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Latin America: Events in January 2008

By Thiago de Aragao.

The month in Latin America – January 2008

Venezuela

Venezuelan president Hugo Chávez is trying out a new discourse. He is changing the typical left-wing rhetoric for one focusing on solving issues that are specific to his grass and roots – security and basic food supply. This change of posture aims at regaining the confidence of his "light" supporters who did not provide enough support during the referendum.

There is no doubt that Hugo Chávez's image became strongly tainted with his defeat in the late 2007 referendum. Over the course of one year, confidence in president Chávez has dropped nine percentage points, as informed by the Datos institute. According to the poll, his approval rate has fallen from 39% to 30%. Re-building his image is a two-front effort: domestic and international. Domestically, Chávez has started to provide financial support to students' centers in several universities and institutions across the country so as to bring them to his side. It should be noted that students took an independent stance during the movement against the referendum. If they were against the government, they didn't either support the opposition. This uncertainty has created a silent battle between government and opposition in order to "conquer" the student masses. This is crucial for the government's future, as it is certain that a new referendum will be held in approximately two years for the people to decide again on the same proposals put forward by Chávez.

Besides, Chávez has been obtaining significant support amid the population. If in direct proposals, such as last years' referendum, Chávez did not achieve the victory he expected, we can notice that, in indirect terms, the population is lining up alongside him and trusting in the centralized government Chávez is creating. Venezuelans are the nationals to provide the lowest support for market economy, according to a Latinobarómetro poll. Even accepting that private enterprise is necessary for development, they believe that the State should be the sole responsible for solving the population's problems, as only the State has the necessary means to do it. A total of 67% believe that "the State is capable of solving all the problems."

Internationally, Chávez has put some effort into participating in the hostage release sponsored by the FARC. Given that many countries regard the FARC as a terrorist organization, Chávez did not help his cause by saying that they are not a terrorist group, but rather a people's movement willing to fight in the name of the people.

Another important fact last month was the creation of another government-owned company – the PDVAL, in charge of producing and distributing food. It is a PDVSA subsidiary aiming at taking food directly to consumers. Initially, the company will produce milk, sugar, rice, cooking oil, chicken, and pork. The company is part of the government's strategy to put an end to the shortage of basic food supplies in supermarkets. This is expected to increase the offer of products and regain the support of those voters who had chosen Chávez but failed to support him in last year's referendum. This measure is related to a new attitude by the Venezuelan government, who shifted from an ideology discourse centered on structural reforms towards solving specific social problems by means of State intervention.

Despite the government's particular solutions, fear of an economic crisis is stronger than ever. The stabilization of oil prices in the international markets will spark a crisis in the Venezuelan economy very soon. The advertence was made by economist Pedro Palma Durante. He recalled that a US recession will reduce the oil demand in all countries. As a consequence, oil prices will slow down. Palma does not rule out that oil prices may range around USD 30. Thus, the economist emphasized that funds from oil sales need to continue rising for Venezuela to keep their current growth rate.

However, Venezuela is shielded against the current US economy slowdown, even though the US is their main oil customer. The comment was made by the Venezuelan Finance Minister, Rafael Isea. Although he acknowledges that this crisis may impact the demand and prices of the nation's main export product, he said that "the impact would be neither severe nor immediate." According to Isea, trade relations between Venezuela and other nations create "a type of shielding."

Bolivia

Bolivian president Evo Morales has completed two years in power but has little to celebrate. Due to the deadlock in drafting the new Constitution, the nation is experiencing a political crisis that has split the country. On one side, Morales's allies; on the other, his opponents who reject the new Magna Carta. Out of the nine departments, five have decreed autonomy from the central government. As a result, he ends his second year in office having to administer a climate of polarization. For many political analysts, you could have seen this scenario coming. In his first year, Morales nationalized the hydrocarbons industry, breaching contracts and scaring new investment away from Bolivia. With that decision, oil companies started operating as state subsidiaries. Despite this climate, his allies play the current government up. His party, the MAS (Movement towards Socialism), boasts that the country was not controlled by the market in the last two years.

However, Bolivians are still fully dependent on natural gas exports, even though they do not have the necessary oil exploration infrastructure – they rely on technical assistance from companies such as Venezuelan state-owned oil company PDVSA. The government has announced that will honor the contracts concerning natural gas supply to Argentina and Brazil. According to the Brazilian ambassador in La Paz, Maurício Dorfler, the current output level is enough to ensure supply while meeting the domestic demand. Today, Bolivia supplies approximately 30 million cubic meters of natural gas to Petrobras on a daily basis.

Ecuador

Highly popular (55%) and after having met his campaign promise to install a Constitutive Assembly to draft a new Constitution, the Ecuadorean president Rafael Correa has completed one year in office. He finished his first year with a 57% approval rate, as informed by the Cedatos institute. Compared to the beginning of his government (January 15, 2007), there was a 16-percentage-point drop, as Correa used to have a 73% approval rate. According to the poll, Correa's credibility fell 20 percentage points compared to 2007, that is, from 68% (2007) to 48% (2008). On January 15, 2007, Correa took office after beating right-wing millionaire Álvaro Noboa in a run-off, promising to install a Constitutive Assembly and aiming at changing the nation's political and economic system after one decade of instability.

President Correa has affirmed that his "citizen revolution", which is his political project, will cause conflicts with conservative groups that oppose his government. To him, the right wing will try to destabilize the nation to impede the intended reforms. Aiming at implementing some proposals, Ecuador's Finance Minister, Fausto Ortiz, said that the government will cut 34% of the funds previously allocated to foreign debt service in 2008 and re-direct these monies to social investment. This equals to USD 1 billion.

The country will certainly see a stormy year caused by resistance in certain spheres of government, financial system and means of communication. To president Correa, this will occur because the constitution reform will dismantle hegemonic parties.

Representatives from the Ecuadorean government and from the opposition are talking about a possible prolongation of the Constitutive Assembly, given the current disorganization and the fact that only bills sent by the Executive are approved. Whereas some believe that the new Magna Carta will be finished by May 24, others advocate extending the work for eight months. According to the local media, the process lacks a schedule with proposals that would facilitate progress.

Argentina

An unprecedented phenomenon is occurring in Argentina. In her first weeks in office, president Cristina Kirchner has retained 75% of the civil servants who worked under former president Néstor Kirchner. Political analysts tend to explain that the October election did not result in a new government, but rather in a re-election with a different president. Besides, it is believed that Kirchnerism wants to stay in power for longer. Among the alternatives, Néstor could be a candidate in 2011, and Cristina in 2015. Or Cristina would stand for re-election in 2011 and Néstor would wait until 2015. Analysts also qualify Cristina's government as a "two-headed presidency," for, even having left the Casa Rosada, Néstor continues participating actively in the current government's political decisions.

The Argentinean government believes it is shielded against the crisis threatening the US economy. This is because the Central Bank's record $47 million reserves, the five consecutive years of economic growth and fiscal and trade surpluses will protect the nation. Besides, it is understood that the country has become accustomed to living without external financing as a result of the debt default, and thus is less exposed to external crises. For all the optimism, economic analysts speak with caution.

Colombia

Colombian Álvaro Uribe was elected Latin America's most popular president, with a 78% approval rate. The study was carried out by Consulta Mitofsky, a Mexican consultancy firm. Hugo Chávez (Venezuela) came second with 61%, followed by Mexico's Felipe Calderón and Costa Rica's Oscar Arias, both tied at 60%.

Proof of Uribe's popularity is in how he is dealing with the crisis with Venezuela and in the government's progress against the FARC. Nowadays, 80.53% of all Colombians approve of how president Álvaro Uribe dealt with the diplomatic row between their country and Venezuela. The information was released after a poll conducted by RCN radio. Only 12.21% do not agree with Uribe's performance during the crisis.

Nevertheless, the row is nowhere near being solved. Colombian regional officials understand that the militarization of the Venezuelan border with Colombia, as decreed by Venezuelan president Hugo Chávez, may bring conflict to the communities living on both sides.

Uribe also won an important ally in keeping the FARC as a terrorist group. In response to his Venezuelan counterpart, Uribe said that, as long as the FARC do not put an end to torture and kidnapping, they will remain classified as a terrorist group.

The EU has refused to take the FARC off the list of groups classified as terrorists. More than that, Europeans reaffirmed all their support to the Colombian president. The announcement was made by the EU's high representative for the Common Foreign and Security Policy (CFSP), Javier Solana, after a meeting with Uribe in Brussels. This succession of positive facts (the EU's recognition of the FARC as a terrorist group, Colombians' support to his security policy, the way Uribe conducted the diplomatic row with Venezuela, and Uribe's highest approval rate among all heads of state in the Americas) has consolidated the Colombian president's leadership role.

Paraguay

After a controversial primary, former Education minister Blanca Ovelar was confirmed as the winner. She defeated former vice president Luiz Castiglioni and will be the Colorado Party candidate in the April election. The Colorado Party has governed Paraguay for 60 years. Their main rival will be former bishop Fernando Lugo, who leads the opinion polls. Everything indicates that problems in the party primaries (Castiglioni complained of fraud) will split the party. Due to these problems, there is a movement led by Senate hopeful Lorenza Alfonso, of the Republican Force bloc (a movement of Colorado origin which supports Lugo), intending to convince Castiglioni to leave the Colorado Party and join the opposition campaign. If this occurs, Fernando Lugo's will become stronger. Not necessarily due to the force Castiglioni would provide him with, but due to the weakening of the Colorado Party.

Thiago de Aragao is the FPC's Latin America Associate based in Brazil.

thiago@arkoadvice.com.br

+55-51-7813-3277