Dear All,

For those not aware, my blog is now www.latampolitics.com

Thank you,

Thiago de Aragao

Dear All,

My blog has changed to www.latampolitics.com . 

I hope you all enjoy the new layout. Any suggestions or criticisms are welcome. 

WWW.LATAMPOLITICS.COM

Best,

Thiago

This institutional crisis aggravated after the approval of the Constitutional Reform. To ratify it, it is necessary a popular referendum. Since President Evo Morales’s adversaries did not participated in the session in which the National Assembly ratified the Reform, they do not recognize it.

Besides that, the opposition have heavy criticisms in relation to the destination that the government is giving to the Direct Tax on Hydrocarbons (IDH). Evo Morales shifted the tax that was sent to the provinces derived from the gas and oil explorations, to a Grant for people over 60 years of age.  These resources are considered by the opposition provinces (Beni, Pando, Tarija and Santa Cruz) to be crucial for their financial balances.

In addition to all that, these provinces, known as “Media Luna” are determined to acquire their autonomy from the La Paz government.

Based on that situation, we have three possible scenarios:

1.     Civil War between government and opposition: Today it is not possible to affirm that this will occur. Nevertheless, the escalation of conflicts and the behaviour of the opposition indicate that this is a scenario that cannot be disregarded. In absolute terms, this possibility is still very small. It is the last consequence for both sides. Among the several problems that this catastrophic event would bring, we are able to identify sensible points in which Brazil and other South American nations would encounter:

a.     The distribution of natural gas would be completely affected. The gas pipes would be among the main targets of opposition groups, with the intention to gather the attention of the international community. Besides, the efforts to guarantee the distribution logistics would be insufficient. In Brazil, industries related to food, beverage and ceramics would be heavily affected in the Southwest and Southern regions.

b.     In Argentina, the situation would be even worse. The industries in the Buenos Aires regions are very dependent on the Bolivian gas. Besides, Argentina is an important gas supplier to Uruguay and Chile. In Chile, a significant amount of the industries are heavily dependent on the Bolivian gas distributed by Argentina.

c.     Politically, many countries would be directly affected. Brazil would have to deal with approximately 400 thousand refugees. Argentina would have to accommodate approximately 100 thousand in the Jujuy, border region.

d.     In the eventuality of a civil war, there would be the risk that the conflict could GO beyond Bolivian borders. Indigenous population that sees in Evo Morales their leader inhabits the borer with Peru. With the heavy local influence of Peruvian opposition leader, Ollanta Humala, He could use the situation to try to destabilize Alan Garcia’s administration.

e.     There is an important military agreement between Bolivia and Venezuela. The agreement foresees and eventual Venezuelan intervention in the case of a domestic threatening situation that puts risk to Morales and the Bolivian government.

2.     Maintaining the division in the country: This is the most possible scenario. Due to the intense control Morales exerts over social movements, as well as the legitimacy He earned in the last referendum, indicates that the opposition does not have enough strength to cause the downfall of Morales. On the other hand, the deepening of the Bolivian crisis suggests that the opposition will not retreat in its quest for autonomy. The instability environment is more apt to be the ruling situation for a while. The profiles of the opposition and the government are of total antagonism. The causes defended by each of the sides make it virtually impossible to find a middle term. Recently, the president of the Civic Committee of Tarija Said that the only way out would be to adopt the “German model, one east and one West”. In case Morales manages to perpetuate in power, than we can expect a scenario closer to the first one.

3.     Deal between government and opposition. The chance of this happening today is close to zero. The bellicose environment installed in Bolivia shows that the country is closer to an institutional collapse than to a deal between the two parts. The dialogue is practically inexistent. The deal is far from happening since there is no structure or basis for an eventual deal. Brazil could be the one to architect a deal of this natures, but it has been the characteristic of this government not to participate in situations like this. The argumentation used by the Brazilian Foreign Affairs is that this is a domestic issue in Bolivia. In case the tensions escalate a little more, the repercussions and prejudices will easily affect all the region and especially Brazil.

Considering the atmosphere of the Brazilian Petroleum Institute (IBP) meeting in Rio de Janeiro, last week, there is as yet much to be discussed. The industry is united around Petrobras and, there is also a movement for minority shareholders to take judicial action to avoid having the company negatively affected.  Another vector of confusion is the possibility that exploitation contracts might be annulled, which would affect the country’s image and Investment Grade.  Curiously, Petrobras, that always maintained an arrogant posture in relation to other industry companies, now seeks support amongst the private sector, which it needs to face the threat of the new state-owned company.

According to the Radar column in this weekend’s Veja magazine, all the material debated in the interministerial committee meeting pertaining to pre-salt layer exploitation, has been in Edison Lobão’s office since Friday. It is up to the Ministry of Mines and Energy to provide the final text for the alternatives, which will be submitted in two weeks time for President Lula to render a final decision. However, the debate goes much further.  Besides the interministerial committee, the Mega Council (CDES) will also submit proposals to the President, as will the Political Council.

It is highly unlikely that the government’s proposition for pre-salt layer exploitation will be defined in such a short period of time.  Another aggravating factor is that Petrobras feels that it is being intimidated by the proposition to create a new state-owned company.  Last week, in an attempt to harmonize relations between the company and government, President Lula met with the Petrobras board of directors to talk.  The meeting did not include Dilma Rousseff.

An exclusive article in this weekend’s Veja magazine includes a dialogue proving that government spies (Abin) recorded conversations of the Chief Justice of the Supreme Federal Court, Gilmar Mendes. Federal and Congressional authorities were also spied upon. Mendes and President Lula will meet this Monday to discuss the issue, which is annoying the Republic.

According to the Abin agent that passed on information to the magazine, under the condition that his name would not be released, illegal bugs placed on Mendes, are far from being an isolated action, and is almost becoming routine in Brasília. The targets, name by which spied victims are known in investigator slang, usually occupy important positions.

The accusation is serious and might rock the boat in Brasília. In the House, the Illegal Phone Tap CPI (Parliamentary Inquiry Committee) is underway.  The magazine stated that José Dirceu told Lula that he was being targeted by the illegal operations and accused Tarso Genro (Justice).  The opposition may submit a requirement summoning Dirceu and Genro to render depositions.

Whatever the case, it is as yet early to talk about an institutional crisis. It will depend on how President Lula and the government’s political coordination will conduct the issue.

Hugo Chavez announced his intention in creating political bases in African soil. Arriving in South Africa for an official visit, Chavez said that he aims at “creating political and legal bases to antecipate bilateral cooperation”. Chavez added to his comment that his goal is to “spread the basis for South-South cooperation in the beginning of the 21^st century”. To Chavez, South America is heading towards a “new independence” from neoliberal and imperial forces.

In his evaluation, there is in Africa a renewal movement that seeks paths of sovereignty to its people. He believes that the Bank of the South must not be restrained only to South America, but to Africa and Asia as well.

We can deduce from past behaviour that Chavez is again focusing on his foreign policy instead of domestic policy. His new laws that approved many bills that have been rejected by popular referendum last year, caused some internal problem to him. He will step on the brakes for a while (domestically) preparing the terrain for the municipal elections in November. Until then he will oscillate high foreign profile with low domestic profile.  

The negotiations between Peru and China related to a Free Trade Agreement (FTA) will probably extend until 2009, since there are major differences in tariff deductions. The access to the markets is the main obstacle to advance the negotiations. Recently, Peru finalized a FTA with the USA.

The FTA with China will come in handy for Alan Garcia. In economic terms he is doing a good job. The economy is growing in solid, constant rates (over 7%) and visibly we can notice improvements in infra-structure in cities such as Lima and Arequipa. In the other hand, politically Garcia does not seem to have learned the lesson. He is governing for Lima and other industrialised cities. His participation in poorer areas of the country is not satisfactory.  

Venezuela will buy training airplanes and combat jet fighters from China at the same time that is offering its territory for Russian planes and ships to stop by when necessary. This information was given by President Hugo Chavez. Chavez did not specified which weapons he will buy from China in a negotiation that will begin in two weeks.

This information pushes Brazil to accelerate the buying of jet fighters, which the main contender is are the French (Dassault Rafale) and the Swedish (Gripen NG), helicopters and submarines, which will probably be French, according to conversations with the Ministry of Defense. With the acquisitions being made by the Venezuelan government, the Brazilian Press questions whether the government will remain behind in the South American arms race, or will level things up. 

Interview for Australian Broadcasting Company (ABC) on Brazilian economic growth