Cesar Vilca's father: "If I hadn't gone, they wouldn't have found my son" (http://www.rpp.com.pe/2012-05-06-padre-de-pnp-cesar-vilca–si-yo-no-iba-no-lo-encontraban-a-mi-hijo-noticia_479179.html)

In my first post as part of the Foreign Policy Blog Network, I summarized Peruvian President Ollanta Humala’s efforts to appease the markets through pro-business Cabinet appointments. In two well-respected placements, Luis Miguel Castilla became Finance Minister, and Julio Velarde stayed on as Central Bank Head. Humala hoped to marry economic growth with increased social programs, and needed the business community alongside. However, since his inauguration, two visible crises have caused two rounds of sackings and resignations amongst Cabinet members. The latest crisis, a humiliating military defeat by remnant guerrillas from the Shining Path terrorist group, threatens to both re-make the Cabinet and force President Humala to put aside his social development agenda.

Humala’s first Cabinet reshuffling took place in December, 6 months after he was elected. Ten ministers were replaced, including Prime Minister Salomón Lerner, the former campaign manager who was an architect of Humala’s capitalism plus social progress vision. In Lerner’s place came retired Lieutenant-Coronel Oscar Valdés, who taught Humala at the military academy, leading some to accuse the government of “militarization.”[1] The catalysts for this shakeup were local protests against the Minas Conga, a large gold and copper mine in the Northern province of Cajamarca. Minas Conga is one of Peru’s largest industrial projects, requiring $4.8 billion of investment, and is owned by two New-York Stock Exchange-listed miners: Newmont Mining of the US and Peru’s Compañia de Minas Buenaventura. This spring, the government issued a list of populistic demands of the owners, in response to the local protests.[2] They include demands for guaranteed water supplies, social program funding, and hiring of additional workers. However, the appointment of Mr. Valdés fed the perception that President Humala was throwing off his promise to aid the underclasses, and was simply determined to defeat the protests. The mining sector feeds government tax coffers.

If the first Cabinet reshuffling was a medium turn in agenda, last week’s reshuffling may represent a true shock. In April, guerrillas from the terrorist sect Shining Path kidnapped 36 natural gas workers, and later released them. In a botched rescue attempt, 8 Peruvian soldiers and policemen were killed. A particularly harrowing incident occurred when a police helicopter fled, leaving 3 security officers behind. One of these, Luis Astuquillca, hiked to safety after 17 days alone in the jungle. The other two were murdered – the body of one, César Vilca, was found by his father, who personally went into the jungle with the help of local guides. Public outrage followed, and opposition lawmakers announced that they would vote “no confidence” against the Defense and Interior Ministers in Congress. These officials, Alberto Otárola and Daniel Lozada, then left on their own.

Though President Humala recently committed 1,500 soldiers and police to stopping Shining Path, his bureaucracy seems completely unprepared to combat the group within its home turf of the Apurímac and Ene river valleys, collectively called VRAE, on the eastern side of the Andes. Shining Path (Sendero Luminoso) is today a shell of its former self. In the 80’s and 90’s, under the leadership of philosophy professor Abimael Guzmán, the Maoist group waged an insurgency via assassinations, invasions of Andean mountain towns, and car bombs in Lima’s San Isidro financial district. Sendero’s revolt and harsh army counter-strikes resulted in over 70,000 deaths.

I have read some firsthand accounts of Sendero, and what is most striking about the group is the coupling of a savage appetite for violence with a bereft and incoherent political ideology. The decorated Mexican journalist Alma Guillermoprieto calls the group “a frightening quirk in the annals of guerrilla struggle.” Guillermoprieto also recounts how captured followers stammered and struggled when asked to articulate the group’s positions or purpose. She describes the group as introverted and esoteric, and as a mesmerized cult of Guzmán, who went by the nickname “Presidente Gonzalo.” Guillermoprieto frames this for American readers by saying “that is as if in the United States a messianic movement of fundamentalists armed with guns were led by somebody named President Fred.”[3] Fortunately, determined military action and Peru’s steady economic growth have weakened Sendero to a few hundred guerrillas (Guzmán is in prison). Today, they survive in the VRAE by taxing coca farmers who feed the drug trade.

The group’s small footprint magnifies the military’s recent failure all the more. Specters such as renewed Shining Path havoc and a father hiking into the jungle to find his dead policeman son, rather than the military launching a rescue, are highly visible public relations fiascos.[4] Consequently, plenty of media pressure will be spent on a relatively small problem. The government, particularly the new Defense and Interior Ministers, will need to refocus on Sendero. This is a priority Humala is not prepared to face, and the state security apparatus may have become complacent, or worse, corrupt – there have been news stories of soldiers receiving rotten food rations and deficient flak jackets.[5] President Humala has outlined a drug plan, endorsed by the US, which mixes coca destruction with greater investment in underdeveloped regions such as the VRAE. However, if he launches a successful and determined campaign against Sendero, Humala may not have the bandwidth to satisfy voters who want the welfare and social programs that he promised.

Camila asks: do you think is possible for a country to survive without foreign investment?

Response: I think it can be difficult to survive without any investment, and even for Argentine investors they would lose money with a nationalisation of a Spanish oil company or a Argentine toy maker, the issue is that if it becomes too risky to invest, all investors; even portenos, would have issue with putting their money at risk. I think what occured was that Chinese investment plus future oil revenues plus a negative image of Repsol’s actions over Argentine oil plus oil getting into the Falklands issue gave Cristina Kirchner enough reason to nationalise, but what I do not understand is whether or not she believes she can expropriate YPF and not pay compensation. Even Iran paid compensation after 1979 to European and American companies, as did Chavez not long ago..I think she will end up compromising in the end as actions like that could destroy Repsol or similar companies and it is extremely risky to buy a home or company or invest if the government can take it away at any time without compensation. The way it was done has no balance, and no one wants to return to 1938 when Cardenas in Mexico nationalised a British oil company. A good question is whether she would do the same if Sinopec had majority share in YPF?

John states: There were no indigenous peoples inhabiting the Falkland Islands before the first Europeans arrived and after 1833, British control and possession was asserted, which by 1850, Argentina had agreed to respect. Unfortunately, with the violent invasion of the Argentine Military Junta on 2 April, 1982, all prior negotiation and any UN “anti-colonial” discussions were set aside. With liberation of the Falkland Islanders on 14 June 1982, their British citizenship was confirmed and the Islanders have expressed no interest in being a part of Argentina. The UN Charter supports self-determination, which is what the Falkland Islanders desire, under the protection of Britain. Britain has included the Falkland Islands as one of its listed Overseas Territories for the EU, just like that of Denmark, France, Netherlands and Spain. Argentina has no right to impair or impede Falkland Islanders commerce, as it seeks to do with its blockade efforts of cruise ships, its attempt at legal blackmail of oil exploration, or its refusal to cooperatively manage fishing with the Falklands. It was very good that both President Obama and Canadian Prime Minister Harper stood up for the Falklands and prevented a Latin America “consensus” statement at the recent Summit of the Americas conference in Cartagena.

Response: Yes, the Summit of the Americas did show the clear divide between Canada and the US and the rest of the Americas, but that divide has a good chance of extinguishing the OAS and other American dominated agencies altogether over many issues like Falklands. The support by almost all countries in the region may not be agreed with, but should be taken seriously as their protests have real consequences. The UK and Argentina should both enter serious discussions where all points of view are considered as there are many regions that have gone to one power or another when the rules benefitted one power over the other, and then have changed for mostly political reasons as opposed to legal ones. Regarding having cultural heritage, many ex-Soviet countries have large ethnically Russian minorities that change the balance of power between the West and East in the new independent republics, but it is not a determinant of who claims sole possession of a territory or their policies, as well I will not get into the Middle East, but land claims and references to international standards by one party or another do not always produce effective solutions. Israeli author Amos Oz said that in order to produce a real peace in his disputed territory, he would shut off the microphones of any delegates that brought up the past, as it will never lead to any solution. Speaking of Canada, a former British colony itself, there have been many violent protests between native groups and the government over old British treaties that favoured the Crown and gave some concession to the native populations in Canada, but were not honoured by Britain or Canada afterwards as claimed by the natives. Whether one agrees with their protests or not, the end result of claiming rights over disputed territory without giving a voice to the other side often pushes issues into armed conflict when there is no forum for discussing the issue or when the more powerful of the parties dominates the decision making process. The Falklands may be a more black and white issue than most, but there certainly is no solution in any full claim by either side in the matter.

Fellow Blogger Chris Celius asks: Do you think Kirchner‘s move makes good economic sense and developmental sense for the country, given its huge debt. I assume that investors will be compensated. Otherwise her move would backfire and chase potential investors as a result.

Response: I happened to study an entire law course on this very issue and since 1938 there has never been a positive view of any expropriation by any investor anywhere. Not counting 2001 and its shrinking debt due to exports to China, I think Madam Cristina figured future oil revenues, her popularity, and a strong destination for her exports would benefit her more in the long run. I can see her point of view in some ways as often middle powers can be more nationalistic over their natural resources (I live in a similar place) and she might make enough revenues this way to pay away Argentina‘s debts, but everyone needs investment and it took her and her late husband over 10 years to bring credit back to Argentina. She likely torpedoed the country’s reputation once she fired her Central Bank chief (I saw him in person a long time ago, he apologised to us for Argentina‘s bad economic policies before his term) and then issued this expropriation. If it was legal, when members of her party claimed no compensation will come to Repsol, it went well beyond the accepted norm in international law. This is why the past Central Bank chief fought with her, as he knows such policies make economists into engineers as it burns all bridges to investment from abroad. Legally, expropriations can be done in a legal manner and it is similar to a situation everyone can relate to in their own towns and cities. It happens on occasion that some city projects need to build a highway or other public works and a private citizen’s house is in the way. For the public good they would have to take your home, but they need to compensate you fully and in a fair way, considering any future profits you might have made from your home. You should not incur a loss for the benefit of a public good, and if you were a foreign national living in Buenos Aires no one should be able to take your home over your neighbour, as your property rights should be protected. Before the 2008 Olympics in China, to build one of the stadiums some private homes had to be destroyed. I do not know if those Chinese citizens were compensated, or compensated enough, but it angered people enough so that the Olympic committee had to deal with protests over the treatment of Chinese citizens for the sake of some sporting events no one cared about. Even if those homeowners had no rights under Chinese law, the natural right for someone to have their own place truly exists and Chinese citizens are well aware of corruption and issues with their government that could possibly take their basic rights away. So if you were an average investor, would you buy a home knowing that in a year it might be torn down to build a road? Likely not, even if you were compensated. Would you then buy the same home knowing that you will lose your investment and home in the same period of time? Whether you are local or foreign, you would put your money in a safer place. I doubt Repsol would not be compensated in the end as while YPF can be expropriated legally, under the current international laws and I assume many local laws in Argentina, compensation not only needs to be given, but must be given in full with future profits included. If Argentina pays billions in this case, any funds earned from taking YPF would be paid out and cost Argentina in the long run. I agree they should have a national oil company, but this way of creating it makes investment too volatile, even if Cristina’s intentions are noble.

Please feel free to add to the debate on Argentina’s foreign policy. Much thanks, Rich.

Yet, what few natural resources Bolivia possesses exist in such abundance that the country could conceivably shape the global market. Recent consumer trends in the US and Europe have created immense demand for these resources, chiefly lithium and quinoa. Sadly, the Morales government has frittered away its opportunity to cash in on the rise in demand for hybrid car batteries by nationalizing all lithium mines. As a result, GM, Toyota and other carmakers now get their lithium from Argentina and Chile.

Quinoa is a different story, though. Feted as “the Inca super food,” quinoa has more protein than grains and includes all eight amino acids essential for tissue development. Its popularity has soared of late, thanks to a health food craze in America and Europe and usage by celebrity chefs like Giada De Laurentiis and Bobby Flay. Prices have soared, up three fold over the past five years to $1 per lb.

The Morales government has tried in earnest to manage export of the product. However, its success in accommodating small-scale farmers so that they can cash in on rising global demand has made the staple unaffordable for many Bolivians. In turn, the government is offering $10 million in low-interest loans to farmers to help make the food cheaper domestically.

TIME recently published an article suggesting that trouble may be brewing in the form of a quinoa bubble, quoting a food policy expert that, “Quinoa is now a free-market phenomenon. This is a boom, and there’s definitely going to be a bust.”

I’m not too worried about this, because 1) quinoa is still a niche product and there’s plenty of room for it to grow into the dietary mainstream, and 2) a bust would have ample silver lining as Bolivians could once again get their preferred foodstuff at an affordable price.

Rather, my concern is that Bolivia is again getting left behind as the world finds a way to adapt one of its products. It goes to reason that a foodstuff hearty enough to grow in craggy highlands of Bolivia can grow just about anywhere, and that’s just what is happening.  A seed company manager told London’s Independent newspaper last year: “We only have 180 packets of quinoa seeds left in stock this year. It’s quite popular because it’s a very adaptable plant and easier to thresh than wheat. It’s resistant to the cold at night which helps it grow here.”

I have yet to address Argentina directly in any of my entries, but fear has brought the nation’s business climate to the front of my mind. The deluge of press on President Kirchner’s nationalization of oil producer YPF has resurrected old demons. The act looms like the self-inflicted wounds that caused the currency crisis in 1999 and the loss of Central Bank independence in 2010. However, the nationalization of YPF is different from these prior examples, which I believe are instances of fiscal policy gone bad. An examination of what the Argentine government has done with YPF, and who is involved, show that symbolic politics has truly been implemented within the nation’s commercial and energy public policy.

First, a basic review of what occurred. During the week of April 16, the Argentine government announced the expropriation of 51% of YPF, an Argentina-based developer and producer of crude oil, natural gas, and liquefied petroleum gas (LPG). The maneuver specifically took the 51% stake from controlling shareholder Repsol YPF, YPF’s Spanish corporate parent. As of April 20, YPF’s market value was around $10.6 billion. In economic terms Repsol YPF lost a stake valued at $5.4 billion, but in the bigger picture the Spanish firm lost control of YPF. YPF represented about 25% of Repsol YPF’s operating income, and over half of its hydrocarbon output. For Repsol, the eighth-largest energy company in terms of oil and liquid reserves, this is a loss of scarce assets that make up 47% of its reserves in barrels of oil equivalent.[1]

While the assets of one company were expropriated, the act has purse-pinching implications for a much broader audience: Latin-America focused investors, the Argentine business class, and the Argentine energy sector. Professor Mark Jones of Rice University proclaims “This sends a real negative signal to pretty much the entire world in terms of the rules of the game and investing in Argentina.” This raises the possibility that in our 21^st century global commercial world, a large, multi-faceted national economy could be choked off from foreign investment. Argentina is the 22nd largest economy in the world, at GDP of $709.7 billion. I would argue that it is more culturally and politically prevalent than Bolivia and Venezuela, who are also known for state asset grabs. Policies that foster inflation (9.8% in 2011 according to IMF, but estimated to be closer to 20-25% by private economists) and discourage exports have already made it something of an economic pariah. However, the nationalization could reach the level of Argentina’s infamous crises if it stamps out foreign investment that the nation’s 42 million people need on their road to recovery from prior economic mishaps.

An ironic possibility is that the first economic driver to feel effects may be the energy sector – YPF owns large reserves of natural gas trapped in shale rock, but will be unable to extract this gas without investment from foreign partners. This will both hinder the domestic economy and cut off a potential source of energy exports. According to a 2011 study by the Energy Information Administration, Argentina ranked third in the world in potentially recoverable reserves of shale gas, with 774 trillion cubic feet (behind China and the U.S.). This gas could be used to feed hungry energy markets abroad – according to ExxonMobil, natural gas will generate 30% of the world’s electricity by 2040, versus about 20% today.[2] On the domestic side, Argentina’s car dealers have reason to fret – Argentina has the third-most natural gas vehicles in the world with 2.1 million, and neighboring Brazil is 4th, with 1.7 million (Natural Gas Vehicles for America).

So, how does the government of Argentina rationalize an action so out-of-touch with international norms, and so seemingly divergent with its economic interest? The answer lies with “La Campora,” an ideological clique centered on President Kirchner’s son Maximo. La Campora reportedly advocates nationalist policies in a manner that goes beyond the showboating, jingoistic politics that pervaded commemorations of the 30^th anniversary of the Falklands War last month.[3] Rather, La Campora believes in marrying nationalism with management of the state’s affairs. Therefore, taking Repsol’s asset is justified as a safeguarding of Argentina’s energy supply and the Argentine oilfield worker. La Campora is personified by Deputy Economy Minister Axel Kicillof. A 40-year-old with a pretty-boy image, Kicillof scoffed at Repsol’s request for $10 billion in compensation: “The idiots think the state must be so stupid that it will do what the company says.”[4]

It remains to be seen how Kicillof and Maximo Kirchner plan to keep their movement politically sustainable. While there is public moral support for the nationalization, Argentina’s consumers can only be distracted so long from an inflation-ridden economy. Any claim that the government can develop oil and natural gas fields better than Repsol will probably soon be exposed as well – the government has stifled the energy sector with price caps and taxes. Argentina’s energy trade balance swung to negative last year. Investors have already weighed in on La Campora through the currency market. The “blue-chip swap rate” is a market exchange rate set up by businesses and investors who regularly buy dollars. Last Friday, this rate reached 5.47 Argentine pesos per dollar. Argentina’s official exchange rate was 4.42 pesos per dollar – valuing the peso about 19% higher.[5]

To respect the position of many Argentineans, debt from the 2001 economic collapse still lingers and for a country to claim economic independence, it must secure its oil reserves or be destined to be bullied by Europeans, or Americans or even the Chinese and lose control of its own national policies and national interest for small economic gains. Claims on the Falkland Islands comes from Latin America being independent for more than a century before the global decolonization post Second World War and the negative view from all developing nations when European powers still make any claims on colonial territories abroad. Argentina’s expropriation of YPF and Repsol’s shares in the company comes from Kirchner’s claim that Repsol’s management of YPF lead to an economic situation where production was inhibited to such a degree that Argentina needed to import fuel despite having the means to produce its own fuel demands locally. The Falkland issue also comes from British companies discovering oil reserves within the waters near the Islands. With the recent discovery of new reserves that would double its potential production and the fact that Argentina was one of the only countries in the region without a national oil company supporting the government, Argentina decided to wholly expropriate Repsol’s interest in YPF, and claims it can do so without compensation to the investor due to its actions against the country’s local economy. This oil revenue would cover many national debts and may pull Argentina out of its eternal debt crisis. With investments from China as a whole and other oil companies willing to invest in YPF’s future extractions, Cristina Kirchner took the gamble that might keep Argentine afloat for a generation. Now for the other side of the debate…

Investors do not like to habitually lose money, and if you wanted to assure them that every ten years they could lose their shirt, then you would do exactly what Kirchner did in expropriating YPF and confirming that no compensation would be given. While legally a country does have the right to expropriate a private company, it only becomes legal when the investor is compensated in a fair, just and reasonable manner with some added compensation for future prospects and potential future gains from their investment. This law is designed so that it costs the country not only its reputation for investors, but also makes it financially moot in that any immediate gains from an expropriation would have to be paid out in the event of an expropriation. This also assures investors that even if there is an expropriation that they would be fully compensated and not incur a loss that would destroy the company or investor if there were any issues. This should only be done if the national interest outweighs the property rights of the investor, and in the Argentine case national interest might claim a victory, but compensation, full compensation should be paid as Argentina’s reputation, investment climate and future prospects creates the impression that investment in Argentina leaves an investor with no rights or recourse except to apply the law on those competitors who benefit from Repsol’s loss. This is the general legal position in the event of an expropriation, but for an animated investor’s view please read here. It is likely the case that investor pressure and legal norms will catch up to Cristina Kirchner and this is the position the Spanish government seems to be taking, despite heated debate and legal actions that will be taken against YPF, Argentina and any potential future partners of YPF. It will be an interesting legal case indeed, likely to confirm a middle of the road law on expropriations that will benefit the US, EU and the BRICS.

Porto Alegre mayoral candidate Manuela D’Avila

(cntasul.blogspot.com)

In the September 2011 issue of National Geographic, to which I subscribe through my beloved grandmother, Cynthia Gorney chronicles the steep decline in fertility rate of Brazilian women. It is a thought-provoking coincidence that, in the short-term at least, this decline has coincided with a woman ascending to the presidency.[1] Gorney shows that the decline in fertility correlates with improvement in several quality-of-life indicators, but Brazilian gender roles are still very traditional – domestic violence is discouragingly common, and women remain under-represented in politics. However, Gorney sees a unique enterprising spirit that Brazilian women have used to steer the terms of motherhood. Evidence suggests this spirit is showing up in both the politics and perception of the Dilma Rousseff administration, and is motivating further female participation in government.

By anyone’s imagination, the decline in births per woman in Brazil is staggering. In 1960, Brazil’s fertility rate clocked in at 6.3 children per woman. As of 2009, the fertility rate was below replacement at 1.9 per woman. This is in a Catholic country where abortion is illegal, and government policy has never favored birth control. Gorney generally attributes the reduction to a special Brazilian “6-point plan” that has been throttled forward by the country’s female population, with some help from the government:

1)   Industrialize quickly and relatively late. As Brazil’s economy has reshaped since the 1960’s, workers have shifted residence toward the cities. This means less space for large families, and that extra babies are simply more mouths to feed.

2)   Loose regulation of birth control – it’s really been that way since pills came about in the 60’s.

3)   Focus on parents at childbirth and at retirement. As the health system’s child care improved, Brazilian parents felt less compelled to have extra kids. Implementation of a pension system for the elderly had the same result, shifting the burden of support partially off of families.

4)   Provide financial incentives to doctors to perform C-sections. In exchange, doctors were informally expected to do tubal ligations free of charge. Many women wanted this, and I’m guessing the government did as well.

5)   Introduce electricity and television. Gushingly popular telenovelas promoted the idea of small, affluent, upwardly mobile families.

6)   Brazilian women are tremendously strong – I get the impression this is why there was never any debate about a woman becoming president. Advice on family planning is a mutual pact amongst women here, and has been for a while. According to Gorney, underground use of the abortion pill Cytotec was common before the drug was approved in the U.S. in the 80’s.

Gorney’s account of Brazilian women breaking out of older mores of motherhood dovetails well with both Ms. Rousseff’s presidency and a 2012 political cycle in which female candidates are prevalent. According to AP writer Juliana Barbassa, 47 women are candidates for mayor in Brazil’s 26 state capitals. While Ms. Rousseff is by no means Brazil’s only stateswoman (Barbassa focuses on state legislator and Porto Alegre mayoral candidate Manuela D’Avila), she is undoubtedly the shiniest product and main driver of the female leadership movement.[2]

President Rousseff has directly promoted other female leaders by placing 9 women in a 24-member Cabinet. However, her leadership style and social incentive policies may become true instigators for diversification of gender amongst the political class. In writing a previous blog entry, I wondered how Dilma’s faxina, or firing of corrupt ex-Cabinet ministers, would be perceived by society as a whole. Critics claimed the “housecleaning” was simply a response to criticism by the press. In reality, based on my reading and discussion with Brazilian friends, it looks like Dilma has come out on top. Political Scientist Maria do Socorro Sousa Braga, of the Federal University of São Carlos, says “She has a different attitude, she’s showing that she has guts” (Barbassa article). My reading is that the faxina has evinced a strong leader, not a reactive one. Nobody would deny that Dilma is succeeding where many male Presidents failed.

Rousseff’s success makes it seem ironic that, as Barbassa notes, Brazil has so much catching up to do to encourage women into leadership roles. Only 9% of Brazilian mayors are women, and according to the Interparliamentary Union, Brazil ranks 109th out of 136 in terms of female representatives in Congress.

Rousseff has initiated a series of incentive-based policies molded after President Lula’s Bolsa Família that may help in the long-term. These include both government-sponsored daycare and provision of official documentation to women who are lacking so that they may receive employment benefits. Bolsa Família itself has helped women gain influence within families and households – in 93% of families receiving aid, funds are disbursed to the woman. These are sensible policies, and helping women rise through the work force may be the best way to incubate a new class of female leaders. After all a political novice, man or woman, can’t simply role out of bed and run for office – to be a candidate, any person needs some mixture of experience in business, community reputation, and confidence.

Cuba is an interesting topic indeed. Where the US has an embargo of Cuba, Canada has been open to Cuba for decades. To prohibit Cuba from the Summit when over the last few years it has slowly been opening places most countries in the Americas sympathising with Cuban participation in the Summit. Obama was in a difficult spot indeed with movements by Cuba and his own government opening relations over the last few months, being awarded with a continuing ban on Cuba at the Summits. While the US has set heavy trade with China and has even celebrated and supported its 2008 Olympic games, it is unreasonable to keep an embargo on Cuba while being blinded to similar anti-democratic actions done in China to its own citizens. With the US picking and choosing who should have rights in places like China and during the Arab Spring, US foreign policy needs to reboot in order to regain some consistency in Asia, the Middle East and of course with Cuba. Obama needs to meet those in Florida of Cuban heritage and come to a consensus in how to approach Cuba and open ties during his Presidency. A disagreement over Cuba is not worth the lack of political currency in the Americas. This weekend showed that the US sorely needs a re-engagement in Latin America and it seems the consensus is that it should accompany a deflation of rusted issues with Cuba.

The issue that will likely become the most notable after the Summit is the open commentary by some Latin American leaders on a limited legalisation of the drug trade in Latin America. While Canadian Prime Minister Harper and President Obama did say there were failures in the War on Drugs, they did not accept any legalisation of the narcotics trade. In reality, discussions on the failure of the drug war reflect current problems in Mexico more than recent successes in Colombia in fighting the FARC. What might be the only option would be a collective approach to narcotics from the North as well as the South if there were any legalisation. No one would wish to donate the lives of their young sons and daughters to fight well armed narcotraffickers, and the theory is that it would be easier for Mexico or Colombia to legalise and let well funded American and Canadian medical and rehabilitation programs deal with addiction issues and health concerns in their own communities. Realistically, in Latin America addiction issues are a lot easier to handle and have fewer costs than continuing a war that may never end. This would put the burden on the US and Canada to address victimization and chemical dependence in their own communities as opposed to having Latin Americans going barrel to barrel with the narco-market. With Latin America moving to have diverse investment relations with China and away from US interdependence, it seems that the thoughts of many leaders in the region towards its northern neighbours is that if it’s your addicts, it’s your problem.

Successes against narcotraffickers would have to firstly succeed if legalisation commenced, and despite commentary this past weekend of drug policy failure, there have been many successes in the War on Drugs. In Colombia, the government has been heavily chipping away at the FARC and other narco-terrorists over the last three years. Mexico has been fighting fiercely against the drug trade to the point where stolen oil has become the focus of many traffickers over narcotics. In this way, there were successes in the War on Drugs and they are necessary even with any future legalisation. Before a new policy can succeed, they need to deplete any powerful drug kings so that if the industry is legalised, it will not be controlled by criminal elements. As in the Mexico case, it is not the drugs that are the main issue; it is the value of the product, so that oil can replace drugs as it seems to be more profitable for some cartels. A lesson from the end of the Soviet Union allowed influential individuals to control and dominate entire industries in Russia and created industries that were corrupt and controlled by many criminal elements. It would be a repeat of the same problem currently with narco-gangs as Russian Oligarchs that had a lot of money, were very powerful and could not be controlled easily within the law. A faulted legalisation may not remove the problem, the value of the product, and would not be an effective solution. The demand and high price creates valuable drugs that are the source of the problem and no businessman would reduce the value of their product on purpose. While drugs will be an issue if it is legal or illegal, the value is the overwhelming issue, as expensive oil seems to be just as addictive. Legal issues with addictive products are taking place currently as PEMEX has taken to court companies that have been accused of purchasing stolen oil. It seems that legalisation might not be as easy a solution as some may believe. No consensus was agreed upon at the end of the Summit as a result.

Brazil’s growth in 2008 enabled Brazil to avoid economic losses that were thought to be larger than expected during the economic crisis. To the benefit of Brazil, China utilised its reserves at the time to buy up the less expensive industrial capacity that was a by-product of the crisis. This purchasing of Brazilian commodities and investment in the industrial base in extracting, producing and exporting those commodities comes from China’s national interest in securing natural resources to fuel its own rapid growth. This investment boom in Brazil created a tremendous amount of trade growth between the two countries as China sourced resources from Latin America. While Chinese export growth lead to its ability to invest heavily worldwide to secure its energy reserves via Brazil and other countries, the realisation that its labour force is aging and that its manufacturing will slow is changing China’s long term plans. China realises it must create an internal market and R+D resources with a diversification of sources of natural resources so that no external source could pressure China in the long run. While China seeks to change its economic development model, countries like Brazil and other that are becoming very dependent on China must seek its own long-term plan in order not to be caught in the middle of China’s historical economic change.

Brazil and Latin America have always been tied to its past economic model where commodity exports dominated the economy, and left the entire economy open to economic collapse when commodity prices changed or fell depending on the demand from the West. In the post Second World War era, a push to close off imports and develop a strong manufacturing sector from within was attempted, but was unsuccessful as commodities again dominated the markets. The realisation that Brazil was becoming dependant on the East, this time on China, was not forgotten as commodities exports displaced manufacturing in Brazil. Brazilian manufacturing in the last few years was left to compete with less expensive Chinese imports flooding their markets and placing Brazil and the region in the same traditional place it has always been, selling its oil and crops in large doses during a boom time while neglecting its growing manufacturing sector. While the trade surplus favours Brazil, the change in China’s economic growth strategy and its diversification of its sources of natural resources may change their relationship in the long run, displacing Brazil’s manufacturers while producing a slowdown in its commodity exports. With a slowdown in the Chinese economy, heavy dependence on one trade partner may put Brazil and Latin America in a difficult position.

For the most part, South American trade has been diversified between the US, Europe and Japan for the last 50 years and it would be prudent to diversify its trade and support joint ventures and investment in industries beyond oil and agriculture. This likely strategy would probably develop in Mexico first that is doing well despite the economic crash in its largest trading partner and heavy competition from China. Diversification is and has always been essential, but this has always been easier said than done.

Venezuela's President Hugo Chavez (Karita/AP)

In 2011 Jack Layton, the left of center leader of Canada’s New Democratic Party, changed the political landscape of Canada by campaigning for his party’s position as the third party in the Canadian political system. The New Democrats, known as the NDP, always was Canada’s third party behind the Conservative Party and Canada’s natural governing party by perception and history, the Liberal Party of Canada. The NDP had only one seat in Quebec before the 2011 election, trumped by Quebec’s representative party the Bloc Quebecois. During the campaign, Mr. Layton was recovering from cancer and was always seen with a cane to help him during his post treatment, but appeared somewhat healthy and positive. His campaign shocked the country when despite the current Conservative government winning the election by taking seats from the Liberals, Layton’s NDP wiped out almost every Bloc seat in Quebec and feasted on the Liberal vote reducing them to not only the third position with the lowest number of seats in Liberal party history, but almost wiped them out along with the Bloc. Layton certainly changed the political landscape of Canada, but a few short months later a recurrence of his illness caught up to him and he passed away soon after his greatest political achievement.

There was not much discussion on the effect Layton’s illness might have had on his positive electoral successes, but an illness certainly can have an effect on a political campaign. When John Edward ran to be the Democratic hopeful, and later petitioned to run with President Obama in 2008, many focused on his support for his wife who was fighting a recurrence of breast cancer at the time. What might have given him support for being a wonderful husband, tarnished his reputation when it was discovered that he was cheating on his wife around the same time he was helping his wife battle cancer, according to sources. While Elizabeth Edwards had to fight a recurrence of the disease that ultimately took her life, Edwards stepped out of the public spotlight as his reputation was destroyed by his actions, turning his great compassion for Elizabeth into the definition for how to be an uncompassionate husband.

The question of illness and political campaigns has returned with Venezuelan President Hugo Chavez in a tight race for re-election against his rival in Venezuela, Henrique Capriles Radonski. Today, Chavez has returned again to Cuba for cancer treatment in a fight against his illness that has returned recently, right before his next six year bid to remain as Venezuela’s president. Analysts on Chavez have weighed in on the effect his cancer has on his ability to win the next election in Venezuela. Other possible candidates in Chavez’s party were seen as unable to win against Capriles in recent surveys and Chavez and Capriles were seen as having a statistical tie in recent polls. The effect of cancer on Chavez’s future bid was seen as helping him gain the sympathy of many supporters and undecided voters, while the effect of his ongoing illness on another six year term made many think he may not be healthy enough to remain as a strong President over the next few years. It is hard to say how cancer or an illness can change the electorate’s view on a candidate, but it is certain that there is probably some influence it has on how voters view potential leaders and the strength of their character.

This may be a blessing in disguise, as I argue in a World Politics Review briefing. Here’s part of the rationale:

The oil sector’s emergence signals an improved security environment, which may draw foreign investment into other sectors of the economy. But the current rate of production is unlikely to harken the sort of frenzy, now evident in Brazil, that could disadvantage other parts of the economy or necessitate repeated political pledges to spend oil revenues on new social programs.

Graphic from economist.com

Recently, the USAF cancelled its order of $355 million to purchase the Super Tucano from Embraer and its American partner to the surprise of everyone involved. While there is no clear evidence that the cancellation was a possible outcome of Brazil’s choice of the French fighter, protests from the companies involved in the contract in Brazil and the US seem to be quite serious with the US Department of Justice and the USAF both conducting investigations into the contract. Despite Embraer and its US partner winning the contact late last year, the competitor to the contract has challenged it and the Department of Justice and USAF officials have taken to looking into some details in the agreement and have cancelled the contract for the time being. Despite this, the USAF still expressed their interest for the Super Tucano and hoped that these planes would eventually equip their Afghan allies in that region. Embraer and its US partner expressed their strong dissatisfaction with the recent cancellation and said they do not know what issue or detail in the agreement caused the investigations. The Brazilian government expressed its position in its own strong words, supporting Embraer and the Super Tucano team in the US.

While legal contacts for the international sale of any large equipment is usually complicated due to the nature of dealing with two legal systems that often try to benefit one party against the other, government procurement contracts linked to defence and national policy makes these legal agreements subject to political whims. Special interest groups for large industrial contracts always have a great deal of influence over the choice of contact, especially in a large industry like aviation that can produce jobs for more than one generation. Factoring in the pressures of the US-Brazil relationship, the view of the US in the Southern Cone and past issues like the Tucano sale to Venezuela, the Brazilian government’s reaction should be no surprise to anyone involved in the agreement. Whether it is Embraer versus a smaller US firm or giants like Boeing and Airbus eternally waltzing in various court battles, legal challenges seem to make a lot of money for any lawyer who chooses to service the aviation industry.

FARC rebels. (AP/Scott Dalton)

The last few days have been remarkable in the eyes of many in the West who see certain countries or rebel groups as the main source of conflict internationally. Despite Iran pushing against Israel and the US over its nuclear program, and Syrian rebels being crushed in Homs, the last few days resulted in North Korea renouncing its nuclear weapons program and the FARC in Colombia announcing they will no longer use kidnapping as a funding/terror source and will release the last remaining hostages, some being held for over fourteen years. These announcements came with Hugo Chavez struggling to keep healthy and possibly privately considering stepping down as President of Venezuela despite reporting he is recovering from cancer. While these announcements are certainly positive for the US and its allies, the result of diplomacy and armed intervention seems to have made a difference in North Korea and Colombia, but issues still exist of course.

Considering the influence Hugo Chavez has had on leftists in Latin America as well as abroad, the loss of President Chavez would certainly have a noted absence for the leftist movements in the region. While issues close to the hearts of leftists would not disappear, the voice of many of their causes would lose its most principal and known advocate in Latin America. With inequality still a major issue in the region and poverty an irresolvable issue, corruption and dignity will continue to clash in a region that has one of the largest disparities in income globally. Realistically, those who have experienced cancer in their lives or with relatives and friends know that aggressive treatment is not always successful and strength as well as luck is sometimes not enough. Despite this, Hugo Chavez has chosen to fight his illness as he has his opponents and this might make the difference in the end for his own personal health.

North Korea recently inherited a new leader in Kim Jong-un. No one really knows where Kim Jong-un will take North Korea, but what is known is that generals and officials in the country who worked under his father have a great deal of control and influence over the new young leader. Recently someone in North Korea’s top brass decided they are renouncing their nuclear weapons program. While this has happened in the past without a true reduction or stop to it’s nuclear program, it is hoped that this will not be the case this time. Like North Korea, Colombia’s FARC also announced they would stop kidnapping as a means of funding/terror. The last few years the FARC have been stripped of much of their leadership resulting from a combined and coordinated assault on their forces and means of conducting combat by the Colombian government. While there are still many violent attacks on Colombian society by the FARC and in the past offers to end kidnapping failed, the recent announcement is thought to be a move that may lead to a future peace talks between the government and the FARC. Despite reservations on North Korea and the FARC, these two new developments are still positive and welcomed for those in the West and in Colombia.

What the decline of a hallowed institution says about Argentine politics, and why Chavez shares the blame.

The Economist recently announced it will no longer publish inflation figures supplied by the Argentine government because of chronic underreporting of official figures—by half, according to just about every independent surveyor—and the politicization of INDEC, Argentina’s official statistics agency. Here’s part of the explanation:

What seems to have started as a desire to avoid bad headlines in a country with a history of hyperinflation has led to the debasement of INDEC, once one of Latin America’s best statistical offices. Its premises are now plastered with posters supporting the president, Cristina Fernandez de Kirchner. Independent-minded staff were replaced by self-described “Cristinistas”. In an extraordinary abuse of power by a democratic government, independent economists have been forced to stop publishing their own estimates of inflation by fines and threats of prosecution.

For decades, INDEC functioned as a state-run statistics bureau largely free of state meddling, a rare bird in Latin America. This allowed INDEC to suckle bright young academics like Raul Prebisch, he of the Prebisch-Singer thesis, and an intellectual forefather to import substitution industrialization.

I’d like to add a postscript to the article, and it concerns the regional context: Hugo Chavez has wrecked institutions across much of Latin America. As Javier Corrales, professor at Amherst College, argues, Chavez has finagled “the export of corruption.” In Argentina’s case, Chavez anteed up for Argentine bonds that no one else would buy, thereby allowing Nestor Kirchner to refuse payment to the IMF. Chávez bought more bonds under Cristina’s watch, and then offered some sweetheart trade deals through ALBA membership. Finally, there’s “maleta gate,” in which a Venezuelan man got caught at the Buenos Aires airport with $800k in greenbacks: the money’s origin is widely thought to have been Chavez; the destination, Kirchner’s re-election coffers.

Of course, the Argentine people are the main losers from INDECs decline—they get the nuisance of 20-plus percent inflation. This could also mean the loss of opportunity for the next generation of academics like Prebisch, who won’t be able to cultivate their talents without leaving the region for the US or Europe. In sum, without Chavez’s backing the Kirchners wouldn’t have been able to bend state institutions so completely to their political gain.

Graphic from washingtonpost.com

With the BRICS making up the largest block of nations having the best growth rates over the last few years, it makes some sense to create a bank that can be funded by these nations. Despite it being a basic idea at the moment, the BRICS.D.B. would help them and other BRICS candidates like Mexico and Turkey and anyone else who qualifies for funding. While development banks already exist in the regions where BRICS operate, their links to the US and Europe when those regions are in economic distress might make a strong point for a BRICS.D.B. To separate the BRICS funding from the US and Europe might be difficult. Currently China and Europe are discussing funding assistance from China to the EU, building ties between the two interdependent regions. It is questionable whether BRICS nations have enough in common to sustain a development bank or any common policy. The reality is that Brazil and India, China and Russia, and South Africa have different goals, different people, different policies and differing interests that often oppose each other or have very little in common. Brazil supported the idea of the BRICS.D.B. suggested by India, but with a number of failed associations in the Americas that Brazil had been supporting, it is hard to say whether or not economic growth in a set of collected and labelled nations is enough to share a development bank to fund other nations that have no ties to the BRICS. Perhaps the inclusion of at least one BRICS official with sympathy towards the BRICS would sink the idea of a BRICS.D.B. This could be a move to ensure this will happen.

Robert Zoellick, an American and current head of the World Bank announced he will step down this June from his position. The appointment of Christine Lagarde French national at the IMF over her rival Mexican Central Bank Governor Agustin Carstens last year re-confirmed the tradition of a European as the head of the IMF and an American as the head of World Bank. The current candidacy of the World Bank might woo Mr. Carstens if a push by BRICS nations to separate themselves from the current system encourages a head that straddles US interests and BRICS interests. Carstens has lead Mexico through the 2008 economic crisis and reduced trade with the US and drug violence in Mexico to give America’s NAFTA partner one of the largest reserves in Mexico’s history. As a possible future BRICS and close American ally, this move by India and Brazil’s support may not produce a BRICS.D.B, but it could help pro-BRICS interests into one of the top positions in the World Bank. Certainly a clever move by the BRICS if this is the case. Good luck Agustin?

In the past decade, for the first time in 500 years, South America has taken successful steps to free itself from western domination, another serious loss [to US primacy]. The region has moved towards integration, and has begun to address some of the terrible internal problems of societies ruled by mostly Europeanized elites, tiny islands of extreme wealth in a sea of misery. They have also rid themselves of all U.S. military bases and of IMF controls. A newly formed organization, CELAC, includes all countries of the hemisphere apart from the U.S. and Canada. If it actually functions, that would be another step in American decline, in this case in what has always been regarded as “the backyard.”

Of course, Chomsky fits this into the master narrative of US decline across the globe. The United States built its superpower rise on lessons from intervention after intervention in Latin America. Does US disengagement from the region signal the loss of America’s superpower status?