H I G H L I G H T S
● Political Developments
● Economic Developments
● Focus India-LAC
Brazil President Jair Bolsonaro suffered another setback in mid-October with the publication, and public broadcast of a 1179-page report by the Senate, accusing him of crimes against humanity (intentional 'extermination' of half the Brazilians dead) and other charges for allegedly bungling Brazil's response to COVID- 19, leading to the World's second-highest pandemic death toll - over 600,000 and counting by October. The Senate report, which was passed by the committee to the Auditor General Augusto Aras for indictment, recommends charges for 65 other people, including Bolsonaro’s three lawmaker sons, several top government officials, and two companies accused of involvement in artificially inflated vaccine contracts (refer LAC Review July 2021). It accused Bolsonaro of rejecting the advice of public health experts, railing against masks, physical distancing measures and vaccines in addition to pushing unproven remedies such as hydroxychloroquine. In the past year and a half, three different health ministers resigned or were fired from their posts. While this development has been welcomed within and outside Brazil, its impact on criminal indictment, leave alone impeachment, is moot. The Attorney General was appointed by Bolsonaro, and Brazilian politics is considered fairly incestuous, making it unlikely Congress will vote to impeach. Bolsonaro’s image and popularity however, and his chances at re-election have been severely dented. He has hit back at his critics and mobilised lumpen support from his base, but the writing on the wall is getting clearer.
Mexico’s President Andres Manuel Lopez Obrador (AMLO) articulated his ideas on Mexico’s place in Latin America and the hemisphere. Speaking on the eve of the summit meeting of the Community of Latin American and Caribbean States (CELAC) in Mexico City on 18/19 September, the second hosted by Mexico after it was re-elected to the chairmanship in 2021, he declared “It is time to….. dialogue with US leaders to convince them that a new relationship among the countries of America is possible… the substitution (of the Organization of American States - OAS) with a truly autonomous body, a lackey to no one... something resembling the current European Union” This was in the context of widespread dissatisfaction within Latin America over the orientation of the OAS (founded in 1948 and including all countries of the hemisphere minus Cuba). Founded in 2011 without the US and Canada, to provide a forum for the region south of the Rio Grande (the border between the US and Mexico), CELAC is viewed by US allies in the region as left-oriented, especially under the chairmanship of AMLO’s Mexico, which has good relations with Cuba, Venezuela and Nicaragua. Mexico does not recognise the ‘interim’ Venezuelan president Juan Guaido and is hosting talks between the regime of Nicolas Maduro and the opposition. Maduro also turned up at the summit, triggering controversy immediately, since he is not recognised as president by several countries in the region. While the OAS has an extensive network of programs and budgets, CELAC is more a forum where political leanings are revealed, and has not been very active nor effective since its birth.
Peru President Pedro Castillo asserted his authority in early October by replacing his ultra-left wing Prime Minister Guido Bellido by the more moderate Ms Mirtha Vásquez, of the Frente Amplio party “in favor of governability”. He replaced six other cabinet members. Castillo was elected with the support of Peru Libre (Free Peru), controlled by Marxist Leninist Vladimir Cerron, whose contentious ideology does not sit well with the President’s desire to attract foreign investment. Castillo called it the start of a new phase of his government, though Cerrón called it a betrayal, saying his party does not support the new cabinet. The departure of three right-wing Presidents in the previous term and widespread popular disgust at corruption and nepotism enabled Castillo to defeat a strong right-wing bastion led by the daughter of former President Fujimori. It will be interesting to see how Peru’s economic policies evolve in a climate where left-right politics has often impacted sustainable governance and clouded much of Latin America’s attractiveness for foreign investment.
El Salvador moved further towards tight political control: some already call it a dictatorship. On 10 September the Supreme Court’s Constitutional Chamber, put in place just four months ago by President Nayib Bukele’s party, ruled in favour of his re-election, flouting all constitutional constraints and a recent advisory opinion issued by the Inter-American Court of Human Rights. Earlier on 1 May, Bukele carried out a purge of the Constitutional Court and on 31 August chucked out the Attorney General and judges aged over 60 in the Supreme Court, appointing his own in their place. Despite Bukele’s strong-arm tactics, his popularity is high. Several Salvadorans feel the country is safer, with less criminality. He has also implemented Bitcoin as legal tender, on grounds this will democratise wealth, and has exempted gains from Bitcoin from income tax.
Argentina’s politics underwent tremors in September after the ruling coalition Frente de Todos (Combined Front) suffered a major defeat in primary legislative elections, which could foretell a loss of Congress in November to the opposition coalition Juntos por el Cambio (Together for Change). The ruling coalition was the result of clever manouevering by controversial former president Ms Christina Kirschner, who chose the post of Vice President to Alberto Fernandez, elected President in 2019, defeating the right-wing coalition after the latter’s desultory economic performance. Governing has not been easy for Fernandez. Despite a prolonged COVID lockdown that exhausted most Argentines, the country’s death rate is among the highest in Latin America. In 2020 the economy shrank by 10 percent. Kirschner berated him after the poll loss and threatened to pull her supporters out of government, leading to a massive reshuffle, including the chief of the cabinet and the Foreign Minister. Apart from her overbearing style, which often paralyses government, Kirschner also insists on populist economist policies at a time when Argentina is going through economic agony – its economy is, in real terms, the same size as in 1970, according to analysts, while its debt is growing.
The Pandora Papers scandal exploded in LAC in September when files of legal- and financial-service companies were leaked to the International Commission of Investigative Journalists (ICIJ). 14 of the 35 current and former heads of state named in the reports are from LAC. Implicated in scandals are Presidents of Ecuador Guillermo Lasso; Dominican Republic’s Luis Abinader and Chile’s Sebastian Pinera – through his children; as well as Brazil’s high-profile Finance Minister Paulo Guedes. Famous Latinos include Colombian pop star Shakira; Alejandra Guzmán, Chayanne, and Luis Miguel. According to one analysis, 27 percent of Latin American wealth is stored in offshore accounts, compared to 11 percent for Europe and 4 percent for Asia and the United States. Keeping the money offshore causes yearly tax revenue losses of over $21 billion across the region. A similar ICIJ megaleak in 2016, the Panama Papers, did not lead to much regulatory change in the region. Over 500 British Virgin Islands shell companies documented five years ago simply transferred their management away from Mossack Fonseca to other, similarly shadowy firms.
On 8 October the Finance Minister of Brazil, Paulo Guedes, announced an agreement along with Argentine Foreign Minister Santiago Cafiero, to reduce tariffs of MERCOSUR (Southern Common Market) by 10 percent. Mercosur – a customs union including Brazil, Argentina, Uruguay and Paraguay – came into existence in 1991, but has been plagued by internal contradictions. The prevailing view is that the Common External Tariff (CET) that MERCOSUR applies to all imports from outside the union, in its current form is an instrument that primarily exists to protect obsolete Argentine and Brazilian industries from global competition. The group can only negotiate tariff agreements, or reduce its own by consensus, which has been difficult to reach primarily because of Argentina’s reluctance to open its markets This in turn has provoked the other three partners to actively start negotiations with other countries, and threaten to sign agreements independently.
AidData, a research lab at the William and Mary University in Virginia, USA, has published extensive research on China’s financing under the Belt and Road (BRI) Project, some in collaboration with other prestigious institutions such as the CSIS, Keil Institute and the Peterson Institute. The September 2021 Banking on the Belt and Road report gives new updates (china.aiddata.org), and detailed records for 13,427 projects worth $843 billion across 165 countries in every major world region from 2000 to 2017. The report found that 35 percent of the BRI infrastructure portfolio was hampered by implementation problems—such as corruption, labour violations, environmental hazards, and public opposition—while 21 percent of non-BRI projects had similar issues. Most Chinese development finance to Latin America over the past 15 years was committed before governments signed BRI cooperation agreements. Since 2015, the profile of Chinese government funding for Latin American infrastructure has shifted dramatically. Loans to Latin American governments from Chinese government banks fell to zero in 2020 while direct investments by Chinese firms in the region, many of them state-backed, were on the rise preceding the pandemic. Several projects in LAC have been affected negatively by cost overruns, corruption, and adverse effects on the local economies, apart from tying up the resources of recipient nations as collateral for BRI loans.
On 30 September, Venezuela cut off 6 more zeros from its currency, the Bolivar, renaming it the ‘digital bolivar’. Severe inflation in Venezuela has rendered the Bolívar the lowest valued currency circulating globally: nearly 70 percent of transactions conducted in the country are in U.S. dollars. The central bank does not publish inflation statistics anymore, but the International Monetary Fund estimates that Venezuela’s rate at the end of 2021 will be 5,500%. Banks allowed customers to withdraw a maximum of 20 million bolivars in cash per day, sometimes less if the branch was running short. The highest denomination until now was a 1 million bolivar bill that was worth a little less than 25 US cents. The new currency tops out at 100 bolivars, just under $25. The state-backed cryptocurrency the Petro, launched in 2018 and supposedly backed by the country’s oil reserves, has yet to become legal tender. Venezuela demonetised earlier in 2008 (President Chavez) and 2016, when President Maduro abruptly announced that all notes of 100 Bolivars would be replaced by those of 500 Bolivars. Venezuela has lopped off 14 zeroes from its currency in 13 years!
Focus India LAC
September/October were productive months for India-LAC interaction. Colombia’s Vice President (and Foreign Minister) Ms Marta Lucia Ramirez visited India early October and met with External Affairs Minister (EAM) Jaishankar, apart from her counterpart and other high officials. Her delegation of around 50 included the Minister of Health, Vice Minister of Science and Technology, along with technocrats from the ministries and businessmen who visited Pune, Hyderabad and Bengaluru. She got a thorough briefing from EAM, including our priorities on UN reform (Colombia is in the Coffee Club that resists expansion of permanent membership) and also focussed on Colombia’s priorities in health – primarily COVID vaccine technology and manufacturing capability. Also on the agenda were space collaboration and other areas of bilateral cooperation, such as India’s investments in hydrocarbons in Colombia. Her visit was preceded by a visit of MOS External Affairs, Meenakshi Lekhi to Bogota in September. EAM spent 3 days in Mexico 26-28 September, to commemorate 200 years of independence, and also consolidate India’s Privileged Partnership with Mexico, which has over 80 Indian companies invested in the growing market. Other visits included that of Secretary (East) in MEA to El Salvador, Costa Rica and Chile for Foreign Office Consultations in September.
The importance of this traffic cannot be underestimated. Apart from the interaction of the leaderships and bureaucracies, there are important agenda items the Latin Americans are taking very seriously. Annual trade with Mexico has crossed $10 billion; Colombia over $2.2 billion; Chile over $1.5 billion. El Salvador, Uruguay and Costa Rica opened Embassies in India years ago but are covered by India from other countries. Indian embassies have recently opened in the Dominican Republic and Paraguay, taking the total in the region to 16. MEA’s renewed vigour will yield dividends if it is sustained.
The previous issues of Latin America & Caribbean Review are available here: LINK