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VENEZUELA | Heads roll in food scandal. Five senior officials at Pdval, the state food supply network, will face charges of corruption after the discovery of some 80,000 tonnes of food rotting in shipping containers at several warehouses in early June. The discovery was a major embarrassment for President Hugo Chávez who is engaged in what he describes as “an economic war" with private retailers, especially the country's principal food company Polar, which he accuses of pushing prices up to destabilise his government: food inflation stands at 40%. Pdval was set up by Chávez and the state oil company Pdvsa in January 2008, ironically, to fight food “hoarding". The food scandal comes in the midst of shortages of several staples and seriously undermines the government's claim that food supply can only be guaranteed if the state takes over production and distribution.

BOLIVIA-PERU | Maritime deal. “It is unjust that Bolivia has no sovereign outlet to the ocean. This is also a Bolivian sea," Peru's President Alan Garcí­a said standing alongside his Bolivian peer Evo Morales on 19 October in the coastal city of Ilo, in the southern region of Moquegua. The purpose of the meeting was to revamp Boliviamar, a 1992 accord under which Peru ceded to Bolivia 163 hectares of land 17km from Ilo, including a 5km sliver of coastal territory, for 99 years. Under the new accord Bolivia will be able to build export and import infrastructure in this free trade area and use dock facilities at Ilo port. The Bolivian navy school, currently confined to Lake Titicaca, could also be based here. Bolivia never really took up the offer in 1992 in part because of the lack of transport links, a shortcoming the accord seeks to address by calling for the construction of 400km of roads to improve the links between Ilo and Bolivia.

Garcí­a and Morales exchanged national awards and spoke as if bilateral relations had been characterised by years of brotherly love and harmony rather than mutual antagonism and ideological antipathy. In short it was a triumph for realpolitik. For Garcí­a, it provided the chance to try and outflank Chile. “Peru will never hinder bilateral talks on Bolivia's attempts to regain access to the sea, Peru acknowledges that Bolivia needs to recover its sovereign access to the sea […] we don't want to offend anyone, but we do want justice to be done," Garcí­a said. The timing of the offer was carefully calculated to fall just before Peru responds to Chile in its ongoing maritime dispute in the International Court of Justice at The Hague on 9 November.

For Morales, it was an opportunity to gain further international recognition for Bolivia's maritime claims, and put more pressure on Chile to expedite a solution to its demand for sovereign access to the Pacific. Morales said that this was an aspiration Bolivia would never give up. He was restrained, however, to avoid jeopardising ties with Chile's President Sebastián Piñera, with whom he met in the Atacama desert when the 33 miners (one of them Bolivian) were winched to safety last week.

It has been a while coming but will it be worth the wait? Nearly two years on from his early initiation in Latin American diplomacy at the Summit of the Americas in Port of Spain in April 2009, US President Barack Obama is poised to conduct a mini-tour of the region from 17 to 23 March. For the most, there is a broad acceptance that the long hiatus between the summit and his first official visit is less a sign of neglect than that domestic economic and other foreign policy concerns have kept the region low on the US list of priorities. With destinations restricted to Brazil, Chile and El Salvador, however, it is a less expansive itinerary than that of his predecessor George W. Bush in 2007. The omission of Colombia will also be felt all the more keenly in Bogotá after Obama's 2012 budget proposal included swingeing cuts to military aid for the counter-narcotics initiative Plan Colombia.

Obama's choice of venues is both pragmatic and symbolic. It acknowledges Brazil's pre-eminent role in Latin America, and is probably timed to come right at the start of President Dilma Rousseff's term in the hope of getting off on the right foot, given the at times testy relations with her predecessor Lula da Silva, especially over Iran and Honduras. Chile is a regional paragon: the star performer in just about every league table compiled. It also captured global attention last October for its expertise and efficiency in the face of crises when it rescued 33 miners from their subterranean prison. El Salvador remains the most steadfast ally Washington has in Central America, a growing security threat for the US, despite the left-wing Farabundo Martí­ para la Liberación Nacional (FMLN), a party composed of former guerrillas the US once fought, coming to power in 2009.

Both Chile and El Salvador recently underwent important alternations of power after the Left and the Right respectively had held sway for two decades. The visit is designed to reassure the whole region that the guiding principle for US alliances is respect for democratic ideals rather than ideological convictions, which, as Obama conceded in Trinidad, has not always been the case. Given the predilections of the FMLN, El Salvador's President Mauricio Funes is the consummate example in the region, from the US perspective, of a responsible, moderate, leftist (who has supported the US over the need to bring Honduras in from the cold) in contrast to the more radical brand of socialism espoused by Venezuela's President Hugo Chávez .

In his testimony to a foreign affairs subcommittee of the House of Representatives on 15 February, entitled “Does the US Have a Policy Toward Latin America?", Arturo Valenzuela, the Assistant Secretary of State for Western Hemisphere Affairs, spoke about the need for “the consolidation of vibrant democratic institutions" in the region (see box below). He also intimated that the main thrust of Obama's message is likely to be a reprise of his famous sound bite from the 2009 Summit - “There is no senior partner and junior partner in our relations". The idea of co-responsibility will be no more intensely felt than in discussions about security and drug-trafficking, particularly in El Salvador, which Valenzuela visited on 10 and 11 February in preparation for Obama's trip.

“We have learned that a successful approach to security challenges must be a comprehensive, regional one," Valenzuela told the House. While in San Salvador, he called for greater cooperation between Central America, Colombia and Mexico in combating the shared threat of organised crime and drug-trafficking.  All these countries share these problems along with the US, he argued, and they should therefore all share the solutions. The US would like to see the financial burden shared too. Funding for Plan Colombia under Obama's 2012 budget proposal would fall to US$400m from US$464m in 2011 and US$520m in 2010, with greater emphasis on economic and social assistance than military and police assistance.

There is also a big proposed reduction in aid to Mexico through the Iniciativa Mérida in the 2012 budget request, from US$582m in 2010 to US$334m in 2012. Speaking at a State Department briefing this week, a journalist from Mexico's Proceso magazine, questioned how this tallied with Secretary of State Hillary Clinton's pledge of US$500m in a recent visit. He was informed that Clinton must have been referring to previous figures and that the apparent drop was because the US had provided “one-time boosts" to the tune of US$260m in the 2010 budget to purchase aircraft for the Mexican military.

There is no cut to military assistance elsewhere in the region, however, and Valenzuela explained that the US had recognised the need to focus more on Central America by detaching from the Merida Initiative a new Central America Regional Security Initiative (Carsi), which he said had received US$260m to date. Valenzuela assured Funes, who stressed that “Poverty provides fertile ground for common crime and organised crime to flourish," that the Carsi would include social and economic programmes, as well as security assistance, and that the US would help El Salvador to identify obstacles to economic growth.

The limits of democracy
“Democracy, by human nature, requires limits." These words were pronounced in Bogotá this week by the secretary general of the Organization of American States (OAS), José Miguel Insulza, during a forum celebrating the centenary of the national daily El Tiempo. Insulza said that Latin America should have limits for successive re-election. He said there was “a tendency towards concentration of power" which was “very complicated". There was one main target for this comment and Venezuela's President Hugo Chávez duly announced that provided he was not assassinated, he would seek re-election in December 2012. Insulza has ramped up the rhetoric in recent weeks. On 7 January he said the enabling act approved by the outgoing congress in Venezuela “tied the hands of the incoming congress" for 18 months and was “not within the spirit or the letter of our Democratic Charter". He added: “I don't believe this is acceptable. I don't believe one can remain silent in the face of something like this."
    Assistant Secretary of State Valenzuela fed off Insulza's comments. “While we congratulate the popular leaders who have opted to leave office in accordance with the institutions of democratic governance, rather than promoting constitutional changes to benefit incumbents, we regret the opposite trend in several countries," he said. He singled out the enabling act in Venezuela as “undermining the authority of the new assembly and thereby circumscribing popular will: this violates the doctrine of the separation of powers and therefore contravenes the Inter-American Democratic Charter."
    Twenty university students are on hunger strike outside the headquarters of the OAS in Caracas demanding that 27 alleged “political prisoners" be released. Among these “political prisoners" are police officers accused of the deaths of 19 people during the brief coup in 2002.

• US assistance

William Brownfield, the State Department's anti-drug chief, visited Guatemala, El Salvador, Honduras and Colombia earlier this month to discuss security cooperation. He was careful to underline the US commitment to Colombia, but the proposed cuts to Plan Colombia, on top of President Obama's decision not to visit, and trade difficulties (see page 4) have sparked concern that Colombia is being sidelined by the US despite steadfast support over the last decade. Colombia's ambassador to the US, Gabriel Silva, however, stressed that given cuts elsewhere in the budget, Colombia had not fared badly. “Naturally, we would all like more," he said, but the Plan was designed for six years, and had now been going on for 11 years, contributing US$8.5bn of funds.

For well over a decade, defence and security chiefs throughout the region have been reciting the same list of `new security threats' that have come to replace the Cold War scenarios and prospects of interstate conflict. What recent events are strongly suggesting is that the list needs to be, if not replaced, at least spelt out more specifically, to include developments that are clearly challenging the authority of the state.

These are much in evidence in the inside pages of this issue. One of them is the growth of gangs to the point that they are disputing control of large areas in major cities with the governments. The most developed of these are the so-called comandos that operate in Rio de Janeiro and São Paulo: they are closely linked with the drugs trade, heavily armed and able to maintain workaday contact with leaders locked away in maximum-security prisons. In São Paulo they have recently mounted coordinated `offensives' against units and establishments of the police.

A similar trend has been visible for some time in Jamaica, and has now been recognised as a major challenge in Central America with its rapidly spreading maras, where governments are trying hard to turn back the tide. In Brazil, in Jamaica and in Central America governments have, to differing degrees, felt compelled to call upon the military to assist the police against what is perceived as a threat that does not fit the known patterns of criminal behaviour. One Central American security official says, `The point at which one must start rethinking everything is when the gangs' weapon of choice becomes the assault rifle.'

The other big challenge comes from within, from rogue elements within the security forces that have set up their own criminal enterprises and feel capable of defying attempts at reform. Mexico has undergone one campaign after another to root out corruption from its various police forces, and especially those dealing with the drugs trade. In recent years it has called in the military to assist, only to find teams of officers from its elite units defecting to the other side. Argentina, once again trying to clean up its largest provincial police force, has been shocked to find evidence pointing at criminal connections all the way up to the top of the political and defence establishments. Police under investigation have responded by unleashing minor crime waves, and even threatening the President's family. Colombia keeps illustrating the resilience of criminal infiltration of the security apparatus. These situations are just as unprecedented as the spread of gang influence, and give an entirely new meaning to Juvenal's old question, `Quis custodiet ipsos custodes?'

ECUADOR-COLOMBIA | Border incidents. On 20 July the office of Ecuador's ombudsman and several rights NGOs claimed that Colombian troops had recently entered Ecuadorean territory. The spokesman for the Asamblea Permanente de los Derechos Humanos (APDH), Alexis Ponce, said he had received the information directly from Ecuadorean military sources on the border. They had told him, he said, that a patrol had intercepted armed men in plain clothes who, when challenged, identified themselves as Colombian soldiers. They were escorted back to the 
border. Ombudsman Claudio Mueckay said he had received similar information during an inspection of the border province of Sucumbí­os.

The Ecuadorean executive has not confirmed the reports. The Colombian army issued a communiqué on 22 July denying that any members of the armed forces had crossed the border. On 1 August, the Colombian magazine Cambio reported that the Colombian army had detected dozens of bases established by the Farc guerrillas, 16 of them within Ecuadorean territory. Ecuadorean defence minister Solón Espinoza denied the existence of any such bases. He added that the chief of Colombian army intelligence had dismissed the magazine as sensationalist. What is certain is that tension on the border has risen sharply as a result of the strong counter-attack mounted by the Farc against the government's Plan Patriota offensive. For weeks the guerrillas have been able to reduce traffic along the highways of Putumayo department to a minimum. There is evidence of a similar Farc counter-offensive building up steam in Caquetá.

VENEZUELA | Chávez ends cooperation with DEA. On 7 August President Hugo Chávez announced Venezuela 'had decided to break off' cooperation with the US Drugs Enforcement Agency (DEA). He said, 'It is a matter of sovereignty. We had been conducting surveillance and it turns out that the DEA was using the fight against drugs as a mask, even to support the drugs trade, to conduct intelligence against the government.' General Melvin López, the new inspector-general of the armed forces, accused the DEA of siphoning off some of the seized drugs to deal with them on the market, sidestepping the legal requirements for 'controlled' deliveries in 'sting' operations. Interior Minister Jesse Chacón said the DEA blocked all access by Venezuelan personnel to the offices it occupied at Conacuid, the country's antidrugs agency. He also hinted that the DEA had been conducting raids and making arrests in the absence of Venezuelan judicial or law-enforcement personnel.

State Department spokesman Adam Ereli dismissed these accusations saying, 'I think it's pretty clear to us that the motivation for this is not the accusation itself [...] The motivation is an effort to detract from the government's increasingly deficient record of cooperation.' The State Department drew attention to the fact that its International Narcotics Control Strategy Report for 2005 says that 'Colombian cartels and other smugglers routinely exploit a variety of routes and methods to move hundreds of tons of illegal drugs into Venezuela every year' and that armed Colombian guerrilla organizations move through parts of Venezuela 'without significant disruption by the Venezuelan security forces'. Ereli added, 'If Venezuela proceeds to sever ties on anti-drug cooperation, that would obviously have an impact on deliberations concerning our annual decision-making process regarding Venezuela's counternarcotics cooperation efforts under the International Narcotics Control Act.' This could entail sanctions such as the blocking of credit and the suspension of counternarcotics aid - the latter obviously redundant in this case. The 'certification' round is coming up in the next few weeks.

 Havana was shaken in early May by the first attempted hijacking of an aircraft in just over four years, a bloody episode which involved army deserters. The extreme reticence of the authorities regarding the circumstances of the event has led to much speculation about its implications. The Cuban government has blamed the US for encouraging this and other comparable events because of legislation which grants residence to Cuban migrants who make it onto US soil.

Though the public did not learn about it until after the event, the episode began on 29 April, when three conscripts serving at the Managua military base just south of Havana armed themselves with assault rifles and killed one sentry; injured another, and fled. One of the conscripts was captured soon afterwards, and he reportedly revealed to the authorities that the group's plan had been to hijack an aircraft and force the crew to take them to the US.

On 3 May the other two deserters hijacked a bus and forced the driver to ram a gate at Havana's international airport, then drive to an airliner parked on the tarmac. Among the bus passengers they took hostage was an off-duty army officer, Lieutenant-Colonel Ví­ctor Ibo Acuña Velázquez, who was shot dead by the deserters. This, according to the authorities, happened when the unarmed officer tried to stop the hijacking.

Security personnel later stormed the aircraft, capturing the hijackers and freeing the hostages. The official account of events provided no details of the rescue operation or whether there had been any casualties.

The Managua military base is home to the Reserva del Alto Mando (RAM), an élite armoured division devoted to protecting Havana from internal, as well as external, threats. According to reports -not corroborated by the Cuban authorities- the attempted hijacking was preceded in December 2006 when three conscripts serving as guards at the El Manguito prison, near Santiago, opened fire on officers during an attempted jailbreak, killing two. All three were later captured.

Although the Cuban government promptly blamed the US for encouraging hijackings and other "vandalic and criminal actions" with the legislation that offers residency to Cuban migrants who make it to the US, no such incidents have taken place since April 2003, when police prevented the hijack of an aircraft by a group of armed men, and the hijack of a ferry by another group (the former were sentenced to life imprisonment; most of the latter were executed).

The previous month, two aircrafts had been separately hijacked and flown to the US. The hijackers were arrested and tried there, earning 20-year prison sentences.

It is considered likely that the three involved in the latest hijack attempt will, as serving members of the military, receive death sentences. It is worth noting that US-based Cuba experts dismiss any notion that the two incidents involving conscripts are indicative of any broader trend within the Cuban military. 

 

CHILE | Anti-terrorism law applied to Mapuche. The Mapuche militant Miguel Ángel Tapia Huenulaf was charged under the anti-terrorism law on 14 February in a court in Temuco for his alleged involvement in the bombing of an public prosecution service office last December, and for possession of weapons, explosives and terrorist material. When he was arrested on 12 February at his home in Santiago, police seized a submachinegun with two clips, two grenades, ammunition, explosives and other bomb-making equipment. The previous day, Huenulaf had been charged separately in a court in Lautaro, for involvement in an armed raid and arson at a farm in the area on 12 January.

This was the first time the Bachelet administration had invoked the anti-terrorism law, inherited from the Pinochet era, for an incident connected with radical Mapuche militancy. Acting President Edmundo Pérez Yoma justified the measure in the following terms: 'Any group that uses military weapons or tries to organise to commit acts of terrorism, will be persecuted, whatever ethnic group it may belong to [...] This is the first serious instance in which we have found an arsenal and a military weapon with instructions of a terrorist nature_'

BRAZIL | Crackdown on 'suspect' NGOs begins. At least 98 foreign NGOs are liable to be barred from operating in Brazil, after failing to register with the government. Out of 170 foreign NGOs known to be active in Brazil, only 72 registered with the ministry of justice in line with government orders. National justice secretary Romeu Tuma Júnior said that this proves the suspicion that most NGOs are engaged in 'shady' activities, especially in the Amazonian region, since none of those who complied with the registration requirement are active in Amazonia. In early 2008, justice minister Tarso Genro had instructed the federal police to investigate the activities of NGOs in Amazonia, in order to prevent bio-piracy; the illegal exploitation of natural resources; or 'aggressions against national sovereignty'.

In May 2007, General Maynard Marques Santa Rosa, secretary of policy, strategy and international affairs at the defence ministry, told congress that military intelligence had detected the presence of 100,000 NGOs in the Amazonian region, and had strong suspicions that many of these groups were engaging in illegal activities 'such as drug trafficking, gunrunning, people trafficking, money laundering and even espionage [SSR-07-05].'

It is not at all clear that there is any proof that any of the 98 NGOs which failed to register have been involved in activities of that nature. Indeed, those who failed to register as foreign NGOs could well continue to operate were they to choose to register as national NGOs. The government has not disclosed the names of the 98 NGOs involved.

BRAZIL | Police cooperation with neighbours. On 18 February the Brazilian federal police signed an agreement with Bolivia's national police to conduct joint operations against organised crime (chiefly drug trafficking and money laundering) in border areas. Bolivian officers will receive special training at the Brazilian federal police academy.

Two days later Brazil's federal police signed an agreement with Paraguay's antidrugs agency, Senad, to intensify the eradication of marijuana plantations in the Paraguayan border departments of Amambay, Canindeyú and Concepción. Paraguay is reckoned to produce about 5,900 tonnes of marijuana a year, about half the South American total and in Latin America second only to Mexico's 7,400 tonnes.

The energy and oil minister, Rafael Ramí­rez, said an auction for rights to develop the Mariscal Sucre (originilly known as Cristobal Colón)  offshore natural-gas fields fell short of expectations. In fact none of of the potential bidders (Mitsui & Co., Korea Gas Investments, StatoilHydro ASA, Galp Energia SGPS SA, OAO Gazprom and Eni SpA) actually bid, reportedly. This is a major setback to the industry. Currently only the Plataforma Deltana project, with its 7 trillion cubic feet (tcf) is going ahead, but gasmen say that progress here has slowed right down. The project was due to start producing Liquefied Natural Gas (LNG) in 2014.

Venezuela has been trying to tempt foreign companies to develop the Mariscal Sucre deposits for the past decade. All the companies would have been minority partners with the state energy company, Petróleos de Venezuela (Pdvsa). As well as failing to secure bids for the Mariscal Sucre gas field, the government also turned down big oil offers for the Junin10 heavy oil filed in the Orinoco tar belt.

Despite the failed Mariscal auction, Ramí­rez forecasts that production from the field's estimated 14.7 trillion cubic feet of gas will start by 2012. One possibility is that Spain's Repsol YPF, which was interested in 2009 and is the country's biggest private sector natural gas producer, may go into partnership with Pdvsa. Otherwise Pdvsa will have to go it alone. Pdvsa believes that the Mariscal Sucre field should be producing 1.2bn cubic feet a day. The field, which is north of the Paria Peninsula in Sucre state, is one of the country's bigger fields. Altogether, Venezuela had an estimated 171 trillion cubic feet (tcf) of proven natural gas reserves in 2009, the second largest in the Western Hemisphere behind the US.

In 2006, Venezuela produced and consumed 1tcf of natural gas. Around 90% of the country's natural gas reserves are associated, meaning that they occur along with crude oil. According to Enagas, the government agency charged with regulating the natural gas sector, the petroleum industry consumes over 70% of the natural gas production, with the largest share of that consumption in the form of re-injection to aid crude oil extraction.

Despite President Hugo Chávez 's anti-capitalist rhetoric, his governments have always realised that they would need foreign capital and expertise to develop the country's hydrocarbons. In 1999, Venezuela adopted the Gas Hydrocarbons Law, which opened all aspects of the gas sector to private investment.

The new law aimed to boost the development of natural gas resources, especially in non-associated (or dry-gas) fields and to expand the domestic natural gas transport network. Its secondary aims were to increase use of gas by the electricity generating and petrochemical industries.

The Gas Hydrocarbons Law allowed private operators to own 100% of dry gas projects, a sharp contrast to the restrictive ownership rules in the oil sector. Furthermore, royalty and income tax rates on non-associated natural gas projects are much lower than corresponding rates for oil projects. The law does give Pdvsa the right to purchase a 35% stake in any project that moves into commercial status.

Pdvsa is the dominant natural gas producer. It produces the largest amount of natural gas in the country. Repsol-YPF is the largest private-sector natural gas producer in Venezuela. In September 2005, Repsol-YPF began production from the first stage of its Barrancas Block project, which contains between 2 and 6 tcf of natural gas reserves. The project integrates natural gas production and an 80-megawatt (MW) power station in Portuguesa. In April 2004, France's Total began first production in the Yucal Placer blocks, with an initial output of 100m cubic feet per day (MMcf/d). Brazil's state-owned Petrobras operates the Tinaco and San Carlos projects, while Argentina's Pluspetrol is developing the Tiznado-Barbacoas field.

Offshore
In 2003 Pdvsa awarded exploration blocks in the Plataforma Deltana area, located off Venezuela's northeast coast adjacent to the country's maritime boundary with Trinidad and Tobago. In 2004, The US-based Chevron began exploration in the Loran field (Block 2), drilling three wells. In June 2005, the company announced that it had drilled a successful exploratory well in its adjacent Lau-Lau field (Block 3). Norway's Statoil holds the exploration license for the Cocuina field (Block 4), along with equity partner Total. In 2008, Statoil completed its exploratory drilling program in Block 4, with industry reports indicating that it found commercially-viable quantities of natural gas.

In 2005, the Russian natural gas company Gazprom won a tender to develop the first stage of the Rafael Urdaneta project. Following a seismic exploration program, Gazprom drilled its first exploratory well in late 2008 in the Urumaco-1 block. According to industry reports, commercial production from the area could begin in 2013.

The other big gas project is the Blanquilla-Tortuga field (northwest of Isla Margarita). A large share of any future offshore natural gas production would likely supply proposed LNG projects.

In recent years, Venezuela has improved its domestic natural gas transport network, to allow greater domestic utilisation and movement of gas production. The Interconnection Centro Occidente (ICO) system connects the central and western parts of the country, making natural gas more easily available to domestic consumers and for re-injection into the Western oil fields. Once all of the compression stations along the system are built, the ICO will have a capacity of 520m cubic feet a day (cf/d).

In early 2008, the Antonio Ricaurte pipeline came online, connecting Venezuela with Colombia. Initially, the pipeline will allow Colombia to export natural gas from the Punta Ballenas area to Western Venezuela, with contracted volumes ranging between 80m and 150m cf/d. However, current plans call for the flow of the pipeline to be reversed in 2012, with Venezuela exporting 140m cf/d of natural gas to Colombia.

Liquefied Natural Gas
In September 2008, Venezuela signed agreements to create three joint venture companies to develop LNG projects along the northern coast of the country. Each project will consist of a separate liquefaction train at the Gran Mariscal de Ayacucho (Cigma) natural gas complex in Guiria. The first project would source gas from the Plataforma Deltana project; the second train would use natural gas from the Mariscal Sucre project, also exporting an estimated 4.7m t/y. The third train would use natural gas from the Blanquilla-Tortuga fields. According to Pdvsa, the total investment in the three projects could approach US$20bn, with first exports by 2013.

On 30 August, Mexico's state oil company, Petróleos Mexicanos, announced that it had found a vast new oil field in the Gulf of Mexico. The field could double the country's oil reserves, Pemex said. A week later, the company issued a clarification: it admitted that it had not actually found any oil: only that its seismic surveying had suggested that there was a high probability of a lot of oil lurking in the depths of the Gulf.

The raising of expectations over the phantom find was deliberate. Executives at Pemex know that there is probably a lot of oil in the Mexican part of the Gulf: geologically it is unlikely that the oil fields found in the US part of the Gulf give out when they reach the maritime frontier lines. The Pemex executives also know that the company simply does not have the technology to drill and produce oil from deepwater wells. The executives know that they will have to buy-in the technology in some way. What they are doing, by claiming to have found oil, is to soften up the government to relax the onerous rules under which Pemex operates. In particular the company wants to be able to offer attractive deals on production sharing to potential partners in the Gulf. 

The politicians, from all parties, are unconvinced by Pemex's pleas to be given more operational freedom. The politicians may well have a point. The surge in international oil prices means that Pemex, which by law has a monopoly over oil and gas production in Mexican territory, is now a highly eligible partner, at least in the politicians' eyes. The Pemex executives simply see the company's weakness in lots of key areas. 

Gallingly for Pemex executives, the world leader in deep-sea oil production is Petrobras, the Brazilian state-owned oil company. Petrobras had to develop the technology following the government's decision that the country had to find and develop its own oilfields. Petrobras is looking at going into partnership with Cuba's state oil company to look for oil in the Cuban part of the Gulf of Mexico. 

The claim
Pemex said that the new fields it has detected could hold 54bn barrels of oil. This would mean that together with the country's proven reserves of 48bn barrels, Mexico would have reserves rivalling those of Kuwait, Iran, Iraq and the UAE. Luis Ramí­rez Corzo, the director of Pemex's exploration and production division, made the initial claim about the potential of the Mexican portion of the Gulf of Mexico. He clearly knew what he was doing since his briefing produced stories right across the Latin America press claiming that the Gulf of Mexico fields would make Mexico a new Saudi Arabia.

Currently, Mexico's proven reserves stand at 14.1bn barrels and its probable reserves amount to 34.4bn barrels. On 3 September, Pemex's clarification admitted that not one exploration well had been drilled and no reserves had been discovered. The company did stand by its claims that the seismic surveys were extremely promising. 

Ramí­rez Corzo said that the find should mean that the country's oil output would rise from 4m bpd to 7m bpd pretty quickly. That would put Mexico back amongst the world's biggest oil producers, rivalling Saudi Arabia, which has been producing at between 8m and 9m bpd and Russia, which produces 7.4m bpd. Ramí­rez Corzo said that the most promising areas are the bloc known as Perdido, on the maritime border with the US and the Coatzacoalcos Profundo bloc. In both areas, seismic studies and computer modelling have indicated that they should hold 45bn barrels of oil. Ramí­rez Corzo was pretty blunt about the potential of the new fields. He said that their size was the good news. The bad news was that the company would need new and foreign technology to get the oil out. He said that this would mean that the company would have to draw up new contracts which would allow the oil to remain Mexican but be enticing enough to attract foreign investors.

Besides grumbling about not being able to cut its own deals with foreign oil companies, Pemex also complains about the financial restrictions under which it labours. Under the current system, Pemex is milked by the government: oil revenues provide the government with more than a third of its revenues. From Pemex's point of view, the government swipes 60% of Pemex's income. This means that the oil company has to borrow to fund new projects. This way of doing things has wrecked its balance sheet. Debt now towers over capital. 

Despite its balance sheet problems, the effective government guarantee on its debts makes Pemex a prime borrower in the local capital markets. It is currently at the start of a debt issuance programme to raise M$10bn (US$870m) from the domestic capital markets. It has issued M$1.5bn in three tranches, the last, on 2 September was nine times oversubscribed. The company is paying just 0.15 of a percentage point more than the federal government for its money.

• Pemex did try to tempt foreign companies to help it develop new onshore dry gas fields (i.e. those which do not have any oil associated with them) in the Burgos Basin in northern Mexico but met with little success. International oil and gas companies were not enthusiastic about the much-hyped CSM contracts (multiple service contracts) which allowed Pemex to subcontract the development of gas fields to foreign companies. Until recently Pemex ignored gas: it still flares the stuff off in its main offshore oil field, Cantarell in the Sonda de Campeche. According to data in the Oil & Gas Journal, Mexico ranks 34th in the world in gas reserves with 14.8trillion cubic feet. The bulk of its gas is associated with oil. The government claims that the country has probable gas reserves of 83trillion cubic feet. As gas analysts point out, these figures need to be taken with a pinch of salt because a lot of gas is miles away from the infrastructure needed to exploit it. These analysts say that it is far from clear that it will be worth building out the infrastructure to these fields. Currently Mexico imports about 25% of the gas it uses from the US. Its gas imports are likely to increase as the country is building 20 new gas-fuelled power stations.

Montemayor extradited

The US finally extradited Rogelio Montemayor, a former director of the state oil company, Petróleos Mexicanos, to Mexico on 2 September. He will face corruption charges. The arrival of Montemayor will complicate the government's relations with the biggest party in congress, the Partido Revolucionario Institucional (PRI). Montemayor is accused of sending Pemex money, via the oil workers' union, to support the last stages of the ill-fated presidential election campaign of the PRI candidate, Francisco Labastida, in 2000. Pemex is supposed to have supplied US$160m to the Labastida campaign. The government has been trying to extradite Montemayor from the US for two years. The issue is complicated by the fact that Labastida defeated the current leader of the PRI, Roberto Madrazo, for the PRI's presidential nomination in 2000. Madrazo may well be happy to see some of his enemies in the PRI enmeshed in the Montemayor scandal. Montemayor is likely to remain out on bail in Mexico since the charges he faces are not serious. Technically, the US did not extradite him to face charges of electoral malpractice, the only charge which could have put him in custody. The court in Houston, Texas which was hearing Montemayor's appeals against this charge did not complete its hearing before he was extradited.

On 29 October the federal government sent in about 5,000 federal police to retake control of the centre of Oaxaca. The centre of the city had been controlled by radical protesters since mid-June. The protesters, the Asamblea Popular de los Pueblos de Oaxaca (APPO), did not oppose the Policia Federal Preventiva (PFP) smashing through barricades in city streets and evicting them from the centre of the city.

Politically, the comparatively peaceful end to the confrontation in Oaxaca strengthens Elba Esther Gordillo. She is the leader of the teachers' union, the Sindicato Nacional de Trabajadores de la Educación (SNTE), which started as a strike by 60,000 teachers employed by the state government for higher pay. This strike then broadened into a near insurrection aimed at forcing the resignation of the state governor, Ulises Ruiz, from the Partido Revolucionario Institucional. 

When Gordillo ordered the teachers back to work in mid-October, the whole protest movement began to disintegrate. So her action was decisive in ending the confrontation. Following it, fissures opened up between moderates and radicals in the teachers union which led to splits inside the APPO. Very soon, the radicals' attempts to force the moderates to remain loyal to the overall protests became counterproductive.

The virtually bloodless end to the uprising in Oaxaca is a belated success for President Vicente Fox. Fox ordered the operation to retake control of the city centre on 28 October. The peaceful denouement is also a triumph for the interior minister Carlos Abascal, who resisted pressure to use force to end the strike earlier. Fox's and Abascal's relief will not be unalloyed. Their decision to send in the PFP followed an outbreak of violence on 27 October in which three people, all supporters of the APPO, including one US citizen, Bradley Roland Will, were killed. A fourth person died when an ambulance was unable to get her to hospital before she died.

The 29 October operation, which began at 3pm local time, was a massive display of federal force. The government has yet to say how many men were involved: Ruiz said that at least 4,500 members of the Policia Federal Preventiva were deployed. Police officers wearing riot gear and carrying shields were led by armoured bulldozers and backed by water cannons, police helicopters and soldiers, as they marched from all directions toward Oaxaca's main square, the Zócalo, which was the APPO's base. 

What happened on 27 October

It is not clear who was responsible for the 27 October killings. Three APPO supporters were shot dead. The first to be killed was the US citizen, Bradley Roland Will. He was an APPO sympathiser who was working as a cameraman for an independent broadcaster. He died after being shot in the chest. The other two people shot were Mexicans, Esteban Zurita López and Emilio Alonso Fabián.  What happened was that the barricades erected by the APPO came under attack from unknown assailants. The barricades' were fully manned after the APPO summoned its supporters claiming that it had news of an imminent attack. The APPO supporters, who were armed with pistols, clubs, stones and machetes, responded to being shot at by lobbing petrol bombs in the direction of the shots. The exchanges went on for several hours.  The APPO blames members of the state police for shooting at the barricades. Ruiz denied this on 29 October and said that all his men were in their barracks on 27 October.  The APPO has long suggested that Ruiz has used state policemen, in civilian dress, as agents provocateurs to stir up the crisis. Ruiz denied this and claimed that the APPO's radio station, Radio Universidad, until it was surrendered and went off the air at about 6pm local time on 29 October, had been inciting people to resist.

The APPO took the view, after a series of meetings on 28 October that were called to consider President Vicente Fox's decision to sent in the PFP to restore order, that it could not withstand such forces. Dissidents however did throw stones at the police and set fire to vehicles to create a smoke to disorientate the police. 

The APPO also withdrew from the radio station and government offices it had taken over. The APPO disputed the government's claim that the assault was entirely bloodless. The APPO claimed that the federal police shot dead one of the APPO's 15 year-old supporters on the outskirts of Oaxaca as the operation began. There was no independent confirmation of the police having shot him, as the APPO claimed. Several eyewitnesses said that the dead boy, Jorge Alberto López Bernal, was acting as an auxiliary nurse when he was hit by a firecracker: almost certainly this missile was thrown by an APPO supporter. The government's decision to send in the PFP to retake control of Oaxaca does not mean, necessarily, that Ruiz will remain in office nor that the confrontation is over. The radicals in Oaxaca felt that they were close to victory, even though their protests had been showing signs of disintegration for the past week.

Ruiz, however, claimed in a radio interview on 29 October that he had no intention of resigning and that President Fox had never asked him to go. This looks like sophistry: Ruiz's discussions over his future had been with Abascal. The signs that the protests were failing were clear from 18 October when Gordillo changed her stance. On 22 October the teachers said that they would hold a second ballot on whether to go back to work. Enrique Rueda, the leader of the radical Sección 22 of the teachers union, came in for heavy criticism after he chose to follow the Gordillo's lead. She had ordered the teachers back to work.

On 25 October, radicals in the Sección 22 of the teachers union (SNTE) forced the meeting, called to confirm the result of the second vote on whether the teachers should go back to work, to end inconclusively. The radicals claimed that shots were fired at the meeting. A more likely reason for the curtailing of the meeting was the fact that a majority of teachers had voted to end the strike. Unofficially, the vote was 28,000 for a return to work and 23,000 for a continuation of the strike. 

Some of the teachers, who started the whole saga off in May, had already gone back to work. The federal government expected the majority to start teaching again from Monday 30 October. The divisions in the teachers' union were the most obvious sign that the protests were losing momentum. In the first ballot of teachers, on 22 October, a majority of teachers (25,692 to 17,483) voted to start teaching again from 23 October. The hardliners, however, pointed out that 12,179 teachers had refused to make the choice (go back or stay out) offered by the ballot. These hardliners said that they would not return to work while Ulises Ruiz remained governor. 

What was clear from the vote by the teachers is that the divisions in the teachers union are geographic. Teachers in indigenous areas, especially around the Isthmus of Tehuantepec voted heavily to go back after big demonstrations in favour of Ruiz last week. Teachers in and around Oaxaca City voted to stay out. The polarisation of the state increases the risk of renewed violence. 

Federal government moves: The Procuradurí­a General de la República said on 24 October that it had issued warrants for the arrest of 56 people in Oaxaca. The federal authorities have decided that the divisions between the proto-revolutionaries in Oaxaca are broad enough to allow them to try to re-establish control of the state. It is not clear whose names are on the warrants, but the general supposition is that the federal authorities are going after the leaders of the APPO, which organised the virtual insurrection. 

What the senate said: The senate home affairs committee decided on 18 October that there was no evidence of a power vacuum in Oaxaca. This vote was confirmed by the full senate on 20 October. The vote means that the government cannot impose an interim governor on the state. The senate decision is a victory for the old-guard of the Partido Revolucionario Institucional, now the third-biggest party in congress, which had lined up behind the governor of Oaxaca, Ulises Ruiz, a fellow prií­sta. 

Defence ministry: In an almost unprecedented public comment, the defence minister, General Clemente Vega, denied on 5 October that he had told President Fox that the army would not go into Oaxaca. Mexico's military keep a very low profile, so General Vega's comments carried heavy implications. They came in response to a well-informed political column in Impacto that claimed that while the marines and even the navy were deploying against the unrest in Oaxaca, the army had not sent a single extra soldier to the state.

What gave the column added weight was the clarification that the two helicopters that had so alarmed the APPO actually came from the navy. On 3 October, the interior minister, Carlos Abascal, ruled out the use of force to regain control of the centre of Oaxaca City. General Vega said that the Impacto claims were completely false "lacking in veracity and easily proven to be so." General Vega said that there were 5,414 soldiers deployed in Oaxaca and that their numbers had been increased by 1,837 on 27 March. The solders were supported by four Bell helicopters and German Schweizer aircraft. 

The mounting death toll from organised crime

Figures from the Procuradurí­a General de la República's organised crime unit, Siedo, show that in the year to 19 October, 1,733 people were murdered by organised criminals, up 46% on 2005. Organised criminals are picking off key police officers as well as settling scores with rivals and rubbing out anyone who gets in their way. On 19 October Miguel Angel Villanueva, director general of the crime prevention unit, was gunned down. Besides holding that job, Villanueva was also assistant director of the Policí­a Federal Preventiva's anti-terrorism unit. The state with the grimmest record for murder in October is Michoacán, coincidentally the home state of the president-elect, Felipe Calderón Hinojosa. By 23 October, 50 people had been gunned down in the state. So far this year 420 people have been murdered there, including 19 police chiefs. Juan Antonio Magaña, the state attorney general said that at least half of those murdered were killed by drug gangs. The most chilling development of the drug trade in Michoacán is the growing enthusiasm for decapitation. So far this year 17 people have been decapitated by drug gangs as a warning to others not to interfere in their business. Michoacán is a prime example of the Fox government's anti-drugs policy. The government has focused on arresting the leaders of drug gangs: in Michoacán the business was dominated by Armando Valencia, who was arrested in August 2003. A year later one of his main lieutenants, Carlos Alberto Rosales Mendoza, was also arrested. These arrests weakened the Valencia organisation and allowed rival gangs, notably the Cartel del Golfo, which uses former soldiers, known as Los Zetas, to do its dirty work, to move into the state. What has resulted is a bloody battle for control of Michoacán.

On 22 December the economy minister, Gerardo Ruiz Mateos, said that it would be “suicide" for Mexico to sign a free trade deal with China.

In Ruiz Mateos's view Mexico is an industrialised country which competes with Chinese companies to sell manufactured goods. Ruiz Mateos, almost dismissively, said that it might be sensible for “predominantly agricultural exporters such as Brazil or Argentina" to sign a FTA with China but it would not be so for Mexico. Peru and Chile are the only two Latin American countries which have FTAs with China, though Costa Rica is considering one.

Ruiz Mateos said an FTA between Mexico and China would be suicide for Mexican industry. He noted that on 19 December he had announced that Mexico would tackle China at the World Trade Organization over China's unfair subsidies of manufactured goods. Ruiz Mateos said that he hoped for a friendly solution but warned that Mexico would not shy away from calling for a disputes' settlement panel if China did not deliver what Mexico wanted.

Ruiz Mateos noted that Chinese investment in Mexico was negligible. He said that the European Union had invested US$12bn in Mexico in 2006, but China had invested just US$70m in the same period. Furthermore, he claimed that this investment was staffed entirely by (400) Chinese, so the investment had produced no jobs for Mexicans.

Mexico exports only about US$1.8bn in goods to China but imports around US$31bn of goods from it. 

Migration: A small poll (522 respondents) published in Reforma, a Mexico City newspaper, on 2 January found that 54% of Mexicans who had emigrated to the US would not consider returning home even though most admitted to finding life tougher in the US. On the other hand 41% said that they would consider returning home because of the economic crisis.

The US is home to around 12m Mexicans. The general assumption is that 6m of these are illegal immigrants. Over 90% of all Mexican migrants live in the US. The poll interviewed Mexicans returning home at various points on the border with the US. A thumping 96% of those polled said that they were only coming home for Christmas (the poll was taken on 21 and 22 December) and only 2% said that they may not return to the US. This is despite the fact that 77% of those polled said that it was much more difficult to find work in the US and expected 2009 to be worse than 2008. Even so, 49% said that they personally were OK and only 46% said that things were going badly for them. The migrants were hopeful that the incoming president, Barack Obama, would come up with a comprehensive immigration reform. A thumping 61% said that they expected such a reform while fewer than a third of those polled (31%) said that a reform was unlikely.

Interestingly, very few migrants found the US racist. Only 4% of those polled said that this was the biggest problem they faced in the US. Most (47%) said that the state of the US economy was their main problem and 28% said that rising unemployment was the biggest problem. Migrants were strongly supportive of President Felipe Calderón Hinojosa in Mexico. A staggering 72% though that he was doing a good job and only 9% thought that he was doing badly. The remaining 19% offered no opinion.

• Spain: The Spanish embassy in Mexico reckons that 150,000 Mexicans may opt for Spanish nationality under a new law which extends Spanish nationality to the grandchildren of Spaniards.

The BCS election was not what it appeared: a thumping win for President Felipe Calderón's Partido Acción Nacional (PAN). The triumph of the PAN candidate for governor, Marcos Covarrubias Villaseñor, was the result of a split in the Partido de la Revolución Democrática (PRD), which has run BCS since 1999.

Infighting inside the PRD meant that Covarrubias, a PRD federal deputy until last October, did not get the nomination for the governorship. As a result both the PRI and the PAN courted him. Such is Covarrubias's pull at the ballot box that the PAN ended up with nine of the 16 deputies in the state congress. The PRD was marginalised, though it did manage to hang on to the mayorship of the state capital, Los Cabos.

The results in the two 2011 elections so far, Guerrero and BCS, show that the PRI is not the political steamroller its hierarchy assumed  it would be this year. Some political commentators are already counting out the PRD, arguing that its crushing defeat in BCS shows that it has no future. The second strand of this argument is that the PRD was not really a winner in Guerrero because its candidate was a (perhaps only temporary) defector from the PRI.

Election budget. A congressional committee has called on the financial controller at the independent Instituto Federal Electoral (IFE), the agency which runs elections, to explain what the IFE had done with the budget it did not spend in 2010. The IFE has retained the underspend (of M$348m, or US$28.5m) and put it into a building modernisation fund, rather than returning the money to the national treasury. It is not clear whether congress, in the form of the chamber of deputies, has the power to compel officials of the IFE to testify. Currently the congressional audit commission is inviting the IFE's financial controller, Gregorio Guerrero Pozas, to present his side of the case.

• It is worth noting that turnout in the BCS election was, as it had also been in Guerrero, more-than-respectable at 61%. This suggests that voters still believe that their votes matter.

Democracy is not flourishing in the Dominican Republic, according to a survey released by the think tank Pontificia Universidad Católica Madre Y Maestra. The survey shows that a mere 19% of respondents are happy with the way that democracy is functioning, 19% are not happy with it and a significant 62% are indifferent to the system.

The National Survey on Democracy and Political Culture reflects a trend visible across Latin America, where democratic governments often are not considered tough enough to deal with problems such as violent crime. While 74% of respondents said they wanted democracy, 66% said they wanted the government to be much harder on criminals. The perceived opinion is that the two do not mix.

The survey showed that security forces, and in particular the military, are held in far higher esteem than government institutions. The military came out on top of the list with a 38.9% acceptance rate, followed by city mayors and then the justice department. The national police got a 33% approval rating while the legislature and the executive branches received 28% and 23% respectively (although to be fair to President Leonel Fernández the survey was conducted between January and March 2004 before he even came to power).  

The majority of the 4,460 individuals interviewed for the survey expressed their disillusionment with the quality of basic services such as water, electricity, education, transportation and health. The government stepped up its campaign against crime in October. Fernández sent 15,000 police officers onto the streets to patrol crime hotspots and ordered a cleanup of the national police force, which has been tainted by corruption, including the appropriation of cars recovered from thieves.

ECONOMIC OVERVIEW: DOMINICAN REPUBLIC

Congress is confusing the government's plan to increase pay rates. The senate agreed on 3 November to a government proposal to increase minimum wages by 30%. Under the terms of the controversial law, private sector employees will see their pay rise three days after the bill finally becomes law while public sector employees will have to wait until 1 January 2005 before their pay rises. Separately, deputies agreed to increase the minimum wage from US$57 a month to US$121, though it is not clear whether the private sector will also be subjected to this change. Private-sector employers are unwilling to increase anybody's pay (except those on the minimum wage) due to the dim economic outlook. The Consejo Nacional de la Empresa Privada recommends that private-sector employers increase pay by 25% if they can afford to. The 30% increase in wages would consume approximately RD$8bn (US$313m) of the 2005 budget. Outlook GDP: GDP growth was 1.4% for the first eight months of the year compared to the same period last year, the governor of the central bank, Héctor Valdez said. Inflation: Inflation in October was 1.35%, bringing the rate for the first 10 months of the year to 32.9%. The lagging 12-month rate is 46%. The central bank is forecasting that inflation this year will be 36%. President Leonel Fernández said on 10 November that the government was determined to bring the inflation rate down to just a single digit in 2005. The Dominican peso has recovered much of its value since Fernández was inaugurated in August; it has bounced back from nearly RD$50 to US$1 under the previous administration to RD$25 to US$1.

Government officials from St. Kitts and Nevis, Guyana and Jamaica travelled to Brussels on 8 March to ask for increased compensation for their countries' losses from EU subsidy cuts in the region's sugar industry. The officials met European Commission President Jose Manuel Barroso to ask for more yearly aid in 2007-2012 to help Caribbean sugar producers cope with the EU's 36% cut in sugar subsidies imposed in January.

The EU has earmarked 40m euros (US$47m) in aid for 2006, an amount St. Kitts Prime Minister Denzil Douglas called "paltry". The EU executive commission in December proposed offering 190m euros a year to Caribbean producers until 2013. EU member states have since suggested the funding start at 130m euros in 2007 and peak at 170m euros in 2013. The final amount will depend on the EU's 2007-2013 budget which has yet to be agreed. EU farmers who face the same subsidy cuts were to be compensated US$7.9bn.

For years the EU gave its former colonies in the African, Caribbean and Pacific Group (ACP) preferential access to its markets and paid high prices to encourage development. The WTO said the regime was unfair and ordered the bloc to reduce quotas and prices for sugar, as well as for bananas and cotton.

Douglas said Caribbean sugar producers would like to receive some of the money from the proposed EU fund upfront, rather than wait for instalments to be paid over six years. He said he discussed the issue with Barroso and Austrian Chancellor Wolfgang Schuessel, whose country holds the EU presidency until June, but has not received any assurances. "If this is not revisited, it could lead to social upheavals, economic instability and political unrest," said Douglas, adding that closing the sugar industry meant 9% of the country's work force would lose their jobs. "We had to borrow 10m just to compensate our people," he said. Nevertheless, if the EU's long term budget is less than proposed, Brussels will struggle to pay the full 190m euros originally proposed by the commission.

The government lost its third senior official in 10 days on 11 May when the president of the state owned Banco Nacional de Desarrollo Agrí­cola (Bandesa) resigned.  

The agriculture minister, Héctor Hernández, said that José Segoví­a, the president of the bank, was suspended for refusing to lend to some agricultural producers. Segoví­a follows the head of the national disaster relief organisation and the head of the state telecoms company out of the government. Since Manuel Zelaya took office in January 2006 he has lost at leas 22 senior officials including three ministers. Almost all these officials, who ended up being dismissed or resigning were first suspended.  

The two most recent officials to go were Juan Carlos Elvir, who was head of the Comisión Permananente de Contingencias and Jacono Lagos who was head of the state telecoms company, Empresa Hondureña de Telecomunicaciones. Elvir went at the end of April when he contradicted a report from the presidential palace that the country was about to experience a major heatwave with temperatures of 40 degrees centigrade. Lagos went after falling out with Hondutel's deputy manager, Marcelo Chimirri Castro, who is a relation of the President Zelaya's wife, Xiomarra Castro.  

Inflation: In April inflation came to 0.6%, much the same as March's 0.7%. The rate for the first four months of the year is 2.9%. The rate for the past 12 months is 6.3%, well above the rate in 2006 which was 5.6%.

 

The government of President Alvaro Colom recently presented congress with the first of its proposals for a crucial tax reform, a thorny subject for any government given traditional resistance from the private sector. Colom's situation has not been helped by either the recent resignation of the head of the tax administration (SAT), Carolina Roca, or the country's spiralling inflation rate.

The latest in the exodus of senior figures to have left the government (see page 3), Roca announced her decision to quit on 5 August after three and a half years as SAT director. Her resignation - which she maintained was due to health reasons - came as a blow to Colom, as she was one of his most experienced officials.

She cited, among her chief achievements, a record tax-take for 2007 - accounting for 12.4% of GDP without raising VAT levels - as well as having cut VAT evasion from 34% in 2003 to 26% in 2007. After more than a week of deliberating, Colom named university professor and ex deputy Finance Minister Rudy Villeda as Roca's replacement.

Uphill struggle

Colom has been struggling to introduce a tax reform bill since April, encountering considerable resistance from the private sector and political opposition. On 11 August finance minister Juan Alberto Fuentes finally presented the first proposal of a watered down version of the government's original bill, which had been devised by a committee of experts and senior officials at the behest of the national peace accords council. Among other changes, the government scrapped a proposal to gradually increase the tax on capital income or dividends from 3% to 10% - a major victory for business.

Fuentes explained that the current bill seeks to increase the tax take by half a percentage point of GDP over a three-year period (from 12.4% of GDP at present to 12.9% in 2011) through increasing collection of indirect taxes such as VAT and vehicle tax. He added that the reform was aimed at modernising the tax system with measures to strengthen the SAT's monitoring facilities in order to reduce tax evasion and to create a civilian watchdog.

The government is due to present further proposals to congress, including a “solidarity tax" (ISO) to replace the extraordinary tax to support peace agreements (Ietaap), a tax on business, which expires at the end of the year. The government hopes that the ISO will raise US$240m annually, slightly more than the US$230m raised by the Ietaap.

• UNE secretary implicated

On 18 August national daily El Periódico reported that Juan José Alfaro Lemus, the secretary general of President Alvaro Colom's party, the Unidad Nacional de la Esperanza (UNE) was accused of fraud during his time as mayor of Escuintla in 2004. According to the findings of a report by the comptroller general, Alfaro Lemus wrongly approved cheques, which amounted to some US$2.2m, more than half of the municipal budget, to four members of the municipal council.

A two-day meeting reviewing progress on the Caricom Single Market and Economy (CSME) took place in Barbados on 9-10 October.  The Single Market came into effect in January 2006, and the Single Economy is scheduled for completion in 2015.  As host of the meeting, Prime Minister David Thompson argued that “irregular application" of the CSME provisions across the community was a consequence of “capacity constraint_not disinterest".  He added that the audit of progress found “no opposition to the concept of the CSME and regional integration".

Thompson also argued that the need for the CSME had increased for two reasons: first because of the exigencies of the global financial crisis, and secondly because of the emergence of the G20 as the key group in international economic management.  As he put it: “The region must devise an appropriate response within Caricom and internationally to ensure that our interests are not overlooked."

Secretary-General Edwin Carrington made the same point, asking rhetorically: “Are we ready, willing and able individually to face Europe, United States, Canada, Brazil, India as trading partners? The reality is that an efficient Single Market and Economy is this Community's best hope_Let's stop equivocating and get on with the building of a Community from which our children and their children will benefit and be proud."

Two key contributions to the review meeting came from, on the trade union side, the Caribbean Congress of Labour (CCL), and, on the employers' side, from Caribbean Association of Industry and Commerce (CAIC). Both were supportive of the CSME, but their priorities differed.

For the CAIC, its president Carol Evelyn warned about “disenchantment at the slow implementation" of the CSME, and he stressed the urgency of ensuring the free movement of capital and of facilitating foreign direct investment (FDI).  The other key priority for CAIC is the free movement of skilled people.  Evelyn complained: “The private sector is still disheartened that entry into member states is still at the whims and fancies of immigration officers_Entrepreneurs still find it easier to enter a territory under the guise of vacation, despite the introduction of skills certificates."

There are some concerns within the business community that full movement of labour - rather than just skilled labour - will be divisive and may change the demographics of countries in the Eastern Caribbean in particular.  Robert LeHunte of the Caribbean Association of Indigenous Bankers noted: “Life as they know it with those changes will not be the same and people must be aware of that."  For the CCL, however, free movement of labour is the key. 

The CCL's president, Jacqueline Jack, told the meeting that the CCL “is far from pleased" about the lack of progress on the free movement of labour.  She called for free movement without barriers, the removal of work permits, “hassle-free travel", harmonization of labour laws, and provisions for the transfer of social security benefits.  She also bemoaned the lack of CCL representation at trade negotiations, such as those now under way with Canada.

Jack said: “It saddens me that instead of keeping labour as a significant partner, labour is being sidelined.  The Caribbean Congress of Labour no longer has a place at the Conference of Heads of Government Annual Meetings."

• CARICOM MEMBER STATES

[* signifies not member of CSME]
Antigua and Barbuda
*The Bahamas
Barbados
Belize
Dominica
Grenada
Guyana
*Haiti
Jamaica
*Montserrat
St Kitts and Nevis
St Lucia
St Vincent and the Grenadines
Suriname
Trinidad and Tobago

• CARICOM ASSOCIATE MEMBERS

*Anguilla
*Bermuda
*British Virgin Islands
*Cayman Islands
*Turks and Caicos Islands

The Eastern Caribbean Central Bank (ECCB), which brings together Antigua & Barbuda, Grenada, Saint Kitts & Nevis, Dominica, Saint Lucia, Saint Vincent & the Grenadines, and the two British overseas territories of Anguilla and Montserrat, is projecting a modest return to growth for the region during 2011.

The ECCB is forecasting growth of 1.9% for 2011, increasing to 2.8% in 2012.  The main drag on a return to growth is agriculture, which is the only sector not projected to make a positive contribution in 2011.  However, private capital inflows and tourism are both expected to remain below pre-crisis levels.

The outcome for 2010 looks as if it was well below the projections made by the ECCD in July, when it was projecting a contraction of 2.4% after the disastrous contraction of 7.4% in 2009.  At its meeting on 11 February, the ECCB reported a year-on-year contraction of 4.0% for the January-September 2010 period. 

On the positive side, the European Union (EU) has provided a record amount of support of US$162.7m to Barbados and the Eastern Caribbean during the past year.  The purpose of the EU funding is to contribute to the social development and economic stability of the small islands at a time when they lack “fiscal space" due to rising debt.  For its part, the United Kingdom is keen to emphasize that it is not reducing its commitment to the region despite the Royal Navy's withdrawal of a permanent destroyer patrol from the Caribbean.  The UK's Department for International Development (DfID) is to contribute US$120m over the 2011-2015 period.  Its focus is the creation of 10,000 jobs and cutting crime.

Not surprisingly, debt continues to be a major worry, with total public debt pressing 100% of GDP.  The ECCB's stated aim is to get this ratio down to 60% by 2020, in part with the help of a debt-management project funded by the Canadian International Development Agency (CIDA).

One of the most-indebted of the Eastern Caribbean economies is that of St Kitts & Nevis, where total public debt is approaching 200% of GDP.  Prescriptions for SKN suggested at a conference in early February at the UK's Heriot-Watt University are therefore instructive.  A presentation co-authored by Paul Hare of Heriot-Watt University and Richard Stoneman, an independent consultant from Oxford, could do little to hide the difficulties that SKN, and to a lesser extent other indebted Eastern Caribbean islands, face.

Essentially, there were three main conclusions.  Firstly, SKN needs to refinance its debt obligations to longer maturities with the help of the ECCB and IMF.  Secondly, with or without the above, the country needs to undergo a period of severe fiscal pain in order to generate primary surpluses that might need to be as high as 20% of GDP.  However, the report accepts that as this would amount to about 50% of government revenues, achieving such a level is likely to be politically unacceptable.  The third element in the mix would have to be the sale of public assets, including land sales and the privatization of publicly owned entities.

The report recommends “the immediate corporatization of such entities as the Electricity Department", and it says that “for all entities providing a marketable service_economically sensible prices should be charged to all customers" and that “wherever possible_these public entities should be privatized at the earliest opportunity".   Finally, it adds that growth of 5% or better needs to be targeted.

On 6 October the Chilean senate approved the first significant changes to the country's constitution since it was amended by referendum in 1989. Until now, Chilean lawmakers had been bound by the constitution written by General Augusto Pinochet's dictatorship. Although approved by plebiscite in 1980, the constitution had little democratic validity: it sought to perpetuate the armed forces' political power by determining that nine non-elected senators, four of them former military and police commanders, would sit alongside 26 (now 38) elected ones. It also gave former presidents (including General Pinochet) a senate seat for life and forbade elected presidents from dismissing military commanders-in-chief or the chief of police.

The changes agreed will eliminate the positions of appointed senators and senators-for-life, among them Eduardo Frei Ruiz-Tagle, who will have to resign their positions by 11 March 2006. It will also restore to the president the power of dismissing the head of the armed forces or the police. The amendments will also take into account the Chilean diaspora caused by the Pinochet dictatorship by granting citizenship to children born outside the country to Chilean parents. Currently Chile's senate is made up of 38 members elected for an eight-year term (half of which are renewed every four years), and another nine appointed directly by the outgoing government and the supreme court.

The decision to amend the constitution represented a remarkable degree of cooperation between the country's two ideological powerhouses, the ruling leftwing Concertación coalition and the rightwing Alianza por Chile (APC). Although Concertación has been in power since 1990, changing the constitution was rendered extremely difficult by some cunning safeguards put in place by the dictatorship's lawyers. Not only was a two-thirds majority required in both houses of congress to effect an amendment, but a binominal electoral system compounded the improbability of achieving a consensus. Each constituency elects two members to each house, but to get both seats a party or coalition must get double the vote of the runner-up. Since 1990 Concertación has never managed to win enough seats to push through any reforms.

Problems ahead
Although the bill still has to gain the approval of the lower house, few expect difficulties there. Problems remain, however; not least in the persistence of the binominal electoral system. There was also no agreement about the length of time the president should serve: Concertación is inclined to shorten the present six-year mandate but the APC is divided on the issue. The replacement of the non-elected senators with elected ones, though indubitably healthy from a democratic perspective, is bound to create tensions within the coalitions when individual parties fight for their seats in 2006.

Chilean President Michele Bachelet has been quick to respond to a diplomatic request from Peru that Chile take action to stop the recently bailed former Peruvian president, Alberto Fujimori, from voicing his political opinions.

Bachelet responded to the note by asking the supreme court to take whatever measures were necessary to avoid a situation where relations with Peru and Chile would be affected. "There is one thing very clear" said Bachelet, "the President of Chile, as a fundamental task, has to guarantee the interests of the country and it is clear that the actions that we have seen in the last few days from Mr Fujimori are provoking undesirable situations in our relationship with Peru."  

In response, the supreme court used the "Ley de extranjerí­a" as a means to stop Fujimori from expressing his views on the upcoming elections in Peru. The law prohibits foreigners in Chile from making comments that could be detrimental to Chile's external relations. The rapid response from the Bachelet administration has been welcomed by the government of Peru's President Alejandro Toledo. The justice minister, Alejandro Tudela, praised the "celerity" with which the Chilean government reacted to Lima's request.  

However, there have been mixed responses in Chile. After a meeting with the interior minister, opposition Senator Alberto Espina criticised the president's actions claiming that "in spite of the atrocities he has committed" Fujimori is a citizen who lives in a democratic country and has the right to give his opinion within the law. Another opposition senator, Hernán Larraí­n, defended the government's decision to manage bilateral relations with Peru but felt that the president should not have played such a prominent role in events. "You have to be careful," he said, "because she appears to be limiting freedom of expression in Chile, a country that has always favoured the right of the refugee."  

In spite of a number of complaints, the move to silence Fujimori has been widely supported. In addition, the quick response to Peru's request can only help to improve what have, over the last few years, become difficult relations due to disputes over maritime borders. Bachelet is keen to start her presidency on good terms with all her neighbours and the extremely thorny issue of Fujimori's extradition might conceivably help to improve relations between the two countries.