better than what the federal government is proposing.

New developments in the case of the murder of Eugenio Berrí­os, a chemist for the Chilean military whose body was washed up on a beach in Uruguay in 1992, have focused attention on General Augusto Pinochet's personal responsibility for crimes committed by the dictatorship. It also raises questions about the extent of Pinochet's ability to kill inconvenient witnesses even after he was forced to step down as head of state.

On 10 May Pinochet was charged for his role in the Berrí­os affair after being stripped of his immunity. Berrí­os is believed to have developed sarin gas - used to murder opponents of the military regime. Shortly before his death family members said Berrí­os had decided to testify to Chile's courts about his activities while working for the Directorate of National Intelligence (DINA), the Pinochet-era secret police. 

Following Pinochet's orders, Berrí­os was first taken to Argentina. He later fled to Uruguay where he tried to turn himself in to authorities, requesting to be repatriated to Chile and allowed to testify to the courts. Instead, he was turned over to the Uruguay military, shot twice in the head and buried in the sands of El Pinar beach near Montevideo, Uruguay. Three former DINA members were convicted of the kidnapping and murder and three former Uruguayan military officials were extradited to Chile in April to testify in the case. 

The decision to indict Pinochet came after evidence from three Uruguayan military officers who were extradited to Chile on 18 April and have subsequently been prosecuted over the murder. The former dictator already faces charges over the murder of nine political opponents killed in "Operation Colombo" and for having nearly US$27m in secret bank accounts. 

One of the twists in the Berrí­os case is the possibility that the chemist was involved in the mysterious death of President Eduardo Frei, which could have been on the orders of Pinochet.

Pinochet's long drawn out prosecution is symbolic of the current human rights situation in Chile. Accurate details about crimes committed by the dictatorship are now widely available but there are still thousands of perpetrators living freely. 

This has led to frustration within groups who suffered directly at the hands of the regime. They now publicly shame known human rights abusers outside their homes or offices where they inform their neighbours and colleagues about the atrocities they participated in.

One of the principal obstacles to bringing human violators to justice is the Amnesty Law passed in 1978 that prevents the investigation of crimes committed by agents acting on behalf of the state between 1973 and 1978. Human rights lawyers found a way round the law by accusing those responsible for the disappeared of "permanent kidnap", which as a theoretically ongoing crime, can still result in prosecution.

In President Michelle Bachelet's speech to congress on 21 May, she declared her government would continue to look for the remains of the disappeared until the last case was solved. She also announced her government would create a National Institute of Human Rights that will have the mandate to promote and protect human rights in Chile.

President Lula da Silva of Brazil entertained his Venezuelan counterpart, Hugo Chávez , in the town of Manaus in the Brazilian Amazon on 20 September. The meeting was designed to mitigate growing problems between Brazil and Venezuela. Yet, in spite of the smiles and vows of friendship, it was clear that differences between the two remained. 

In our last edition we reported the latest chapter in the Lula-Chávez competition for influence in Latin America; which took the form of Lula's tour of Central America and the Caribbean - propelling Chávez to embark on a counter-tour of Brazil's Mercosur partners, Argentina and Uruguay [BSC-07-08]. The differences between the two rulers became even more apparent earlier this month, when Lula ordered the start of work in an oil refinery in the Brazilian north-eastern coast, in the state of Pernambuco, without the presence of a single representative of the Venezuelan government, the project's nominal partner. 

Lula and Chávez proposed the construction of the US$4bn refinery in 2005, to jointly refine crude oil produced in Brazil and Venezuela. Under the deal, Venezuela's state oil company Pdvsa would own 40% of the refinery and Brazil's Petrobras the remaining 60%. In exchange, Petrobras was granted a 40% participation in operations in the Carabobo region of the Orinoco tarbelt in Venezuela, where Pdvsa is the majority partner in all operations. However, according to Petrobras, documents to seal the agreement had been sent to Caracas and were never returned. Petrobras said that it would carry out the works on its own if Pdvsa did not want to participate. 

The absence of Venezuelan officials in Pernambuco was likely to have been a response to Brazil's apparent disinterest in the Gasoducto del Sur, the gas pipeline intended to link Venezuela to Brazil and Argentina. The idea was put forward by Chávez , who has repeatedly complained it was "abandoned by those who would benefit the most". The official line from Brazil, however, is that Petrobras, is "not sure" whether Venezuela can provide the necessary volumes of gas to "justify the investment". The Gasoducto is expected to cost over US$5bn.

In Manaus Lula once again dismissed claims that Brazil and Venezuela are "at odds" as false, adding that "nothing will prevent Brazil from deepening strategic relations with Venezuela". The Brazilian press, however, was quick to point out that Lula's gestures, and his difficulty to smile, when next to Chávez , revealed his real feelings of discomfort. According to the newspaper O Estado de São Paulo, "in Brasí­lia everyone knows that Lula has no patience left for Chávez ".

Indeed, many diplomats now believe that Chávez 's grumbles, which are directed at Brazil for failing to ratify Venezuela's entry to Mercosur, are merely an act carried out in order to cover up his own abstention from joining. In Manaus, Chávez said that "Venezuela will only wait up to a dignifying limit" for Brazil's decision. Brazilian diplomats told their Venezuelan counterparts that Venezuela must first ratify many of the Mercosur's technical tenets before congress can consider its membership. 

Another divisive issue discussed was the establishment of Banco del Sur, a multilateral bank to finance infrastructure and social projects in South America. The idea was also suggested by Chávez and is backed by Argentina, Bolivia and Ecuador. The Brazilian response to the idea so far has been lukewarm. Lula and Chávez , however, have decided to meet "every three months" to keep in touch over the issue. The next meeting will be in Caracas in December, by the time the Banco should have been already established, albeit with a six-month delay and still without Brazil. 

Colombian hostage crisis
Another issue that could trigger more disagreement between Brazil and Venezuela is Chávez 's decision to mediate the Colombian hostage crisis. Lula, as expected, came out in support for the idea, even offering Brazil as a meeting place between Chávez and Colombian guerilla leaders. Behind the scenes, however, Brazilian officials are said to be concerned with Chávez 's meddling and the press says that Lula discreetly withdrew the invitation. Indeed, the issue was only "briefly" spoken about during the latest meeting between Lula and Chávez in Manaus. 

Contrary to other oil majors, which have postponed investment due to weak oil prices, Petrobras is moving forward with a sizeable US$174.4bn investment plan in 2009-2013, in an effort to develop Brazil's vast new offshore hydrocarbons reserves. The plan dovetails with the current policy of the government of President Lula da Silva, which is determined to maintain public capital spending as a means of propping up economic growth in the final two years of Lula's term to 2010. 

Petrobras's chief executive, José Sergio Gabrielli, finally green lighted the plan in late January, following several delays in its publication in late 2008 as global oil prices tumbled. The US$174.4bn 2009-2013 plan is up 55% on the previous 2008-2012 plan (US$112.2.bn). It will be financed largely through projected cash revenues of US$120bn, based on an average crude oil price of US$47/barrel, with the rest financed by debt.

Gabrielli noted that while he expects lower oil prices in 2009 (he suggested prices could average a low US$37/b), investment costs will be contained as capital outlays on machinery and equipment will be lower than expected, due to falling world prices for these inputs. According to the plan, the company will invest US$28.6bn in 2009 alone. It plans to raise US$18.1bn this year - it has already secured US$11.9bn from the state development bank, Bndes, as well as US$5bn from international banks, leaving only US$1.2bn to be raised from other sources. In early February, Petrobras issued US$1.5bn in 10-year dollar-denominated bonds, at a pricey 8.12% annual interest rate, well above the 5.6% it paid at the time of its last issue in 2008.

On 19 February, upon the visit of the Chinese vice premier, Xi Jinping, to Brazil, the company clinched a vital deal with China worth US$10bn. Under the plan, Petrobras will supply the Chinese firms Unipec (a subsidiary of China Petroleum and Chemical Corporation, Sinopec) and PetroChina with a total of between 100,000 and 160,000 barrels of oil a day, in return for US$10bn in financing from the China Development Bank and Sinopec. The agreement also covers the development of joint oil industry projects and potential Chinese supply contracts for Petrobras. 

The deal reflects China's ongoing efforts to secure supplies of key raw materials, like oil, metals, minerals and agricultural commodities. Despite the current economic downturn, the emerging superpower is moving to secure important medium and long term access to these inputs, prompting strong interest in forging strategic partnerships with key Latin American suppliers. The vast bulk of Petrobras investment in the next four years - US$$157.3bn - will be in Brazil, with US$16.8bn destined for projects abroad. Of the total investments, Petrobras will allocate a thumping US$104.6bn for exploration and production, up from US$65bn in the 2008-2012 plan. Much of this new investment will be focused on the giant offshore sub-salt oil fields recently discovered off the Brazilian coast, which by some estimates could contain upwards of 50bn barrels of oil equivalent. The large Tupi field, discovered in November 2007, alone holds an estimated 5bn to 8bn barrels. 

Ahead of the China deal, the head of Exploration Services, Erardo Barbosa, announced that Petrobras would take delivery of 33 new oil rigs by 2012, 11 of which are due in 2009. The company currently owns or operates 40 rigs. Barbosa didn't say how much the rigs would cost, but industry analysts suggest that this type of equipment, which will be located in waters of over 2,000 metres deep, could range in the order of US$1.0bn each. The company was likely well placed to drive a hard bargain in the current environment - it is probably one of the only oil firms putting in such big orders this year. Most of the new wells are destined for the offshore fields in the Santos Basin, in and around the Tupi field. 

Some analysts have estimated the development costs of the Tupi field alone at around US$600bn, and question whether the Santos Basin can be viable at today's low oil prices - these analysts calculate that the investment costs require a minimum price of US$60-US$80/b. However, Gabrielli stresses that Petrobras is focused on the long term and the general consensus is that oil prices will rebound to high levels within two to three years, amid an ongoing mismatch between global demand and supply levels, exacerbated by decisions taken in other oil-producing countries to halt investment in the current economic climate.

The Lula government, which last year signaled it might move to increase state control over the sector, appears to have abandoned this plan in the current climate, probably for fear of limiting Petrobras's access to private investment financing. The plan had caused tensions with Petrobras, which is a mixed capital ownership company. The state has a slight majority of voting stock, some 60% of its capital is held by private shareholders, mostly foreign. 

Snubbing Chávez (and Morales)

Brazil is close to being self sufficient in energy and under the latest Petrobras plan, it is set to become second only to Canada in among oil producers in the Western Hemisphere, with implications for the balance of power in the region.

The latest evidence of this was the government's quiet announcement in late February that it was no longer intending to go ahead with the Gasoducto del Sur, a giant pipeline project designed to transport natural gas from the Caribbean to Argentina, via Venezuela and Northern Brazil. The decision was a slap in the face for President Hugo Chávez , who has been a strong advocate of the plan, with Chávez intending to export Venezuela's gas reserves all over the Southern Cone through the new pipeline.

Government sources quoted in the Spanish daily El Paí­s on 20 February said that Brazil could not justify the plan, which had been initially estimated at around US$25bn, unless there was a major shortage of gas in the region. Brazil is fast developing its own gas supplies, and before too long it hopes to be in a position to export surplus requirements to neighbouring countries like Argentina (and potentially also Chile).

This will also allow Brazil to wean itself off its natural gas supplies from Bolivia. Brazil is Bolivia's main customer for Bolivian natural gas, which provides the government of President Evo Morales with an estimated 41% of its fiscal income. This would of course deal a massive economic blow to Bolivia, which has struggled to find alternative customers for its vast gas reserves. 

In January this year, Morales sent an emergency mission to Brasilia to lobby against a decision by Brazil to temporarily reduce its natural gas imports from Bolivia. Lula has previously committed personally to helping Bolivia's economic development - Brazil has long sought to maintain stability in its neighbour.

Output - Petrobras oil and gas output in Brazil is projected to rise from 2.18m barrels/day in 2008 to 3.13m b/d by 2013 and to 5.1b/d by 2020. An estimated US$28bn of the firm's total investment will be destined for the sub-salt fields (including the Tupi field). Petrobras is aiming to bring on stream 219,000 b/d from the sub-salt fields by 2013, rising to 5582,000 b/d by 2015 and 1.8m b/d by 2020.

Petrobras and Pdvsa - While Brazil has lost interest in the Gasoducto de Sur, Petrobras is still committed to building a new oil refinery with Venezuela's state oil firm Pdvsa in Pernambuco in northeastern Brazil, just inside the shared border with Venezuela. The US$4bn Abreu e Lima refinery, which would process 50% of its oil from Venezuela's Orinoco belt, is scheduled for completion next year. There have been problems, with Pdvsa, which has a 40% stake in the refinery, dragging its heels on the financial side.  Petrobras has long threatened to go ahead without Pdvsa, but it is likely Lula will fix up a political deal with Chávez to keep him happy.