The Republican presidential candidate recently repeated his threat to eject Russia from the G8, claiming “We want better Russian behaviour internationally, and we have every right to expect it”. This condescending language from McCain is particularly alarming as it reflects a belief that the U.S. ‘lost’ Russia at the end of the 1990s and that the only way to regain her compliance is through punishment. If this line is pursued by the international community, it will merely push Russia into a stronger strategic partnership with China, or worse still – isolation from European security and cooperation entirely. Furthermore, confrontation will play into the hands of those Russian hawks that portray the West’s every move as a threat and encourage the nation to assert itself through tit-for-tat political manoeuvring and economic protectionism.

Russia’s use of a UN Security Council veto on the vote for Zimbabwean sanctions may well indicate that the country will continue its assertiveness in global affairs, even when the issue bears no direct relation to Russia’s geostrategic interests. At the turn of the millennium Russia would have simply abstained from the Zimbabwe vote, whereas now it wants to make the case clear, along with China, that interference in another state’s affairs will not be tolerated. In the short term this will frustrate attempts by the E.U. and the U.S. to legitimise and promote humanitarian intervention through the U.N. However, cooperation with Russia on global security and economic challenges should not be sacrificed in order to make a stand over a difference in political values. Russia’s importance in implementing nuclear weapon non-proliferation agreements is a case in hand.

The recent Russian proposal for a Euro-Atlantic Security Treaty has been unfairly dismissed by some analysts as merely an attempt to undermine NATO. Undoubtedly, Russian political elites would like the Cold War era security treaty to be dismantled and thrown into the dustbin of history, but this should not discredit the idea entirely. NATO has attempted to rebrand itself several times since 1991 in order to justify a) a heavy U.S. military presence in Europe, and b) enlargement eastwards. Despite statements that the organisation’s mandate is now to face 21st century global threats such as terrorism and transnational crime, there has been a failure to convince the Kremlin that its long term aim is not in fact to confront the Russian threat in some distant future.

Although the proposal for an EATO may not be a viable in its current form, in principle it should be considered, as it demonstrates an attempt by the new president, Dmitry Medvedev, to provide a constructive solution for the “21st century realities” confronting all countries in the “Euro-Atlantic space from Vancouver to Vladivostok”. There is a demand for a security pact which can both ensure the independence of states in Central and Eastern Europe, while also assuaging Russian insecurities. Such an organisation should also address the failures of the Conventional Armed Forces Treaty, which was made redundant not only through Russia’s failure to remove troops from Transnistria and Georgia, but also by the potential for an unbalanced build up of armed forces along Russia’s border in favour of NATO member states based on Cold War calculations.

The critics of Russia’s new foreign policy concept argue that the country’s political elite merely seek to create new organisations to avoid compliance with what they see as Western-imposed values of political freedom, human rights and the rule of law. Although there is some truth in this view, if there is anything that we have learned from the past 17 years of relations with Russia, it is that the West has little direct influence over her political system and path of development. These pretensions must be abandoned in favour of partnerships on the economic and security front. Engagement in these areas will engender further openness from Russia and subject her to diverse political influences from across the globe.

Dmitri Trenin, commentator on Russian affairs, posits that “America and Europe need to look at Russia as an emerging capitalist society, rather than failed democratic polity”(1). The positive sign is that Russia is pursuing its national interests primarily through the instruments of the globalised world currently in place. Locking Russia into economic and security interdependence will foster the strongest links. In order to ensure that Russia will abide by international law, particularly in relations with her ‘near abroad’ and within global energy markets, time must not be lost in signing Russia up to the WTO and a new European Partnership Agreement. These will set in stone a mutually beneficial, rules-based mechanism for future engagement. The longer Europe and the U.S. deliberate on the matter, the louder the voices questioning engagement with the West will become in Russian politics. Isolation of Russia will simply compel a more aggressive pursuit of her interests, including the use of energy as a political weapon.

Russia must also play its part, starting with a change in its paranoid Cold War-era perceptions of America’s role in European security. Nevertheless, the early signs of Medvedev’s foreign policy are of a strong desire to build a business-like relationship with Europe and the U.S. He has demonstrated more tact than his predecessor in business-related matters as foreign investment and expertise are vital to the country’s development. However, NATO enlargement and missile defence will continue to be vehemently opposed by the Kremlin and wider Russian public.

Europe and the U.S. should welcome Russia’s desire to play a constructive role on the world stage by listening, negotiating and show a willingness to commit, along with Russia, to a new framework for a stable, multi-polar world order. This could kick start a more positive era of relations with Russia. If the West simply rejects Russia’s advances, like in the early 1990s, we may kill President Medvedev’s chances of shaping a new foreign policy before it can make an impact on the country’s self-image and perceptions of the outside world.

(1) Dmitri Trenin, Getting Russia Right’ (Carnegie Endowment for International Peace, Washington D.C., 2007), pg. 112.

Riding a rollercoaster, being afraid and knowing that everything will be fine in the end is rather exciting and generates some healthy adrenaline. Riding another rollercoaster, with loose tracks and poor infrastructure, and nevertheless managing to be safe in the end, is a priceless lesson for the future. In Argentina, the national government does not share this perception. After the traumatizing events of 2001, when the country became financially broke and pushed thousands of people into poverty, a similar situation is about to materialize.

Now under the Kirchner dynasty, Argentina is dangerously flirting with danger. The situation is deteriorating as the country has not yet regained its access to the global financial market – it relies on Venezuela, which benevolently buys Argentine bonds, not accepted internationally. Managerial incompetence is a risk factor. Since last year, the escalation of Argentina’s crisis is regarded as one of the highest risks in South America by UK-based political think tank Oxford Analytica. Unfortunately, the disastrous handling of the economy may be pushing Argentina into a black hole.

The economic recovery registered during Nestor Kirchner’s term masked other structural shortcomings that have a high destruction potential. The outdated management of energy sources, as well as the poor strategy of masking inflation rates, are bringing about immediate problems affecting the population.

Cristina Kirchner took office with a mission to sustain the economic growth initiated by her husband and improve on the country’s diplomatic efforts – not one of Nestor’s strengths. Much more charismatic, Cristina appeared to be the missing link for the confidence shown by Argentines on a domestic basis to expand to neighbour countries and international agencies that monitor the nation’s economy and politics. However, recent events have been completely different, albeit also incredibly predictable.

The problem with the management of energy sources is not new in Argentina. The crisis in 2001 resulted in the temporary suspension of a modernization plan. With the economic recovery excessively favouring the domestic market by preventing farmers from exporting products such as beef and pork, domestic consumption went on a high. A significant part of the population regained their purchase power, as inflation rates, forcefully kept low by the government, made it possible for the Argentines to buy and to enter into debt. Thus, energy consumption increased as much as the population’s economic power. However, as the energy production had a low limit, the country reached a consumption peak. Argentina began to depend on Bolivia, not a reliable country due to its domestic instability.

Generalized blackouts have not yet occurred. However, some blackouts have been scheduled by certain industries and are happening systematically. Cristina was aware of this problem when she took office, but she did nothing to solve it. The proposals she has so far presented to face this challenge are too simplistic for such a complex problem. To ask Brazil to give up its share imported from Bolivia is a desperate request rather than proper behaviour from a State to solve such a severe problem.

Actually, shortly before the energy crisis would erupt (which could happen at any moment), another political crisis came up. The row with farmers concerning the pricing control exerted by the government and the exporting quotas imposed on them has been important to show another weakness of this government – Cristina has been showing poor negotiation skills. Her solutions are not feasible, as she is supported by an artificial foundation – the inflation rates announced by the government. Producing and selling in the domestic market is causing losses for farmers, as the actual inflation rate is nearing 20%. Cristina is uncompromising in her negotiations and refuses to acknowledge that the 7% inflation rate announced by her government is unreal.

Despite the conflict between government and farmers, which has been going on for more than 100 days, the National Institute of Statistics and Censuses (INDEC) has reported a 9% economic growth in April. These official figures indicate a relevant improvement, as the government agency reported an 8.5% expansion in the first four months of the year. Compared to March, the INDEC has reported a 0.9% growth. Even with positive figures, independent economists have sustained that inflation and unemployment have been growing as a result of the high public expenditures since 2003. They also believe that the lockouts and the shortage of basic consumer products are bringing inflation back.

After submitting to the Congress the bill that establishes the ‘retentions’ (taxes levied on grain exports), Cristina has summoned a meeting with farmers to try an approximation. Being flexible was an important gesture. Nevertheless, the meeting did not produce any great advances. One on hand, the Casa Rosada speaks of ‘recomposing relations.’ However, it shows no concrete measures in that direction. On the other hand, farmers speak of a willingness to dialogue, but they do not accept the tax rise. Under this climate of uncertainty, the Congress has started discussing the ‘retention’ bill. Even with a majority in both houses, nothing ensures that the Kirchnerism will be able to have the bill approved.

As the issue is unpopular, and the government approval rates have been falling on a daily basis, many lawmakers who support the president may choose not to take a share of this unpopularity. They might decide to remain connected with the public sentiment by opposing the rise in export taxes.

Medium- and long-term perspectives are not at all good for the president. If the law is passed, nothing ensures that farmers will put an end to their demonstrations. In turn, if the government is defeated, economic problems will aggravate. As economy and politics are closely linked, and Argentina has just been out of an institutional crisis, governability issues cannot be ruled out. Either Cristina will defeat the farmers like water wearing away the stone, and they will realize that the only alternative is to slash productivity and keep on selling to the domestic market, or the government will suffer a severe confidence crisis with the correction of inflation rates to actual figures.

If the severe crisis in 2001 was essentially economic, it is now a political one in 2008. The destruction potential of the current situation is high. One should take into account Cristina’s poor administrative skills and how the attitude has shifted in the low-income populations (her electoral base). With the people turning against Cristina, her government will become unsustainable.

Thiago de Aragão is an analyst at Arko Advice and a researcher at London’s Foreign Policy Centre

Nobody should be surprised at the result of the referendum on autonomy held on Sunday, May 04, in the province of Santa Cruz de la Sierra, Bolivia. The highly anticipated “Yes” victory, to be confirmed by the end of the week when the vote’s official results are due to be released, has led to reactions by Bolivia’s central government and by the Santa Cruz government too, which did not expect a different result.

The legitimization granted by popular vote –around 86 per cent of the Santa Cruz population approved of the autonomy– will entail significant political changes in the nation. Among the foreseen changes, the province will start collecting its own taxes, controlling oil and gas extraction and sales, and controlling its administration without the need for previous authorization from the central government in La Paz.

The aspects surrounding oil and gas extraction and sales are the biggest igniters of fights between provincial and central government. Highly dependent on gas explored in Santa Cruz, the Bolivian government would not be able to bear its expenses if the provincial government were to revaluate the administrative maintenance of these commodities.

The economic side of the fight between separatists and central government is undoubtedly the most important aspect in this institutional crisis. This is due to a matter of survival, as La Paz will not be able to bear the financial losses that an autonomy process would unfold in the country. All the policies planned by president Evo Morales and, most of all, by his MAS (Movement towards Socialism) party, would fall down and hardly be able to develop.

Dialogue is the first weapon Morales intends to use to nullify the impact of Sunday’s vote. The president will try to lean on a relatively low turnout during the election to bring the opposition back to the negotiation table.

The recurring failure to find a negotiated way out suggests how difficult it will be for the government to resume conversations with autonomists. Apparently, both sides are tired of talks and, at each new round, differences become sharper and the unfriendly climate exacerbates. Morales has been held hostage by the radicalization imposed by his MAS party. Sandwiched between an extremist party and an organized and articulated opposition, the president constantly resorts to a dialogue that has been unfruitful.

From now on, Santa Cruz will act as an example of Bolivia’s new political map. The overwhelming electoral victory in favor of autonomy will spread to the three other provinces upholding the same ideals – Beni, Pando and Tarija. The problem is really likely to aggravate even further.

Risk of civil war is not a new threat in Bolivia. This risk is becoming increasingly stronger, especially when political events such as Sunday’s referendum are not responded to by the central government in a likewise fashion. From now on, the following aspects will be critical: the willingness of Santa Cruz leaders to engage in dialogue; the MAS stance, as Morales is highly influenced by his party; and the impact from the Santa Cruz referendum result on the provinces of Beni, Pando and Tarija.

By reviewing these aspects, one can draw a more likely forecast of what can happen in the country in the short and medium term. In a certain way, an institutional damage has been done. It will be very difficult for Morales to remedy this damage if you take into account his history of solving conflicts with the opposition. However, the Bolivian president has all the information necessary to prevent this movement from spreading and becoming even stronger. Above all, he will count on mediation (until now not effective) by the Organization of American States (OAS) and the so-called “friends of Bolivia” (Argentina, Brazil and Colombia) against total rupture and in favor of maintaining territorial integrity and the rule of law

Even though uncertainty looms, some conclusions can already be drawn. National unity will remain seriously affected for a long time; the nation’s economy will become even more vulnerable due to the dispute over the ownership of its main natural resource; and the nationalization process will be changed for companies based in the Santa Cruz province. The local government will claim its authority to decide on whether to legitimize such nationalizations.

For Brazil, the deterioration of governability in Bolivia tends to bring about at least two adverse impacts: natural gas supplies will be severely harmed, as the gas imported by Brazil originates mostly from Santa Cruz; and the amount of refugees crossing the border to get shelter in Brazil would be a matter of concern. Any participation by Venezuela, which has a military support agreement in place with Bolivia, is another aspect increasing tensions in the region and likely to have a decisive weight upon how the situation escalates.

It is certain that the approval of the autonomy proposal in Santa Cruz has caused reactions outside Bolivia too. Worried with the potential consequences of the Santa Cruz referendum, Argentina, Brazil and Colombia (the “friends of Bolivia”) have released a note on Monday (May 05) expressing their “certainty that, more than ever, it is necessary to readily put in place a frank and comprehensive dialogue among Bolivia’s main political actors, aiming at preserving Bolivia’s democratic institutionalism and territorial integrity, as well as facing the difficulties affecting the nation.” In line with the OAS efforts, the three nations will work during the following weeks in order for any implementation of the autonomy statute approved on the weekend to occur “with full respect to the rule of law and the nation’s unity.”

Oil prices at $120 per barrel allow Hugo Chávez to do many things he would not normally be capable of. Venezuela, historically dependent on their greatest blessing, oil surpluses, has never developed other industries to help the country grow stronger, more developed and self-sufficient. Huge oil reserves have made the Venezuelan government and high society fond of imports.

This behaviour has resulted in a huge gap between rich and poor in the country. The split was based on the ability of each group to buy basic goods. Those who were not affluent would buy low-quality Venezuelan products, since local industries have never seen real development. The wealthy would always buy imported, high-quality products, preventing the local industries to develop.

With this recurring scenario throughout the years, the situation experienced nowadays has not seen its inception in the Hugo Chávez government only. Food shortage in the country is not a temporary issue of the current government. It is a structural problem present throughout the history of Venezuelan development. When the government put a limit to the already weak local industries, their output became inhibited and incapable of provide basic goods for the population. Imported products were still out of reach for the majority of the Venezuelan population. Those who produced food in Venezuela started realizing that the costs and prices imposed by the government were not compatible with the production costs and then preferred to suspend their activities.

The big mistake by Chávez’s government was in not foreseeing this situation and failing to offer the necessary incentives for private producers in the country. The creation of PDVAL, a subsidiary of oil company PDVSA, aimed at the food sector, did nothing more than centralizing the acquisition of food companies in the country. Those which had not closed their doors adhered to the government and started producing without the hope that their effort will represent more profits. Oftentimes, there was not even a profit.

In line with that, inflation is damaging the Chávez government. Obviously, with oil barrels costing $120, inflation goes unknown for the government, but not for the poorest sections of the population, who make up Hugo Chávez’s electoral base. It is not surprising that recent approval polls have shown the worst results for Chávez since he took office.

Some analysts believe that oil prices will not sustain at such high levels much longer. Some believe it could end the year at $90 per barrel. Estimates are even more pessimistic for the industry, with forecasts of $73 by 2009 and $70 by 2010. With prices falling, inflation will take on huge proportions, as the government seems not to be doing anything to tackle it.

Throughout the Chávez years, we have been able to see that, whenever any domestic problem arises, the government imposes some fresh radicalization. Two factors will cause strong radicalization by Chávez:

1. If oil prices drop to $73 by 2009, Chávez will blame a foreign enemy for the lack of domestic progress. High inflation rates will be treated as “a foreign boycott on the economy.” Nationalizations will intensify due to the need for income from other sources. However, as there is no technologic development, it will not sustain for long. The lack of investment in PDVSA itself will harm the company’s extraction capabilities in the next years.

2. If Chávez wins the upcoming municipal elections in November 2008, there will be intense political radicalization in 2009. According to government sources, an even more extreme constitution reform will be presented in 2009, simultaneously with a weakening of the economy, thus deepening any constitutional changes.