Latin America News Round-up
August 10, 2011
U.S. Establishes Panel to Decide on Labor Law Violations in Guatemala
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For archives of past Round-ups, please click here.
Brazil and Southern Cone
Chinese automakers hunt for sweet spot in Brazilian market. China Daily
Brazil deputy tourism minister Costa arrested. BBC
Brazil president defends Amazon dam. AP
Brazil's revolution isn't leading to a welfare state. The Guardian
Argentina (and South America) “prepared to face rich countries economic crisis”. Mercopress
Chile riot police clash with student protesters. AP
Chile leader proposes civil unions, including gays. AP
Farmers Reject Paraguayan President's Proposed Tax. AP
Uruguay Prepared To Handle Renewed Global Turmoil -VP Astori. Dow Jones
Northern Andean Region
Venezuela's El Rodeo prison officials charged. BBC
Harvard Grad Swaps Cocaine Boss for IPO as Colombian Soccer Club Rebuilds. Bloomberg
Western Andean Region
China, Bolivia launch telecom satellite project. Xinhua
Bolivia’s Master Weavers Speak Without Words. Indian Country Today
Ecuador Min Analyzes Possible Impacts From Economic Crisis. Dow Jones
Peru, Ecuador share information to speed up border mine removal. Andina
Peru to end energy rationing Wednesday-minister. Reuters
Peru Sees Metal Export Revenue Falling on Slower Global Growth. Bloomberg
Mexico, Central America and Caribbean
Court Pleadings Charge U.S. Complicity in Mexico's Drug War. Inter-Press Service
Asylum for journalists under attack in Mexico. Los Angeles Times
Harper to help Honduras put up 'Open for Business' sign. Embassy
Warrants issued for Honduras ex-officials in US detention of drug trafficker. AP
U.S. trade officials work toward resolution on labor law violations in Guatemala. The Hill
'Green hunger' as starvation stalks fertile Guatemala. AFP
Panama Trade Deal Would Undercut Efforts To Get Rich Americans To Pay Taxes. Huffington Post
El Salvador Military Officer Sentenced for Arms Trafficking. InSight Crime
Hotel owner sought in Dominican journalist slaying. AP
Jamaica denied J$2b of foreign aid. Jamaica Gleaner
Region: Trade, Security, Economy and Integration
Morgan Stanley Says Latin America May Slow With Global Recession. Bloomberg
Nobel Winner Stiglitz upbeat about China, Latin America. Miami Herald
Debt crisis: A default in Europe could benefit poor countries. The Guardian
Brazil and Southern Cone [contents]
Chinese automakers hunt for sweet spot in Brazilian market
Li Fangfang. China Daily. August 9, 2011
A Jianghuai Automobile Co Ltd production line in Hefei, Anhui province. The company plans to invest $600 million in a production plant in Brazil to help raise its global market share. Provided to China Daily
BEIJING - Chinese automakers are keen to raise their presence in emerging markets especially in Brazil through the establishment of manufacturing facilities, after gaining a foothold in the vehicle export market.
The booming demand for autos in Brazil, the world's fourth-biggest vehicle market, offers attractive market potentials for Chinese automakers to garner volume sales.
Last week, Chinese automaker Jianghuai Automobile Co Ltd, also known as JAC Motors, said it is planning to invest $600 million in a production plant in Brazil, following the likes of Chery Automobile Co Ltd and Lifan Industry (Group) Co, in a bid to raise its global market share by increasing sales in the Portuguese-speaking country in South America.
According to JAC Motors' draft plan, the facility in Brazil will have a production capacity of 100,000 units annually, once production begins in 2014.
The idea of setting up a factory in Brazil originated from the South American country that has been the major destination of JAC vehicles outside China.
She Cairong, vice-general manager of JAC in charge of international business, said that "JAC vehicles are becoming popular in Brazil, with more orders than our supplies". The automaker started sales for the Brazilian market in March. With a network of 50 dealerships across 28 cities in Brazil, JAC said it exported 20,000 passenger cars to the country. The automaker expects monthly sales to average 3,000 units.
JAC started construction of a vehicle assembly plant in Argentina on May 16, which assembles JAC vehicles from knocked down kits sent from China.
JAC said that its decision to build an assembly plant in Argentina came in response to strict restrictions imposed on imports by the Argentine government.
Attractive markets include Mexico and Bolivia. JAC had sent a delegation to Mexico to better understand the market conditions there. In June JAC opened a sales center in Bolivia.
"JAC is the latest Chinese automaker looking to expand its operations in emerging markets as growth in the Chinese market slows and competition heats up," said Namrita Chow, senior analyst with research company IHS Automotive.
"If Chinese automakers can ensure adequate brand recognition in Brazil, the market offers good growth potential amid slowing overall growth rates in China."
IHS Automotive data showed that in 2010, there were 2.6 million passenger car sales in Brazil. By 2015, passenger car sales will have risen by 33 percent, and by 2020 passenger car sales are likely to have increased to over 4.5 million units. However, JAC will face competition from other Chinese automakers, who are hoping to capture a slice of the same market. Chongqing-based Lifan announced its plans of building an assembly plant and research and development center in Brazil on July 1, with a combined investment of $130 million.
Meanwhile, Chery Automobile has already begun construction of a $400-million plant in Brazil that will become operational by the end of 2013, with initial capacity of 50,000 units annually. The plant will eventually be expanded to handle a capacity of 150,000 to 170,000 units a year.
The three Chinese automakers have to strengthen their branding and image in the Brazilian market, if they want to win market shares from existing and new players, said analysts. The Brazilian market is currently dominated by Fiat SpA and Volkswagen AG, followed by General Motors Co, Ford Motor Co, and PSA Peugeot Citroen.
These established global players are themselves battling in the Brazilian automotive market through huge financial investments and accelerating product launches in order to maintain and expand their market shares.
Brazil deputy tourism minister Costa arrested
BBC. August 9, 2011
Brazilian Deputy Tourism Minister Frederico Silva da Costa and 37 other officials from the ministry have been arrested on corruption charges.
The police said they conspired to divert public money for private gain, charges they deny.
Almost 200 police took part in the operation to detain the suspects.
Mr Costa is the third high-ranking official to leave his post over corruption allegations since President Dilma Rousseff took power in January.
Prosecutors said the suspects had awarded contracts at inflated prices to complicit firms that often were not qualified to carry out the work.
The officials were arrested in the cities of Brasilia, Sao Paulo and Macapa.
The arrests come in the wake of allegations of corruption at the ministries of agriculture and transport.
Prosecutors seized a number of computers at the agriculture ministry on Monday, and Agriculture Minister Wagner Rossi has been asked to appear before an ethics commission to answer the allegations.
Mr Rossi is a member of the Democratic Movement Party of Brazil (PMDB), President Rousseff's largest ally in Congress.
Last month, Transport Minister Alfredo Nascimento and more than 20 officials resigned over allegations of kickbacks at the ministry of transport.
Mr Nascimento stepped down after a magazine alleged staff at his ministry were skimming off money from federal infrastructure contracts.
And in June, the president's chief of staff Antonio Palocci resigned after press reports questioned his rapid accumulation of wealth.
Brazilian paper Folha de Sao Paulo said Mr Palocci's net worth had increased 20-fold in four years.
All have denied any wrongdoing.
Brazil president defends Amazon dam
AP. August 9, 2011
SAO PAULO - Brazilian President Dilma Rousseff says the Belo Monte hydroelectric dam being built in the Amazon rain forest will not harm indigenous communities living in the region.
Rousseff says in her weekly column that the dam is fundamental for the economic development of the region and country.
She says that none of the indigenous groups in the area will have to leave their villages and that the dam was designed to minimize environmental damage
The $11-billion project is expected to produce up to 11,000 megawatts of electricity, more than 6 percent of Brazil's energy needs.
Environmentalists fear the project will lead to more dams in the Amazon, creating development that will mean faster deforestation.
Brazil's revolution isn't leading to a welfare state
Arthur Ituassu. The Guardian. August 10, 2011
Brazilian success is being vastly praised inside and outside the country and there are good reasons for this. In the last two decades, the Brazilian economy not only conquered the hyperinflation of the 1980s, but also reduced poverty by almost 70% since 1994. Due to stabilisation, economic growth and social policies, the old social pyramid – that many generations have learned in schools as the class representation in Brazil – has now been replaced by a diamond-shaped picture, showing the recent and huge increase in the country's middle class.
At the same time, the Brazilian democracy survived the transition period from the military rule (1964-1985) and shows itself today as a very mature and solid regime – in spite of the constant challenge of corruption scandals. In a moment when Europe and the United States are not in good shape, Brazil's future and potential may look even brighter. After all, this is a large western multicultural democracy with no religion disputes.
However, the path to Brazilian success seems to be guarded by the two faces of Janus – one looking to the future, the other to the past. Some new and old problems persist and this is especially important for the world in terms of identity and example. If one has to lead, it would be better to do so as an example of positive values to the global community – as Europe and the US once were.
Indebtedness is a new and old problem for the country. Brazil was once notorious for its foreign debt and the Brazilian population has always experienced difficulties in saving due to the country's historical economic instability. However, a current representation of traditional Brazilian financial mismanagement is the high level of indebtedness of its families, which reaches 65% on average in the main cities of the country. In Curitiba, for example, the capital of the state of Paraná, the average level of indebtedness of its families – according to the Brazilian Federation of Commerce – has reached 88%. In Natal, the capital of Rio Grande do Norte, 40% of the family income is, on average, committed to debts. In the last year, 10 Brazilian states (of the 26 plus the Federal District) were showing levels of indebtedness of its families beyond 70%. In 2011, at least 15 states are in the same situation, and we already have some months ahead.
Consumerism is probably a new problem, due to the millions of new consumers that are now reaching the Brazilian market. At least two negative consequences may lie ahead: an economy very dependent on families' consumption (and of the government also) and an environment in risk due to a rapid economic growth and industrialisation. Brazil is now the fifth largest market for cars in the world – and growing. In 2011, Brazilian families are expected to consume $1.5tn, $150bn more than in 2010. Not by chance, obesity is also growing, and fast. According to the ministry of health, 11.4% of the population suffered from obesity in 2006. In 2010, this number grew to 15%. Almost half of Brazilians are now overweight. In the next 10 years, this will rise to 60% of the population.
Inequality of opportunities is a very old Brazilian problem. Although the income gap is (slowly) diminishing – the country is still in the top 10 for the world's worst income distribution. This aspect is particularly prominent in Brazil's educational system: a report published last year by the Organisation for Economic Co-operation and Development (OECD), evaluating students from 65 countries, placed Brazil in 53rd position, with 401 points. However, if one looks closer at the report, the situation is worse than it appears, since students from Brazilian private schools have reached 502 points, on average, while those from public schools only 387. The tragedy lies in the fact 85% of Brazilian students are in public schools and the country's tax revenue reached 35% of GDP in 2010. Brazilians pay more in taxes than the Australians and almost the same as the Spanish and the Canadians yet receive much less not only in public education but also in public security, healthcare and access to justice.
Brazil's recent success is not leading the country to a welfare state, as many in Europe and the US think. In fact, this has been a capitalist revolution; a market-oriented transformation in an industrial, centralised society marked by bureaucracy and motivated by materialism and consumerism. Let's hope reason comes with time.
Argentina (and South America) “prepared to face rich countries economic crisis”
Mercopress. August 10, 2011
Argentina’s Minister of Economy and President Cristina Fernández de Kirchner running mate for the upcoming presidential elections Amado Boudou stressed Tuesday that the country is ready to face the recent international economic crisis that has pushed world markets down for the past week.
“In a world of uncertainty, Argentina is raising assurances” the minister said. In interviews to local media in Buenos Aires, Boudou reassured Argentina’s economy is in good shape and prepared to face the challenges of a possibly global recession.
“We are prepared. We sustain a loose fiscal outlook and a string of financial tools to face any additional situation” he remarked referring to growing concerns on whether international recessions will affect Argentina.
Boudou remarked global uncertainty is generated by a debt crisis and observed “as opposed of what happened in other countries, Argentina condensed its debts to spawn growth.”
“This is not time for desperate measures” said Boudou and highlighted the “Argentine domestic market is expanding like no other occasion in its history”.
The minister said Argentina has a double surplus, (budget and trade), diversified foreign trade and an effective industrialization policy geared to create jobs and social inclusion in the country.
Boudou also stressed the need for a joint regional effort to face international certainty and recalled recent meetings in Lima and Santiago of Finance ministers and central bankers.
“Unasur (Union of South American Nations) will continue addressing those concerns” in an upcoming meeting to be hosted in Buenos Aires.
“We met in Lima and now we are meeting in Buenos Aires to press on straightening intra-regional trade and to expand currency exchange within the region,” he said.
According to Boudou “Latin American has responded properly and adequately” to the financial world crisis and reiterated that “international issues of this magnitude as we are seeing were created when financial and economic policies distanced from the real economy”.
Chile riot police clash with student protesters
AP. August 10, 2011
Violence erupted on the streets of Chile's capital and other cities as tens of thousands of students staged another protest demanding changes in public education.
Masked demonstrators burned cars and barricades, looted shops and threw furniture at police in Santiago on Tuesday. Some attacked an apartment building, throwing rocks and breaking windows. Riot police used tear gas and tanks with water cannons to push them back.
By nightfall, at least 273 protesters were detained, including 73 in Santiago, and 23 police officers were injured, said Rodrigo Ubilla, a deputy interior minister.
Five days after a banned march ended in nearly 900 arrests, students and teachers marched peacefully in Santiago and elsewhere in Chile on Tuesday, calling for the government to increase spending on schooling and provide "free and equal" public education.
As in previous demonstrations, protesters danced, sang, wore costumes and waved signs. But then groups of masked protesters split off and tried to break through police barricades blocking the way to the presidential palace.
University of Chile student president Camila Vallejos said 150,000 marched on sidestreets in the capital because the government denied them permission to march on the main avenue. Ubilla estimated that between 70,000 and 80,000 marched in Santiago.
Vallejos said the huge showing so soon after last Thursday's confrontations "reaffirms the level of approval we have and that the people keep supporting us. It's the government that isn't capable of conceding".
The interior minister, Rodrigo Hinzpeter, said the violence shows student leaders can't control their demonstrators.
As the day wore on, the violence spread, with hooded and masked activists throwing rocks, paint, furniture and street signs at police backed by armoured vehicles.
The unrest has gripped Chile for more than two months.
High school and university students have refused to attend class, taken over schools and staged demonstrations to press their demand for fundamental changes in how Chile finances public education. Of particular concern, they say, is that private universities enjoying nonprofit tax status aren't reinvesting their revenues in educational improvements as required by law.
The system also leaves underfunded municipalities in charge of high school education nationwide. This has starved most schools of resources, while leaving some wealthy neighbourhood schools well off. Chile's small upper class sends its children to private schools or even overseas for their education.
Teachers' union president Jaime Gajardo reiterated the students' call for a national referendum on their demands, an idea that leaders of the governing center-right coalition have dismissed as unconstitutional and dangerous.
Student leaders spread word on social networks for their supporters to engage in more pot-banging displays known as "cacerolazos", and the clamour of crashing metal rang into the night. Pot-banging during the dark of night was a frequent method of protest during the dictatorship of General Augusto Pinochet in 1973-90.
Chile leader proposes civil unions, including gays
EVA VERGARA. AP. August 9, 2011
SANTIAGO, Chile -- Chile's conservative president is proposing a law that would give unmarried partners many rights now enjoyed only by married couples.
Gays and lesbians see Sebastian Pinera's signature on the bill he's sending to Congress as a big step toward equality.
But the more conservative leaders of his center-right coalition are so upset that they refused his invitation to the announcement ceremony.
Chile only legalized divorce in 2004. That is one reason why the country has about 2 million people living together without legal recognition.
Pinera says all couples deserve respect, dignity and the support of the state. But he says marriage in conservative Chile will remain exclusive to heterosexual couples.
Farmers Reject Paraguayan President's Proposed Tax
PEDRO SERVIN. AP. August 9, 2011
Frustrated in attempts to have congress finance an anti-poverty program, President Fernando Lugo asked soy bean producers to voluntarily pay 6 percent more in taxes on their exports.
The response from the nation's largest farm group came in Tuesday: It's a "no."
Lugo, who has been battling cancer, has so little support in congress that when it approved an income tax law, legislators mandated it take effect in 2013, after he leaves office. He hasn't offered a press conference in two years, and expressed frustration in an impromptu radio interview on Sunday at how little he's accomplished during his single five-year term.
Lugo still hopes to expand the kind of direct subsidies that have managed to pull millions out of poverty in other countries in Latin America. The vast majority of Paraguayans are poor or indigent.
But his opponents in congress have been reluctant to expand payments to what right-wing lawmaker Carlos Soler calls an "army of beggars."
Hugo Richer, director of the subsidy program, asked Congress on Monday to triple the number of beneficiaries by year's end. Currently, the program called "Tekopora," or "beautiful people," in the Guarani language spoken by most Paraguayans, provides $50 to $100 monthly to 93,000 families who keep their children in school.
But the union of agricultural producers said its members already pay more than their share. Paraguay is the world's third-largest soy producer and farm union spokesman Miguel Noto said that from 2008 to 2010, industrialized agriculture paid $4.8 billion in taxes.
"It's not appropriate or fair to try to tax soy more," said the group's leader, Hector Cristaldo.
The fundamental problem is that without an income tax in place, the government is getting 60 percent of its $8 billion in annual revenue this year through a sales tax of 10 percent on most products, which hits the poorest the hardest.
Soy growers and other agriculture producers provide about 29 percent of revenues. Two large dams shared with Brazil and Argentina provide much of the rest, a total of about $680 million annually.
Uruguay Prepared To Handle Renewed Global Turmoil -VP Astori
Taos Turner. Dow Jones. August 9, 2011
BUENOS AIRES (Dow Jones)--Uruguay is well situated to deal with a new round of global economic and financial turmoil, the country's vice president said Tuesday in a radio interview.
"Uruguay has enough financing for at least two years," Vice President Danilo Astori said in an interview with Argentina's Radio Continental. "Financially speaking, Uruguay is prepared. Uruguay has enough funding."
Astori, an economist, was Uruguay's economy minister from 2005 through 2008.
Last month, Uruguay's Economy Ministry raised its forecast for 2011 economic growth to 6%, with inflation seen totaling 7.8%.
"Starting in 2012 it's expected that the Uruguayan economy will return to trend growth, estimated at 4% a year," the ministry said last month.
-By Taos Turner, Dow Jones Newswires; 5411-4103-6728; firstname.lastname@example.org
Northern Andean Region [contents]
Venezuela's El Rodeo prison officials charged
Sarah Grainger. BBC. August 10, 2011
Venezuelan prosecutors have charged two former prison governors and a soldier with corruption, following June's riot that killed 22 people at their prison.
They were also charged with facilitating the trafficking of arms and drugs and associating with criminals in El Rodeo jail.
The riot at the jail, outside Caracas, began after a fight between rival inmate gangs of prisoners.
National Guards were then sent to search the jail for drugs and guns.
But one group of heavily armed prisoners refused to surrender, leading to a stand-off which went on for almost a month.
The former governor of one half of the El Rodeo prison was arrested alongside the deputy governor of the other section of the jail and a captain of the National Guard who worked at the prison in late June.
In a statement, the public prosecutors' office said the three had been charged with corruption and have been remanded in custody to await trial.
In response to the events at El Rodeo, President Hugo Chavez created a new prisons ministry, which recently announced plans to release almost half the country's inmates in order to ease overcrowding.
Venezuela's prisons house more than twice the number of inmates they were originally designed for and violence amongst prisoners is commonplace.
Harvard Grad Swaps Cocaine Boss for IPO as Colombian Soccer Club Rebuilds
Blake Schmidt. Bloomberg. August 9, 2011
Thirteen-time Colombian champion Millonarios, once owned by a drug cartel billionaire, plans to become Latin America’s first soccer team outside Chile to list shares as new owners and a Harvard University-trained turnaround specialist lead it out of bankruptcy.
In a bid to arrest two decades of on- and off-the-field decline, the government last year brought in Jose Roberto Arango, known for salvaging failing companies, to revamp the Bogota- based team. The government has owned about a 27 percent stake in the club since it seized the assets of Medellin cartel kingpin Gonzalo Rodriguez Gacha after his 1989 shootout death.
Millonarios is seeking to join companies offering a record number of shares in the Andean nation this year after President Juan Manuel Santos signed a law in May making it easier for soccer clubs to form corporations. The listing could pave the way for other squads for whom drug profits were a mainstay of funding in the 1980s and 1990s, said Ivan Novelo, manager of Dimayor, Colombian soccer’s governing body.
“There’s no more easy money in soccer,” Novelo said in a telephone interview. “There’s more transparency today in how clubs manage money, so much so that they almost all are facing bankruptcy and talent drains.”
Arango orchestrated the sale of the team out of bankruptcy to Azul y Blanco SA, a Bogota-based company created in April to rescue the club.
According to its prospectus filed with the securities regulator in March, Azul y Blanco counts among its investors Alessandro Corridori, the biggest shareholder in Fabricato SA, Colombia’s biggest textile maker, and Juan Carlos Ortiz, a shareholder of Interbolsa SA, the nation’s biggest brokerage.
The company, which paid 24 billion pesos ($13 million) for rights to the club name and its players, plans to offer this year shares worth almost the same amount and representing as much as a 51 percent stake, said Eduardo Silva, Azul y Blanco’s president. The proceeds will fund the purchase of a training facility. Practices are currently held at a tennis club.
“A model of broader participation is better for Colombian soccer, as it will reduce the role of drug money,” Silva said. “Millonarios’s big idea is to totally democratize ownership.”
The quality of Colombian soccer has suffered in recent years as teams have been slow to adopt business practices powering Colombia’s economy, said Novelo. The country hasn’t qualified for the World Cup since 1998.
Drugs to Debt
Millionarios was Colombia’s greatest team at its peak in the 1950s, when it defeated clubs including Real Madrid on frequent tours of Europe. Among its players from 1949 to 1953 was Argentine forward Alfredo Di Stefano, who went on to score the fourth-most total goals ever in Spain’s top division.
The club’s decline began when Colombia’s government seized Gacha’s stake in the club after he was killed during a shootout with soldiers at his ranch. In 1988, Gacha was named along with fellow Medellin cartel boss Pablo Escobar to Forbes Magazine’s annual list of billionaires.
Following Gacha’s death, Millonarios’s debt grew until the company filed for bankruptcy in 2004. The debt stood at 24 billion pesos last year, Silva said.
The offering by Millonarios would make Colombia only the second country in Latin America with listed soccer teams after Chile, where the holding companies that own Colo-Colo, Universidad de Chile and Universidad Catolica all trade on the Santiago stock exchange.
Colombian companies are seeking to raise about 8 trillion pesos through a record seven share sales this year as the country’s stock exchange merges with Peru’s and Chile’s in Latin America’s first international bourse combination, Juan Pablo Cordoba, head of the Bogota bourse, said Aug. 3.
The government forecasts the economy will expand 6 percent this year, the most since 2007.
Millonarios’ turnaround was orchestrated by Arango, who in 1995 received a masters degree in public administration from Cambridge, Massachusetts-based Harvard and served as an aide to former President Alvaro Uribe.
When Arango took control of the team at the government’s urging, Millonarios was on the verge of being relegated to Colombia’s second division and faced liquidation for failing to pay debts.
“The team had very big economic problems after being managed quite informally,” said Arango, who previously turned around failing mining and textile companies including Medellin- based clothing exporter Coltejer SA. (COLTEJ)
Coltejer, which came out of bankruptcy in 2008, has advanced 26 percent this year, making it the second-biggest gainer on the Bogota´s IGBC Index. The benchmark index has declined 18 percent in 2011 in local currency terms, the second- best performance among the region’s six biggest exchanges.
Other Colombian clubs remain mired in legal and financial problems because of suspected links to the nation’s cocaine trade, which supplies about 90 percent of the narcotic consumed in the U.S., according to the State Department.
In 2003, the U.S. Treasury Department seized assets in the U.S. belonging to soccer club America de Cali for ties to members of the family that once controlled the drug trade from the namesake southern Colombian city.
Last year, Cali’s government led an effort to create a new company, Nuevo America SA, with U.S.-approved shareholders to take control of the team and distance it from the alleged drug ties of its previous owner, said Mauricio Velez, Nuevo America’s manager. Velez wouldn’t comment on the alleged links to the Cali cartel.
Prosecutors are investigating Millonarios’ cross-town rival, Independiente Santa Fe, and have appealed a March ruling that absolved the former head and employees of Independiente Medellin on charges of taking drug profits, Pedro Verdugo, head of the money laundering unit at the federal prosecutor’s office, said in an interview at his Bogota office.
Jorge Osorio, head of Independiente Medellin, did not respond to telephone calls and e-mails seeking comment.
Cesar Pastrana, the president of Santa Fe, denied the drug links, adding that no charges have been brought against the team. Still, Bavaria SA, the Colombian unit of SABMiller Plc (SBMRY), pulled its sponsorship of the club last year after the probe was launched, he said in a phone interview. Santa Fe plans to emulate Millonarios’ business acumen by forming a company to list shares, he said.
“Those being investigated for alleged drug ties have nothing to do with this team and are neither shareholders nor directors,” Pastrana said. “Still, we lost Bavaria’s support and it’s been tough to find a new sponsor of that magnitude.”
As authorities clamp down on illicit sources of financing, ticket sales have declined, leaving some clubs unable to pay player salaries on time.
Tickets sold in 2010 fell 30 percent from the year before to 2.1 million as cash-strapped clubs fielded inexperienced squads, violence in the stands kept fans at home and teams renovated stadiums ahead of FIFA’s under-20 World Cup, which began July 29, Novelo said.
Cleaning up Colombian soccer’s finances may be easier than erasing the sport’s image as a vanity investment for the nation’s kingpins.
That reputation comes from events such as cartel boss Escobar’s burial with the flag of Medellin-based Atletico Nacional draped over his coffin in 1993 or the killing, at the peak of the country’s drug-related violence, of defender Andres Escobar after he knocked the ball into his own goal during the 1994 World Cup.
The new law signed by Santos in May requires teams to file financial reports twice a year stating the origins of their shareholders’ funds.
“Our sports will not be sneakily financed by delinquents,” Santos, a fan of Santa Fe, said at the signing ceremony. “It will not be, we won’t allow it.”
To contact the reporter on this story: Blake Schmidt in Bogota at email@example.com
To contact the editor responsible for this story: Joshua Goodman at firstname.lastname@example.org
Western Andean Region [contents]
China, Bolivia launch telecom satellite project
Xinhua. August 10, 2011
BEIJING - China and Bolivia on Wednesday jointly launched a communications satellite project that will be completed within three years.
The construction of the Tupac Katari satellite, named after an 18th century indigenous hero who fought Bolivia's Spanish colonizers, will benefit the Bolivian people, said Bolivian President Juan Evo Morales Ayma at the launching ceremony.
The cooperation between the two countries will also promote friendship as well as technological and economic exchanges, said Morales, who arrived in Beijing Wednesday morning on a five-day visit.
According to the deal signed on December 13, 2010 between the Bolivian state-run space agency and China Great Wall Industry Corporation, a subsidiary of China Aerospace Science and Technology Corporation (CASTC), Bolivia will have its first communications satellite by the end of 2013 or the beginning of 2014.
China will work to ensure the quality and high technology of the satellite and its supporting facilities to better serve Bolivia's economic development and needs of its people, the CASTC said.
Once completed, the satellite will be launched at Xichang Satellite Launch Center in southwest China's Sichuan Province and is expected to provide telecommunication services in Bolivia and support the country's educational and medical initiatives.
The deal is funded by China Development Bank.
Bolivia’s Master Weavers Speak Without Words
Sara Shahriari. Indian Country Today. August 10, 2011
I see them in dreams,” says Dominga Gonzales of the black figures emerging before her on a red background. Using just a loom and simple tools she has worked for months on a tapestry populated by mystical animals. Like many weavers from the central Bolivian town of Jalq’a, Gonzales learned from her mother how to make the creatures of her imagination real. She now deftly manipulates almost 1,500 fine threads on a large wooden loom.
The colonial Bolivian city of Sucre is located near two of the country’s best-known communities of weavers: Tarabuco and Jalq’a. The art of weaving, practiced in distinctive forms over thousands of years by Indigenous Peoples of the Andes, is both a practical and symbolic act of creation. The pieces that form over the course of months become skirts, capes and ponchos worn today by many people who live in rural areas, and live on in their imaginations.
The traditional style of Tarabuco weavings is totally different from that in Jalq’a, though the two indigenous Quechua communities are less than 100 miles apart. While imaginary animals populate Jalq’a weavings, women in Tarabuco weave fine, light-colored cloths full of llamas, condors and other animals that roam Bolivia’s mountains and plains. Scenes from everyday life and festivals are also portrayed in minute detail. “Weaving is a form of writing,” says Milton Eyzaguirre Morales, director of outreach for Bolivia’s National Museum of Ethnography and Folklore. Morales says that the patterns, the open space and even the direction of the weave tell a story about where a cloth was made, the person who made it and the person for whom it was made. This wordless language is unintelligible to most outsiders.
LO RES FEA PHOTO Bolivia Weaving Story from Sara S Weaving9 270x202 Bolivias Master Weavers Speak Without Words
Weavers think a tapestry of simple stripes can display just as much complex work and detailed information as a complicated pattern.
Though the weaving styles of each area are unique, Bolivia’s Quechua and Aymara indigenous majority now mix themes much as the Inca and ancient Aymara did thousands of years ago. When the Spanish arrived in Bolivia in the 1500s, they also fundamentally influenced the practice. The Spanish outlawed the depiction of mystical animals in textiles, along with many other aspects of indigenous dress. Morales says this prohibition had a deep effect on communities like Tarabuco, which were easily accessible in colonial times and whose modern weavings lack the fantastical creatures of harder-to-reach places like Jalq’a.
Today, the tastes of the thousands of tourists who purchase textiles in Bolivia each year are a major factor in which regions have the best sales totals. “The perception we have of weaving is a Western perception. That idea is: the more iconography it has, the more complexity in its composition, the better it is,” Morales says. Though works full of figures may appeal more to the Western perception, he says that for Bolivian weavers, a tapestry of simple stripes can display just as much complex work and detailed information.
Tarabuco is a sleepy agricultural town of dry, golden-brown fields and strange rock formations in central Bolivia. At the Sunday market there, tourists browse the stalls buying weavings they can display back home while locals wear the same weavings as ponchos, shirts and hats. With its paved-road access, relaxed atmosphere and famous textiles, Tarabuco is an increasingly popular day trip for visitors to Bolivia’s constitutional capital, Sucre. “I love the idea of seeing the markets and buying weavings directly from the indigenous people instead of from a retailer,” says Dawn Ellsum, an Australian who has traveled for months in South America. For Ellsum one of Bolivia’s greatest draws is the strength with which many people hold to traditions, as they hold to weaving here.
In a quiet corner of Tarabuco, Andrea Huamani sits at her loom. Around her, recently dyed wool from her family’s sheep hangs to dry in festoons of black, purple and yellow. Huamani wears black clothes adorned by weavings and the high, round hat of the region’s Yampara Quechua women. For Huamani, weaving and wearing traditional clothes is a conscious choice. “I won’t stop using these clothes,” she says. “I’m maintaining the Tarabuco culture. I made these with my own hands.”
To learn more about weavings from Tarabuco and Jalq’a visit the website of Sucre’s Museo de Arte Indigena.
Ecuador Min Analyzes Possible Impacts From Economic Crisis
Mercedes Alvaro. Dow Jones. August 9, 2011
QUITO -(Dow Jones)- Ecuador's Minister Coordinator of Economic Policy said Tuesday that the Andean country is evaluating the possible economic impact from any global economic crisis, after a cut in the U.S. credit rating.
Katiuska King said the effects of the crisis could be seen in a decline in demand for various products. The minister said it is important to improve market diversification, something that the administration of President Rafael Correa has been promoting.
In 2006 industrialized economies such as the United States and Europe contributed 51% to the growth of world demand, while in 2010 that contribution was reduced to 25% and the contribution of emerging-market countries increased to 75% from 49%, the minister said.
King added that anti-cyclical economic policies applied by the country to confront the international crisis have revived the economy.
Ecuador's gross domestic product rose 8.62% in the first quarter of 2011, compared with the prior-year quarter, led by public investment and the oil sector.
It was the country's best quarterly GDP performance since 2008.
Correa recently forecast that GDP is poised to grow 4.2% next year, lower than the 5.24% estimated for 2011.
For 2012 the Correa administration sees 5.18% growth in the non-oil sector and a 2.38% decline in the oil industry, due to a planned temporary shut down of the fluid catalytic converter and other units of the Esmeraldas refinery, the largest in the country.
-By Mercedes Alvaro, Dow Jones Newswires; 5939-9728-653; mercedes.alvaro@ dowjones.com
Peru, Ecuador share information to speed up border mine removal
Andina. August 9, 2011
Lima, Aug. 09 (ANDINA). Peruvian and Ecuadorian military personnel are currently exchanging information to complete the land mine removal program on their borders, Ecuador's ambassador in Lima, Diego Ribadeneira, said today.
The diplomat said that a workshop to coordinate strategies, in order to complete the clearance of all mines in the border Amazon region, is taking place this week in the Peruvian cities of Chiclayo and Lima.
Due to a border dispute that led to conflicts between both countries, the most recent in early 1995, many mines were laid and after the signing of a peace agreement in 1998, Lima and Quito agreed to remove mines and cement bilateral relations.
Almost 13 years after the peace agreement inked in Brasilia, the mine-removal work has not yet been completed because of rugged geographical area and the investment required.
“Progress has been made and has covered the coast and mountains. What is missing is the Amazon region, which has more rugged geographical area, yet we have advanced by 60% and we will continue to further this task," Ribadeneira told Andina.
Ribadeneira stressed that both countries have expressed willingness to progress in demining the area, but admitted that it is a process that will take time.
"It's a very delicate process, we advance per square meter. The important thing is that Peru and Ecuador are giving the world an example of how two countries that had conflicts are now struggling to remove those mines," he said.
He noted that Ecuador and Peru have committed the necessary resources to complete that task, but said it requires international cooperation to accelerate this process.
The two Andean nations have invested four million dollars and the Andean Development Corporation contributed another $500,000 for this purpose.
Peru to end energy rationing Wednesday-minister
Reuters. August 9, 2011
LIMA, Aug 9 (Reuters) - Peru will stop rationing energy in the industrial north on Wednesday, a practice that for the past week has limited power for important metals producers, Mines and Energy Minister Carlos Herrera said on Tuesday.
Peru has struck a deal to buy electricity from neighboring Ecuador, which beginning Wednesday would increase transmission between the countries, Herrera said.
"Since yesterday (Monday) we have been importing electricity from Ecuador and we have taken a second measure to improve transmission quality and increase capacity that should be operational tomorrow," he said on local television.
The ministry began rationing power on Aug. 2 due to a lack of transmission capacity and hydroelectric power between Trujillo and Cajamarca, where U.S. miner Newmont (NEM.N) runs the giant Yanacocha gold mine with Buenaventura (BVN.N).
The chief executive of Buenaventura, Peru's largest precious metals miner, said last week production had not been affected.
Peru generates 51 percent of its energy from hydropower and is currently building new transmission wires in the north.
The country has a bilateral energy accord with Ecuador, to which it has previously sold electricity. It is negotiating accords with Chile and Colombia that could help avoid future supply crises in the region.
(Reporting by Patricia Velez;editing by Sofina Mirza-Reid)
Peru Sees Metal Export Revenue Falling on Slower Global Growth
John Quigley. Bloomberg. August 9, 2011
Peru, the world’s third-biggest copper producer, will see a drop in export revenue as metal prices decline on slower global growth, Finance Minister Miguel Castilla said.
“We’re entering a period of reduced global demand because the world is going to grow more slowly,” Castilla said in an interview with Lima-based Canal N. “That’s going to result in a decline in the price of our raw materials.”
Commodities led by metals and natural gas account for three quarters of Peru’s exports, which rose to a record in May on higher prices for copper and gold. The Andean country’s mining industry accounted for 27 percent of the government’s total tax take in 2009.
Castilla said the government’s should draw up a “conservative” budget for next year given the greater risk of a recession in the U.S., Peru’s top export market.
“It’s better to err on the side of caution than go for a more expansive policy and then prices fall and we’re unable to finance our budget,” he said.
The $153 billion economy will expand by 6 percent to 6.5 percent this year, after growing 7.7 percent in the first half, Castilla said.
The sol strengthened 0.2 percent to 2.7467 per dollar at 10:50 a.m. New York time from 2.7515 yesterday.
To contact the reporter on this story: John Quigley in Lima at email@example.com
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Mexico, Central America and Caribbean [contents]
Court Pleadings Charge U.S. Complicity in Mexico's Drug War
Emilio Godoy and Kanya D'Almeida. Inter-Press Service. August 9, 2011
MEXICO CITY/WASHINGTON, Aug 9, 2011 (IPS) - Late last week, the son of a top dog in Mexico's notorious Sinaloa drug cartel filed pleadings in a Chicago federal court accusing the U.S. government and its agencies of giving the cartel "carte blanche to continue to smuggle tons of illicit drugs into Chicago and the rest of the United States".
The charges, though virtually ignored by the U.S. media, have opened a window on U.S. drug policy south of its border, which many analysts have decried as corrupt and ineffective for years.
In his two-page court pleading, Jesus Vicente Zambada-Niebla – the son of Ismael "El Mayo" Zambada Garcia, an alleged leader of the Mexico- based Sinaloa drug- and weapons-trafficking organisation - described a collaborative relationship between the cartel and the U.S. Department of Justice and its many arms, including agencies such as the Drug Enforcement Administration (DEA) and the Federal Bureau of Investigation.
In late 2009, Zambada-Niebla was arrested in Mexico City and extradited to the U.S. to stand trial on charges of being the "logistical coordinator" for the cartel, specifically for overseeing an operation that shipped "multi-ton quantities of cocaine" into the U.S. using various transport methods from Boeing 747 cargo aircraft to tractor-trailers.
According to Bill Conroy, a journalist who broke this story and several others for Narco News a full week ahead of other media outlets, Zambada-Niebla also claims to have been an asset for the U.S. government, including being a party to deals struck between DEA agents and hard-hitters of the Sinaloa organisation. These allegedly included promises of protection by the DEA in exchange for information about rival cartels.
Zambada-Niebla's pleadings claim that protection included promises to the cartel leadership to be kept apprised of U.S. and Mexican government investigations occurring close to the "home territories of [Sinaloa's leaders] so that [they] could take appropriate actions to evade investigators," even though the U.S. government had indictments, extradition requests, and rewards for the apprehension of certain members of Sinaloa's leadership.
The pleadings indicate that U.S. officials acted on the assumption that keeping Mexican authorities in the dark about backroom security deals with one of the most powerful cartels in the country was a worthy exchange for information extracted from informants like Zambada Niebla.
Meanwhile, some 40,000 Mexican civilians have perished in the U.S.- sponsored crackdown on the drug trade.
In early May, Conroy crunched the numbers from the U.S. State Department's most recent data on military spending for Fiscal Years 2008-2009 and found that, in addition to 177 million dollars worth of defence hardware funnelled to companies in Mexico via private corporations in the U.S., 204 million dollars in arms were also sent across the border.
A history of corruption
This isn't the first time that U.S. agencies have been enmeshed in drug trafficking activities. Official documents and testimonies from the Iran-contra scandal proved that such activities date back at least to the 1980s.
In 1990, then-DEA agents Wayne Schmidt and Hector Berrelez wrote a secret report that referenced the assassination of Mexican journalist Manuel Buendia in 1984.
A well-known columnist, Buendia possessed information about what was believed to be training camp of "Guatemalan guerrillas" in the southeastern state of Veracruz, which in fact turned out to be a breeding ground for mercenaries of the Nicaraguan Contra.
Between 1981 and 1986, during the first five of its eight years in office, Ronald Reagan's Republican administration waged a clandestine war against the Nicaraguan Sandinista regime, led by Daniel Ortega. That campaign was made possible by the financing and training of the Contras, a guerrilla group that was fuelled by profits from the narco- trade.
"In exchange for getting money for the Contra, the Central Intelligence Agency [CIA] created a relationship with the Medellin Cartel and with mid-sized Mexican drug dealers. Thanks to that connection, the Mexicans grew… from being [small-time] sellers, they entered the big cocaine market," Anabel Hernandez, Mexican journalist and author of the recent explosive best-seller 'Los Señores del Narco' (The Drug Lords), told IPS.
In 1977, Miguel Caro, Ernesto Fonseca and Miguel Felix Gallardo, leaders of the Guadalajara Cartel – the seed of the Sinaloa Cartel – were introduced to the Honduran Ramon Mata Ballesteros, the human link with the Colombian drug traffickers.
Together, they began to transport the powder from South America to the U.S., an activity that earned them millions of dollars.
Several years later, Mexican kingpins entered the 'Irangate' equation.
The Guadalajara Cartel distributed the Colombian cocaine. The money was used to buy arms and military equipment from Iran and to free U.S. hostages in Iran and Lebanon, and the weapons ended up in the hands of the Contras. Pablo Escobar, the deceased head of the Medellin Cartel, gave 10 million dollars to the Nicaraguan mercenaries.
The Kerry Committee report, the final document detailing the hearings sponsored by Democrat Senator John Kerry, concluded in 1989 that the "narcos" gave airplanes, arms, money and logistics support to the Contras.
In a trial in Los Angeles in 1988, the U.S. pilot Theodore Cash acknowledged that he himself flew planes for the CIA during a 10-year period, flights that may have included weapons drops to the Contras.
Caro and Fonseca have been in prison since 1985 for the assassination of DEA agent Enrique "Kiky" Camarena, whereas Felix was arrested in 1989. Meanwhile, Mata has languished in a U.S. prison since that same year.
If Irangate happened with impunity, "Why wouldn't it happen again 10 or 20 times? That school remains forever," said Hernandez, whose book cites an anonymous source confirming Mexico's role as a storehouse and channel for arms and drugs.
"Now, the U.S. government will have to respond to Zambada-Niebla's allegations," she added.
Conroy told IPS, "Some of my CIA sources indicate that if you look back at the [Iran-Contra] era, everyone who was charged got off scot- free, there were absolutely no consequences - which proves, as far as intelligence is concerned, that this method works. In fact, it is a self-funding operation."
"The only difference was that the Iran-Contra affair was political, whereas the Mexican drug wars and the U.S. involvement is becoming, increasingly, solely about monetary and economic [motives]," he said.
The Guadalajara Cartel was the forerunner of the Sinaloa Cartel, led by Joaquin "El Chapo" Guzman, the most powerful drug lord in history, according to the DEA.
Following the assassination of Osama Bin Laden in May, Guzman, who escaped from a high-security prison in 2001, rocketed to the top of the FBI's "Most Wanted" persons list and even made it onto Forbes Magazine's 2010 list of "The World's Most Powerful People".
When he fled prison, "He was nobody in the criminal world. In a decade, he has been transformed into a legend" - something that wouldn't have occurred without the corruption in Mexico and the complicity of the U.S., Hernandez said.
*Emilio Godoy reported from Mexico City.
Asylum for journalists under attack in Mexico
Editorial. Los Angeles Times. August 10, 2011
The body of Mexican journalist Yolanda Ordaz de la Cruz was discovered last month in Veracruz. A month earlier, her colleague Miguel Angel Lopez was found shot to death inside his home in the same eastern port city. His wife and son were slain as well.
Those deaths brought to seven the number of reporters killed so far this year in Mexico, according to Reporters Without Borders. They are yet another reminder of the spiraling violence that has claimed nearly 40,000 lives since 2006, when President Felipe Calderon declared war on the drug cartels.
Mexico is now the deadliest country in the Americas for journalists, according to human rights groups. More than 30 reporters have been killed there since 2006. The government has established a special prosecutor for crimes against journalists. But the situation has not improved.
It's no surprise that Mexican journalists are showing up in Canada or the United States, requesting asylum. Among those is Emilio Gutierrez, who fled Chihuahua for New Mexico in 2008 after receiving death threats he attributed to his reporting on alleged abuses by the Mexican military. He has repeatedly spoken out about the violence in his homeland and recently filed a petition with the Inter-American Commission on Human Rights contending that the Mexican government is unable to stop the military from committing crimes against his countrymen.
Gutierrez's case, along with those of three other journalists currently in the U.S., remains in legal limbo, their applications stalled in an overburdened immigration court system or before asylum officers who have been slow to decide such claims. But these cases call for expedited attention. In the 1990s, officials approved asylum claims filed by Colombian journalists facing comparable threats, often in less than a year.
Winning asylum is hard, and it should be. Applicants must be prepared to prove that they have a well-founded fear of persecution because of their race, religion, nationality, political opinion or membership in a group, and that their government is unable or unwilling to protect them from persecution.
Some anti-immigrant groups may fear that granting asylum to Mexican journalists will open the floodgates to others who will argue they are victims of narco violence. But there's no history to support that anxiety. In 2010, just over 160 asylum applications were approved — less than 3% of all asylum applications filed by Mexicans. Gutierrez and other Mexican journalists aren't asking for special treatment, just an opportunity to make their cases.
Harper to help Honduras put up 'Open for Business' sign
Carl Meyer. Embassy. August 10, 2011
For the past week, Prime Minister Stephen Harper has been touring Latin America. His first stop was in Brazil, where he sought to strengthen business ties with the emerging economy of 190 million consumers. Free trade partners Colombia and Costa Rica were next on the itinerary.
But on Aug. 12, Mr. Harper will become the first world leader to visit Honduras since it was re-admitted into the Organization of American States. There, Mr. Harper will meet with Honduras President Porfirio Lobo and sign a free trade agreement in San Pedro Sula, according to a Honduras government press release. The government says the deal will increase exports from Honduras to Canada by $350 million and eliminate tariffs on 96 percent of Honduran products.
Analysts argue his visit and the trade deal will lend legitimacy to a government that is desperate to bolster its credentials on the world stage since the 2009 coup that deposed the Central American nation's left-wing president, resulted in the emergence of a centre-right administration—and divided the hemisphere along ideological lines.
From the government's perspective, analysts say, the visit will seek to cement a relationship with one of the few true-blue conservative governments in the hemisphere. It doesn't hurt, they add, that the Central American nation is host to many Canadian mining companies and one of the countries with which Canada is negotiating a free trade agreement.
'Open for business'
In 2009, then-Honduran president Manuel Zelaya was ousted in a military coup. In the immediate aftermath, the OAS, the UN and numerous Latin American countries refused to recognize any government but Mr. Zelaya's. Despite the Honduran leader's anti-American rhetoric and increasing ties to Venezuela and Cuba, US President Barack Obama also called for Mr. Zelaya's return.
"America supports now the restoration of the democratically-elected president of Honduras, even though he has strongly opposed American policies," ABC News quoted Mr. Obama as telling graduate students during a trip to Moscow on July 7, 2009. "We do so not because we agree with him. We do so because we respect the universal principle that people should choose their own leaders, whether they are leaders we agree with or not."
While condemning the coup, however, Canada did not call for Mr. Zelaya's reinstatement. Rather, then-minister of state for the Americas Peter Kent told the New York Times that "there is a context in which these events happened." The minister described Mr. Zelaya as a polarizing figure who clashed with the Supreme Court, Congress and army. "There has to be an appreciation of the events that led up to the coup," Mr. Kent said.
After severe political instability lasting several months, which saw the country descend into further turmoil, a centre-right government under Mr. Lobo was elected. Canada was one of the first to welcome and support Mr. Lobo's administration, including Honduras's reinstatement into the OAS.
In May, Mr. Zelaya returned to Honduras for the first time since he was ousted. Then in June, the OAS agreed to readmit the Central American nation. Finally, last month, the Honduran government's Truth and Reconciliation Commission released the results of a study looking at the events surrounding the coup.
Against this backdrop, many feel that Mr. Harper's visit comes at a time when Western powers are beginning the process of lending legitimacy to the new Honduran government, and Mr. Harper is simply the first to do so.
"A country like [Canada] choosing to engage with Honduras," said Council of the Americas vice-president Eric Farnsworth, "certainly gives impetus toward others viewing this as a situation that said, 'Look, the Honduran people have suffered enough, we have to find a way to bring Honduras back into the community of democracies in the region, for the good of the people of Honduras.'"
Government officials speaking to reporters prior to Mr. Harper's visit said security issues, such as police training and investigation techniques, would be discussed between Mr. Harper and Mr. Lobo.
"This is a very big challenge for Honduras because it faces a high crime rate, a high homicide rate and suffering from the impact of drug trafficking," said one official.
Honduras also participates in a joint military training program with the Canadian Forces, and it is one CIDA's 20 "countries of focus." In fact, Honduras is home to the has the largest bilateral program in Central America at over $23 million.
But analysts say a key part of this show of legitimacy will come from highlighting the successful free trade talks, which were launched in February. Canada was originally negotiating a regional deal with Honduras and three other Central American countries—Guatemala, Nicaragua and El Salvador. However, after years of inactivity, the initiative was dropped in favour of bilateral discussions with Honduras.
Honduras is still one of the poorest Latin American countries. The country has a population of only 8 million and 18 per cent of them live in poverty. Half the population lives in rural areas. Already a small economy—its 2009 nominal GDP, according to the World Bank, is a little over $14 billion, a small fraction of Canada's $1.3 trillion—the country's export engine was also hit hard by the 2008 recession.
Bilateral merchandise trade between Canada and Honduras stood at only $192 million in 2010. However, large Canadian mining companies like Goldcorp and Hudbay Minerals, as well as smaller ones like Aura Minerals, have interests in the Central American country. Canadian direct investment in Honduras totalled $110 million at the end of 2008, mainly in mining, apparel and manufacturing.
Philip Rourke, executive director of the Centre for Trade Policy and Law at Carleton University, said Mr. Lobo's government has been trying to show that Honduras is ready to welcome foreign investors and do business with the rest of the world.
"It's about saying, 'We're open for business, come and look at Honduras as an opportunity,'" he said. That is the type of attitude the Conservative government has sought in hemispheric partners since the Americas Strategy was announced in July 2007, and Mr. Rourke said Mr. Harper's visit will send a strong signal.
Should legitimacy be lent?
But John Kirk, professor of Latin American studies at Dalhousie University, said Mr. Harper's mission is predicated on the notion that the Conservatives are simply supporting a fellow right-wing government in a region that is sharply polarized between left and right. This, he feels, is wrong as Honduras is still suffering the effects of the coup and its human rights situation is abysmal.
By way of example, Mr. Kirk noted that at least a dozen reporters have been killed in the country in the last 18 months. Reports from Human Rights Watch, the International Press Institute, the International Commission of Jurists, and the Inter-American Commission on Human Rights have also all issued statements or papers in the last year trying to highlight the problem. In addition, Amnesty International has expressed concern about the Lobo administration's apparent lack of interest in bringing to justice those police and military who committed human rights violations in the aftermath of the coup.
Mr. Kirk called Canada's support for Mr. Lobo a double standard given the Harper government's strong rebukes of state-sponsored violence in Yemen, Bahrain, Syria and Libya.
Warrants issued for Honduras ex-officials in US detention of drug trafficker
AP. August 10, 2011
TEGUCIGALPA, Honduras — A court in Honduras has issued warrants for the arrest of 11 former officials accused of helping U.S. authorities seize a drug trafficker on Honduran territory 23 years ago.
The warrants name the former heads of the army and police force, who retired 20 years ago.
Justice Vicente Garcia said Tuesday the officials are charged with abuse of authority and violating Honduras’ constitution, which forbids extraditing Honduran citizens.
Juan Ramon Matta was taken from Honduras by U.S. marshals in 1988, triggering violent protests, the burning of a U.S. Embassy office and the deaths of five people.
Matta is serving life sentences in the U.S. for drug charges and the killing of undercover U.S. agent Enrique Camarena in Mexico.
U.S. trade officials work toward resolution on labor law violations in Guatemala
Vicki Needham. The Hill. August 10, 2011
U.S. trade officials said Tuesday they are moving forward with tougher actions to ensure that Guatemala enforces its labor laws under a free-trade agreement between the two nations.
U.S. Trade Representative Ron Kirk said the United States is requesting an arbitration panel be formed because of the "Government of Guatemala’s apparent failure to effectively enforce its labor laws" as part of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).
"With this case, we are sending a strong message that the Obama Administration will act firmly to ensure effective enforcement of labor laws by our trading partners,” Kirk said in a statement.
“While Guatemala has taken some positive steps, its overall actions and proposals to date have been insufficient to address the apparent systemic failures," he said.
"We need to see concrete actions to protect the rights of workers as agreed under our trade agreement, and we are prepared to act to obtain enforcement of those rights when and where necessary.”
Kirk said there has been "intense work" to move Guatemala toward "an adequate enforcement plan, but those efforts have not succeeded."
The labor laws include those related to the right of association, the rights of workers to organize and bargain collectively, and acceptable conditions of work. This is the first labor case that the United States has ever brought under a trade agreement.
"We applaud the Obama administration for taking action in view of the failure of Guatemala to implement even the worker standards obligated under CAFTA as negotiated," said House Ways and Means ranking member Sandy Levin (D-Mich.). "Carrying out worker rights is of vital importance in countries with weak democratic traditions and weak middle classes.”
The Obama administration's actions could calm concerns raised by labor unions and many House Democrats over labor issues in Colombia, the central reason why they oppose the pending free-trade agreement. The groups are calling on the administration to include enforceable language in the trade accord.
The pending agreement could reach Capitol Hill within the next couple of months.
"Despite expectations laid out in the free trade agreement, Guatemala has a long record of failing to protect workers as required under" the free-trade agreement, AFL-CIO President Richard Trumka said in a statement. "Today’s announcement is an important milestone in the effort to enforce the obligations made in trade agreements and protect the rights of workers in the U.S. and overseas."
In April 2008, the AFL-CIO and six Guatemalan worker organizations filed a public submission under CAFTA-DR alleging that the Guatemalan government had violated the labor commitments in the agreement.
After reviewing the submission, the U.S. Department of Labor issued a public report finding significant weaknesses in Guatemala's enforcement of its labor laws.
“Guatemala has had more than enough time to meet its CAFTA labor obligations and enforce its own labor laws," said Ways and Means subcommittee on Trade ranking member Jim McDermott (D-Wash.). "While this 'enforce your own laws' labor standard isn’t tough enough, I am a strong supporter of making sure our trading partners live up to their commitments. So I welcome the Obama Administration’s decision to bring this matter to dispute settlement.”
'Green hunger' as starvation stalks fertile Guatemala
Deborah Bonello. AFP. August 9, 2011
JALAPA, Guatemala — They call it the "green hunger." Here in the mountains of central Guatemala, one of the world's top exporters of sugar and bananas, vegetation is everywhere and yet the people are starving.
Guatemala, which has a population of 14 million, has the highest rate of child malnutrition in Latin America. Half of all children under five are malnourished.
In rural areas such as Jalapa, about 100 kilometers (60 miles) or a three-hour drive from Guatemala City, where many families scrape by on less than a dollar a day, that figure can rise shockingly to as high as 90 percent.
Luis Alexander is nine months old and suffers from acute malnutrition. He appears weak and tiny in his mother's arms in front of their mudbrick house.
Ronald Estuardo Navas, a hunger monitor at the international non-profit Action Against Hunger, measures Luis's arm with a tape that evaluates the nutritional health of a child via the size of the upper arm.
"He has a perimeter of 9.9 centimeters -- there's a high risk he could die," he said.
His mother, Herlinda Rodriguez, who has two other children to care for, is also undernourished.
"He's underweight because I don't have enough breast milk to give him. That's why he's so thin," she said.
Looking around the green and mountainous land surrounding the Rodriguez family's humble home, it's hard to understand why they are slowly starving.
Guatemala is the world's fifth largest exporter of sugar, coffee and bananas, and when subsistence crops fail thousands of families simply cannot afford to buy enough food.
Many families have had to resort to buying their basic staples of corn and beans and rice from local markets because their modest subsistence crops have been seriously reduced by droughts and floods over the last few years -- the creeping effect of climate change across this region.
But the purchasing power of the little money these communities have has been battered by both international food price fluctuations and local prices, which have been pumped up by domestic scarcity. Three quarters of the food produced here is exported to the international market.
Willem van Milink Paz, World Food Program Representative Guatemala, says: "What we are seeing in Guatemala is that the price, the local price of food, is even higher proportionally than what we've seen at international levels."
That has hit families hard.
Benjamin Lopez Ramirez, a subsistence farmer in Jalapa, says: "The truth is that there is no work here, or the chance to have a salary, the fact that (maize) is so expensive makes it very difficult for us."
More than 6,500 people died from hunger related issues last year, 2,175 of whom were under five years, according to Luis Enrique Monterroso, who oversees the right to food at the Guatemala Human Rights Office.
Although there are schemes and money to help, he says, there's a lack of political will.
"The state doesn't exist for the most vulnerable families in this country."
Malnutrition doesn't stunt just physical, but also mental, development in children, which does not bode well for Guatemala's future economic development.
Guatemala's income from taxes is one of the lowest in the region at just 10 percent, and although the private sector could play a bigger role in reducing the levels of malnutrition and poverty in the country, the key factor is state involvement.
Van Milink Paz said: "To be clear and honest about this, there is not going to be a real solution to the problem if the government of Guatemala doesn't take a major part in the solution.
"The problem is too big for anybody -- you know private companies or even a UN agency like the World Food Program or other NGOs working in this area to solve. We are only really nibbling at this problem and not really solving it."
There have long been programs purportedly aimed at targeting child hunger.
The latest, overseen by outgoing President Alvaro Colom, is called "My Family Progresses," and is a conditional cash transfer scheme that gives poor mothers a stipend provided their children go to school and get regular health checkups.
But the program has been mired in criticism, and accused of a lack of transparency. Monterroso says this scheme and others like it are more directed at winning political popularity than producing real social change.
Billy Estrada, sub secretary of food security for the Guatemala government, said the problem is not a lack of schemes, but a lack of consistency.
"What I think is lacking, and will be lacking, in this government and those that will be, are continuous policies that can extend their mandate.
"It wouldn't matter if the political parties alternated if there was a continuation of activities started by one government and worth the effort continuing."
Unless the state can find the political will to implement schemes effectively to tackle the structural causes of malnutrition, children like Luis Alexander will continue to suffer.
Panama Trade Deal Would Undercut Efforts To Get Rich Americans To Pay Taxes
Sara Kenigsberg and Zach Carter. Huffington Post. August 10, 2011
WASHINGTON -- During a Monday press conference addressing Standard & Poor's downgrade of U.S. debt, President Barack Obama reaffirmed his commitment to raising taxes on the wealthy. But as he pushes to get the rich to pay more into federal coffers, Obama is also urging Congress to approve a trade agreement that would cement a key tax avoidance tactic deployed by some of the richest Americans.
"What we need to do now is combine those spending cuts with two additional steps: tax reform that will ask those who can afford it to pay their fair share and modest adjustments to health care programs like Medicare," Obama said during the address, referring to steps the U.S. should take in addition the cuts agreed to to raise the federal debt ceiling.
Just two days before, during his Saturday radio address, Obama urged Congress approve three trade deals, including one with Panama that would permit Americans to easily stash assets in the Central American country, a notorious tax haven for the wealthy and American corporations.
"It’s time Congress finally passed a set of trade deals that would help displaced workers looking for new jobs," Obama said, "and that would allow our businesses to sell more products in countries in Asia and South America -- products stamped with three words: Made in America."
But Panama's entire annual economic output is around $26.7 billion a year, according to The World Bank -- only about two-tenths of one percent of the U.S. economy -- making the effect on jobs minuscule at best. Some economists expect other agreements with South Korea and Colombia to create net job losses in the U.S., as corporations ship American jobs overseas to take advantage of cheaper labor.
It may not have a large economy, but Panama does have some of the most stringent bank secrecy laws in the world, making it extremely easy and inexpensive for U.S. citizens to set up offshore corporations and bank accounts. Establishing the corporation and bank account costs less than $2,000, and any money that Americans stash in these entities is not taxed. Bank secrecy laws and extremely lax corporate registration standards make it very difficult for the Internal Revenue Service to track transactions transferring funds to these Panamanian destinations from the United States. Small surprise, then, that Panama is home to nearly 400,000 offshore corporations, more than any other nation except Hong Kong.
"A tax haven . . . has one of three characteristics: It has no income tax or a very low-rate income tax; it has bank secrecy laws; and it has a history of noncooperation with other countries on exchanging information about tax matters," said Rebecca Wilkins, senior counsel with Citizens for Tax Justice, a nonpartisan nonprofit dedicated to improving U.S. tax policy. "Panama has all three of those. ... They're probably the worst."
The trade agreement with Panama would effectively bar the U.S. from cracking down on this activity. The U.S. would not be allowed to treat Panamanian financial services transactions differently from transactions in nations that are not tax havens. It would also be unable to pursue some standard anti-money laundering techniques in Panama. Combating tax haven abuse in Panama would be a violation of the trade agreement, exposing the U.S. to fines from international authorities.
"It directly undermines Obama's putative domestic agenda of job creation, cracking down on tax havens and collecting revenue from tax-dodging corporations," said Lori Wallach, Director of Public Citizen's Global Trade Watch. "The [free trade agreement] would forbid future use of existing policy tools to combat financial crime."
The deal with Panama was first negotiated by President George W. Bush in 2007, but in April, Obama met with Panama President Ricardo Martinelli to announce the signing of a new information sharing agreement as part of the broader deal to help facilitate tax enforcement.
"Thanks to the leadership of President Martinelli, there have been a range of significant reforms in banking and taxation in Panama," Obama said. "And we are confident now that a free trade agreement would be good for our country, would create jobs here in the United States."
But the tax enforcement agreement amounts to little more than a gesture, relying on a decades out-of-date framework that is not very effective at recovering lost tax revenue. Thanks to the TIEA, American tax officials can now obtain tax information on U.S. citizens stashing money in Panama. That's great -- if they already know which citizens are using Panama-based schemes to dodge U.S. taxes. But, of course, the IRS doesn't actually know who is doing this -- if it did, it wouldn't need to gather bank account information in the first place.
"The Tax [information] Exchange Agreement that we've executed with Panama is really weak," said Wilkins. "There's just a lot of reasons why it's not going to be very effective."
The U.S. has negotiated much more helpful TIEAs with other countries in the past. The IRS, for instance, is automatically notified whenever U.S. taxpayers deposit money in a Canadian bank, making it effectively impossible for a U.S. citizen to hide money in Canada.
Raising taxes on wealthy Americans, of course, will have little effect if those same citizens can simply hide funds from the IRS in Panama.
While the IRS is starved for information on U.S. individuals hiding money in Panama, it has the opposite problem among U.S. corporations. In 2008, the Government Accountability Office issued a report noting that 17 of the 100 largest American companies were operating a total of 42 subsidiaries in Panama, suggesting that these subsidiaries could be used to help firms skimp on their U.S. tax bills.
But while the IRS knows that firms are operating in Panama, it doesn't have the resources to investigate or prove that the offshore activities of U.S. companies are devoid of economic substance other than tax-dodging. While 17 of the 100 largest corporations were operating Panamanian subsidiaries, a total of 83 were operating sub-companies in nations the GAO labeled as tax havens, with some corporations using dozens of different subsidiaries.
According to the Bureau of National Affairs' Daily Tax Report, IRS official Samuel Maruca told an audience at a National Association for Business Economics conference that his agency didn't have enough funding to chase cases of "transfer pricing" abuse -- a technique in which U.S. corporations sell their own goods to foreign subsidiaries at bizarre prices in order to reduce their tax bills.
"To put it bluntly, we can't afford to pursue every case -- even cases that may have considerable merit," the official said. "We have to be strategic about where we are willing to invest our resources."
The U.S. Chamber of Commerce and the Business Roundtable, two lobbying groups pushing hard to approve the Panama deal, declined to comment for this article.
El Salvador Military Officer Sentenced for Arms Trafficking
Elyssa Pachico. InSight Crime. August 9, 2011
A former officer in El Salvador's Special Forces was sentenced to 31 years in prison after attempting to sell weapons to an undercover agent posing as a member of the Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia - FARC).
The U.S. District Court in Alexandria, Virginia found Hector Antonio Martinez Guillen guilty of arms and explosives trafficking, charges which carry a minimum sentence of 30 years.
Martinez pleaded guilty earlier this year after being arrested following a sting operation carried out by the U.S. Drug Enforcement Administration (DEA).
The retired military officer sold the weapons and explosives in January 2010 to an undercover DEA agent who posed as a member of the FARC, the left-wing Colombian guerrilla group. He was subsequently arrested in Washington D.C. in November 2010, while attempting to smuggle a 20-kilo load of cocaine into the country on behalf of the FARC.
In late May, authorities in El Salvador arrested six members of the military charged with attempting to sell over 1,800 hand grenades to criminal gangs. That month, another former army lieutenant for trying to sell three M-16 machine guns. Similarly to neighboring Guatemala and Honduras, El Salvador has huge stockpiles of military weapons, a legacy of a series of civil conflicts.
Hotel owner sought in Dominican journalist slaying
EZEQUIEL ABIU LOPEZ. AP. August 10, 2011
SANTO DOMINGO, Dominican Republic (AP) — A resort owner is suspected of orchestrating the killing of a Dominican journalist who sought to expose links between drug traffickers, public officials and businessmen, a prosecutor said Tuesday.
Hotel owner Matias Avelino Castro wanted to prevent journalist Jose Silvestre from publishing a planned story that linked Avelino to a murder and drug trafficking, Deputy Attorney General Frank Soto said at a news conference.
The investigation also found Avelino sought revenge against Silvestre for past articles in his weekly newspaper, The Voice of the Truth, and reports on a radio program with the same name, said Maximo Baez, a police spokesman.
An arrest warrant has been issued for Avelino but his whereabouts are unknown, authorities said.
Soto said Avelino owns the Gran Aparta Hotel Las Galeras on the Samana Peninsula. A woman who answered the phone at the hotel said she did not know anyone by that name and hung up.
Police have detained one suspect in the killing, who told investigators Silvestre was shot to death when the suspect and three other men tried to force the journalist into an SUV on Aug. 2 in the city of La Romana. His body was found later on a roadside about 60 miles (100 kilometers) east of Santo Domingo.
Authorities say they have recovered the vehicle used in the crime and found Silvestre's blood inside. The vehicle was apparently rented by a girlfriend of Avelino, who is also known by the name Joaquin Espinal Almeyda, said Hector Garcia Cuevas, director of investigations for the Dominican police.
The case has drawn attention from groups such Amnesty International because of Silvestre's role as a muckraking journalist, known for reporting unsourced allegations of drug trafficking and corruption in this Caribbean country that has become a major transit point for drugs bound for the U.S. and Europe.
Soto said investigators have testimony from three people that Silvestre was paid to publish some of his allegations. He said he had no information on the validity of the allegations about Avelino that Silvestre apparently planned to publish.
Silvestre was detained for six days earlier this year when a prosecutor sued him for defamation over accusations of taking bribes from drug traffickers. The case was still outstanding at the time of Silvestre's death.
Jamaica denied J$2b of foreign aid
Jamaica Gleaner. August 10, 2011
Foreign aid to Jamaica has slowed down amid uncertainty about the International Monetary Fund agreement and the secretive discussions on the country's performance on the last two tests.
Jamaica was expecting aid flows of J$2.8 billion in the first fiscal quarter ending June, but got only J$663 million - a J$2.1b or 76 per cent shortfall - according to newly released financial data out of the Ministry of Finance.
The European Union has already acknowledged that it has cut off distributions pledged to Jamaica, pending more certainty on the IMF talks.
Jamaica was also J$2.4 billion off-target on tax collections, forcing a re-engineering of its spending plans in the quarter. Finance Minister Audley Shaw issued spending warrants valued at J$79.5 billion, but this was J$9.6 billion less than budgeted.
A third of the savings, J$3.1b, was from lower-than-projected domestic debt-servicing charges, while J$5.6b was due to retrenched capital and recurrent programmes.
Total revenue and grants for the period amounted to J$73.6 billion - J$64.4b in the form of taxes.
The dramatic cuts were more than sufficient to keep Shaw well within his first-quarter deficit mark. Spending overshot revenue by just J$5.9 billion, compared to the J$12 billion that was projected.
Shaw borrowed J$41 billion during the period, but paid down J$45 billion of debt.
The primary surplus, which measures central-government activity minus debt obligations, closed the quarter at J$14.9 billion or J$3 billion better than expected.
Shaw warned in a televised national broadcast on the weekend that new revenue measures as well as additional spending cuts were imminent.
Region: Trade, Security, Economy and Integration [contents]
Morgan Stanley Says Latin America May Slow With Global Recession
Bloomberg. August 8, 2011
Aug. 8 (Bloomberg) -- Growth in Latin America may see a "significant slowdown" if the U.S. and Europe return to recession, even though the region's economies are in a good enough financial shape to avoid a crisis, Morgan Stanley said.
"It may be too early to pronounce a global downturn, but there is little doubt that Latin America can't escape without seeing its growth path suffer," Morgan Stanley said in a report today.
Latin America's economies expanded at the fastest pace in decades last year, growing 6.2 percent, according to Morgan Stanley. Still, the region's quick recovery from the global financial crisis obscured the fact that the downturn was severe, and only overcome thanks to a quick fiscal and monetary stimulus response by regional policy makers, especially in Brazil, and China's demand for the region's commodities, the bank said.
"There is a popular, but I believe mistaken, view that Latin America's largest economy, Brazil, was somehow largely untouched by the global downturn in late 2008," Gray Newman, senior economist for the region, wrote in today's report. "We would caution against reading too much into the 2008 episode."
In Brazil, the region's biggest economy, gross domestic product shrank 15.7 percent on an annualized basis in the fourth quarter of 2008. While the size of the initial decline in Mexico was less severe, the recession in Latin America's second-largest economy was more prolonged, with GDP contracting 6.1 percent in 2009 compared with 0.2 percent for Brazil, the report said.
No Forecast Change
Newman wrote in the report that he isn't changing his forecast for 4.6 percent regional growth both this year and next as estimates for the global economy haven't been revised lower.
The region is in about the same financial shape as it was before entering recession following the collapse of Lehman Brothers Holdings Inc. in 2008, with government deficits and current account balances showing littler deterioration, he wrote.
Still, the region remains vulnerable to demand from China for Argentina's soy, Chile's copper and Brazil's iron-ore among other commodities produced in South America.
"Latin America is not burdened with large debt, worrisome fiscal accounts and fragile financial systems of the sorts seen in much of the developed world," Morgan Stanley said. "We fear that if U.S. and Euroland consumption take a significant hit, we would expect both Chinese import demand and commodity prices to be revised downward."
Nobel Winner Stiglitz upbeat about China, Latin America
Andres Oppenheimer. Miami Herald. August 6, 2011
Nobel Prize laureate Joseph Stiglitz, a rock-star among left-of-center progressives around the world, was quite upbeat about Latin America, Asia and other emerging economies when I interviewed him extensively last week about the possibility of a new world recession.
As we were talking early in the afternoon Thursday, the U.S. stock market had tumbled by more than 300 points, websites carried alarming headlines about a possible financial meltdown of Spain and Italy, and my Herald column that morning had quoted several economists as saying that the expected U.S. economic slowdown would have a negative impact on Latin America’s exports, tourism and family remittances.
Still, Stiglitz seemed upbeat about the economies of China and Latin America. Unlike most of his colleagues, who think a global economic slowdown will impact everybody — including the world’s emerging economies — Stiglitz told me it is likely to have “relatively little effect” on China and on Brazil, Chile and other Latin American countries.
Asked whether last week’s U.S. debt agreement is more likely to lead to an economic slowdown or a full-blown recession, Stiglitz said that “there is a significant risk of another global recession.” But he added, “I don’t think it’s going to be quite as bad as the 2008 recession,” because this time it won’t take the world by surprise as it did three years ago.
Won’t China be hurt, and by extension South American countries that owe much of their growth to China’s raw material purchases? I asked. I reminded him that New York University’s economist Nouriel Roubini — who won world fame for rightly forecasting the 2008 economic crisis — recently predicted that China’s economy is likely to crash in 2013.
Stiglitz said that “the likelihood is that China will be able to manage growth at 7, 8 or 9 percent rates for another decade”because of its growing domestic market and its increased interaction with other emerging markets. “I am not as pessimistic as Roubini at all” on China, he added.
When we talked about Latin America, Stiglitz said he is “very optimistic” about the region, especially Brazil and Chile.
“I see a lot of growth there, and in many of the countries, it’s really based on solid foundations,” he said.
But isn’t that growth largely a bubble based on high world commodity prices? Aren’t many countries in the region wasting their biggest opportunity ever to invest in education and infrastructure, and to diversify their economies?
“You are right. But at the same time, there have been big advances,” he said, citing Brazil’s progress in reducing income inequality, and its successes in developing the ethanol and aircraft industries.
“But it is very important for Latin America to make investments to diversify its economy, and get out of commodities, so that if there should be a problem, they would have a more diversified base for continuing their economic success,” he said.
My opinion: Stiglitz does not have many fans among mainstream economists, who see him as a far-left academic who is playing to his fans in the developing world. But then, it is only fair to say that most mainstream economists have been as adrift as anybody else when it came to foreseeing the recent economic crises.
I tend to side with those who, like Roubini, think that China may not continue to grow as fast as in recent decades, and that Latin American’s growth will be negatively affected by overvalued currencies, growing inflation, an excessive dependence on commodities, and lack of investments in quality education.
I’m not basing my hunch on economic theories, but what I see on the ground — affluent Brazilians, Venezuelans, Argentines and other Latin Americans flocking to Miami to buy apartments as fast as they can. They remind me of those native fishermen in Thailand who ran to the mountains when a sixth sense told them a tsunami was coming.
Like them, many wealthy Latin Americans are running to the high grounds, because they see a crisis at home around the corner. We have seen that movie before, and they are most often right.
Nevertheless, the world will be a better place if the current U.S. and European slowdown does not extend everywhere. In that sense, let’s hope that Stiglitz is right, and the rest of us are wrong.
Debt crisis: A default in Europe could benefit poor countries
Jonathan Glennie. The Guardian. August 9, 2011
If a European country defaults, poor countries might feel bolder about defaulting when faced with a public emergency, and it might encourage world leaders to look for better ways to deal with debt problems
Senior economic advisers in Greece and a couple of other European countries are considering defaulting on part of their debt. Not to be taking such a course of action seriously would be irresponsible. Defaulting can never be plan A. But when countries get into very serious financial trouble it is sometimes the least bad of the bad options.
In the current climate, this doesn't sound very radical. Economists of all backgrounds are popping up arguing that default might ultimately be best for Greece, and indeed for the rest of Europe, providing at least a modicum of stability for banks and country creditors. It is almost in danger of becoming the conventional wisdom.
That certainly wasn't the context five years ago when I wrote a paper arguing that debt default should be considered a serious option for many countries around the world. Rather than conventional wisdom, that view was characterised by many as irresponsible. How could Christian Aid, the organisation for which I was working, sanction the refusal to pay debts?
For much the same reasons it might be good for Greece now. If huge debt payments are causing social problems and political unrest in Greece, one of the world's richest countries (ranking about 30th out of 200 countries in GDP per capita terms), imagine the misery being caused in poor countries with similar or larger debt burdens.
Campaigns since the 1990s had some success in getting creditors to cancel the debt of the very poorest countries, but some of the world's poorest countries are still paying out far more money than they receive in aid, rather than spending it on health, education and infrastructure. It is morally bankrupt to force poor countries to pay debts while their people suffer in extreme poverty, especially if much of the debt is illegal or otherwise illegitimate. It is also bad for the economy.
Another argument for debt repudiation not mentioned in Greece's case but relevant for many poor countries is that the debt may well be illegal. Money lent to dictators and snaffled away into offshore accounts gets racked on to the public debt to be paid by future generations. This immoral practice leaves no responsibility with the creditors for the initial lending, a classic case of moral hazard. Debt audits, such as the one that led Ecuador to refuse to pay some of its debt in 2008, are being used by some countries to bolster their case for debt default.
A recent debate between Mark Weisbrot, an economist at the Centre for Economic and Policy Research , and an IMF deputy director about Jamaica's debt demonstrates the kind of creditor thinking that has kept poor countries saddled with huge debts. Despite a clearly unpayable debt causing havoc to the economy and social welfare, the IMF still insists on repayment.
While the IMF and its main shareholders dress up their insistence that countries "pay up at all costs" with technical analysis and claims to have the interests of the poor at heart, the truth is that they are simply serving their own interests as the major creditors. Economic theory follows economic interest far more often than it does academic reasoning.
There is no doubt that default can be a costly option. That is not in debate. When Peru defaulted in the 1980s, there was a creditor backlash and Peru was eventually forced to pay up. The question is whether the alternative is even more costly.
The famous case of Argentina, which defaulted on its debts in 2001, appears to suggest that default can be the least bad option. Argentina was growing again at 8-9% within a year or two. Although threatened with retaliation from investors, this is probably exaggerated as well, as investors tend not to be moralists – they go where there are returns to be had. As the Economist put it: "Capital markets appear to have a remarkably short memory."
It is possible that two positive outcomes will emerge from default in a country like Greece. First, countries in the poor world might be bolder in defaulting when there are clear public health and education emergencies to deal with. If it was OK for Greece, they might say, why not for us? Our debt burden is higher, and the opportunity cost of paying it greater in terms of basic needs provision.
And, second, it might encourage world leaders to look again at the need for a fair and transparent mechanism to deal with debt problems. Under the present system, when a debtor has to choose between repaying its debts and meeting the basic rights of its citizens, it has to ask for a meeting with its creditors (usually the Paris and London Clubs and the IMF) and request a "rescheduling". Under the proposed alternative mechanism, debtor countries could call for the convening of an ad hoc panel with neutral parties, probably based at the United Nations.
Many existing arbitration panels could serve as a model for this. It was a key demand in the Make Poverty History campaign of 2005 and even an IMF deputy managing director tried to establish one unsuccessfully. An independent panel would try to ensure that the debtor emerges from the proceedings with good prospects for financial and economic stability. And lenders will know that they can no longer get away with odious or careless lending
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