Chávez Tightens Screws before November Elections AS/COA Online 08/21/08

President Chávez recently passed new decrees. (AP Images)

Since winning second reelection in 2006, Venezuelan President Hugo Chávez tightened state control over the economy through a series of nationalizations. And despite his government’s loss in a December 2007 constitutional referendum, Chávez recently used expiring decree powers to approve a series of controversial laws—several of which were similar to those rejected by voters. A week later, the Venezuelan Supreme Court upheld a ruling that disqualifies 272 mostly opposition candidates from running in November’s municipal elections based on pending corruption charges against them.

The August 18 nationalization of the cement industry serves as the latest in a series of government takeovers that began last year with telecommunications and went on to the sectors of energy, steel, and dairy producers. While Switzerland’s Lafarge and France’s Holcim reached agreements with Caracas, the government rejected Cemex’s price tag of $1.3 billion, saying it stands much higher than the value for the Mexican cement company’s assets. In turn, Cemex plans to challenge the takeover by presenting a claim to the International Center for Settlement of Investment Disputes. The takeover comes just after Cemex reported a 27 percent decline in profits in the second quarter, fueled largely by the U.S. housing crisis. The Wall Street Journal argues that Cemex’s investors should be more concerned by declining demand than Chávez’s move.

Nationalizations may also hurt foreign direct investment in Venezuela, which is expected to decline. “Among our clients, we have no real money investors interested in holding any Venezuelan paper,” said RBC Capital Markets Analyst Paul Biszko to MarketWatch. Morevover, Venezuela faces inflation rates that loom above 20 percent, driven up by a rise in food prices. Caracas itself has a separate annual inflation index that soared past 33 percent this year, the highest in the last five years. To soothe the crisis, liquidity controls were set in motion by the government since June, yielding minor relief. Still, the country’s inflation rates remain among the highest in Latin America.

Despite some grim economic indicators, Chávez has been buoyed by others. Aided by rising fuel prices, Venezuela’s economy grew 7.1 percent in the second quarter paired with a positive account surplus that tripled in comparison with the same period from last year.

Chávez also strengthened his mandate through a series of controversial political moves. On July 31—as his 18-month decree powers were set to expire—the leader approved 26 laws based on a previous package of reforms turned down by voters last December. Among the new laws was a decree by which the government gains the right to seize assets if considers them of strategic value without consulting Congress or compensation in advance. Furthermore, Chávez can now appoint regional administrators with separate budgets, increasing his influence on municipal politics in advance of November’s municipal elections. That law’s approval was followed by a Supreme Court’s validating a “blacklist” that bans more than 270 candidates—including popular Caracas mayoral candidate Leopoldo López—from running in November. During those election, voters will select from candidates for more than 600 offices across the country.

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Power Switch in Paraguay AS/COA Online 08/14/08

Fernando Lugo is Paraguay’s new president, commonly known as “the bishop of the poor.” (AP Images)

After more than six decades under the rule of the Colorado Party, Paraguay readies itself for new President Fernando Lugo and his pledges of land reform, renegotiation of the Itaipú Dam contract, and job creation. Lugo, an ex-priest, won presidential elections in April as the candidate chosen by the Alianza Patriótica para el Cambio coalition and was endorsed by the Partido Liberal Radical Auténtico. In recent weeks, he gained political traction by appointing a heterogeneous cabinet, supporting his claim that he plans to serve as more of a centrist than a leftist. “I have always said I am a centrist, like the hole of a poncho, standing above political parties.” Lugo said to Newsweek during an interview.

After serving as a Catholic priest for 30 years, Lugo resigned from priesthood last December, when the Vatican issued a waiver releasing him from his religious vows. He served his last 10 years in the poor region of San Pedro, where his reputation as “the Bishop of the poor” gave him footing with the landless indigenous population. With a population over 6 million, 35 percent of Paraguayans live below the poverty line. During his electoral campaign, Lugo promised to fight indigence through better tax collections, as well as elimination of excessive bureaucracy and child labor.

Despite positive signs for his presidency, the leader faces a number of challenges, with land ownership serving as a pressing issue. According to the Economist, one percent of Paraguay’s population owns 77 percent of the land. The report notes that, even by Latin American standards, such inequality is high. The country is one of the top four soy exporters in the world, with production occurring mostly on land owned by Brazilians and providing crucial government revenue. Landless peasants, at a point of desperation, invade some properties to experience violent repercussions. Lugo declared their occupations illegal and called on peasant leaders to abide by the law. Before any agrarian reform might be implemented, he argues, a national land survey must be undertaken to determine who owns what. But for a country just shy of the size of California, such a daunting task will take at least two years, international loans, and patience from the landless peasants.

The negotiation of new prices with Brazil and Argentina over electricity generated by the Itaipú Dam stands as another test for Lugo and his newly appointed Foreign Relations Minister Alejandro Hamed. Under existing contracts, the three countries share the ownership of the dam but Paraguay finds itself forced to sell its share of electricity below market prices. On August 1, Lugo met with Brazil’s international affairs counselor and Paraguay’s future director for the Itaipú Dam; the new president presented a memorandum with detailed discussion points to renegotiate the terms of the contract currently set to expire in the year 2023.

But even with these challenges, Lugo comes to power at a time of economic growth in Paraguay. In addition to soy and electricity, remittances stand as a significant contributor to the country’s GDP. Paraguayans living abroad sent home $700 million in cash in 2007, according to the Inter-American Development Bank (IDB). IDB figures place Paraguay’s GDP growth at 6.4 percent last year with signs of strong export growth. Still, La Nación’s José Cantero argues that even now that the country’s financial system operates in the black, the new government must implement reforms to meet inflation goals, create more diligent institutional oversight, and improve efficiency.

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Reheating Russo-Cuban Relations AS/COA Online 07/08/08

Russian Prime Minister Putin greeted by Cuban leaders Fidel and Raúl Castro. (AP Images)

Recent twists and turns in U.S.-Russia relations have drawn comparisons to Cold War era tensions, sparked in particular by Washington’s plans military defense shield in Eastern Europe. During a July visit to the Czech Republic to sign a related agreement, U.S. Secretary of State Condoleezza Rice insisted that the shield’s construction was not a strategic move against Russia, but was instead intended to protect NATO allies from Iranian and North Korean threats. Still, Russian leaders seem unconvinced and, after plans to build the shield in Russia’s backyard were inked, a story arose that Moscow planned to station nuclear bombers in Cuba. The report may have been little more than a rumor, but this week Prime Minister Vladimir Putin announced intentions to restore ties with Havana.

In the days between the bomber rumors and before Putin’s call for warmer Cuba ties a Russian delegation headed by Deputy Prime Minister Igor Sechin visited Cuba. Kommersant reports that Cuban leaders were displeased by the possibility that the bomber story was a means for Moscow to use Cuba as a pawn in a chess game with Washington. Nonetheless, Cuban and Russian officials forged a number of energy and commercial agreements. Most significantly, Russian oil companies gained the right to explore and harvest oil in the Gulf of Mexico. A Stratfor podcast explores Moscow’s intentions to upstage Washington by demonstrating Russian influence in the Western hemisphere. Some Russian military experts say the door could still be open for Moscow to expand its military presence into Cuba. “It is an open secret that the West has been establishing a buffer zone around Russia during the recent years, getting European, Baltic states, Ukraine and the Caucasus involved in the process. The expansion of the Russian military presence abroad, particularly in Cuba, could become a response to US-led activities,” Leonid Ivashov, president of the Academy of Geopolitical Sciences, told RIA Novosti.

Russia may also be flexing its energy muscle in the simmering U.S.-Russia dispute; the day after Prague signed the July 8 deal with the United States, crude oil deliveries to the Czech Republic were coincidentally cut off by a Russian supplier citing technical and commercial reasons. As an Asia Times article points out, Russia’s recent deal with Turkmenistan gives it control as the sole buyer of the Central Asian’s massive natural gas reserves until 2028.

The Turkmen deal came just after Russia and Venezuela signed energy agreements during a President Hugo Chávez’s stop in Moscow. During his meeting with Russian President Dimitri Medvedev, the leaders signed a pact that would allow Russia’s Gazprom the right to explore for oil in Venezuela’s Orinoco oil belt. Furthermore, Venezuela has increased its military expenditure fivefold in the last decade, making Russia its principal arms supplier with more than three billion dollars in hardware purchases.

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Dealing without Doha AS/COA Online 08/01/08

Brazilian Foreign Minister Celso Amorin at the failed WTO talks in Geneve. (AP Images)

After seven years of intermittent negotiations, the Doha rounds collapsed in Geneva last week due to insurmountable differences between industrialized, developing, and emerging nations over agricultural tariffs. National Public Radio’s Adam Davidson explained why the World trade Organization (WTO) negotiations failed: “By most accounts, the talks were killed by a lack of courage and will on behalf of everyone involved.” As talks collapsed, WTO Director-General Pascal Lamy said, “No one is throwing in the towel.” Still, the WTO may now not see another round of talks until 2010.

As Deutsche-Welle points out, the talks fell apart largely because of a U.S.-India deadlock on protection tariffs for poor farmers. “We all lose,” said Brazilian Foreign Minister Celso Amorim in an interview with Efe, criticizing the failure of the talks and the probability that the United States will likely approve a law increasing farm subsidies. China, India, and Brazil were also intransigent in their demands. Brazilian officials also plan to file a WTO complaint against the United States over the latter’s ethanol tariffs, which serve to protect American corn-based ethanol producers against cheaper sugarcane-based ethanol from Brazil.

For Brazil, the talks’ collapse brings mixed results and expectations for its future. In a Forbes.com Q&A, Global Insight’s Jan Randolph counts Brazil as one of the biggest losers in Doha’s failure. On the other hand, Now recognized as a world player, Brazil is experiencing its strongest economic performance in three decades and has thus far remained fairly insulated from the U.S. credit crisis. The New York Times profiles Brazil’s recent financial and social growth and highlights its successful development recipe of respect for open markets combined with targeted social programs.

On the sidelines of Doha, Brazil—in conjunction with Costa Rica and Colombia—nailed down a treaty with the EU to lower their import tariffs for bananas. On the down side, Doha’s collapse may slow down Brazil’s meteoric financial ascension. The failure to access new markets for its ethanol industry as well as for crops like soybeans and cotton could pose a challenge to growth. “Brazil will take twice as long to reach its goal,” said the former Governor of Brazil’s Central Bank Carlos Langoni when interviewed by Reuters.

Free Trade Agreements (FTA) may be the answer for Brazil and several Latin American countries in the face of no Doha deal. Bilateral deals could serve as a salve, with Chile serving as a model of a country in active pursuit of such pacts. Chile has signed more than 50 agreements, including with the United States, Canada, the EU, South Korea, Japan, and Mexico. Hours after the Doha collapse, Chile inked a deal with Australia that Chilean Foreign Minister Alejandro Foxley described as the most extensive of all of its trade agreements.

Following in Chile’s steps, Peru beefed up negotiations and aims to get a new pact signed in November, when Chinese President Hu Jintao visits Lima for the Asia-Pacific Economic Cooperation (APEC) summit. Mexican President Felipe Calderón has also been traveling abroad recently, in pursuit of agreements with China, India, and African nations.

AS/COA hosts its annual Latin American Cities Conferences in Santiago on August 6 and in Lima on September 4. The Lima conference will examines Peru’s role on the global stage, particularly as this year’s APEC host. An AS/COA update takes a closer look at APEC Peru 2008.

At COA’s 2008 Washington Conference on the Americas, U.S. Trade Representative Susan Schwab emphasized the importance of moving the Doha round forward.

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