H I G H L I G H T S
● Political Developments
● Economic Developments
● Focus India-LAC
Ukraine-Russia: Latin America and the Caribbean (LAC) continue to be divided in their response to the war in Ukraine. Cuba and Nicaragua – along with Bolivia – voted on April 7 in the UN General Assembly against expelling Russia from the United Nations Human Rights Council over atrocities committed by its forces during the war in Ukraine, shifting from their previous, more cautious abstention votes to signal their open support for Moscow. Interestingly Mexico and Brazil, which supported the US/Albania resolution condemning Russia in the UN security Council on 2 March – abstained from voting, along with El Salvador, Barbados, Belize, Guyana, Saint Kitts and Nevis and Saint Vincent and the Grenadines. Venezuela was absent – possibly so as not to alienate the US with which it is in dialogue to lift sanctions on oil exports (see below). The UN General Assembly resolution on Ukraine on 2 February had drawn overwhelming support from LAC. Venezuela was absent, Cuba, Nicaragua, Bolivia and El Salvador abstained. 29 of the 33 nations in the region voted for the resolution.
Earlier on 25 March, the Washington-based Organisation of America States (OAS) passed a resolution, with 28 votes in favour, none against, 5 abstentions (Bolivia; Brazil; El Salvador; Honduras; Saint Vincent and the Grenadines) and one absence (Nicaragua), to “call on the Russian Federation to immediately withdraw all its military forces and equipment within Ukraine’s internationally recognized borders and return to a path of dialogue and diplomacy.” The resolution also referred to the ‘unacceptable’ humanitarian situation. On 24 February, after the commencement of Russia’s aggression, the OAS Secretary General’s office declared: “Russian aggression constitutes a crime against international peace. The armed attack perpetrated against Ukraine’s sovereignty and territorial integrity is reprehensible and constitutes a very serious act of violation of international law…”. Twenty-one countries backed the declaration, including Mexico. Argentina, Brazil, Bolivia and Nicaragua did not support the statement but expressed their firm rejection of the use of military force to resolve the conflict. A day after the OAS pronouncement, the Community of Latin American and Caribbean States (CELAC), a regional organization created in 2010 that excludes the United States and Canada, and serves as a platform for China and Russia to collectively address regional countries, was unable to issue a joint statement.
The Ukraine crisis has thrown into sharp relief the energy needs of the world at large, and the west in particular. Apart from accelerating negotiations with Iran, a US delegation led by Juan Gonzalez, Director in the National Security Council, visited Caracas after hinting that US sanctions barring Venezuela oil exports for the past few years may be lifted. The low-key meeting – with a government not formally recognised by the US – was described by President Nicolas Maduro, himself sanctioned by the US with a $15 million reward for his arrest over drug smuggling charges last year, as “respectful” and “very diplomatic”. After agreeing “to work on an agenda moving forward” Venezuela released two jailed US nationals and indicated continued participation in stalled talks with the opposition in Mexico. The US move seems more tactical than strategic, given the Maduro regime’s strong support to Russia over Ukraine. Venezuela at peak produced around 3.7 million barrels daily in the 1990s. Years of underinvestment, mismanagement and more recently, U.S. sanctions on Venezuelan national oil company PDVSA have hit oil production, which reached 755,000 bpd in January and could go up to 1.2 million bpd in the short term. Maduro declared after the talks that Venezuela will produce 2 million bpd by the end of this year.
On 3 April, Costa Rica elected as President the conservative economist Rodrigo Chaves. With 53% of the vote, Chaves defeated the former president José Figueres Ferrer (1994-98) of the establishment National Liberation Party (PLN), who represents a powerful dynasty (his father had also been president). Former Finance Minister Chaves, representing the newly formed Social Democratic Progress Party, was accused of running a parallel financing structure and was demoted in his post at the World Bank where he worked for 30 years, because of sexual harassment allegations. Costa Rica, which prides itself on its democratic traditions (the 1948 constitution abolished the army) and ecologically sensitive tourism, is also facing economic troubles, accentuating voter focus on corruption. Chaves’s party has only 10 seats in a parliament of 57, but he claims he will use referendums to carry out reforms if necessary. While this is improbable, his mandate is a sign of public weariness with corruption and inequality.
Political volatility resulted in two separate events to test incumbent legitimacy. In Peru, President Pedro Castillo, in power barely four months, survived a second impeachment attempt in late March. A hostile opposition accused him of “moral incapacity,” the same charge – which does not provide for judicial oversight under the constitution – that removed former President Martín Vizcarra in November 2020, leading Peru into a crisis with three presidents in fewer than 10 days. Castillo has lost considerable political and public support, despite softening his radical leftist stance. Most analysts however, blame the political party system which engenders vested interests. The political uncertainty has led to capital flight and low investor confidence. In Mexico, President Andres Manuel Lopez Obrador (AMLO) held a recall referendum on 10 April. Over 90 percent voted in his favour, but with less than 20 percent turnout, the referendum was non-binding. AMLO completes his term in 2024, and cannot be re-elected. The left-wing leader, who won the presidency after three attempts, has always deprecated the judiciary and other state institutions, preferring direct appeals to his supporters. Labelling it a propaganda exercise, the opposition had appealed to people not to vote.
Colombian President Ivan Duque’s visit to Washington in March yielded and announcement by President Biden to admit the US’s closest Latin American ally as a “major non-NATO ally”. This distinction is enjoyed by about a dozen countries, including Brazil and Argentina, but does not include the NATO defence umbrella provided by Article 5 of the charter to NATO members. The US provided over $10 billion in military and civilian aid under Plan Colombia this century, initially to fight the menace of narcotics. Colombia has been cooperating informally with NATO since 2013, and in 2017 was designated Latin America’s first global partner of the alliance. An Individual Partnership and Cooperation Programme in May 2019 formalised the recognition and opened access to the full range of cooperative activities that NATO offers to its partners.
In a low-key development, the US administration reopened its consulate in Havana, Cuba early March. The US Embassy – earlier serviced nominally by the Swiss – was reopened after the 2015 reestablishment of relations by Presidents Obama and Raul Castro. After alleged “sonic attacks” by Cuban agents against diplomatic staff in 2017, a US government report in 2020 said illnesses were most likely caused by “directed, pulsed radio frequency (RF) energy.” The mystery illnesses, labelled “Havana Syndrome”, were never conclusively proved to be the handiwork of the Cubans. The mission strength was however reduced to the bare minimum by President Trump. According to existing immigration agreements, the US should authorize 20,000 immigrant visas a year to Cubans. US interest in Cuba has not diminished but remains hostage to domestic politics, leaving President Biden unable to roll back the Trump administration’s tough line, and the Cuban administration accused of suppressing dissent in 2021, etc.
In mid-March Argentina’s parliament approved a deal with the IMF that would involve repayment of its debt of $ 45 billion. Argentina has a long history of indebtedness and earlier this century repaid considerable sums to get out of IMF’s shadow. In 2018, under the government of conservative President Mauricio Macri, the IMF approved its biggest-ever loan of $57 billion to Argentina and drew $44 billion. Macri’s successor, President Alberto Fernandez refused to accept the rest, seeking also to renegotiate repayment terms. Payments of $19 billion were due this year — a timeline the government considered impossible. Under the new deal, repayments will be made from 2026 to 2034 after a grace period. President Fernandez admitted that he “despised” the IMF, but the deal was the best alternative under the present circumstances, in the face of stiff opposition to the IMF’s terms. Argentina struggles with high inflation, high fiscal deficit and high debt.
The Ukraine conflict put in focus India’s campaign to source crude oil imports in a volatile market. Imports from Venezuela, once India’s largest supplier in LAC, have shrunk in recent years, though glimpses of a relaxation of US sanctions may re-energise the relationship. According to industry sources, Reliance Industries spent $ 1.5 million lobbying the US government in 2020-21 through the US firm Eversheds Shuterland to allow it to continue its arrangements to swap Venezuelan Merey 16 crude for diesel, apparently on humanitarian grounds, at prices 5 – 10 percent less than the US crude it currently imports. Till date the permission has not been granted. Mexico, on the other hand, which supplied over 130,000 barrels per day (bpd) to India, its third largest export market, is reducing exports as it sets up more domestic refining capacity. January-February 2022 exports to India by state oil company PEMEX have come down to 15,000 bpd from last year’s 98,000 bpd in the same period, though crude imports overall increased from $2 billion in 2020-21 to $3.2 billion in 2021-22. A visit by Brazil’s Energy Minister, Bento Albuquerque late April to India focussed on the possibilities for long term special contracts for supply of crude oil. India’s Reliance has been exporting significant quantities of diesel in exchange for Brazilian crude in past years. Crude imports from Brazil rose from about $360 million to $1.2 billion, while India’s exports of fuel oils rose from $930 million to over $2 billion in 2021-22 over 2020-21. Brazil’s position as a powerhouse of ethanol (from sugarcane) is another prospect. In 2020 three MOUs were signed and subsequent meetings and discussions on the production, regulatory and technological aspects of ethanol supply chains hold promise for collaboration in bio-energy.
The war in Ukraine and subsequent supply chain disruptions have brought to the fore the need to look for alternative sources of agricultural resources also. Latin America supplies billions of dollars’ worth of agri-imports like edible oil. India’s partial tariff reduction agreement with MERCOSUR (Southern Common Market: Argentina, Brazil, Paraguay and Uruguay) since 2004 has been under revision for years, with no success, largely because of vested interests and bureaucratic lethargy on both sides. There is an urgency now to expedite some aspects of this accord to enable India to import sunflower oil, now that Ukraine and Russia, the largest suppliers, are shut out. This would involve revision of some phyto-sanitary approvals, tariffs and quotas.
Cuba has reached out to India and secured a soft loan of 100 million dollars to import foodgrains and other edible products from India. A couple of years ago Cuba had received a Line of Credit from India to import Indian solar panels. Unlike in the past, when India had to write off about $68 million worth of debt, Cuba’s credit rating appears to have recovered.