Brazil & Southern Cone - January 2014 (ISSN 1741-4431)

President José Mujica was reluctantly forced to accept the resignation of his economy and finance minister, Fernando Lorenzo, on 21 December. Lorenzo stepped down from his position as soon as the supreme court announced that it would investigate his role in the liquidation of the national air carrier Pluna. The opposition is desperate to make hay out of the Pluna scandal ahead of presidential and congressional elections in October this year. Former president Tabaré Vázquez (2005-2010) is the early favourite to secure the left-wing coalition Frente Amplio (FA)’s third consecutive term in power.

President Mujica has barely tinkered with his cabinet at all since coming to power in March 2010, primarily because it is a devilishly difficult balancing act for any president representing the FA, which is formed of so many discrete parties and factions. Not only did Mujica have to replace Lorenzo but he also had to name a new labour and social security minister after Eduardo Brenta stepped aside in order to run for a senate seat in October.

Lorenzo’s departure had the potential to open a damaging rift within the FA. The protégé of Vice-President Danilo Astori, Vázquez’s moderate former economy minister, Lorenzo has steadfastly opposed adopting any of the more radical economic policy suggestions of the most left-wing factions in the FA. But not even the most radical of these factions dared to push for an economy minister more suited to their tastes (who might for instance increase taxes on wealthy Uruguayans); for fear of alienating voters as elections draw nigh.

As such, Astori was given a free hand by Mujica to select Lorenzo’s successor. Astori plumped for Mario Bergara, his deputy economy minister between 2005 and 2008 before picking up the presidency of the central bank (BCU), to replace Lorenzo. Bergara, who has a doctorate in economics from the University of California, Berkeley, said he was expecting “an enormous challenge” to maintain Lorenzo’s policy direction. His primary challenge will be the perennial struggle to fend off double-digit inflation. Inflation, famously described by President Mujica as “a slippery eel” early in his mandate, reached 8.5% in 2013, well above the 6% fixed by the BCU for the third consecutive year. The government is predicting economic growth of 4% in 2013, which is low by the high standards set in recent years.

The new president of the central bank, Alberto Graña, also announced that slowing down inflation would be his main priority. In July, the central bank will widen its target range for inflation from 4%-6% to 3%-7%. Graña, who also has a doctorate in economics, worked at the central bank for 20 years before replacing Bergara.

Mujica defended Lorenzo to the hilt. He said he had “no doubts” about his “ethical integrity and commitment to the national interest”, adding that his government would miss him profoundly. Lorenzo resigned shortly after giving testimony on his role in the Pluna debacle to an organised crime judge, saying he had done so “on his own initiative and to make things easier for the courts”. He was charged, along with the president of the state-owned Banco de la República Oriental del Uruguay (Brou), Fernando Calloia, with “abuse of powers”.

The charge relates to his alleged direct involvement in the dubious acceptance of a bid by a little-known Spanish-Argentine firm, Cosmo Líneas Aéreas, in October 2012 to purchase Pluna’s seven-strong fleet for US$137m, a bid which Lorenzo and Calloia committed the State to underwrite financially. Cosmo promptly pulled out of the purchase, claiming it lacked sufficient capital. Lorenzo’s lawyers filed an appeal on constitutional grounds, arguing that as the minister tasked by the government with expediting Pluna’s liquidation, Lorenzo had always acted according to his specially delegated powers. The appeal means that the case will now be heard by the supreme court (SCJ), which has dealt the government some painful reverses over the last year.

Mujica might still be drawn into the Pluna scandal. There have been insinuations that Lorenzo, Calloia and all the other government officials involved in the affair had been acting on orders handed down directly from the presidency, and Mujica might have to testify before the SCJ over his role in the case. The opposition will be doing its level best to capitalise on the government’s travails over Pluna. Since the government’s decision in June 2012 to assume full control of the ailing public-private company, there has been a series of judicial investigations into impropriety, mismanagement and even corruption.

*José Bayardi, a former defence minister (2008-2009), replaces Eduardo Brenta as the new labour and social security minister. Brenta left his position in order to run for a senate seat at the head of the Vertiente Artiguista (VA) faction of the FA this October. Bayardi also hails from the VA, thus preserving the delicate balance of cabinet representation of different political factions within the FA.

• “We have this system properly established but it doesn’t solve differences that arise between countries […] we should face reality, be sincere and accept that these mechanisms don’t actually work, and start building new ones that fit our needs […] There is a serious internal problem, we need to review it […] we need more flexible instruments which we can effectively apply and are more responsive to current times. What we can’t do is to continue with this sort of institutional lie, with the lyrics one way and the music the other way.” President Mujica in a candid appraisal of the Southern Common Market (Mercosur) in mid-Januar.

• “They have pulp mills, and they have to change them because they are older than the Ark. They damage the environment […] (With Argentina) relations are at a bit of a standstill, but everything will depend on what the president decides. Let’s see if we can fix things.” President Mujica on Argentina.