Especially due to the fact that the episodes that involved Antonio Palocci were not factors as far crises within the pro-government base were concerned. The crisis came from before and was only more vigorously exposed due to the allegations against the minister.

According to Arko Advice surveys, support for the government in Congress already began to decline in April. In May, amidst the Palocci issue, there was the polemic voting on the Electoral Code with dissatisfactions amongst all involved. The government was defeated, confirming its fragility and problems related to the allied base.

Thus, Palocci fell due to his own errors and those of the government itself. Even though exempted by the Attorney General of the Republic, allegations would continue to place the government in a more fragile situation, both due to poorly resolved issues as far as ally participation in the ministries is concerned and also due to the alleged issues.

However, the larger source of problems during the Palocci episode originated from his closest allies. Initially, defense of the Minister was timid and disarticulate. Following that, despite the effort to protect him, some voices within the party questioned his permanence in the position. Governor of Bahia, Jaques Wagner (PT), stated that Palocci’s wealth growth “sparked attention”.

Behind-the-scenes, Palocci’s situation was considered very bad and his fall only a question of time. Some people criticized his silence and his delay in going public to render explanations. They felt that this posture worsened wear and tear on the government; and, as an extra generated significant irritation.

Others even said that it would be better for Palocci to go to Congress to explain himself and take advantage of fact that important sectors of the press were saving him from harder attacks. The interview given to the Jornal Nacional was reasonable, but not sufficient to reduce pressure. However, news headlines over the weekend were mortal. Even though the minister can’t be accused of illegal conduct, to live in an apartment that belongs to a “front company” is extremely bad.

Palocci’s exit is a big loss for everyone in light of his experience, capability and, even, for the pragmatism he always demonstrated in orchestrating economic policy and as a federal representative. Both the financial market and business community considered Palocci as a guarantee that there would be no craziness within the economic sphere. He was seen as a center of sensibility within government.

On the other hand, based on her attitudes and statements since taking office, Rousseff has demonstrated being the proprietor of the government’s economic credibility. Without Palocci, her responsibility will tend to increase. We don’t really believe there will be any problems with economic management.

However, from a political point of view, a few changes are necessary: in posture, perspectives and expectations. The government must be more proactive in seeking a more permanent form of dialogue. The government must understand that its closest allies are more than just allies: they are co-managers of a cohabitation government. Dialogue has to be ample as does access to the main ministers.

The expectations of all must also be seriously taken into consideration. It is necessary to understand that the success of the allies increases the possibility of continuity of the current political project and offers better conditions for the ability to govern. After all, Palocci’s exit imposes serious reflection and a re-beginning.

The opposition will continue to insist on the issue, even following Antonio Palocci’s stepping down from the position. The reason being, that it is interesting to keep the government backed into the corner to strengthen the perception of a government in difficulty and on the defensive.

With this, the opposition hopes to weaken not only President Dilma Rousseff, but also president Lula, who was the main person responsible for her election. The effort to convince the minister to render clarifications to Congress continues. Furthermore, the effort to create a CPI to investigate the former minister also continues but with small chances of becoming reality.

Inflation

Last week, the headlines gave great importance to inflation. On TV, Jornal Nacional (TV Globo) pointed out food price hikes. On the other hand, the printed press published a few articles indicating a drop in inflationary pressure, but the majority addressed the issue with concern.

In light of the fact that inflation represents the greatest threat to the government’s popularity, this is the number one issue on President Dilma Rousseff’s agenda. “My administration is aware of all the inflationary pressures known to exist at the present moment”, stated the president, who has already made use of several weapons to fight it, amongst which higher interest rates, credit restriction and reduction of the price of gasoline and alcohol.

The issue’s permanence in the order of the day is producing highly disagreeable repercussions, such as: a) the government applying psychological pressure on sectors that are theoretically “inflating” prices; and b) labor union pressure for wage hikes to make up for losses due to accumulated inflation.

Even though the Central Bank’s expectations in relation to inflation are that the worst has already passed, the government continues to be cautious and may announce new measures whose impact may displease the business community (higher interest rates and credit restrictions) and political circles (expenditure cutbacks).

Within the short-term scenario, the possibility of a worsening and loss of control is low. According to the last Focus survey, and for the first time in two months, analysts and economists have reduced their projections for inflation for this year from 6.37% to 6.33%.

Growth

Because it is the greatest threat to our situation, the fight against inflation is the government’s priority. However, the “growth” issue is also of concern in light of the fact that economic indicators have already shown discrete deceleration. It is worthwhile highlighting that the FGV Industrial Confidence Index retreated by 1.1% from March to April and that this was its fourth consecutive drop.

The April drop was attributed to less positive expectations for the following months. Concerned about the dissemination of a psychologically negative atmosphere, last week Dilma Rousseff made a clear manifestation addressing the issue, suggesting that controlled inflation and growth are compatible and priority targets within her administration.

Over the short-term, an eventual deceleration should not lead to politically tragic consequences in light of the fact that the government has margin for maneuver to maintain the economy at a good performance level.

Foreign exchange

Despite pressure from exporter segments, the trend over the short-term is the maintenance of current policy. Obviously, the Minister of Development, Industry and Foreign Exchange, Fernando Pimentel, reaffirmed that foreign exchange policy will not change and that “we will have to live with it, because the world trend is devaluation of the dollar”.

In light of the fact that the export industry will continue to suffer with the foreign exchange issue, the government has signaled that it will seek to attenuate the effects of the devaluation. It will do this both on the external front – where it will pressure the World Trade Organization (WTO) to include the foreign exchange issue as an element of assessment of trade practices – and internally with actions such as taxation unburdening and also protection of domestic products.

For the business sector, the unburdening issue on exports is a pacific point. However, when dealing with protectionist measures, reactions are antagonistic. There are at least three sectors involved: those that import on a large scale; those that export on a large-scale; and those that import and export on a large scale.

The foreign exchange issue is not popular, even though it has an impact on price behavior. Considering that inflation is the priority, the trend is that foreign exchange policy will continue to be used in favor of lower prices.

Firstly, these are situations beyond comparison. One is not more important than the other. They are simply different, with distinct natures and purposes.

Brazil is still learning how to deal with its main trade partner of the last 40 years, the USA, but we were already used to the North American modus operandi. Furthermore, within the cultural aspect, even when negotiations with the USA were extremely complicated, both sides understood the dynamics of the other very well.

Recently, when China took on this position (main trade partner), Brazil’s saw itself forced to understand the new formula for negotiation. From the Chinese point of view, we are an extremely young country that still doesn’t know what it wants or what position it wants to occupy in the world. However, Brazil continues to try and understand China. It isn’t difficult to find seminars throughout Brazil whose subject matter is understanding the Chinese.

Rousseff went to China to punch in and initiate a series of negotiations to mold and organize the way in which both countries trade with each other. First and foremost, Rousseff went to seek to understand the dynamics and the mode of operations that orchestrate the voracious Chinese appetite to purchase at breakneck speed everything we are able to offer.

Naturally, Brazil desires to not only be an exporter of raw materials but also of added value products, which is very difficult. The major problem with this is that the main items exported by the Chinese are precisely finished materials at prices impossible to compete with.

As masters at reverse engineering and without the Western notion of private property, labor or intellectual property rights, the Chinese make competition impossible and threaten to be the greatest roadblock in the future for trade negotiations between the two countries; All this without taking into consideration their lack of concern for the environment.

However, Brazil is predisposed to understand this problem and even agrees that there is no short-term solution. After all, things that don’t have a solution are already solved.

From this aspect, the second issue of importance addressed by Rousseff and the Chinese premier, Hu Jintao, is China’s eventual support for Brazil’s entry into the UN Security Council as a permanent member. The Chinese counter position is its desire for Brazil to anticipate its recognition as a world economy. Brazilian industry is against this, because it would make the antidumping case against China unfeasible.

In parallel to these two tangents on the agenda between the countries, other relevant issues achieved favorable outcomes. Embraer managed what it desired and will continue to expand its operations in Harbin; national pork meat production achieved a formidable market; and investment in Brazil, such as Foxconn, have an enormous potential to incentivize others.

Politically, the value of the trip was the expansion of the communication channel. Rousseff has made clear what Brazil expects of China and vice versa. We know what to discuss and what each other’s issues of interest are. China is, without doubt, a lever for our foreign trade. However, if we take too long to understand that the sizes are disproportional between both countries, we can be more negatively affected than benefitted.

Also last week, an article written by former president Fernando Henrique Cardoso was circulated defining a strategy for the opposition, which suffered its third consecutive loss in presidential races against the PT: change course and try to structure itself better for 2014.

The former president stated that, while the PSDB and its allies insist on disputing influence over “social movements” or “the people” (in other words with the needy and less informed masses) with the PT, they will continue to be talking only to themselves.

FHC recommended instead of doing that, the PSDB should direct its message to another segment. He claims that there is an entire range of middle classes, of new classes (younger and different types of business people) and of contemporary activity professionals in information technology, entertainment and news services spread throughout Brazil. Added to this group is the not very precisely called “class C”, or the “new middle class.”

Shortly afterwards, true to their role, government leaders stated that the former president didn’t like the general public. Former president Lula, ironically stated: “I don’t know how someone can study so much and then wants to forget about the people.”

Lula and the government leaders are not wrong. They are absolutely right in trying to distort former president Cardoso’s statement and attempt to use it in their favor. The speech opened up the door to criticism and only increased Lula and the government’s identification with the more needy.

The opposition is wrong. It didn’t understand what Fernando Henrique Cardoso said and tried to justify itself quickly, stating that it does like the poor. Those that did understand didn’t know or were unable to express themselves. The former president himself was obliged to give an interview to the Valor newspaper explaining what he meant to say.

It’s clear that the opposition continues to be rudderless, without a discourse and, if it doesn’t act quickly, it will no longer have a public. Currently, the main party leaders spend time and energy on the internal dispute and don’t pay any attention to the message. Elections can’t be won without a message. As Cardoso wrote, they are going to continue speaking to a brick wall.

The first lapse was over intelligence. A rumour developed that Colonel Gaddafi had fled Libya to the Venezuelan island of Margarita, where one of his sons is said to be in exile.

Hague fuelled the fire by suggesting the stories were true, which later turned out to be wrong. Intelligence can be notoriously unreliable, and, as a senior minister, a lot of information is shared with you on a confidential basis. Hague’s judgment was questioned for publicly discussing such unconfirmed information.

The second failure was a bureaucratic one – the slowness of getting British citizens evacuated from Libya. While countries such as France, Germany and Turkey managed to evacuate most of their citizens in a few days, Britain had left its nationals stranded owing to apparent incompetence at the Foreign Office, with planes sitting on runways and emails from British workers left unanswered, forcing the Prime Minister to step in.

A foreign policy analyst, speaking on condition of anonymity, said last week: “You have seen in recent weeks Cameron asserting himself in foreign policy far more than in his first few months in office, something he’d previously seemed desperate to avoid. Hague’s wobble in the early stages of the crisis did knock his reputation but not irretrievably.”

The third episode was the failed Special Forces mission in Eastern Libya. The operation was a joint effort between the Special Boat Services (SBS) and the Secret Intelligence Services (SIS, also known as MI6).

The mission was authorised by both Cameron and Hague, but a lack of co-ordination led to some officers entering Libya via Land Rovers, while others flew in on Chinook helicopters, the noise of which alerted rebels to their presence. The botched operation ended in the humiliation of Special Forces being kidnapped by a group of rebel farmers.

With an unfavourable press, a number of his Cabinet colleagues were said to be in the frame to replace the Foreign Secretary in a reshuffle, though it looks unlikely as Cameron wouldn’t want to see a disgruntled Hague active on the backbenches.

Possible successors have been positioning themselves, with the Defence Secretary, Liam Fox, appealing to the right of the party by sounding hawkish on Iran, Michael Gove being assertive over democratisation and security in the Muslim world (something on which he has written a book), and Andrew Mitchell, who has gained plaudits for his quiet effectiveness at the Department for International Development, rumoured to have been on “manoeuvres” in recent weeks.

However, despite these managerial problems, William Hague maintains the full confidence of the Prime Minister and seems popular among many ordinary Conservative party members.

How has a man who has suffered such slings and arrows, and endured a humiliating defeat in 2001 as party leader, remained as a great survivor of British politics?

There have been some successes in his time at the Foreign Office. The fact that Britain worked so closely with France and the United States in securing UN Resolution 1973 speaks of the efforts that Hague made behind the scenes along with his diplomatic team, although some more Eurosceptic MPs were said to be uneasy at the leading role France took.

The military campaign has progressed fairly smoothly with no major failings in terms of losses or civilian casualties so far, though things may prove more difficult as the long-term objectives of the campaign remain unclear.

Hague handled the defection of Moussa Koussa effectively too. Something of a coup for Britain, the defection of one of Libya’s most high-ranking officials must have dealt a psychological blow to Gaddafi.

Hague has been careful to navigate the tricky legal and political issues surrounding it, by refusing to grant immunity to a man accused of being involved in the Lockerbie bombing and support for the IRA.

One of the great difficulties of being Foreign Secretary is that the best laid plans can be undermined by the outcome of what Harold Macmillan called “events, dear boy, events”. Hague was unfortunate enough to have visited Bahrain in February and praised its democratic progress, only to watch in horror as it invited Saudi troops in to crush a rebellion by its Shi’a citizens.

As another foreign policy expert told me: “Hague has learned the hard way that response to events, rather than execution of pre-determined strategy, determines success in foreign policy. His early foreign policy has been washed away in a sea of change, and he has now been marginalised by an increasingly activist Prime Minister.

“Ironically, this may help explain his survival, as David Cameron’s new interest in foreign policy has taken him out of the firing line.”

Like many Prime Ministers, the longer Cameron stays in the job, the more his day is taken up with international issues and security concerns. While he will want to do all he can to protect his Foreign Secretary, it remains to be seen how many more lives the great survivor has left.

This article was first published by the Yorkshire Post.

New FPC Research Associate Andrew Southam gives us his take on the controversial 2003 UK-US extradition treaty, whether criticism is valid and what can be done to improve the situation.

Tim Summers explores recent economic transformation in China and makes the case for greater engagement with the countries less well-known regions beyond traditional investment markets.

This time, and at subsequent protests, former President Levon Ter-Petrossian’s activists were joined by unexpected reinforcements from the Heritage party, which had provided the sole independent voice in parliament before declaring a boycott due to the ruling coalition’s new electoral pact.

Despite, or rather because of, the recent turbulence, it is imperative that the EU plays a greater role in supporting Armenia towards a more democratic and stable future. In December 2010, President Serzh Sargsyan committed his party and government to the pursuit of European values and standards. The EU needs to offer him support in this endeavour. But it must be prepared to hold Armenia to account if it fails to deliver promised reforms. So far, despite the many worthwhile projects the EU supports in Armenia, its work is often lower profile than comparable engagement by Russia and the US. Europe needs to show more clearly to the Armenian public that it is actively engaged and applying pressure for reform.

The Foreign Policy Centre’s Spotlight on Armenia sets out ideas about what has gone wrong in Armenia and how the international community can help Armenians to fix it. The report identifies three key areas of domestic reform where EU pressure could really help deliver progress.

Firstly, there is a need to open up a media environment where television channels are all in pro-government hands and the independent station A1+ has been repeatedly refused a licence, despite the best efforts of the European Court of Human Rights, the Organisation for Security and Cooperation in Europe (OSCE) and international pressure groups. Perhaps uniquely, Armenia’s planned switch to digital TV will result in fewer channels being available than at present, further reducing opportunities for pluralism. Ending the government’s restrictive approach to frequency allocation and presidential appointments to the board of the TV regulators are important first steps to increasing media freedom in Armenia.

In the courts, some judges remain too open to pressure from the executive and powerful individuals to achieve the desired result in politically or economically sensitive cases. Bribery is widespread, particularly in civil cases, while judicial salaries remain among the lowest in the former Soviet Union. With an acquittal rate well below one percent, the application of the rule of law is weak and at times arbitrary. Again, a mixture of EU pressure and support needs to be applied to curtail the president’s role in judicial selection, to raise salaries and increase the transparency of disciplinary procedures that would help end Armenia’s perceived lack of judicial independence and increase public trust in the rule of law being upheld.

Improving Armenia’s democratic processes are essential if future elections are not to be marked by the problems of 2008, the source of much of the perceived credibility problems of the current government. Ending the direct appointment by the president of regional governors, who are believed to interfere in the electoral process, would be beneficial in its own right. But work also needs to be done on enabling a wider group of election observers to be involved and on reforming the electoral commission. The international community has a key role to play here, particularly in the run-up to any early parliamentary elections that may be coming up later this year where the early and widespread deployment of OSCE observers will be essential in establishing credibility.

The EU’s influence in the region is not helped by the recent removal of the role of the special representative for the south Caucasus that, irrespective of an organisational rationale within the European External Action Service, sends an unfortunate signal that the region is less of a priority for Brussels. This perception will need to be countered in the near future to ensure that any reputational damage is not permanent. In order for Armenia to move further down the road towards the stated goal of European standards, Brussels should more clearly link progress on the association agreement and the incentives of a “deep and comprehensive free trade area” pact, visa liberalisation and increased aid to identifiable progress against the democracy and good governance benchmarks the EU has set for Armenia.

This was first published by E!Sharp at http://www.esharp.eu/Web-specials/Ensuring-Armenia-meets-its-commitment-to-European-values