Brazil & Southern Cone - September 2007 (ISSN 1471-4431

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

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

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

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

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

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

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

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