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BRAZIL | Expected growth rate approaching zero. In the latest official adjustment of the expected GDP growth rate, planning minister Guido Mantega told a congressional committee last week that it could end up somewhere between zero and 0.5% `or something like that'. Inflation is expected to be slightly higher that the 8.5% target: in the first 11 months it reached 8.74%. It was in order to curb inflation and `calm the markets' that the government increased the benchmark interest rate to 26.5% this year; it has since been lowered to 17%, apparently not enough to make an impact on growth this year. The government sees as highly positive the fact that the exchange rate has settled down close to R$3 per US dollar and the trade balance has accumulated a record surplus of US$22bn to end November.

CHILE | Industrial exports on the rise. Chile's industrial exports in the first 10 months of this year totalled US$7.98bn, or 14.6% more than in the same period of 2002. This took industry's share of total export earnings up to 47%, ahead of mining (42%) and agriculture (10%). The leading industrial exports are lightly processed primary products: at the top of the list are salmon (US$873m, up 18.8%) and cellulose (US$755m, up 9.6%). In terms of markets, the biggest increases were to Asia (22%), the European Union (18.6%), and Nafta (11.6%). The US accounts for 30% of all industrial exports.

PARAGUAY | Chasing the missing taxes. Despite the marked increase in tax collection, Paraguayan firms are still evading about 60% of their tax liabilities, according to President Nicanor Duarte. A random audit of government suppliers has already turned up one case of a firm that has been charged with not paying the 10% value-added tax (IVA) due on Gs/80bn (US$13.3m). Another six suppliers are to be audited next, and inspectors are looking into the use of phantom companies to dilute IVA liabilities. The government is barred from naming the firms involved until formal court proceedings are initiated. `From now on,' said Duarte, `everyone is going to pay equally, and you'll see who complains - the richest and those who have most lived off Paraguay.'

COLOMBIA | Better prices help boost export earnings. Colombia's export earnings in the first 10 months of the year reached US$10.7bn, or 7.8% more than in the same period of last year. Most of the running was done by the `traditional' exports (oil, coal, coffee and ferronickel) which jointly rose by 16.5% to 47% of the total, while `non-traditional' exports increased by only 1.1%.
In most cases it was improved world prices that raised export earnings. For instance, ferronickel achieved a 43.3% increase in earnings on a 13.2% increase in volume; coffee earnings were up 10.5% on a volume increase of 4.8%; and oil earnings rose by 4.1% despite a 13.3% fall in volume. In one significant case, coal, it was a 74.7% volume increase that offset poor prices to achieve a 55.3% increase in earnings.

PERU | Mining contract rescinded. In a decision bound to make waves in `the markets', the Peruvian government last week rescinded the contract with the Canadian firm Manhattan to develop the oil and copper deposits of Tambogrande, in the northern department of Piura. The reason invoked was that the firm had not met a contractual requirement, namely, to demonstrate technical capacity to process 10,000 tonnes per day of ore. 
The decision comes after a local protest-movement brought the area to a standstill in November, to press home the argument that the mining operation could jeopardise the area's agricultural production. Tambogrande produces 40% of Peru's lemons and 25% of its mangoes.

VENEZUELA | Return to growth expected in 2004. Finance minister Tobí­as Nóbrega last week said that economic growth next year will be `no less than 6%'. He had actually written into the draft budget for 2004, approved on Tuesday by the national assembly, a growth assumption of 6.54%. The budget also assumes that inflation will be kept down to 25% (it has accumulated 26.1% in January-November), that oil revenues will finance about a third of the budget, and that debt restructuring will reduce the budget appropriation for debt-servicing from 27% to 17-18%.
Unclear as yet is the impact of the `formalisation' of the black market in foreign exchange, which Nóbrega says he is studying with central-bank experts.

 

NAFTA | Bracing for impact of Bioterrorism Act. Only about 60% of Mexico's 7,500 exporters of foodstuffs have registered with the US Food and Drug Administration (FDA) as stipulated by the Bioterrorism Act, which came into effect on 12 December - according to Armando Paredes, president of the Consejo Nacional Agropecuario (CNA). 
The economy ministry, whose tally is even lower, has confirmed that among those that have failed to comply are firms accounting for 80% to 90% of the exports falling within the purview of the US law (names like Bimbo, Corona and Jumex). The US takes about 83% of Mexico's US$8bn of agri-food exports.
This situation does not, however, spell an immediate export cutoff: there is a four-month grace period for exporters to comply. Apart from registration, Mexican exporters are worried about their ability to comply with the promise to forewarn US authorities of the arrival of goods at points of entry. A broader fear is that the inspection component of the Bioterrorism Act will perform as a de-facto non-tariff trade barrier, despite US protestations that this is not its intent.

INDUSTRIAL GROWTH | Knock-on from US still faint. Industrial production in Mexico in October was up a mere 1.18% on the same month last year, which left the 10-month total 0.8% lower than a year earlier. The October figures were boosted mainly by mining (up 6.9%) and construction (up 4.6%) - the latter an encouraging sign regarding the rebound of the domestic market. Manufacturing, though, was down 2.4%, with the maquiladora (assemby) sector, the one most closely liked with the US market, down 3.9%.

ENERGY REFORM | Pemex option clears senate. A key piece in an `state sector' variant of energy reform cleared the senate last week on a unanimous vote. It provides for co-generation between the state oil company, Pemex, and the main state-owned power utility, CFE, using the heat and energy created by Pemex's six refineries. The promoters of this scheme say that it could add 4,000MW to Mexico's capacity over the coming eight years.
In a parallel move, CFE director Elí­as Yub submitted to congress draft legislation to amend the constitution in order to allow private participation in the generation and distribution of electricity. The leader of the opposition PRI's so-called `popular' faction in the senate, Manuel Bartlett, has served notice that his group will oppose this reform.

NICARAGUA | Path clear for debt writeoff. Following the collapse of the agreement between the Sandinistas and the pro-Alemán Liberals, the latter joined forces with the pro-Bolaños Liberals on 9 December to approve the budget required by the IMF as a condition for Nicaragua's entitlement to debt reduction under the highly indebted poor countries (HIPC) scheme. This should translate into the writeoff of about 80% of Nicaragua's US$6.5bn external debt.

CAFTA | Ructions over US free-zone demand. Guatemala is up in arms against the US demand that it phase out its free zones within Cafta, together with El Salvador and Costa Rica. The same is not required of Honduras and Nicaragua on account of their lower per-capita income. Guatemala is invoking rights under WTO rules to maintain its free zones and associated subsidies beyond 2009, arguing that its per-capita income has fallen since last year. El Salvador and Costa Rica feel that this would leave them at a great disadvantage.

COSTA RICA | Sharp turnaround in agriculture. Costa Rica's agricultural sector is expected to grow by 6% this year, after having contracted by 2.1% in 2002. Much of the improvement is due to better prices for the `traditional' export products, like bananas (of which Costa Rica is the world's second-biggest producer) and coffee. In the first half of the year, agricultural export earnings brought in US$1.1bn, or 10.2% more than in the same period of 2002.
A notable feature of the turnaround has been the great increases in exports of `non-traditional' products like palm oil (+79%), concentrated fruit juices (+39%), pineapple (+24%), melon (20%) and ornamental plants (22%). Costa Rica is the world's biggest exporter of pineapple.

DOMINICAN REPUBLIC | Military continue dollar drive. The military-led drive to lower the dollar rate continued last week with the closure of a number of exchange houses on the grounds that they lacked proper permits, a move applauded by the larger exchange house and banks glad to see some competition disappear. 
Between 5 and 12 December the dollar rate has fallen slightly, from RD$39-40 to RD$36-37, still far from the RD$30 target set by President Hipólito Mejí­a.

 

President Lucio Gutiérrez has carried out his promised `oxygenation' of his cabinet in a manner that suggests two main objectives: building bridges with political parties, so as to enjoy a working majority in congress, and concentrating on the `social' portfolios, to head off the wave of protests announced for the New Year.

On 17 December Gutiérrez appointed seven new ministers and three secretaries of state; the former mainly in the social area, the latter in his immediate staff (see table below). Some local commentators say that the distinguishing feature of the reshuffle is that Gutiérrez has tried to lower the profile of his own party, Sociedad Patriótica (PSP), bringing in people who, while not formally members of any party, have strong connections in the political-party circuit — particularly in the conservative Partido Social Cristiano (PSC) and the Partido Roldosista Ecuatoriano (PRE), which is usually described as populist.

The PSP, however, is hardly absent. Patricio Acosta, who worked close to Gutiérrez as the administration secretary in the presidency, has been put in charge of social welfare. Former social welfare minister Carlos Pólit has been brought into the inner circle as secretary of the presidency, a position akin to that of White House chief of staff.

Pólit will share the role of presidential spokesman with two others in the Carondelet palace: communications secretary Yolanda Torres (a former city councillor in Quito for Democracia Popular and close to former President Jamil Mahuad, the man Gutiérrez helped oust in 2001), and new administration secretary Xavier Ledesma — thrice a legislator, interior minister under President Sixto Durán Ballén (PUR, 1992-96).

Beyond the headlines, Gutiérrez has also formed a new ring of close advisers: Pablo Celi (a former Communist who served under presidents Abdalá Bucaram and Gustavo Noboa), Xavier Benedetti (a media man Gutiérrez is said to respect for his warts-and-all advice), and Jorge Dávila, an external adviser since January who now, as private secretary to Gutiérrez, will be his chief speechwriter.

The coming protest wave
The big question is whether this will really head off the impending social protests, which explicitly aim at forcing Gutiérrez to change course or step down, and are particularly incensed by last week's decision by the national remunerations council to bar all pay increases until 2005. The line-up:

• Napoleón Saltos, spokesman for the Coordinadora de Movimientos Sociales (CMS, a constellation of civic associations) has announced `mobilisations' beginning in early January and becoming progressively more radical until Gutiérrez resigns. He says this is supported by the unions of the Frente Unitario de Trabajadores (FUT), and two indigenous organisations, the Federación Nacional de Organizaciones Campesinas, Indí­genas y Negras (Fenocin) and the Federación Ecuatoriana de Indí­genas Evangélicos (Feine).
• Luis Villací­s, president of the Frente Patriótico, an array of unions and civic organisations, has announced for 21 January the initiation of a strike `which could culminate in the fall of Gutiérrez.'
  
• Blanca Chancoso, leader of the Confederación de Nacionalidades Indí­genas (Conaie, the umbrella indigenous organisation), has announced `mobilisations' starting on 22 January, to press the President to `show the will to effect social and political change' or otherwise resign.

Gutiérrez's new appointments

Interior: Raúl Baca Social welfare: Patricio Acosta Housing: Jorge Repetto Education: Roberto Passailaigue Health: Teófilo Lama Labour: Raúl Izurieta Tourism: Gladys Eljuri Presidency (sec): Carlos Pólit Communications (sec): Yolanda Torres Administration (sec): Xavier Ledesma Governor of Guayas: Felipe Mantilla

The government of President Alvaro Uribe is entering the Christmas season with something to boast about. It has achieved two great successes in its war with the Farc guerrillas: the discovery of a major encampment in the northwest and the capture of a unit which recently conducted a dramatic offensive against oil installations in the south.

The fortified camp, with facilities for 250 fighters, was found in the mountains of the northwestern department of Caldas. It was occupied after heavy fighting on 17 December, as part of Operación Destrucción, a drive to destroy Farc bases throughout that region.

On 19 December the police announced the arrest of 30 members of the Farc's urban network who in November staged a devastating attack against oil installations in the southern department of Putumayo, destroying 25 wells, wrecking two pipelines, and blowing up a bridge and buildings of the state oil company, Ecopetrol.

The military and the police have recently been conducting mass dragnet operations that have resulted in the arrest of scores of suspected guerrillas. A hint as to how this particular group was tracked down was provided by the pointed display of 20 satellite phones seized by the police.

The paramilitary front
Though negotiations with the top paramilitary leaders on the `demobilisation' of more fighters appear to have slowed down to a crawl, on 21 December there was news of some `imminent' progress. The Libertadores del Sur bloc, led by `Fabián Castro', issued a communiqué announcing that its 650 members would start `demobilising' in the new year, perhaps as early as 10 January. This group operates in the Andean area of the southern department of Nariño, which borders on Ecuador. Castro said that the concentration and rehabilitation sites have yet to be agreed with the authorities.

So far, 855 fighters of the Bloque Cacique Nutibara, from Antioquia, and 150 of a smaller group from Cauca have surrendered (the former, after a brief concentration, have already been sent home). If the Libertadores del Sur are added, those involved in the `demobilisation' process so far account for just under 13% of the declared total strength of the paramilitaries — 13,000. This figure, it is worth noting, has been challenged by some experts as an exaggeration, perhaps with a view to adding beneficiaries to the government's `reinsertion' programme.

President Alejandro Toledo's new cabinet did not remain intact for long. On 19 December, four days after having been sworn in, Nidia Puelles resigned her post as minister for women's affairs & social development. She did so after a pro-government congresswoman, Enith Chuquival, told the press that Puelles had taken bribes while holding other government posts, chiefly as head of the INBF, the national institute of family welfare.

Puelles denied the charges and said that she was stepping down to avoid being used as a means of attacking President Toledo. She returns to her position as elected member of the Lima city council. In a Peru that has been sensitised to any allegation of corruption by the barrage of revelations about the Fujimori era, it is unlikely that the accusations against Puelles will be allowed to lie.

Toledo promptly appointed as her replacement a casualty of a previous cabinet reshuffle: Ana Marí­a Romero, who had served in the same ministry until last July. Romero, a sociologist and former consultant to the World Bank, is a specialist in social welfare.

Ten years on, it is clear that membership of Nafta brought a number of benefits to Mexico, but it is equally clear that free trade alone did not suffice to help Mexico overcome old problems and start catching up with the US. These are the main conclusions of a report prepared by the World Bank to help acquaint countries of the region with possible effects of the Free Trade Area of the Americas (FTAA), currently being negotiated.

The 346-page report, Lessons from Nafta for Latin America and the Caribbean Countries: A Summary of Research Findings, was co-authored by World Bank economists Daniel Lederman, William F Maloney and Luis Servén. At its launch last week, David de Ferranti, the bank's vice-president for Latin America and the Caribbean, said, `Nafta has had positive effects in Mexico but they could have been better. Free trade definitely brings new economic opportunities, but the lessons from Nafta for other countries negotiating with the US are that free trade alone is not enough without significant policy and institutional reforms.'

The authors acknowledge the difficulty of separating the impact of Nafta from the Tequila Crisis experienced by Mexico in 1994-95 and from the dramatic liberalisations of trade barriers that began in the 1980s, but believe that through the use of various statistical methods they were able to identify the specific effects of the agreement.

The report estimates that without Nafta, global exports would have been roughly 25% lower; foreign direct investment (FDI), which was exceptionally high in 1994-95, around 40% less, and Mexico's per-capita income, US$5,920 in 2002, would have been 4-5% lower.

However, hopes that Mexico would make bigger strides in catching up to the US were diminished by underinvestment in education, innovation and infrastructure, as well as low institutional quality — a term covering accountability, regulatory effectiveness, control of corruption and related issues.

Unequal effects
Moreover, the report says that the benefits of Nafta, and of trade more generally, have been unequal across regions and sectors. `Nafta definitely further plugged Mexico into the most dynamic economy in the world, but the country's development across the 1990s, including the Nafta period, was unequal,' says Guillermo Perry, the bank's chief economist for Latin America and the Caribbean. `The most developed and competitive regions and sectors have clearly benefited from the trade liberalisation, while those lagging behind have not. Extending the benefits of greater integration to all of society remains the challenge.' Some of the unequal effects included in the report are: 

• The rise in the wages of those with higher levels of education, relative to those with less, that began with unilateral liberalisation of the 1980s, largely remained after Nafta.
  
• Northern and central states grew faster across the 1990s, modestly reducing income gaps with Mexico city, while poorer southern states grew slower due to low levels of education, infrastructure and quality of local institutions.
  
• Large Mexican firms increased their access to northern capital markets as domestic credit dried up after the Tequila Crisis, while credit remained constrained for small and medium enterprises.
  
• In the countryside, the productivity of the irrigated lands increased, but non-export, non-irrigated agriculture didn't benefit.
  

Employment
The report concludes that there is little evidence of adverse impacts of Nafta on workers. The labour market recovered relatively quickly after the tragic adjustments of the 1994-95 Tequila Crisis, and unemployment and real wages returned to 1994 levels. Wages and employment tend to be higher in states with higher FDI and trade, and emigration from those states is lower. Wages are also higher in sectors with more exposure to imports or exports.

`Overall, there is little evidence that increased trade liberalisation has led to greater risk faced by workers, or an increase in the size of the informal sector,' says co-author William F Maloney. `More generally, free trade has increased the demand for a more skilled Mexican workforce, a challenge the educational system must be prepared to meet.'

Productivity
Due to Nafta, productivity growth rose sharply, as the amount of time for adoption of foreign technologies was cut in half relative to the pre-Nafta period. In addition, the national innovation effort also rose modestly after Nafta, possibly due to the strengthening of intellectual property rights.

Agriculture
The biggest surprise to researchers was the farm sector's resilience in the face of changes that included Nafta, the elimination of some price supports in the 1980s, the severe impacts of the 1995 crisis, and long-term declines in the agricultural relative prices. Although not necessarily Nafta-driven, domestic production and trade in agricultural goods rose across the late 1990s, the productivity of the irrigated lands increased, and subsidies and income supports for traditional agriculture became more efficient.

The report says that Mexican farmers, including those at the subsistence level, were not adversely impacted by Nafta as had been widely feared, although better policies for the non-export, non-irrigated agriculture, particularly in the southern states, are needed.

`Nafta has been quite positive for export agriculture, but it has probably had little impact on small farmers in the southern states who have suffered a long history of social, political and economic neglect,' says co-author Daniel Lederman. `There should be improvements in rural education, infrastructure, institutions and in rural development policies in general.' 

Innovation
Overall, the study concludes that Mexico's deficiencies in education and research and development (R&D) limit the power of Nafta to enable the country to reach the level of technological progress of the US or even of countries such as Korea.

The lesson applies to the rest of the region as well. `The international evidence suggests that the region's R&D investment effort should be more than doubled,' says co-author Luis Servén. 

Finally, the report argues that Nafta would be more effective with certain modifications — allowed by the agreement itself — in the areas of rules of origin to allow certain Mexican industries, like textiles and apparel, to enter the US more easily, as well as certain changes to unfair trade practices related to antidumping and countervailing duties.

Support for the Zapatista rebels among the indigenous communities of Chiapas is fading, according to the federal government's `dialogue and negotiation' coordinator, Luis H Alvarez. He has also hinted that the agreements of San Andrés Larraí­nzar, which he helped negotiate, are not to be taken as an unchangeable blueprint for constitutional provisions on indigenous rights (which is what the Zapatistas, and many others, have been insisting upon).

Alvarez recently conducted a four-day tour of indigenous communities in four different areas of Chiapas (Selva, Norte, Cañadas and Altos de Chiapas), where he held conversations `with the authorities of the zone that don't wear masks, and if they were once rebels — or continue to be rebels — don't say so or turn up hooded.' His main conclusion: `It would appear that the number of those who are still faithful to zapatismo has diminished appreciably.'

He lamented, though, the fact that he had not been able to speak to any Zapatista leader. `The communities dialogue,' he says; `the comandantes do not.' Nonetheless, he has emerged convinced that the EZLN, the Zapatista's armed wing, `is a group that no longer resorts to weapons — if they have them, I'm unable to say in what quantities.'

On the whole, says Alvarez, the government's social programmes are beginning to show results and the pacification of Chiapas `is taking place, even though there are small groups that refuse to acknowledge that reality.'

Reviewing San Andrés
He has also apparently emerged from his trip with doubts about the San Andrés Larraí­nzar agreements signed in 1996 between the Zapatistas and the Zedillo government, which the former say were betrayed by the indigenous rights legislation passed by congress in April 2001. More than 300 legal challenges to that legislation were filed before the supreme court, which rejected them in September 2002.

As well as the Zapatistas and much of the political left, politicians from across the spectrum and figures such as Rodolfo Stavenhagen (UN rapporteur on indigenous rights) have called for the 2001 legislation to be amended, along the original lines of the San Andrés agreements — though most of them appear to be referring, not to the agreements themselves but to their first translation into draft legislation by members of the congressional peace commission, Cocopa.

`I believe,' says Alvarez, `that the [San Andrés] agreements, drafted by human beings, and not necessarily gospel: they can be perfected, modified.' He has not spelt out what amendments he favours.

The political convergence that defeated the tax reform bill supported by the ruling Partido Acción Nacional (PAN) and rebel prií­stas lasted an even shorter time than we envisaged last week (WR-03-49). Even before congress had reconvened for an extraordinary period of sessions, an important component of that convergence, the leftist Partido de la Revolución Democrática (PRD), had come up with its own new `reform' proposals, while the leadership of the Partido Revolucionario Institucional (PRI) began to prepare for serious negotiation with the government.

The first move was actually made by the ruling PAN, which on 17 December unveiled new draft legislation of its own, designed to sidestep the PRI's objection to taxing foodstuffs and medicines. The proposals appeared to be vaguely modelled on those devised by the rebel prií­stas led by Elba Esther Gordillo, but included further concessions. As a PAN spokesman put it, `[the new draft] overcomes the good-faith objections that have been made, and therefore entails a rapprochement with the positions of other congressional groups.'

PRI president Roberto Madrazo signalled that his party had `decided to act responsibly to avoid greater uncertainty and volatility on the markets' — code for willingness to negotiate a compromise with the government. He made it clear, though, that this would not happen immediately on the broader tax reform, but may have to wait until early February (see Tracking Trends).

One of the reasons for this is that he first has to ensure party discipline, particularly in congress. The new PRI bloc leader in the lower chamber, Emilio Chuayffet, has been purging the finance committee of congressmen whose loyalty is in doubt. His ability to whip the core PRI bloc into line will be tested between now and year-end, when congress must approve next year's budget.

The PRD's proposal leaves alone the controversial value-added tax (IVA) — save for the reallocation of receipts to strengthen decentralisation. It concentrates instead on `fiscal transformations that will enable the broadening of the contributor base, eradication of special privileged régimes, and improvement of efficiency in collection.'

This is not as grand as some of the other proposals, but it is based on the fact that Mexico's low tax burden of about 11% of GDP leaves plenty of scope for improvement with most taxes as they are.

TAX REFORM | No movement until February. As we had anticipated just under three months ago (WR-03-38), the real discussion of Mexico's tax reforms will not begin until early February. This was acknowledged last week by Roberto Madrazo, leader of the opposition PRI, when he served notice that there was just no time to fit it in the agenda for the extraordinary period of sessions, which must come up with a budget by the end of the year. Real progress on tax reform, he said, will be in the hands of the Convención Nacional Hacendaria, the broad fiscal convention that includes the state governments, and which has been convoked for February. From the convention, he said, will emerge `a long-term financial system that will assure the state of the resources it needs in order to advance.' This is a reply to President Vicente Fox's reiteration last week that a fiscal reform is `an indispensable condition' for development.

UNEMPLOYMENT | Rate rises again. The open unemployment rate in November rose to 3.8%, reversing the trend of the past few months, when it declined from the six-year peak of 3.96% in August to 3.63% in October. Under the Mexican measurement system, that rate is taken to mean that 1.54m people were unable to find even one hour's work in the week prior to the survey. The survey does not cover cities and towns of fewer than 100,000 inhabitants, or rural areas.

The reversal was particularly disappointing after October figures showed employment up by 1.3% since September in the maquila (assembly) industry, which accounts for about half of the country's gross export earnings. Employment in that sector was 1.8% lower in October than a year earlier. The biggest declines were in textiles (-14.9%), furniture and wood products (-7.6%), footwear and leather (-6.9%) and services (-6.3%).

BOLIVIA | Gas export opportunity missed. The Bolivian government admitted last week that it has missed the opportunity to export liquefied natural gas (LNG) to the US, now that its prospective buyer, Sempra Energy, has opted for a deal with British Petroleum to buy LNG from the latter's Indonesian affiliate, BPMiGas. 

José Marí­a Moreno, head of the Bolivian arm of Repsol YPF (one of the prospective vendors), says that Bolivia runs the risk of completely losing the opportunity to export gas to the US and Mexico. Slightly less pessimistic, Bolivian development minister Javier Nogales said last week, `We shall have to get in the queue and wait for many years. Probably we won't be able to export until 2007.' 

Actually, it is still uncertain if the Bolivian electorate will want to export at all — a decision it will have to make in a referendum promised by the government of President Carlos Mesa.

BOLIVIA | Growth outlook better in 2004. This year, despite the social and political convulsions that peaked in October, Bolivia's economy will record 2.6% growth, according to central bank president Antonio Morales. With inflation at just over 3%, unemployment — up for the fifth year running — is expected to reach 10%, and the fiscal deficit is seen as closing at 8% of GDP. For next year the bank's outlook is 3.6% growth and a reduction of the fiscal deficit to somewhere between 6% and 6.8%.

COLOMBIA | Growth expectations up. Colombia's economy will show an expansion of 3.5% this year, reports finance minister Alberto Carrasquilla. This is 1.5 points higher that the government's original forecast (it is the first time since 1995 that this has happened). Accumulated growth in January-September was 3.38%, the highest rate for that period in seven years. The government expects growth next year to slow down slightly, to about 3.3%.

On 20 December congress approved a pared-down package of tax adjustments, expected to raise next year about Col$2bn (US$700m) — 30% less that what the government had expected from its ill-fated reform referendum [WR-03-42

The threat of violence once again hangs over elections in Guatemala, as former members of the peasant militia units known as PACs gear up to protest against a ruling barring compensation payments promised them by outgoing President Alfonso Portillo — which both contenders in the 28 December presidential run-off, Oscar Berger and Alvaro Colom, have said they will honour.

Back in April, Portillo had ordered payment to the 520,000 former PAC members of US$640 apiece in compensation for their services in the latter phase of the counterinsurgency campaign (1981-83). In order to fund this, the government had in late 2002 floated an issue of treasury bonds. A first instalment of US$215 was completed just after the first round of the presidential elections; two further ones, of US$215 and US$210, were left to the new government due to take office on 14 January.

The Movimiento Nacional de Derechos Humanos (MNDH), an umbrella body representing 10 local human rights NGOs, filed a suit before the constitutional court seeking to have the compensation payments ruled unconstitutional. One of their arguments was that the PACs were responsible for a large number of human rights violations (18% of all those recorded, according to Guatemala's `truth commission').

On 18 December the court issued a temporary ruling suspending any further payments, on the grounds that the executive had usurped budgetary powers that belong to congress, and had failed to demonstrate that the PACs had actually been employed by the state (formally, they were voluntary organisations, though in most cases villagers were forced to join) and thus entitled to compensation.

Two election-linked reactions
A final ruling will only be handed down after hearing arguments from the MNDH and the presidency, a process which may take weeks. Meanwhile, though, two reactions with electoral repercussions have taken place. The first was a warning from the electoral council that both candidates should abstain from promising to make a compensation which may be barred by a final court ruling. The second was a string of warnings from prominent former PAC members.

Lenel Mejí­a, leader of a group of former militias from the southern department of Suchitepéquez, announced that a national meeting would be held to consider boycotting the presidential run-off — which would not only entail abstaining but also setting up roadblocks and taking other actions to disrupt the event. An even stronger message came from Rosenda Pérez, leader of former PAC members from the northern department of Petén and congresswoman-elect for the still-ruling Frente Republicano Guatemalteco (FRG). `There will be no elections,' she said, `if the constitutional court does not modify that ruling, because the former patrol members have a right to their pay.' 

An opinion poll conducted by Vox Latina and released the day before the court ruling shows Oscar Berger well in the lead, with 59.3% of voting intentions, as against 40.7% for Alvaro Colom.

The Bolivian government is milking for all its worth the row over its demand for access to the sea, which has unexpectedly given an early start to the diplomatic drive which was going to build up towards October 2004, centenary of the treaty which gave away that access to a victorious Chile. In Santiago, meanwhile, the government watches in despair as the Bolivian case appears to attract more support by the week.

The latest recruit to the cause was former US President Jimmy Carter, who visited Bolivia last week. His contribution: `I hope that Bolivia, Chile and Peru will together find a way of providing Bolivia with an access and the right to the sea. When these conversations begin between this country [Bolivia] and the others, the Carter Center and many others will be eager to help arrive at an agreement.' Two aspects of this pronouncement irked the Chileans. The first was the inclusion of Peru, which clashes with Chile's line that the problem is exclusively bilateral. The second was the allusion to Bolivia's `right', which clashes with Chile's offer of access as long as it doesn't imply recognition of sovereignty or entitlement.

Chilean foreign minister Soledad Alvear kept on reciting the mantra, saying that Carter and others `must understand' that the problem of Bolivia's mediterraneidad `is a bilateral matter.' Interior minister José Miguel Insulza sounded a more plaintive note: `I wish these issues would remain bilateral, because all Latin American countries have had their history of border problems, and dealing with them multilaterally has never proved convenient.'

There was not much comfort for Chile from Brazilian foreign minister Celso Amorim, when he visited Santiago last week. `Evidently,' he said, `this is a bilateral problem, but it also has regional repercussions in South America, and for that reason it is a problem that interests all of us.'

Nor was it comforting to hear Peru's new defence minister, Roberto Chiabra León, reiterating his country's `concern' over Chile's rearmament drive. His government, he said, `will have to take measures so that this does not worry us.'

The heart of the dispute
In the 1879-83 War of the Pacific, Chile occupied the Bolivian department of Antofagasta and the Peruvian ones of Tarapacá (then the heart of the nitrate industry), Arica and Tacna. The latter was returned to Peru after 10 years under Chilean administration.

The fate of Antofagasta was not settled until 1904, when a bilateral treaty was signed in Santiago, whereby Bolivia recognised Chile's `absolute and perpetual' dominion over the region, and in exchange obtained from Chile a compensation payment of £300,000 and two commitments: to build a railway between Arica and La Paz and to ensure the free transit of Bolivian goods to Chilean ports on the Pacific.

As far as Chile is concerned, that was the end of the matter, and there were no further territorial disputes left with Bolivia. The Bolivians, however, have periodically sought to revise the treaty and secure some form of sovereign access to the Pacific. In 1979 (centenary of the beginning of the war), when Bolivia hosted the OAS general assembly, it pushed hard to have its sea-access demand adopted as a regional issue. Next year's centenary has been marked for a more energetic push.

The realignment of political forces in Nicaragua has clearly not yet settled down. Immediately after the collapse of the pact between the Sandinistas and the pro-Alemán Liberals, both Liberal factions came together to approve the budget law required by the IMF [WR-03-49]. A week later the pro-Alemán faction found itself confronting a joint move in the national assembly that has precipitated a conflict of powers.

On 15 December the directorate of the assembly — three Sandinistas and four dissident Liberals — formally stripped former President Arnoldo Alemán of his seat in the assembly, on the grounds that his conviction had removed his civic and political rights. That was to have been their last official act, as the terms to which they had been elected in 2003 expired on that day.

Alemán's lawyer sued, and an appeals court — three mainstream Liberal judges — ordered Alemán's reinstatement, on the grounds that his conviction is not yet final, since an appeal has been filed and a nullity injunction requested. The court then passed on the case to the supreme court for a ruling on substance.

The assembly directorate, though its mandate has expired, has decided to meet again to prepare arguments for a supreme court hearing. A new directorate is due to be elected in early January when the assembly reconvenes.

Until the middle of last week the ruling Partido Revolucionario Democrático (PRD) had two factions vying for the presidential nomination. One was the remaining core of the anti-reelection camp, which held primaries on 7 December and nominated party president Hatuey Decamps. The other — President Hipólito Mejí­a and three rivals — has now split over claims that Mejí­a has been rigging the primaries.

The three aspirants who had chosen to hold primaries with Mejí­a on 14 December — Vice-President Milagros Ortiz, PRD secretary Rafael Suberví­ and former PRD president Enmanuel Esquea — first got the event postponed for a week to check allegations of irregularities. On 17 December, convinced that the Mejí­a camp was trying to rig the outcome and that public funds were being used in the reelection campaign, they said they would not take part in any primaries in which Mejí­a was a contender.

The main charge against the Mejí­a camp is that they have been doctoring the PRD rolls, excluding members opposed to the President (`in the thousands') and including a large number of people from other political parties.

The committee charged with organising the primaries, headed by culture secretary Tony Raful and Peggy Cabral (widow of legendary PRD leader José Francisco Peña Gómez), has set a new date for the contest — 18 January — and promised to rule as soon as possible on the charges made by Mejí­a's three rivals. Ultimately, the electoral council will have to decide who is to be registered as the legitimate PRD candidate. The deadline for registration is 16 March: for all but Mejí­a, who has the advantage of being President, the delay in starting to campaign represents a serious diminution of chances.

Nevis would be better off independent, was the main thrust of premier (and finance minister) Vance Amory's budget address to the Nevis Island Assembly last week. He said that though some might try to use the fiscal situation to argue against independence, `this could be seen as clutching at straws [as] the attainment of independence would enable [Nevis] to better approach a global market place to access financing and investment funds for development and economic growth.'

Amory noted that Nevis had had to borrow on its own, since it had received little by the way of grants in aid from any sources and no assistance from the federal government in 10 years [though the federal government had offered guarantees for Nevis's borrowing].

In these conditions, he noted, Nevis's debt-to-GDP ratio was about 72%, whereas the average for the other islands in the Organisation of Eastern Caribbean States (OECS) was 83.1% — `in fact, three islands in the OECS have actual debt-to-GDP ratios in excess of 100%.' The island's situation, said Vance, `is therefore still much better than several countries in the Caribbean and around the world.' 

Nevis, with 93 square kilometres, has a population of about 10,000. The economy of the St Kitts-Nevis federation has been doing slightly better than that of its OECS neighbours.

PANAMA | Deadline for blacklisters approaches. Countries that have blacklisted Panama as a tax haven, restricting financial operations and investments, have until February at the latest to remove it from their lists or become liable to Panama's `retorsion law', introduced in December last year. Known blacklisters are Brazil, France, Italy, Mexico, Peru, Spain, and Venezuela. 

All were sent reminders four months ago. Some have responded by opening negotiations: foreign minister Harmodio Arias says that with Peru they are `very advanced' and with Spain `going well', but that Mexico is a `very difficult' case.

Retorsion is a legal term for paying back in the same coin. Unlike other small countries, Panama has the wherewithal to sound menacing. As noted by Arias, the first agencies that would implement the retorsion law are the ACP, the Panama Canal Authority, and the ARI, the Interoceanic Region Authority (which administers the old Canal Zone assets handed over by the US).

ST KITTS-NEVIS | Sharp upturn predicted. Prime minister Denzil Douglas is predicting for next year a 5% economic growth rate, one of the highest in Latin America and the Caribbean. This comes after indications that in 2002 St Kitts-Nevis managed to avoid, barely, the recession that everyone from the IMF down had forecast. Growth in 2002, says Davies, is likely to have been 0.8% — low, but four times higher that the average for all member countries of the Eastern Caribbean Central Bank.

EL SALVADOR | Industry takes a plunge. Industrial activity in El Salvador in the first half of this year declined at a rate of 4.18%, more than offsetting the increase of 3.13% in 2002. ASI, the industrialists' association, blames this both on the slowdown in the US economy and earthquake damage at home.

President Lula da Silva wore a hat with the logo of the MST, the movement of the landless, when, last week, he handed out title deeds to about 1,000 families settled on what used to be a 19,700-hectare melon farm before it collapsed. In the midst of an uneasy truce with the MST, the old Maí­sa farm, in the impoverished northern state of Rio Grande do Norte, is meant to be a showcase of agrarian reform, Lula-style.

The government paid R$3.8m (about US$1.3m) compensation for expropriating the land and invested another R$5m (about US$1.7m) in new infrastructure. Each settler family will receive a soft loan of R$9,000 (US$3,100) to finance the construction of their homes and the production costs for their first harvest. Reactivating Maí­sa, says the agrarian reform ministry, will create 5,000 new jobs directly and as many again indirectly.

Commentators in the press have been recalling that the first time Lula had donned the MST hat, when shortly after taking office he granted an audience to MST leaders in the Planalto palace, the landowners criticised him strongly for identifying with an organisation that has advocated land invasions.

Since then his government has condemned the invasions and even warned of firm action to prevent them. In some states, the authorities have turned to the courts to evict MST squats. This situation appeared to be heading towards a big confrontation when, in November, Lula approached the MST leaders with a new set of commitments.

The result: when he donned his hat again for the Maí­sa title distribution ceremony, the complaints came from the ranks of the MST, to the effect that he still had to earn the right to wear it.

According to the agrarian reform ministry's tally, since the beginning of the year land has been distributed to 34,514 families — just over half the target figure of 60,000 which Lula had set himself. In November, admitting that the process was moving much more slowly than anticipated, Lula promised the MST leaders that by the time his term ends in 2006, land will have been distributed to 530,000 families.

Public confidence
Lula can count himself lucky with what forbearance the MST is now displaying — indeed, with the trusting patience most Brazilians continue to show towards his government. A survey conducted by Datafolha and released last week shows a majority of 54% sharing the view that Lula has not yet begun to fulfil the promises he made during his electoral campaign.

However, an even bigger majority of 57% say they trust he will deliver on his promises in the three remaining years of his mandate. And his shortcomings do not appear to have dented his image: his approval rating is at 42%, almost the same as when he took office. This said, the proportion who disapprove of his performance has been rising steadily, from 10% in March to 15% in December. 

The promise the largest number of respondents would like Lula to start fulfilling is to reduce unemployment. On the whole they are not very optimistic about this: 21% believe the unemployment rate will not change, and 38% that it will increase. The open unemployment rate has increased from 11.2% in October 2002 to 12.9% in October this year.

The left-of-centre coalition Frente Amplio (FA) has become the first political party to nominate a presidential candidate for the elections scheduled for October 2004. Most unsurprisingly, it picked Tabaré Vázquez, who has already tried twice before, unsuccessfully, in 1994 and 1999.

The nomination was the expected outcome of a convention held last weekend, with the memory still fresh of the victory achieved in the referendum on the state oil company, Ancap, which Vázquez skilfully turned into an early verdict on the performance of the Batlle government [WR-03-48]. More contested was Vázquez's decision to have his running-mate of 1999, senator Rodolfo Nin, once again on the ticket.

The nomination must still be validated in June, when all parties must hold internal elections. Other contenders could emerge by then, but given Vázquez's great popularity, a change looks exceedingly unlikely.

A very different outlook
The FA brings together an array of parties from the left, starting with the Socialists (the biggest, from which Vázquez comes), and including the Communists, various Marxist groups, the former Tupamaro guerrillas, and independents. It remains allied with the more centrist Nuevo Espacio. Founded in 1971, shortly before the onset of military rule, its first major success was winning the mayoralty of Montevideo, home to half of Uruguay's population, in 1990 — a bastion it has held since then.

In 1999, Vázquez attracted the most votes in the first round, but was defeated in the run-off when the two `traditional' parties that had long shared a duopoly of power, Colorados and Blancos, joined forces behind Blanco candidate Jorge Batlle. This time round, the opinion surveys have been suggesting that the FA will outvote both of the others together. The latest, released as last weekend's convention got under way, showed the FA ahead with 48% of preferences (three points shy of a first-round victory) versus 18.5% for the Blancos and 14% for the Colorados.

In the `traditional' parties, the big guns, former presidents Julio Marí­a Sanguinetti (Colorado, 1985-90, 1995-2000) and Luis Alberto Lacalle (Blanco, 1990-95) went out on a limb to oppose Vázquez on the Ancap referendum, and lost. They are now reportedly wondering if, given their low standing in the polls, it is worth running in October. As we have reported (WR-03-43), the first Blanco to declare is also the first woman aspirant to the presidency, Blanca Maeso.