All Categories

Development: Congress switched on 15 November from considering the controversial hydrocarbons law to other more pressing business.

Significance: Congress seems likely to knock consideration of the hydrocarbons law back until after the municipal elections on 5 December. Instead congress is focusing on the budget for 2005 and the issue of what level of autonomy should be granted to various parts of the country.

The changing priorities of congress show how volatile the political situation is in the country. Less than a week ago congress affirmed that the hydrocarbons law was the most important issue facing it. What has changed is the success of the pro-autonomy strike in Santa Cruz on 11 November.

Significantly, even the radical Movimiento al Socialismo, which has been pushing for the hydrocarbons law, was prepared to let the budget and autonomy take priority. The MAS said that there would be a vote on 17 November to set the priorities until after the municipal elections.

Development: Cuba concluded a week of military exercises on 19 December. 

Significance: The government spread the word that 'Bastión 2004' was the biggest military exercise to be conducted in Cuba since 1986. The exercises were ostensibly carried out as a warning to the US not to consider invading. They had a greater domestic significance, however, presenting Raúl Castro, the defence minister, younger brother and chosen successor of President Fidel Castro, with an opportunity to raise his political profile. 

Thousands of civilians joined in the military drills on 18 and 19 December. With air raid sirens screaming out, they practised shooting, hauling on gas masks and performing first aid. Some 100,000 troops, including reservists took part in the exercises on the first five days. 'The risks of (US) aggression are real,' Fidel Castro said on television on 19 December.

Development: The deputy-head of the IMF, Anne Krueger, announced on 29 January that the Fund will resume talks with Argentina once its debt restructuring is complete.

Significance: The relationship between Argentina and the IMF broke down in the middle of last year, predominantly over the issue of how large a primary fiscal surplus Argentina should post. The Fund wanted the government to save more so that it could be more generous to holders of its defaulted commercial debt, but President Néstor Kirchner said that Argentina could not afford to honour more than around 30% of the debt's value.

According to Krueger, Argentina has agreed to resume talks once the debt swap ends on 25 February. If the restructuring goes as planned (the government is looking for a 50% acceptance rate), the main bone of contention between the government and the IMF will be removed. Argentina would like to restore its relationship with the Fund at that point because a working Fund programme would help improve Argentina's financial credibility.

However, Argentina might struggle to achieve even this low target of 50% acceptance. According to figures published by the economy ministry on 30 January, some 26.66% of bondholders have taken part in the swap, which began on 14 January. They have swapped US$21.8m of defaulted debt out of a total of US$81.8bn.

Development: On 2 March senior members of the biggest party in congress and the country, the Partido Revolucionario Institucional, pushed for their leader to resign his party position in early July if he wants to run for the party's presidential nomination.

Significance: Rivals to Roberto Madrazo, the PRI's leader, argue that it is unfair that he should remain party leader while campaigning for party members to back him as the party's presidential candidate for 2006. Fidel Herrera, the newly installed governor of Veracruz came up with a workable solution: he suggested on 2 March that Madrazo should resign as party leader after the most important elections this year, for the Estado de México on 3 July. 

Herrera is one of the (few) uncommitted PRI governors. There is a growing body of PRI governors and senior officials who revel in being members of Tucom (Todos Unidos Contra Madrazo). Madrazo himself has floated the idea of resigning as party president after the Estado elections, though, he points out, there is no rule in the party's constitution which would prevent him from being both the party's president and running for its presidential nomination. 

Other PRI bigwigs are trying to corral Madrazo in other ways. A prominent senator and former interior minister, Manuel Bartlett, wants the party to make it clear that neither it nor Madrazo will support any reform to the current energy, fiscal and labour laws. Technocrats argue that the country needs to reform its energy industry, and in particular end Petróleos Mexicanos' monopoly on crude oil exploration and production. Madrazo has been tilting towards introducing reforms. The PRI is currently discussing its manifesto and how its presidential candidate should be chosen.

Development: The US dollar fell for the tenth consecutive day, closing at R$2.59 on 7 April.

Significance: The 7 April's rate is the lowest since 23 February 2005. Then the central bank bowed to exporters demands and intervened, buying dollars for Reais. This pushed the dollar back to what the export sector considers the "minimum rate" of R$2.70. The bank has since decided not to intervene.

Without the central bank's buying, the dollar has once again collapsed against Real. From 26 March, the dollar has fallen by 5.6% against the Real The dollar's weakness has once again prompted exporters to complain. This time, 23 different businesses' associations, representing local industries and exporters, launched a manifesto in the offices of the São Paulo's Industries Federation (Fiesp) criticising the government's "passivity in face of the over-valuation of the Real". According to the manifesto, the Real's strength in relation to the dollar "threatens to stop the exporting sector's impetus".

Exporters complained that the current rate not only undermines the competitiveness of Brazilian products abroad, but also helps imports, notably from Asia. According to the manifesto, sectors that do not need imported technology or artefacts, such as the clothing and footwear industries, are suffering most from the Real's appreciation. Roberto Gianetti da Fonseca, one of Fiesp's directors, noted that these are exactly the industries which employ most people.

The manifesto follows a recent survey from the Fundação Getúlio Vargas (FGV) which shows businesses are much less optimistic than they were a year ago. According to the FGV's figures, the number of businessmen with a positive outlook fell from 62% in April last year to 47% in April 2005. The FGV has also announced on 6 April that inflation had more than doubled, jumping from 0.4% in February to 0.99% in March, the highest level since August last year. The announcement will step up the pressure on the central bank to revise its high-interest rate policy. The bank's monetary policy committee meets on 13 April.

BRAZIL: According to figures from the official statistics agency, Ibge, retail sales shrunk 0.48% in the first quarter of the year when compared to the same period in 2004.

BRAZIL: According to the development ministry, sales of Brazilian products to Argentina shrunk 5.46% in April in relation to the previous month. During the same period, Argentine exports to Brazil increased 8.4%. In the first four months of the year, Brazil accumulated a trade surplus of US$900m with its neighbour.

BRAZIL: Unibanco, Brazil's third-largest private bank, announced that its profits rose 45.3% in the first quarter of 2005 in relation to the same period last year, reaching R$401m (US$160m). The result is 6.9% higher when compared to 2004's last quarter.

BRAZIL: Brazil's online retail sales rose 31.7% year-on-year in the first quarter to R$1.89bn (US$768m) according to a study by the local E-Consulting consultancy.

CHILE: The Central Bank has increased interest rates by 25 basis points to 3.25%.

ECUADOR: Economy Minister Rafael Correa has announced that increases in social and infrastructure spending will reduce the government's 2005 budget surplus to 1.4% of GDP from the previously forecast 2.2%.

MEXICO: Mexican industrial output fell by 4.7% year-on-year in real terms in March according to the national statistics institute, INEGI.

MEXICO: Mexico earned US$3.479bn in tourism revenue in the first quarter of 2005, a 19.4% year-on-year increase, according to Mexico's Tourism Ministry.

URUGUAY: Uruguayan industrial output fell by 1.35% year-on-year in March according to the national statistics institute, INE.

Development: On 18 June the government delayed the recall of congress until 28 June to give itself time to cobble together a compromise with all the political players over the electoral schedule.

Significance: By delaying the recall of congress for an extraordinary session, the government hopes to avoid a further polarising of positions. It is clear, for example, that in the last days of President Carlos Mesa, Evo Morales, the main leftwing and indigenous leader, whose Movimiento al Socialismo party is the second biggest political party in congress, was pulled towards the radical left which had taken to the streets of La Paz. If there is no congress for protesters to bully, the government should find it easier to cut deals.  

The question is whether a deal is possible. The secessionists in Santa Cruz have got the bit between their teeth; on 18 June the Comité pro Santa Cruz slighted President Rodrí­guez by saying that not only would it hold an election for a prefect/governor on 12 August but it would hold a referendum on autonomy simultaneously.  

A point worth noting is the role the Roman Catholic Church is playing in the crisis. On 18 June President Eduardo Rodrí­guez visited the cardinal archbishop of Santa Cruz, Julio Terrazas, to thank him for the church's mediation so far and ask for the church to continue to help keep the peace until the general elections his government expects to call. The Church is now likely to put heavy pressure on the secessionists in Santa Cruz to drop their referendum: the governor/prefect elections pose less of a problem to the government because the powers of the governor/prefect have yet to be defined and are in the gift of the president.  

The church wanted Rodrí­guez to take over although he was technically third in line for the presidency when Mesa resigned. The US, according to a former US presidential adviser, Otto Reich, would have preferred the first-in-line, Hormando Vaca Dí­ez, the president of the senate, to have succeeded Mesa. Vaca Dí­ez is from secessionist-inclined Santa Cruz and wanted to use force to deal with the leftwing demonstrators: he also advocates tougher action against coca growers, which pleases the US.

A third sign of the importance of the role the church is playing in the crisis is that Allan Wagner, the secretary general of the Comunidad Andina met Cardinal Terrazas immediately after Rodrí­guez had on 18 June. Wagner is on his way to Asunción for the Mercosur congress. On 17 June Wagner had met Rodrí­guez and various congressional leaders.

Rodrí­guez's priority, he said after his round of meetings in Santa Cruz on 18 June, is to organise fresh congressional and presidential elections, probably in December. One idea, from Vaca Dí­ez, which Rodrí­guez has yet to knock down, is that the next congress should also act as the constituent assembly and thus change the constitution. Rodrí­guez's line is that the congressional and presidential elections should take priority over all the other various votes and elections that have been proposed.  

This order of priorities is not what the secessionist Cruceños wanted to hear: their response, to announce that they would now also hold a referendum on autonomy, raises the stakes. The largely indigenous leftwingers in the western highlands prioritise the summoning of a constituent assembly to sort out the constitutional shape of the country. The left also wants the government to renationalise the oil and gas industry.  

The ownership of the oil and more importantly, gas, industry is the key to the country's economic and political future. The secessionists want the gas in Tarija, which abuts Santa Cruz, to be developed by international energy companies on their terms. The left wants the gas developed on its terms, which include not transporting to Chile and using gas a feedstock for a new petrochemicals industry.

BRAZIL: Supermarket sales rose 0.69% year-on-year in June according to the Brazilian supermarkets confederation Abras.

COLOMBIA: Industrial production rose 2.12% year-on-year in May according to the state-run statistics agency DANE.

MEXICO: Unemployment rose to 3.63% in June from 3.27% in May, according to the national statistics institute INEGI.

PERU: Exports rose 41.3% year-on-year in June according to government agency Prompex.

Development: On 23 August the former president of congress, Antero Flores-Aráoz, revealed that he will not run on the Partido Popular Cristiano (PPC) ticket in the presidential elections in April 2006.

Significance: Flores-Aráoz would have faced Lourdes Flores, the president of the PPC, in party primary elections but decided to pull out rather than risk splitting the party. Flores is currently lying third in opinion polls for next year's elections although she has not confirmed that she will run for the presidency. Flores-Aráoz said that he would help forge a centre coalition of PPC, Unidad Nacional and other groups. 

The only certain contender in the elections is Alan Garcí­a of the opposition Partido Aprista Peruano (PAP). The mayor of Lima, Luis Castañeda, is being urged to run after he came out on top in a recent opinion poll and former interim president Valentí­n Paniagua is expected to run. Former president Alberto Fujimori denied on 9 August reports that his brother Santiago will run for his party Sí­ Cumple in his stead. Fujimori's own challenge is complicated by a number of legal hurdles.

Development: President Eduardo Rodrí­guez will meet with Congress on 27 September to debate the redistribution of congressional seats.

Significance: Regional political divisions have placed the 4 December elections in jeopardy. On 22 September Bolivia's constitutional court ruled that Article 88 of the electoral law was unconstitutional, and ordered the redistribution of congressional seats. The ruling favoured Santa Cruz and Cochabamba, which collectively gained six extra seats, while La Paz, Oruro, and Potosí­ lost representation due to the court's verdict. Congress will attempt to resolve the issue on 27 September, but faces a difficult task since both sides of the crisis have refused to compromise.

The departments of La Paz, Oruro, and Potosí­ have maintained that they will block the redistribution of congressional seats. To resolve the issue, these eastern provinces have proposed the suspension of the December elections, and the creation of a constitutional assembly to assess regional representation. Presidential Minister Iván Avilés criticised this plan on 26 September, saying it would "create doubt and weaken the democratic process."

Resistance to the court's ruling remains strong in Bolivia's altiplano region. Gonzalo Avendaño, head of La Paz's parliamentary group, said he would not "allow La Paz to lose any of its representation." Similarly, radical union leader Jaime Solares has called upon Bolivia's social groups to block the "cruceño oligarch's" attempt to redistribute congressional power.

In response, Santa Cruz has upheld the constitutional court's decision, calling on congress to carry out the redistribution. Article 60 of Bolivia's constitution assigns congressional representation according to the population of each province. Santa Cruz's population grew substantially in the 2001 census; the department should gain four extra seats due to this increase. Similar to their altiplano counterparts, cruceño politicians have refused to compromise. Williams Paniagua, president of Santa Cruz's parliamentary group, said he "was unwilling to concede and wanted the law to be carried out."

Other provinces have tried to mediate between the rival regions. The country's other five departments have proposed the redistribution of congressional seats, but for the changes to take affect after the 4 December elections. Both sides have rejected this proposal. Instead, they have focused on the congressional debate on 27 September to resolve the political crisis.

ARGENTINA: Argentina received US$370.8m in revenue from foreign tourists in the second quarter of 2005, according to the national statistics institute Indec.

BRAZIL: The current account surplus stood at US$2.38bn in September according to the central bank.

BRAZIL: Foot and mouth export losses are estimated to reach US$1.7bn US dollars given the ban on Brazilian beef and pork in at least 50 countries, revealed Brazilian Minister of Agriculture Roberto Rodriguez before Congress.

MEXICO: The number of people employed in Mexico's manufacturing sector decreased by 0.8% year-on-year in August, Mexico's national statistics institute Inegi.

MEXICO: The central bank cut interest rates for the third successive month on 28 October to 9.0%

Development: On 2 December Gilberto Vaca, the president of the supreme electoral court (TSE), quit over President Alfredo Palacio's request for the institution to back his call for a constituent assembly.

Significance: The move pushes Ecuador back to the brink. Prior to Vaca's resignation congress threatened to impeach Palacio over his plan to bypass the legislature by asking the TSE to hold a referendum on a constituent assembly on 22 January. Such an assembly would have wide-ranging powers to refound the country's political institutions; congress favours a constitutional assembly that could only rewrite the constitution.

Vaca's resignation appears to have been a ploy by Ecuador's largest established political party to thwart Palacio. According to "El Comercio" Vaca's move followed the revelation that four of the TSE's seven members back the referendum idea. The TSE president is affiliated to the Partido Social Cristiano (PSC), the largest party in the country. Congress is due to meet today to discuss the implications of Vaca's resignation.

Although congress is the least popular institution in the country, the president's own popularity is plummeting. An opinion poll released on 2 December showed support for Palacio down to 24%; around 79% felt he had not fulfilled the promises he made on taking office in April. This matters for the president because his mandate only has legitimacy through popular support; although congress is unpopular it was at least elected.

Even if Palacio gets his wish there are bound to be further political impasses over the extent of the assembly's power. On 4 December the president of the newly chosen supreme court, Jaime Velasco Dávila, said the tribunal would not be subject to the authority of any assembly, "constituent" or "constitutional".

Development: On 15 January Michelle Bachelet, the Socialist candidate from the ruling Concertación coalition, won Chile's presidential elections. The new president will take office on 11 March.

Significance: The election of Bachelet, an agnostic, twice-separated mother of three, signals the start of a new era for socially-conservative Chile, but does not represent a significant swing to the left economically. The greatest task facing the president-elect is Chile's unequal income distribution, the second worst in the region, but Bachelet has promised to continue with the policies that have made Chile the most economically and politically stable country in the region.

With 99.71% of the vote counted, Bachelet, from the Partido Socialista, had won 53.49%; Sebastián Piñera, from Renovación Nacional, won 46.5%. The 6.99 point difference between the two candidates was almost two points more than the last opinion poll before the election predicted and easily beats President Lagos's victory, of 51.31%, in 1999. Bachelet won in all but one of the country's twelve regions, showing that the president-elect was able to attract the far-left vote without losing her more centrist supporters. Piñera, however, failed to attract all the supporters of his rightwing rival in the first round, Jaoquí­n Laví­n, from the Unión Democráta Independiente (UDI). Together the two won 49% of the vote in the first round presidential (and congressional) elections on 11 December 2005.

In her acceptance speech, Bachelet marvelled at the fact Chile had been prepared to elect a president, whom she often joked on the campaign trail, represented the country's worst sins in being an agnostic, a Socialist, separated and a woman. Given that Chile only legalised divorce last year and that until recently the children of single mothers were not accepted in many of the country's schools, Bachelet's joke has a strong element of truth to it. The president-elect promised to govern on behalf of all Chileans, and thanked Piñera, and two candidates eliminated in the first round, Laví­n and Tomás Hirsch.

"It is my promise to walk together with you a while along a stretch of this great avenue," Bachelet said, echoing the final words of Salvador Allende, the democratically elected Marxist president, who promised that the avenues of Santiago would soon be open again for free men to build a better society, before shooting himself as troops under the command of Augusto Pinochet stormed the presidential palace in September 1973. The past was present also in Bachelet's tribute to her father, Alberto Bachelet, who served as a minister under Allende and subsequently died of a heart attack in a torture camp after the coup. The president-elect herself was tortured under Pinochet and spent several years in exile in Australia and the former East Germany, before returning to Chile where she trained as a paediatrician.

Piñera, a billionaire businessman, was gracious in defeat, wishing Bachelet the best in her triumph, but promising "firm and constructive opposition" to her government. The losing candidate's allies, however, from the UDI party within the Alianza por Chile coalition, growled that Bachelet's victory was only due to the support of the "undemocratic left" and the "abuses of power" of President Ricardo Lagos and his government. "The disinformation campaign was successful, and this is harmful to democracy," Hernán Larraí­n, a UDI senator, said. Over the past few weeks, Lagos, who has an approval rating of over 65%, had been accused of interfering in the campaign on Bachelet's behalf.

The new congress should give Bachelet's government the backing it needs. Bachelet's coalition, the Concertación, won 65 seats in the 120-seat chamber of deputies and 20 seats in the 38-seat senate. A simple majority is enough to pass ordinary laws, but not sufficient to change the current electoral system (a relic of the Pinochet era) or to change the constitution.

The economy is in good shape. Growth has been over 6% in the past two years, thanks mostly to the doubling of the copper prices: copper accounts for 40% of Chile's export revenues. The numerous free trade agreements signed under Lagos have helped other exports to crack new markets. The result has been, at the end of 2005, an unemployment rate of under 8% and a fiscal surplus of US$4bn.

Despite this, income inequality in Chile is still pronounced, with the top 5% earning 14 times the amount of the poorest 5%. (That, though is a far cry from Argentina where to top 10% earn 40 times what the poorest 10% earn). Bachelet will not seek the kind of radical solutions introduced in Venezuela or Argentina, but will continue down Lagos's path. In her first 100 days she has set herself 36 tasks to boost employment, social security, health and the democracy.

Regionally, her immediate challenges will be how to work with the new Bolivian government, which threatens to condition its sale of much-needed gas supplies on Bolivia recovering a Pacific shoreline, and how to respond to Peru's recent aggressive stance on the two countries' maritime boundaries.

Bachelet will become the fourth democratically elected female president in Latin America, after Violeta Barrios de Chamorro in Nicaragua; Mireya Moscoso in Panama and Janet Jagan in Guyana. All of these women, however, became presidents after their husbands had held the job.

Development: On 19 February the national daily, La Nación, claimed that presidential candidate Ottón Solí­s, from the Partido Acción Ciudadana, was ahead of his rival, Oscar Arias, from the Partido Liberación Nacional in the manual recount of the votes cast in the election on 5 February.

Significance: This is a major upset, and the first time anyone has claimed that Solí­s, rather than Arias is ahead. La Nación published an article, based on their calculations extrapolated from official results, which argued that Solí­s was ahead of Arias by 25,372 votes; or 41.8% to 39.9%. Over 77% of the ballots have now been manually recounted.

Going into the elections, Arias was miles ahead of Solis; but the day of the elections produced a surprisingly close result, with some figures suggesting Arias was beating Solí­s by just 0.23% of the votes (or 3,250 votes). Once the manual recount was underway, the PLN started slyly suggesting that its candidate was ahead, without actually claiming victory. The latest results will make it harder for the PLN to continue to do so, and will increase the controversy surrounding the election. The supreme electoral tribunal has said it will not announce a result into the entire count is complete and it has investigated the 300 or so claims of electoral irregularities.

Development: The nationalist candidate in April's presidential race, Ollanta Humala, extended his lead at the head of the latest opinion poll by Apoyo released on 26 March. Once again Humala was compelled to disassociate himself from potentially damaging comments from a member of his family.

Significance: Humala climbed one percentage point on the previous Apoyo poll released on 19 March to 33%; his main rival Lourdes Flores, a conservative, fell one point to 27%. Third-placed candidate Alan Garcí­a stayed in touch, but static, on 22%. The most striking feature of the poll, as in the previous poll, is that undecided voters are making their minds up. This figure fell from 32% to 18% and is the main reason for Humala's ascent. Flores is not losing voters; Humala is acquiring more.

The latest episode of the Humala family saga played out in a prison cell in Andahuaylas in the south-eastern department of Apurí­mac, where Antauro Humala, Ollanta's brother, is serving a sentence for orchestrating an attack on a local police station in January 2005. Antauro, who despite being in prison is running for a seat in congress for his ultranationalist party Avanza Paí­s, was interviewed by a local radio station "Radio Panorama" on 25 March. He claimed that Ollanta was intent on nationalising the media as part of a longstanding family project. He said that Ollanta would nationalise Radioprogramas del Perú, CPN and Lima-based television stations.

Ollanta quickly denied that he had any such idea in mind. He said that Peruvians had the right to freedom of expression and that Antauro was "crazy" to suggest he thought otherwise. He said he had a national plan not a family plan. An anti-chavista columnist for Venezuela's El Nacional told Peru's daily Correo on 26 March that, following Humala's campaign, he got the impression that Humala would try and demonise the independent press as Venezuela's President Hugo Chávez had done. Venezuela still has strongly critical opposition press, despite US claims that Chávez has cowed it.

Antauro's comments come a week after Ollanta's father, Isaac, called for an amnesty for the imprisoned leaders of Sendero Luminoso, Abimael Guzmán and the MRTA, Ví­ctor Polay Campos, (who was, incidentally, sentenced to 32 years in jail for terrorism on 21 March) and his mother Elena Tasso, said that if she were in government she would have homosexuals shot because they are "an aberration".

Separately, the Chilean media caught up with Humala while he was holding a series of rallies in the northern department of Cajamarca at the weekend. Humala denied that he was anti-Chilean but made it clear that he does not want Chilean companies involved in "strategic" - a deliberately ill-defined term - businesses. He also accused Chile of breaking the military balance in Latin America. He said he could not understand why Chile felt the need to buy so much matériel, such as 18 F-16 fighters from the Netherlands and, more recently, 100 Leopold 2 tanks from Germany, which will arrive at the end of 2006. He said that the idea that Chile was upgrading "obsolete" equipment no longer held.

Humala also said that he did not envisage difficult relations with the US. He was exceptionally vague, saying simply that he had a plan to work with the US. During a visit earlier this month to Quimbiri, a coca-producing region on the border between Ayacucho and Cusco, Humala sported on his polo top "La hoja de coca no es droga" (Coca leaf is not a drug) and announced his intention to boot out the US Drug Enforcement Administration (DEA) from Peru. The US has kept remarkably silent on Humala's ascent in the polls.

Meanwhile, Flores aims to conclude her campaign over the next two weeks by visiting poor rural areas in a bid to "transform anger and indignation into hope". She will have her work cut out. She is still perceived to be the candidate of the rich and does not have Humala's (or Garcí­a's) common touch. On a more positive note, Apoyo suggested that she would beat Humala 53%-47% in a second-round run-off. The previous Apoyo poll predicted a tie. A less reliable poll, released on 24 March by Idice, predicted a run-off between Humala and Garcí­a.

Development: The US State Department's annual terrorism report, published on 28 April, annoyed Cuba, Ecuador and Venezuela.

Significance: The State Department report, entitled 'Country Reports on Terrorism - 2005', calculated that there were 11,111 acts of terrorism worldwide in 2005, more than three-and-a-half times the number for the previous year. In Latin America, however, attention has focused on the report's criticism for Cuba, Venezuela, and Ecuador.

According to the State Department, Venezuela's President Hugo Chávez possesses an “ideological sympathy" with Colombian terrorist groups the Fuerzas Armadas Revolucionarias de Colombia (Farc) and the Ejército de Liberación Nacional (ELN). The report said that these groups cross into Venezuela “for rest and resupply" and to launch fresh attacks on Colombia. It also accused Venezuela of “supplying training to radical leftists from Ecuador", in particular the Ejército de Liberación Alfarista.

“Venezuela virtually ceased its cooperation in the global war on terror, tolerating terrorists in its territory and seeking closer relations with Cuba and Iran, both state sponsors of terrorism," the report stated. Venezuela's foreign minister, Alí­ Rodrí­guez, said the report was indicative of a “cold and immoral cynicism" on behalf of the US government.

The report went on to say that “Ecuador has allocated insufficient resources for its security forces to consistently and effectively thwart cross-border incursions, and has refused to condemn Colombian terrorist groups, espousing neutrality in the Colombian conflict".

“Ecuadorean officers in border units believe that the Farc and ELN hold sway in up to three-quarters of Ecuador's border hamlets, with these groups' narco-dollars buying silence or compliance," the report claimed, adding: “These narcoterrorist organizations regularly use Ecuadorian territory for rest, recuperation, and re-supply." Ecuador's foreign minister, Francisco Carrión, rejected the accusation that his government does not do enough to protect its borders, and he requested greater assistance from the US in tackling the terrorist threat.

The most strident criticism, however, was reserved for Cuba, which according to the State Department “remained a state sponsor of terrorism" in 2005 - one of only six countries worldwide to receive this dubious honour. “Cuba maintains close relationships with other state sponsors of terrorism such as Iran and North Korea, and has provided safe haven to members of ETA [Spanish terrorist group Euskadi Ta Askatasuna], Farc, and the ELN." The report added that “The Cuban Government continues to permit US fugitives to live legally in Cuba, and is unlikely to satisfy US extradition requests for terrorists harboured in the country," and it also raised doubts over “the existence and extent of Cuba's offensive biological weapons program".

Cuba's President Fidel Castro responded furiously to the accusations, saying the report was cynical and hypocritical. Castro reiterated his demand that the US extradite Luis Posada Carriles, a former CIA agent who blew up a Cuban commercial plane, killing all 73 people on board.

On a more positive note, the State Department report hailed Colombia as a model of success in its counter-terrorism campaign, drawing attention to its campaign against the Farc, its peace talks with the ELN, and its peace process with the Autodefensas Unidas de Colombia under which it reckons, conservatively, that 23,000 paramilitaries have demobilised.

The report also praised Argentina, Brazil and Paraguay, which it said had “significantly increased their coordination, information activities against criminals in the region where the countries converge". However, the report stated that Uruguay “allocates insufficient resources and lacks the political will to play a more significant role in the global war on terrorism", and it further chastised the Uruguayan government for resuming diplomatic relations with Cuba and maintaining diplomatic and commercial relations with Iran.

Development: On 4 June the Organization of American States (OAS) began its 36th general assembly in the Dominican Republic.

Significance: The meeting's supposed focus, "governance and development in the society of knowledge", has so far been overshadowed by tensions between member states, particularly Venezuela and Peru. Mexico's fraught relationship with Venezuela has also been exposed again as the two countries use their oil to vie for influence in Central America and the Caribbean. Relations between Argentina and Uruguay are also at a low ebb following a disagreement over the construction of two paper mills.

The secretary-general of the OAS, José Miguel Insulza, sought to play down the differences between Peru and Venezuela. Last week Peru's President Alejandro Toledo said that it was the responsibility of the OAS to condemn Venezuela's "interference" in the Peruvian elections. President Hugo Chávez publicly backed the nationalist candidate, Ollanta Humala, in Peru's presidential elections and was goaded into a war of words with the eventual winner, Alan Garcí­a. Chávez even threatened to cut diplomatic relations if Garcí­a won; it remains to be seen if he will carry through on this promise.

At the preliminary meeting of the 34 foreign ministers of the OAS's members, Robert Zoellick, the US's undersecretary of State (deputising for Condoleezza Rice), backed Peru's formal complaint, claiming it was not only Peru that was irritated by Venezuela's meddling, but "Nicaragua and others". Insulza, however, said that it was important to distinguish between merely commenting on elections and expressing a preference from actively seeking to affect the outcome by "concrete actions".

Prior to the summit, representatives from Central American countries, the Dominican Republic, Colombia and Mexico met to discuss the construction of a refinery to supply their countries with derivatives from Mexican crude. The move appears to be a challenge to Venezuela's PetroCaribe scheme to provide oil under favourable finance terms to the region. It will be interesting to see how Venezuela responds to the Dominican Republic's decision to join that group, given it is already benefiting from PetroCaribe.

Development: A new survey published on 10 July reveals that under the government of President Lula da Silva the average income of poor Brazilians has improved considerably.

Significance: Not only that, the Lula administration has managed to maintain an economic model that has also increased the income of the richest parcel of the Brazilian population. Lula appears in all opinion polls as the favourite to retain the presidency in October, probably in the first round, despite the lingering corruption allegations against his Partido dos Trabalhadores.

According to the survey conducted by DataFolha, 6m Brazilians moved from the D/E classes (earnings of up to three times the minimum wage) to the C class (earnings between three and five times the minimum wage) since Lula came to power in 2003. The income improvement in these cases were largely due to the government's income-transfer programmes, which currently benefit some 30m families at a cost of R$80bn (US$35.55bn) annually.

Besides that, the current economic model has also benefited the richest 10% of the population, which saw their income swell by as much as 65.8% in the period mainly due to high interest rates and lower inflation. This segment has actually benefited the most from Lula's administration, since the poorer 20% Brazilians saw their income, which is primarily dependant on wages, increase by just 19.2% in the period.

Yet despite the undoubted improvements in the income of many Brazilians, the current socio-economic model adopted by Lula is criticised by rightwing experts. According to them, the government is spending too much money on income-transfer programmes, making the social security soar, while investing little in infrastructure. Investment in sewage, waste collection and clean water systems have stagnated in the period.

Crucially, experts say that the improvements seen in employment rates in the period are actually distorted. Of the new 3.5m new vacancies opened since 2003, 90% pay no more than two times the minimum wage. Experts say that many companies are closing better-paid vacancies to open new ones that pay less. This trend, they say, is contributing for the increasingly polarisation of Brazilian society between rich and poor.

Development: On 10 August the opposition accused the government of trying to control the constituent assembly, set up on 6 August, by exerting pressure on it in the form of street protests.

Significance: President Evo Morales has called on trade unions, campesinos and indigenous groups to open temporary offices in the Assembly building to keep an eye on the 255 members of the constituent assembly. “This is how we pushed through the Hydrocarbons Law (in 2005), with a lot of pressure, with the control of social movements, with vigils and with marches," Morales said. The conservative party, Podemos, called on the government not to stoop to tactics that could lead to violent confrontations. The constituent assembly will begin holding formal talks over the new constitution on 15 August.

Meanwhile, Vice-president Alvaro Garcí­a Linera and the interior minister, Alicia Muñoz, accused Podemos of trying to destabilise the government by supporting police protests for better wages. Police in Bolivia's three main cities, La Paz, Santa Cruz and Cochabamba are calling on the government to award them a salary increase in line with what members of the armed forces receive. Garcí­a Linera said that a salary increase was absolutely out of the question. He said that the police were given an increase of 3.5% in September and another 3% in June this year. Muñoz said, “We know who was in Santa Cruz providing encouragement and support (for the police protests), the constituent (assembly member) Antonio Soruco of Podemos."

Development: On 15 September federal police arrested three men accused of negotiating the sale of a report linking an opposition politician to the sanguessuga corruption scandal.

Significance: The arrest of Antonio Verdoin, Valdebran Padilha and Gedimar Passos is highly embarrassing for both the government and the opposition. Padilha and Passos were arrested in a hotel in São Paulo in possession of R$1.75m (US$770,000) in cash. The money was supposedly going to be used to buy a report from Verdoin which linked the candidate for the governorship of São Paulo for the opposition Partido da Social Democracia Brasileira (PSDB), José Serra, to the sanguessuga corruption scandal.

Verdoin is accused of managing a corruption scheme in the health ministry with the connivance of several congressmen and top level civil servants which the Brazilian press nicknamed sanguessugas (the bloodsuckers). The scheme is currently being investigated by a congressional commission and is said to have cost the public R$1bn (US$444m). Padilha is a member of the ruling Partido dos Trabalhadores (PT), whose own congressmen and allies are deeply implicated in the scandal. Passos is a former policeman.

The report incriminates Serra, a former health minister during the PSDB's administration, as it shows that the ministry's links with Verdoin started during his tenure. The PT had already claimed as much, but so far the party had shown no evidence to back its allegations. President Lula da Silva joined the chorus recently, insisting in a TV interview that the PSDB had started most of the corruption schemes which are now spoiling his government.

Lula's televised intervention raises suspicions that the PT ordered the purchase of the report to incriminate Serra. The PT has officially denied any involvement in the case. The PSDB, however, does not believe it and has petitioned against Lula and his party in the electoral court.

According to the PSDB's petition, the PT has tried to "interfere in the electoral process using illegal means". Serra is favourite to win in São Paulo in the first round against the PT. The congressional committee investigating the sanguessugas issued a statement saying it will also investigate Serra's administration.