Latin America News Round-up
October 10, 2012
Guatemala Under Pressure to Investigate Shooting of Protesters

For the latest news and developments on Haiti, please see CEPR's blog, "Haiti: Relief and Reconstruction Watch."

For archives of past Round-ups, please click here.

Brazil and Southern Cone
Brazilian Corruption Case Raises Hopes for Judicial System. New York Times
Brazil activists occupy controversial Amazon dam. AFP
Argentina rejects Singer’s $20M in ransom for ship’s release. New York Post
Chilean Catholic bishop resigns over paedophilia accusations. BBC
Paraguay central bank sees 9.5pc economic growth in 2013. Reuters

Northern Andean Region
Venezuela's Chavez hails "perfect" democracy, mocks tyrant image. Reuters
Venezuela Inflation Slows for 10th Month on Election Imports. Bloomberg
The Chávez victory will be felt far beyond Latin America. The Guardian
Colombian authorities dismiss army members for extrajudicial killings. Colombia Reports

Western Andean Region
Ecuador's Correa sees 'high chances' of re-election bid. Reuters
Bolivia's No. 2 tin mine reopens after protests forced closure. Reuters
Afro-Peruvians honor heritage with religious fete. AP

Mexico, Central America and Caribbean
Mexico Kills a Drug Kingpin, but the Body Gets Away. New York Times
Guatemalan Seeks Charges Against President for Protesters’ Deaths. EFE
Guatemalan foreign minister: Murdered indigenous protesters not something to ‘make a big deal about’. AFP
Guatemala under Pressure to Investigate Shooting of Native Protesters. Inter-Press Service
Guatemala Implements Police Reform Aimed At Reviewing 20,000 Officers. Latin America News Dispatch
American weirdness seeks to intervene in Honduras. New Economic Perspectives
Seaga warns against IMF dictates. Jamaica Observer

Region: Trade, Security, Economy and Integration
How Latin America May Lead the World in Decriminalizing Drug Use. TIME
IMF vote reform bogged down by delays, deadlock. Reuters

Brazil and Southern Cone [contents]

Brazilian Corruption Case Raises Hopes for Judicial System
SIMON ROMERO. New York Times. October 9, 2012

RIO DE JANEIRO — Brazilians are so used to impunity, especially when it comes to the legendary corruption in their political system, that they often employ a fatalistic maxim to describe it: The police arrest; the courts set free.

But for weeks now, Brazilians have been riveted by the televised spectacle at the nation’s high court, in which justices are sparring over what is arguably Brazil’s largest corruption scandal. When the dust settles and sentences are announced, prominent politicians and bankers may actually go to jail.

The fact the trial is even advancing to such a phase — taking aim at congressmen, members of the governing party and senior officials who worked directly under one of the most popular presidents — points to a rare breakthrough in political accountability and a crucial streak of independence in the legal system.

So far, the court, the Supreme Federal Tribunal, or Supreme Court, has already found more than 20 of the 38 defendants in the case guilty of crimes including money laundering, misuse of public funds and accepting cash for votes.

The former president, Luiz Inácio Lula da Silva, refuses to acknowledge that the vote-buying scheme at the heart of the scandal existed. But his former chief of staff, José Dirceu de Oliveira e Silva, is charged with orchestrating the deceit, and on Tuesday, in the trial’s most pivotal session, a majority was reached among the court’s 10 justices to convict him. The court also found José Genoino, the former president of the governing Workers Party, guilty of corruption charges.

Both Joaquim Barbosa, the justice overseeing the trial, and Prosecutor General Roberto Gurgel, who is in charge of the case and called the scandal “the most daring and outrageous corruption scheme and embezzlement of public funds ever seen in Brazil,” were appointed by Mr. da Silva, the former president.

“This trial shows that Brazil’s institutions are functioning with vigor,” said Thiago Bottino, a law professor at Fundação Getúlio Vargas, an elite Brazilian university. “The justices could have easily washed their hands of this case and walked away; instead, they entered the fight for an ethical democracy.”

Brazil’s courts are more often the object of ridicule than praise, and some legal scholars warn that this case is only one in a labyrinthine and privileged judicial system. Judges are paid handsomely and have great leeway to exert their influence, like ordering the arrest in September of Google’s top executive in Brazil over a politically contentious video, but rooting out corruption and punishing powerful political figures generally have not been among their top priorities.

Brazil’s legal code also offers extraordinary protections for the country’s elite. College graduates, who make up only about 11 percent of adults between ages of 25 and 64, obtain special cells if they are sentenced to prison. Political authorities, even if they lack a college degree, get the same privilege. Hundreds of top officials cannot be tried in lower courts at all.

In one infamous case in 1993, Ronaldo Cunha Lima, the governor of Paraíba State, shot his predecessor in a restaurant filled with witnesses. Then his lawyers stormed the courts with appeals, delaying a conviction for years. Finally, when he was about to be sentenced in 2007, he resigned as a federal legislator, allowing the case to start again in a lower court. He died this year at age 76 without ever serving time for attempted murder.

In the scandal now under examination by the high court, by contrast, the breadth of the charges is stunning. Likened in scope and importance to the Watergate scandal in the United States, a presidential chief of staff is also under intense scrutiny, in this case a top confidant of Mr. da Silva, Mr. Oliveira e Silva, or José Dirceu as he is commonly called in Brazil.

José Dirceu, 66, a former student leader who went into exile in Cuba during Brazil’s long military dictatorship, ranked among the most powerful political figures in Brazil when the scandal emerged in 2005. Prosecutors say he oversaw a scheme in which funds from state companies were channeled to the governing Workers Party, while monthly payments were also made to lawmakers of various parties to buy their votes in the federal legislature. Hence the scandal’s name: mensalão, or big monthly allowance.

A key phase in the trial has been unfolding over the past week, with the justices voting on the charges against José Dirceu, who is accused of leading the vote-buying conspiracy. So far, 6 of the 10 justices have voted to convict the former chief of staff and two to acquit. Final voting is expected this week.

Brazil’s former president, Mr. da Silva, was not charged, and his successor, Dilma Rousseff, has refrained from commenting on the scandal while attempting to reinforce her image as a leader cracking down on corruption. Still, their party is grappling with the resonance of the trial in Brazilian society.

“This trial is making the justice system popular; before there was complete disbelief,” said Miguel Angel Vila, 60, a doctor who spends much of his free time updating a Facebook page called Mensalão Culprits in Jail. His sister, Rosa Martinez, 55, a dentist, manages a Twitter account of the same name.

A political hero of sorts is even emerging in the case: Mr. Barbosa, 58, the court’s only black justice, who is overseeing the trial. Masks of his face are already being sold in advance of the annual Carnival celebration, and computer-manipulated images of him clad in superhero outfits have been circulating on the social media. This week, he appears on the cover of an influential newsmagazine, which calls him “the poor boy who changed Brazil.”

Still, some legal experts caution that public expectations may be unreasonably high for those who expect lengthy prison terms, or time in jail at all, for the highest-ranking politicians involved in the scandal.

Such imprisonment is rare; the first politician convicted of corruption by the Supreme Federal Tribunal since the long military dictatorship ended in 1985 was José Gerardo Oliveira de Arruda Filho, a federal legislator found guilty in 2010 of misusing public funds. But he did not go to jail.

In the case of the mensalão, various defendants, including José Dirceu, are charged with serious crimes, including Brazil’s equivalent of unlawful conspiracy. But even if he is found guilty on this charge, the maximum prison term for it is just three years, two of which have already been consumed by the statute of limitations.

Other charges, like one called outward corruption, the rough equivalent of bribery, could produce prison terms of as long as 12 years. But defendants found guilty of this crime could be eligible for parole in about two years. Their lawyers could also request a so-called semi-open arrangement, in which they sleep in a special prison cell but leave each day to go to work.

The sentencing is not expected until after the last convictions or acquittals are announced, possibly days or weeks away.

Some legal experts say that the trial accompanies important institutional advances in Brazil outside the court system, including a new measure cracking down on money laundering and the strengthening of both the Federal Police, an investigative entity comparable to the F.B.I., and the Public Ministry, a body of independent public prosecutors.

“If anything, the courts are still the greatest bottleneck to accountability in Brazil,” said Matthew Taylor, a scholar who specializes in Brazil’s legal system at American University in Washington. “It’s promising to see the court take on the mensalão, but this trial is the exception that proves the rule.”
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Brazil activists occupy controversial Amazon dam
AFP. October 9, 2012

RIO DE JANEIRO — More than 150 fishermen and indigenous natives occupied Brazil's on Tuesday, claiming the project will do irreparable damage to the Amazon ecosystem and their way of life.

"This singular alliance of Indians and fishermen is aimed at blowing the whistle on the construction company which has not kept promises made in June, during the Rio sustainable development summit," Maira Irigaray, spokeswoman for the "Xingu Vivo" movement, told AFP.

Irigaray said the fishermen had teamed up with members of the indigenous Xipaia, Kuruaia, Parakana, Arara, Juruna and Assurini peoples.

"They occupied the Pimental construction area where the Xingu River already has been dried up," she said, adding that the demonstrators would stay "until their demands have been met."

The indigenous people snatched keys for trucks and bulldozers and workers left the area on foot. Protesters said their demonstration was peaceful.

Protesters accuse Norte Energia, the consortium behind the project, of backtracking on accords signed in June when 150 indigenous people occupied the Pimental area for three weeks.

The native peoples want their lands demarcated and non-indigenous folk removed from them, as well as a better health care system and access to drinking water.

Indigenous groups fear the dam will harm their way of life while environmentalists have warned of deforestation, greenhouse gas emissions and irreparable damage to the ecosystem.

"Avatar" director James Cameron and actress Sigourney Weaver have given their backing to dam opponents, drawing parallels with the natives-versus-exploiters storyline of their blockbuster Hollywood movie.

Belo Monte is expected to flood an area of 500 square kilometers (200 square miles) along the Xingu, and displace 16,000 people, according to the government. Some NGOs estimate that 40,000 people would be displaced.
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Argentina rejects Singer’s $20M in ransom for ship’s release
KAJA WHITEHOUSE. New York Post. October 9, 2012

Argentina is refusing to pay the $20 million in ransom that New York hedge fund honcho Paul Singer is demanding in exchange for releasing the country’s premier naval vessel.

At a court hearing today in Ghana, where Singer’s lawyers are holding the ARA Libertad hostage, a lawyer for Argentina argued that Singer had no right to detain the ship because it’s a military vessel and immune from seizure.

Lawyer Larry Otoo called the seizure — a move by Singer to force Argentina to repay a $1.6 billion debt he says he’s owed — an embarrassment to Ghana and demanded the ship’s immediate return.

The court is expected to rule Thursday on whether to release the ship.

Singer, the head of hedge fund giant Elliot Management, is seeking to recoup some of the $600 million in bonds he purchased as Argentina was headed for default in 2001.

Elliot bought the bonds at steep discounts, paying as little as 15 cents on the dollar in some cases, but has since won judgments of as much as $1.6 billion.

Elliot’s NML Capital unit is pursuing Argentina’s assets all over the world in an effort to collect on its debt.

Ace Ankomah, a lawyer for NML, argued today that Argentina explicitly waived immunity when it issued the bonds and said NML might not be able to recover its debt if the vessel is permitted to leave Ghana.

Last week, NML convinced a court in Ghana to detain the ship as it docked at the port of Tema in Ghana’s capital of Accra.

A judge in Ghana ordered the seizure of the ship as part of a $280 million judgment NML was awarded in 2006 in Manhattan federal court.

NML has told Argentina it would accept $20 million in exchange for the ship, according to a person close to the negotiations.

The ARA Libertad is estimated to be worth $10 million.

kwhitehouse@nypost.com
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Chilean Catholic bishop resigns over paedophilia accusations
BBC. October 9, 2012

A Roman Catholic bishop in Chile accused of paedophilia has resigned, saying he did not want his personal problems to affect the Church.

Marco Antonio Ordenes, who served as bishop in the city of Iquique, was accused of engaging in acts of a sexual nature with an altar boy.

The Chilean Catholic Church is investigating.

The bishop denies the accusations by the former altar boy, who was 15 at the time of the alleged incident.

In a recent interview with Chile's La Tercera newspaper, the 47-year-old priest admitted engaging in an "imprudent act".

He said the boy was not under age when the incident happened.

"God is my witness, I have always tried to serve without interest. Many times I erred, but I never sought to hurt, offend or manipulate anybody," the priest said.

Acting head of Chile's Bishops Conference, Alejandro Goic, said in a statement that Catholics in the South American country had been "shaken" by the recent scandal.

"The improper conduct admitted publicly by Bishop Ordenes seems to be very serious," added Archbishp Goic.

Marco Antonio Ordenes is the highest-ranking Chilean priest to be accused of paedophilia.

The country's Catholic Church has apologised over sex abuse allegations against some 20 priests.
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Paraguay central bank sees 9.5pc economic growth in 2013
Reuters. October 9, 2012

ASUNCION: Paraguay's central bank on Monday raised its outlook for 2013 economic growth to 9.5 percent from between 8.0 percent and 8.5 percent previously, citing an expected jump in soy and grains output.

The South American country is seen suffering an economic contraction of 1.5 percent this year, partly from a drought that slashed farm production. Paraguay is the world's No. 4 soy exporter, although it lags far behind the top three suppliers.

The central bank forecasts the commodities sector will grow 24.9 percent in 2013 after shrinking an estimated 20.6 percent in 2012.

"Basically this is due to a likely 'super harvest' of soy and grains, according to sector estimates, although this is subject to weather conditions, of course," central bank official Miguel Mora told reporters.

Beef exports are also expected to rebound next year, when the landlocked country will hold a presidential election, after the appearance of foot-and-mouth disease in late 2011 hurt meat shipments.

Paraguay's economy shrank 2.3 percent in the second quarter from a year ago.

The government's budget forecasts 8.5 percent growth in 2013, an estimate shared by the International Monetary Fund.

Northern Andean Region [contents]

Venezuela's Chavez hails "perfect" democracy, mocks tyrant image
Andrew Cawthorne. Reuters. October 9, 2012

CARACAS (Reuters) - An ebullient President Hugo Chavez on Tuesday hailed his comfortable re-election as evidence of Venezuela's "perfect" democracy and mocked his foes' depiction of him as a dictator.

The long-serving socialist leader won Sunday's poll with 55 percent of the votes on record turnout of 81 percent. The result was quickly accepted by losing opposition candidate Henrique Capriles.

Chavez's election win would extend his rule to 20 years, delighting both his power base among the South American country's poor and allies from Cuba to Bolivia, who depend on his cheap oil shipments and other aid.

"Some media keep talking about Venezuela's dictatorship, the tyrant Chavez," he told reporters.

"Well we have a democracy here that has again been reaffirmed and ratified, a totally transparent, quick and efficient system ... If you want to see a vigorous, solid democracy, come to Venezuela. It was a perfect day."

The opposition has long characterized the 58-year-old Chavez as an autocrat, citing his style of government, aggressive rhetoric, tough treatment of critics at home, and friendships with authoritarian leaders around the world.

Chavez and his supporters, however, point to his dozen or so vote wins during his 14-year-rule, the devolution of power and resources to grass-roots local authorities, and his own humble background, as proof of his democratic credentials.

While there were no serious complaints about Sunday's electronic vote system, critics say the campaign was unfairly stacked in Chavez's favour due to his use of state resources and excessive use of TV time.

As is his custom after election victories, Chavez has been projecting a more moderate image, even telephoning Capriles with whom he had not spoken during the fractious campaign.

CHAVEZ FINALLY USES CAPRILES' NAME

Chavez again commended Capriles' quick acceptance of defeat, speaking his name on Tuesday for the first time after routinely insulting him as a "pig," a "loser" and a "fascist" over the past few weeks.

Capriles, the 40-year-old governor of Miranda state, ran a vigorous campaign and contrasted his youth and energy with Chavez's more subdued condition after a year of cancer treatment. Capriles had also sought to capitalize on Venezuelans' widespread weariness with crime, corruption and inefficient public services.

Capriles took 44 percent of the vote, a good showing for an opposition candidate against Chavez, but still a disappointment.

"Where there is life, there is hope," Capriles said on Twitter as he tried to cheer his devastated supporters.

Chavez won in 22 of Venezuela's 24 states, thanks to his personal chemistry with the poor, together with heavy government spending on welfare projects in the slums.

Attention is now focused on Chavez's health. Any recurrence of his cancer would dramatically change the political landscape and interfere with his plans for a new six-year term starting in January.

He has promised to deepen socialism in Venezuela, which some interpret as meaning more nationalizations are on the way, possibly in the banking, healthcare or food sectors.

Capriles, who united and galvanized the opposition as never before under Chavez, must now decide whether he will return to his job as governor of Miranda or seek some sort of national leadership role.

Having suffered his first electoral defeat in a two-decade political career, Capriles is widely expected to have another crack at the presidency, especially if ill health afflicts Chavez again in the next few years.

"He would be wise to be patient and persistent," said U.S. analyst Michael Shifter. "After all, it took Lula, now widely regarded as Latin America's premier political wizard, four attempts before he attained the Brazilian presidency," he said, referring to ex-Brazilian leader Luiz Inacio Lula da Silva.

VENEZUELA DEBT FALLS

Venezuela's widely traded sovereign debt fell on investor disappointment at Chavez's win, though losses were limited because of doubts that he is healthy enough to serve his full term.

The benchmark 2027 Global bond fell roughly 3.5 points in price on Tuesday to bid around 87.

A retired army lieutenant colonel who first came to fame with a failed 1992 coup, Chavez has become Latin America's main anti-U.S. agitator, criticizing Washington while forging relationships with its adversaries such as Syria and Iran.

Chavez sends discounted oil to more than a dozen Central and South American countries. Communist Cuba receives more than 100,000 barrels a day of crude oil in exchange for services from more than 40,000 Cuban medics and others in Venezuela.

Despite fears of violence during the election, the nation has been relatively quiet after the vote.

A small knot of protesters burned tires in one rich part of Caracas late on Monday, alleging vote fraud, but were chided by Capriles. "Radicalism did us a lot of damage (in the past), let's not succumb to that again," he said.

"We are millions and this struggle is not over."

(Additional reporting by Enrique Andres Pretel in Caracas and Daniel Bases in New York; Editing by Daniel Wallis and Christopher Wilson)
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Venezuela Inflation Slows for 10th Month on Election Imports
Charlie Devereux and Jose Orozco. Bloomberg. October 9, 2012

Venezuela’s inflation slowed for a 10th consecutive month in September as the government maintained price controls and boosted cheap imports ahead of elections last week.

Nationwide annualized inflation slowed to 18 percent from 18.1 percent in August, trailing the 18.3 percent median estimate of five economists in a Bloomberg survey. Prices rose 1.6 percent from the month before, when they gained 1.1 percent.

President Hugo Chavez, who won another six-year term that could extend his rule to 20 years in elections on Oct. 7, has tightened price controls on 19 consumer care products this year while ramping up imports to mitigate shortages, said Alejandro Arreaza, an economist at Barclays Plc in New York.

“The price controls have delayed the adjustment of prices while they’ve tried to control other products by increasing supply,” Arreaza said in a phone interview. “We’re expecting a rebound next year.”

Food costs, which account for 37 percent of the inflation index, gained 1.9 percent in September, the fastest increase since January. Educational materials, restaurants and hotels and alcoholic drinks and tobacco also pushed prices higher, rising 4.4 percent, 1.9 percent and 1.7 percent respectively, the bank said.

The bolivar slid 0.32 percent to a record 12.62 per dollar in the unregulated market today following Chavez’s victory.
Foreign Currency

An increase in foreign currency allocations has allowed the government to ramp up imports and slow price rises. Imports leaped 26.8 percent in the first half of the year, according to the central bank, after the bank-administered currency market known as Sitme increased allocations by 32 percent to $5.16 billion from the same period a year earlier.

Annual inflation fell below 20 percent in July for the first time since the national index was created in December 2008 to replace the Caracas index.

Inflation probably will accelerate after the election as the government devalues the bolivar and reduces imports in order as it looks to narrow the fiscal deficit, Arreaza said. Venezuela will weaken the official rate to 6.2 bolivars per dollar in the first quarter of 2013 from 4.3 at the moment, according to the median estimate of 14 analysts surveyed by Bloomberg.

Ahead of the election, the government boosted spending, raising government wages by 32.25 percent this year. The number of bolivars circulating in the economy has increased 56 percent since August 2011, according to data compiled by Bloomberg.
Devaluation

Consumer prices in the capital Caracas rose 1.9 percent in September, while annual inflation quickened to 19.1 percent from 18.6 percent, the bank said today.

Businesses who cannot buy foreign currency from the government are obtaining it in unregulated trading and pricing in a devaluation, said Boris Segura, a strategist at Nomura Securities International Inc. today.

“If you don’t have access to Cadivi or Sitme, this is affecting your cost structure, the cost of importing,” Segura said in a phone interview, referring to the government currency agency and central bank-administered currency market. “People are already pricing in a devaluation for early next year.”

To contact the reporters on this story: Charlie Devereux in Caracas at cdevereux3@bloomberg.net; Jose Orozco in Caracas at jorozco8@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net
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The Chávez victory will be felt far beyond Latin America
Seumas Milne. The Guardian. October 9, 2012

The transformation of Latin America is one of the decisive changes reshaping the global order. The tide of progressive change that has swept the region over the last decade has brought a string of elected socialist and social-democratic governments to office that have redistributed wealth and power, rejected western neoliberal orthodoxy, and challenged imperial domination. In the process they have started to build the first truly independent South America for 500 years and demonstrated to the rest of the world that there are, after all, economic and social alternatives in the 21st century.

Central to that process has been Hugo Chávez and his Bolivarian revolution in Venezuela. It is Venezuela, sitting on the world's largest proven oil reserves, that has spearheaded the movement of radical change across Latin America and underwritten the regional integration that is key to its renaissance. By doing so, the endlessly vilified Venezuelan leader has earned the enmity of the US and its camp followers, as well as the social and racial elites that have called the shots in Latin America for hundreds of years.

So Chávez's remarkable presidential election victory on Sunday – in which he won 55% of the vote on an 81% turnout after 14 years in power – has a significance far beyond Venezuela, or even Latin America. The stakes were enormous: if his oligarch challenger Henrique Capriles had won, not only would the revolution have come to a juddering halt, triggering privatisations and the axing of social programmes. So would its essential support for continental integration, mass sponsorship of Cuban doctors across the hemisphere – as well as Chávez's plans to reduce oil dependence on the US market.

Western and Latin American media and corporate elites had convinced themselves that they were at last in with a shout, that this election was "too close to call", or even that a failing Venezuelan president, weakened by cancer, would at last be rejected by his own people. Outgoing World Bank president Robert Zoellick crowed that Chávez's days were "numbered", while Barclays let its excitement run away with itself by calling the election for Capriles.

It's all of a piece with the endlessly recycled Orwellian canard that Chávez is some kind ofa dictator and Venezuela a tyranny where elections are rigged and the media muzzled and prostrate. But as opposition leaders concede, Venezuela is by any rational standards a democracy, with exceptionally high levels of participation, its electoral process more fraud-proof than those in Britain or the US, and its media dominated by a vituperatively anti-government private sector. In reality, the greatest threat to Venezuelan democracy came in the form of the abortive US-backed coup of 2002.

Even senior western diplomats in Caracas roll their eyes at the absurdity of the anti-Chávez propaganda in the western media. And in the queues outside polling stations on Sunday, in the opposition stronghold of San Cristóbal near the Colombian border, Capriles voters told me: "This is a democracy." Several claimed that if Chávez won, it wouldn't be because of manipulation of the voting system but the "laziness" and "greed" of their Venezuelans – by which they seemed to mean the appeal of government social programmes.

Which gets to the heart of the reason so many got the Venezuelan election wrong. Despite claims that Latin America's progressive tide is exhausted, leftwing and centre-left governments continue to be re-elected – from Ecuador to Brazil and Bolivia to Argentina – because they have reduced poverty and inequality and taken control of energy resources to benefit the excluded majority.

That is what Chávez has been able to do on a grander scale, using Venezuela's oil income and publicly owned enterprises to slash poverty by half and extreme poverty by 70%, massively expanding access to health and education, sharply boosting the minimum wage and pension provision, halving unemployment, and giving slum communities direct control over social programmes.

To visit any rally or polling station during the election campaign was to be left in no doubt as to who Chávez represents: the poor, the non-white, the young, the disabled – in other words, the dispossessed majority who have again returned him to power. Euphoria at the result among the poor was palpable: in the foothills of the Andes on Monday groups of red-shirted hillside farmers chanted and waved flags at any passerby.

Of course there is also no shortage of government failures and weaknesses which the opposition was able to target: from runaway violent crime to corruption, lack of delivery and economic diversification, and over-dependence on one man's charismatic leadership. And the US-financed opposition campaign was a much more sophisticated affair than in the past. Capriles presented himself as "centre-left", despite his hard right background, and promised to maintain some Chavista social programmes.

But even so, the Venezuelan president ended up almost 11 points ahead. And the opposition's attempt to triangulate to the left only underlines the success of Chávez in changing Venezuela's society and political terms of trade. He has shown himself to be the most electorally successful radical left leader in history. His re-election now gives him the chance to ensure Venezuela's transformation is deep enough to survive him, to overcome the administration's failures and help entrench the process of change across the continent.

Venezuela's revolution doesn't offer a political model that can be directly transplanted elsewhere, not least because oil revenues allow it to target resources on the poor without seriously attacking the interests of the wealthy. But its innovative social programmes, experiments in direct democracy and success in bringing resources under public control offer lessons to anyone interested in social justice and new forms of socialist politics in the rest of the world.

For all their problems and weaknesses, Venezuela and its Latin American allies have demonstrated that it's no longer necessary to accept a failed economic model, as many social democrats in Europe still do. They have shown it's possible to be both genuinely progressive and popular. Cynicism and media-fuelled ignorance have prevented many who would naturally identify with Latin America's transformation from recognising its significance. But Chávez's re-election has now ensured that the process will continue – and that the space for 21st-century alternatives will grow.

@SeumasMilne
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Colombian authorities dismiss army members for extrajudicial killings
Caitlin Trent. Colombia Reports. October 9, 2012

Five army men have been dismissed on Tuesday from the Colombian Army and barred from running for public office for 20 years in reprisal for the extrajudicial killing of two helpless indigenous women who they passed off as guerrilla members killed in combat.

Radio Santa Fe reported that the Inspector General's Office convicted the five men for killing two defenseless indigenous women in 2004 in the town of Manuare, located in the very northern Guajira department of Colombia, in a phenomenon that has become known as "false positives."

The action was carried out on June 8, 2004 when the soldiers entered a ranch in the town and shot the two indigenous women in the back, claiming that the civilians were killed during combat. However according to local media, evidence in the case showed that "the two deceased did not fire any weapons and as related by family and friends who have credibility in their claims said that they ran in fear when they saw the troops."

The military personnel affected by the inspector's decision included a captain, two sergeants, and two professional soldiers.

The euphemism known as false positives refers to the extrajudicial killings of thousands of civilians by military. The scandal was unveiled in 2008 yet so far only some 230 members of the armed forces, primarily lower-ranked officials, have been sentenced out of 4,373 people implicated in the killings. In an August 31 report, the Prosecutor General's Office said it had found that the armed forces had killed 2,997 civilians throughout Colombia.

Western Andean Region [contents]

Ecuador's Correa sees 'high chances' of re-election bid
Reuters. October 9, 2012

Oct 9 (Reuters) - Ecuador's President Rafael Correa said on Tuesday his family would support him if he were to run for re-election in 2013 and that his candidacy now rested on the "high chances" that he would be nominated as the ruling party's candidate.

The 49-year-old has long said that any re-election bid in February of next year would depend on the ruling party and his family, so their approval effectively leaves the decision in the hands of the Alianza Pais political coalition.

"The bad news for those naggers (opposition politicians) is that my family supports me and they know that I've got a responsibility toward the country," Correa told a local radio network in the coastal city of Guayaquil, referring to a possible re-election bid.

The U.S.-trained economist said in August that his family has had to cope with a lack of privacy and security protocols since 2007, and it may not be fair to his Belgian wife and his three children to continue like that for four more years.

"I've not yet decided if I'll run for president, that's a decision that Alianza Pais will have to make. There's a high chance that they will appoint me," he said.

Correa is the undisputed leader of Alianza Pais, and has strong backing from party leaders and affiliates. Alianza Pais is expected to carry out a general meeting to nominate their presidential candidate in November.

In power since 2007, Correa has implemented reforms aimed at increasing state revenue from the OPEC-member's natural resources and fighting a political and economic elite he says monopolized power for decades and shunned the poor majority.

High spending on roads, hospitals and schools has made Correa very popular, and he is well positioned to win the vote if he decides to run.

The opposition is divided and lacks a charismatic leader.

Guillermo Lasso, a banker from Guayaquil, and former Correa-ally Alberto Acosta have already announced their candidacies.

Correa has been criticized for amassing too much power in his own hands, clamping down on media freedom, driving away foreign investors and failing to diversify the economy from its dependence on oil exports.

But the Andean country has been growing steadily since 2010, and he has brought stability to the politically volatile nation. Three presidents were forced to resign due to widespread protests during the decade before he took office.

Correa is one of a bloc of leftist presidents in Latin America that includes Hugo Chavez in Venezuela and Evo Morales in Bolivia. They are fervent critics of U.S. "imperialism" and have put in place policies to boost state revenue from their countries' abundant natural resources.
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Bolivia's No. 2 tin mine reopens after protests forced closure
Reuters. October 8, 2012

Oct 8 (Reuters) - Bolivia's second-largest tin mine reopened on Monday after sometimes-violent protests by rival workers kept the deposit shut for 37 days, officials at state mining company Comibol said.

Bolivia's leftist government took over operations at the Colquiri mine in June after weeks of labor demonstrations. The takeover drew an angry response from its former owner, global commodities trader Glencore.

But fighting between unionized Comibol workers and independent miners over who had the right to exploit the richest part of the mine's resources flared up again last month, prompting a fresh string of protests that halted output.

In late September, the government brokered a new deal to resolve tensions between the rival miners by clarifying which parts of the mine each group could exploit.

Interior Minister Carlos Romero said military troops and police officers would stay at Colquiri "as long as necessary to ensure peace and security."

A Comibol report said state miners went back to work early on Monday, focusing mainly on maintenance.

"In the coming days, this same week, mineral production will be completely normalized," a company spokesman quoted the report as saying, adding that the independent mining cooperatives were also expected to resume work this week.

Official figures quantifying the loss to production were not immediately available. Comibol President Hector Cordova previously told Reuters the stoppage was resulting in a loss of more than $250,000 per day.

Cordova said Colquiri should produce about 3,000 tonnes of tin concentrates this year, representing about 15 percent of estimated national output. About half of Bolivia's tin is produced at the state-run Huanuni mine.

Comibol, which has been running the deposit since it was returned to state control, has said the conflict at Colquiri could affect production at the Vinto smelter, which buys almost all its tin concentrate from that mine.

Mining is Bolivia's second-biggest foreign currency earner after natural gas. Silver is its largest metals export, followed by zinc and tin.
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Afro-Peruvians honor heritage with religious fete
AP. October 9, 2012

LA QUEBRADA, Peru -- Every year, Peruvians descended from African slaves come to La Quebrada to celebrate an adored black saint.

The devotees join in a procession for Santa Efigenia, enthusiastically singing Afro-Peruvian songs interspersed with solemn Roman Catholic hymns as they walk the dusty streets of this Pacific coastal town 85 miles (138 kilometers) south of Lima.

Standing next to the bier holding a statue of the only African saint venerated in Peru, a young boy recites verses about the arrival of slaves rom "Angola, Mozambique and Timbuktu" to work in the region's sugar cane fields.

Girls in bright traditional dresses from a group called "La Carimba," for the brand burned by a hot iron on the skin of slaves, dance to a beat produced by the jawbone of a donkey on a wooden box.

Cat races, a fireworks dance and a night of eating and drinking close out the celebration.

A chapel was built in La Quebrada in the 18th century dedicated to Santa Efigenia, who was popular among the then Spanish colony's African slaves. Fervor for the saint faded over the years, until in 1994 efforts by black activists to honor the Afro-Peruvian culture led to a festival being held for Efigenia in La Quebrada.

Mexico, Central America and Caribbean [contents]

Mexico Kills a Drug Kingpin, but the Body Gets Away
RANDAL C. ARCHIBOLD. New York Times. October 9, 2012

MEXICO CITY — It seemed such a triumphant moment in the drug war: the leader of the Zetas, one of the country’s biggest and most ruthless gangs, killed by the celebrated Mexican Marines in a fierce battle with guns and grenades.
Mexican Attorney General’s Office, via European Pressphoto Agency

Heriberto Lazcano, known as El Lazca and the main leader of the Zetas, was one of Mexico’s most wanted criminals.

The Mexican navy said that it had killed Mr. Lazcano in a battle between marines and men armed with guns and grenades on Sunday afternoon in Coahuila State in northern Mexico.

The twin developments — the killing of Heriberto Lazcano Lazcano, one of the most wanted men in Mexico and the United States, followed by the theft of his corpse before authorities had even publicly identified it — left Mexican officials struggling on Tuesday to explain how a major blow against the nation’s criminal organizations could suddenly turn into an illustration of their persistent strength.

“It started out like a Rambo movie and ended up like Woody Allen,” said Diego Enrique Osorno, author of a new book on the Zetas.

It would not be the first time that Mexico’s powerful drug gangs have struck back after an apparent victory by the authorities. Gunmen have freed their allies from jail, rescued them from hospitals, taken away their fallen colleagues from crime scenes and even killed family members of a special forces sailor involved in a successful raid on a top drug lord.

This instance was particularly embarrassing because the authorities had to admit to losing the body at a time when they said they were making major inroads in controlling the cartels, arresting several top leaders of the Zetas and other groups.

On Tuesday morning, the Mexican Navy, of which the marines are a part, said that fingerprint and facial analysis proved that Mr. Lazcano had been killed in a battle on Sunday afternoon in Coahuila State, in a small town about 120 miles south of Texas.

But very soon after the announcement, the state prosecutor acknowledged that a group of heavily armed assailants, with their faces covered, showed up at the funeral home where Mr. Lazcano’s body had been taken and forced the funeral director to drive it away in a hearse.

“Instead of it being a big success, it is creating doubts about exactly what happened and how this was handled,” said Alejandro Hope, a former Mexican intelligence official and now a security consultant. “The corpse was snatched at the end of the process. I don’t know what to make of that.”

Perhaps neither did President Felipe Calderón, who is only two months away from the end of a six-year term that will be remembered for his aggressive pursuit of criminal gangs. Yet he did not rush to trumpet what analysts said was perhaps the biggest takedown of a drug lord in his tenure.

With questions swirling about the case and even some doubts raised over whether the dead man was Mr. Lazcano, Mr. Calderón waited until midafternoon Tuesday to comment, and only then at the dedication of a new federal prison in central Mexico. There he saluted the marines in the operation, and said Mr. Lazcano “was gunned down resisting authority” and emphasized his administration’s successes in killing or capturing 25 of the 37 organized crime figures federal prosecutors have identified as the most wanted.

American officials, too, kept their distance, issuing no public statement pending their own analysis of the case. A senior law enforcement official said the Americans had not provided the intelligence for the raid and wondered whether the marines initially knew it was Mr. Lazcano who had been killed, given the apparent lack of security.

Other security experts with ties to Mexican law enforcement also suggested that the marines came upon him by accident or with sketchy information on who exactly was in the town, an interpretation that seemed to correspond with the navy’s version of events.

The navy said in a statement on Monday night that, after receiving citizen complaints, it confirmed that armed members of an organized crime group were in the town, Progreso, and when marines confronted a vehicle, the assailants attacked with grenades. Two men were killed in the clash and were turned over to state authorities, the navy said. When the initial forensic examination was done, there were “strong signs” that one of the men was Mr. Lazcano, the statement said.

The state prosecutor in Coahuila, Homero Ramos, said that investigators had been called to the scene of the armed clash on Sunday evening and had taken the bodies to the funeral home, where autopsies were conducted and fingerprints and pictures taken before both bodies were stolen around 1:30 a.m. on Monday. He did not explain why the bodies were taken to a funeral home rather than to a government morgue, the usual practice.

Almost an entire day passed before any hint of what had taken place leaked out. About an hour before Mexico’s most-watched newscast at 10:30 p.m. on Monday, the main anchor for that show began sending Twitter messages saying that it appeared Mr. Lazcano had been killed.

It was big news, and analysts said it was one of the more crippling of a series of recent blows to the gang, whose leadership has been under attack from within and by Mexican forces. But the authorities did not acknowledge that the bodies were missing until two Mexican newspapers reported the theft on Tuesday.

Mr. Lazcano, who was in his late 30s, deserted more than a decade ago from an elite Mexican Army unit. Along with other former special forces operatives from Mexico and Guatemala, he founded, trained and recruited armed men to serve as enforcers for the powerful Gulf Cartel.

The Zetas split off on their own two years ago and have fought their former allies and the Sinaloa Cartel, run by the drug lord Joaquín Guzmán, known as El Chapo, or Shorty, who is wanted as badly here as Osama bin Laden once was by the United States.

But the Zetas stand out among the country’s two or three largest criminal groups for their butchery, beheading enemies and murdering civilians, including migrants passing through their turf. They have staged some of the country’s most spectacular jailbreaks and the most brazen attacks on Mexican security forces.

Lately, security analysts have reported that the Zetas themselves are fracturing into at least two groups, and Mr. Lazcano’s death, along with the recent captures of other top Zeta leaders, will probably sow more confusion and violence among the ranks.

Zeta leaders are believed to be turning on one another through executions and providing tips to law enforcement. Another Mexican Navy operation against the Zetas on Sunday, in Nuevo Laredo, led to the capture of a man whom the authorities said was the gang’s regional leader in three border states.

Eduardo Guerrero, a security consultant here, said it appeared that the Mexican government, which frequently acts on intelligence provided by the United States Drug Enforcement Administration, had been hitting the Zetas particularly hard and capitalizing on the divisions in the group. He said there had been 17 major arrests of leaders of the group over the past year.

The marines are considered Mexico’s most professional force and have made some of the most significant captures and kills in the drug war. But they are also responsible for one of the bigger fiascos in Mr. Calderón’s term, when they falsely arrested a man in June presumed to be the son of Mr. Guzmán. Prosecutors later said it was a different man.
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Guatemalan Seeks Charges Against President for Protesters’ Deaths
EFE. October 9, 2012

GUATEMALA CITY – A Guatemalan opposition party filed a formal criminal complaint Tuesday against President Otto Perez Molina and other top officials for the deaths of eight protesters at the hands of the army.

Last Thursday’s killings in the western province of Totonicapan amounted to extrajudicial executions, Democratic Liberty party lawmaker Edgar Ajcip said.

He said that his party, which assembled witness accounts of the incident, wants the people who ordered troops to the scene held accountable, not just the soldiers who fired the fatal shots.

Hundreds of people mobilized early last Thursday to block the Interamerican highway at six different points in Totonicapan province.

The protest was spurred by Perez Molina’s proposals for constitutional changes, an overhaul of the curriculum for aspiring teachers and a recent hike in electric rates.

Two truckloads of army troops were sent to the spot known as Alaska to assist police trying to clear the highway.

Perez Molina – a retired army general – and his administration insisted for nearly 24 hours after the shootings that the troops at the scene did not fire their weapons, despite widely circulated images of a soldier pointing a rifle at the protesters.

Acknowledging the involvement of troops in the violence, the president said last Friday that the trouble started when a private security guard traveling on a cargo truck fired his gun in an attempt to clear a path through the crowd.

The security guard and the seven soldiers who fired shots were placed at the disposition of prosecutors.

Guatemala’s deputy defense minister, Gen. Edwin Efrain Najera, told a congressional hearing on Monday that the troops used their weapons because they were attacked by the protesters.

“They had to take the shots to defend themselves,” he said.

More than 30 other people were injured in the confrontation, including eight soldiers and around two-dozen civilians who received gunshot wounds. EFE
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Guatemalan foreign minister: Murdered indigenous protesters not something to ‘make a big deal about’
AFP. October 9, 2012

GUATEMALA CITY – United Nations diplomats and ambassadors from the United States, European Union and Israel on Tuesday criticized Guatemala’s use of soldiers in public security operations, following violent military repression of a protest last Thursday that left eight indigenous Guatemalans dead in the western region of the country.

Guatemalan Foreign Minister Harold Caballeros, who confirmed eight deaths instead of seven as originally reported, met with members of the international diplomatic corps to deliver an official report of the attack, which happened as members of the Guatemalan military broke up a protest in Totonicapán, 170 kilometers west of the capital.

“With sadness, I recognize that in some parts of the world eight deaths is a very big deal, but, although it sounds bad to say this, … every day we have double that number of deaths [from violence]. So, it’s not something that we should make a big deal about,” Caballeros told members of the news media.

According to the government’s Human Rights Office, soldiers opened fire on a group of thousands of indigenous protesters from the department of Totonicapán, who blocked a section of the Inter-American Highway to draw attention to increasing electricity rates and policies of the administration of President Otto Pérez Molina.

“It’s sad that a legitimate protest has ended with deaths. The risks entailed with maintaining military forces in areas of public security policy are incredibly high,” the U.N.’s representative in Guatemala for the High Commission on Human Rights, Alberto Brunori, said.

“The government has told us that the use of the military is provisional, but I don’t think that’s appropriate,” the European Union’s ambassador to Guatemala, Stella Zervoudaki, said.

“The desire of the army is not to be involved in this [breaking up protests], and that’s not what we would hope to see happening,” U.S. Ambassador Arnold Chacón said.

Israel’s ambassador, Eliahu López, said it was necessary to train security forces and analyze the role of the military in times of peace.

“This is not a war, it’s not an armed conflict, it’s a protest, and it’s necessary to have the appropriate training to manage the situation,” López said.

Since the killings, Pérez Molina has promised to review security protocol to avoid future violent confrontations between the military and protesters.
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Guatemala under Pressure to Investigate Shooting of Native Protesters
Danilo Valladares. Inter-Press Service. October 9, 2012

GUATEMALA CITY, Oct 9 2012 (IPS) - The deaths of eight indigenous demonstrators taking part in a protest against the Guatemalan government in the southwestern province of Totonicapán have provoked outrage within the country and abroad. The protesters accuse the army of shooting into the crowd.

“Now more than ever we are sure that it was them (the military) who opened fire. We were not armed,” Carmen Tacam, president of the indigenous organisation that led the Thursday Oct. 4 protest, told IPS.

That day, some 3,000 native demonstrators blocked the Pan-American Highway, which runs to the Mexican border, to protest reforms that expanded the study programme for becoming a schoolteacher from three to five years, and increased rates for electricity “which some people are billed for without even receiving the service,” as one protester said.

The protesters were also demonstrating against several constitutional reforms promoted by the government of retired general Otto Pérez Molina.

The army was called in, and according to the protesters the troops opened fire, leaving eight dead and 40 injured.

“Our demands still stand, but now we have two more: reparations for the victims’ families and the clarification of who was materially and intellectually responsible for the deaths of our compañeros,” Tacam said.

Right-wing President Pérez Molina claimed that several soldiers fired shots “into the air” and, backed up by the ministers of the interior and defence, accused a private security agent of shooting at the demonstrators.

On Friday Oct. 5, seven soldiers put at the disposal of the legal system said they had fired their guns in the air.

But on Monday, after meeting with foreign diplomats to explain what happened in Totonicapán, the president said he would respect the result of the investigation by the public prosecutor’s office and urged the protesters to engage in dialogue and not to hold further demonstrations.

The tragedy revived memories of the 1960-1996 armed conflict between government forces and left-wing guerrillas, which left 250,000 people dead or disappeared, most of them rural indigenous villagers, with the army being responsible for 93 percent of the human rights crimes according to the United Nations-sponsored Historical Clarification Commission (CEH).

“Unfortunately we are regressing to the days of the armed conflict, but it is not our intention to take a confrontational attitude. There will be no mobilisation on our part, because we respect the mourning and pain of the families,” Tacam said.

Award-winning human rights activist Helen Mack, the founder and president of the Myrna Mack Foundation, said the incident should serve as a wake-up call to the authorities.

“The army should never be involved in actions of law and order,” Mack told IPS. “Their doctrine is to kill, and what was happening there did not call for any killing.”

Calls for an investigation into the incident also came from abroad.

On Monday Oct. 8, the U.N. Special Rapporteur on the promotion and protection of the right to freedom of opinion, Frank La Rue, said the use of the military to resolve social conflicts was a “grave mistake.”

And the secretary general of the Organisation of American States, José Miguel Insulza, said it was “urgently necessary” to clarify what happened, as an “indispensable step towards calming tempers and paving the way to dialogue.”

The incident in Totonicapán forms part of a pattern of abuses by the security forces against civil society in this impoverished Central American country, where a majority of the population is indigenous.

Activist Jorge Santos, director of the International Centre for Human Rights Research (CIIDH), cited the 2004 murders of 12 peasants on the Nueva Linda estate in the southwestern province of Retalhuleu.

He also mentioned evictions of peasant farmers from estates in Polochic Valley, in the northwestern province of Alta Verapaz, in which three people were killed and 18 injured in 2011.

In both cases, the security forces were involved, and “today we see them once again involved in violence…But now…with the army being used to crack down on social conflicts,” Santos said.

In his opinion, the events of Oct. 4 were an example of what he called “the racist thinking” of police and government officials.

Santos said the offices of the public prosecutor and the human rights prosecutor should carry out exhaustive investigations, and the government should “demilitarise” the bodies in charge of citizen security.

Native activist Rosalina Tuyuc said she holds Pérez Molina responsible, “because the army acts under the president’s orders.”

“When this has been cleared up, we will be able to say there is confidence in the justice system. But if that doesn’t happen, this case will end up in impunity, like so many other cases,” she told IPS.

Tuyuc defended the use of roadblocks in protests as “the only way to make ourselves heard.”

Guatemala has a high level of social conflict and enormous inequalities between rich and poor.

The heavy concentration of land ownership is one of the main sources of conflict. Nearly 80 percent of the country’s productive land is in the hands of just five percent of the population, according to the U.N. Development Programme.
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Guatemala Implements Police Reform Aimed At Reviewing 20,000 Officers
Latin America News Dispatch. October 9, 2012

Guatemala will implement a program to root out corruption in the police and military, according to Mexican daily El Informador.

The wide-reaching anti-corruption program marks an effort by the administration of President Otto Pérez Molina to crack down on the drug traffickers that have infiltrated Guatemala’s often poorly paid security forces — particularly Mexico’s Los Zetas cartel.

Some 20,000 police officers will face reviews during the first phase of the program. Two-hundred of them have already begun the process, according to El Informador.

The infiltration of organized cime into the country’s security forces has not only led to distrust of the police, but has also impeded collaboration with other countries to combat drug cartels, according to Interior Ministry spokesman Willy Melgar.

Melgar said the first step the government needs to take in the fight with organized crime is to “clean the table, and that means to have people with enough morality,” according to El Informador.

“When these people don’t have enough moral values, they sell themselves to the best buyer,” Melgar said, according to El Informador. “That is what happens and what we are trying to overcome.”

The move toward cleansing state security forces has as precedent the Mexican government’s removal of 65 thousand state and municipal police functionaries earlier this year. The dismissal took place after the review of 180,000 out of 430,ooo local and state police in Mexico, of which 115,000 were found unfit to continue their positions.

Pérez Molina — who was elected promising to crack down on the cartels with an “iron first,” and has floated the idea of legalizing drugs to deflate drug gangs’ profits — faces an uphill battle for police reform. The goal has proven elusive for Pérez Molina’s predecessors, according to InSight Crime. Additionally, an International Crisis Group report published this year warned that the former general may rely more heavily on the military to fight crime — a move that could demoralize police.
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American weirdness seeks to intervene in Honduras
William K. Black. New Economic Perspectives. October 8, 2012

Michael Strong is an American businessman who is a devotee of  the Austrian school of economics.  Austrians view democratic governance as so inherently illegitimate that they claim that virtually any governmental program irretrievably consigns us to the “Road to Serfdom.”   Strong has decided to save Hondurans from their government.  He wants his corporation to buy a Honduran city named Puerto Castilla and turn it into his first global “model city.”  The Honduran government, which holds power through a coup that the Bush administration and the IMF applauded, approved the sale.  The Honduran government is strongly identified with Honduras’ wealthy elite.  The constitutional chamber of Honduras’ Supreme Court (which provided a fig leaf of respectability for the coup) rule 4-to-1 that it was unconstitutional to create privately run cities.  (The decision is expected to be appealed to the full Supreme Court.)

The U.S. has a deplorable history of private adventurers carving out personal fiefdoms in Latin America.  The fact that Honduran business elites want to renew that tragic history demonstrates how divorced they are from the lives and views of most Hondurans.

Strong’s bio emphasizes that his great ally is John Mackey, the CEO and co-founder of Whole Foods and that their joint goal is to “liberate” entrepreneurs.  Mackey likes to write about the “moral case for capitalism,” but all one needs to know about his idea of business morality is that he employed a “sock puppet” (a fictional internet identity) to secretly disparage his competitors and praise his own physical appearance.  Mackey is a pathetically vain hypocrite who attacks other firms anonymously and then has the chutzpah to lecture others on how capitalism creates moral leadership.

Strong claims to be a leftist converted to libertarianism who is motivated by the same, high ethical goals that motivated him when he was a leftist.  He urges liberals to convert to libertarianism in a document that can be accessed from this site:

    The left is often animated by the various harms and crimes committed by large corporations.  Leftists experience a tremendous sense of outrage at the fact that under capitalism not only do bad people get away with doing bad things, they often become rich and powerful by means of doing so.  Worse yet, under capitalism often highly decent, hard-working human beings are harmed by these evil people, and are impoverished, or may be actively harmed by the actions of evil, rich capitalists.

He then goes off the rails of anything approaching logic.

    The implicit assumption on which Leftist beliefs are founded is that the initiatives designed by the Left to counteract the harms done by capitalism do more good than harm.

The left makes the opposite assumption.

Strong then describes his faith in public choice theory (ignoring the “private choice” reality he has just described in which the private sector has perverse incentives).  Strong’s conclusion is that we need to give up on government and democracy as inherently perverted by private interests and instead cede power to those perverted private interests.  Strong writes that the inherent weakness of democracy “does not mean that we should give up altogether on democracy,” but his next word is “but” and the reality is that he does give up on democracy and government and relies on the private sector as the alternative, not complement, to democracy.  Strong and Mackey have formed an organization, FLOW, with a blog devoted to developing competitors to modern governments developed by corporations.  Sympathetic libertarian supporters of Strong agree with my view that Strong has rejected democracy in favor of “markets.”

    Here’s how the blog defines its purpose: “Like any technology, democracy was once a radical innovation, thought unlikely to work. Now, it is the industry standard. Our aim is to find, analyze, and debate the innovations in governance today that may become the standards of tomorrow, especially those that utilize the best technology for social organization ever developed–the market.”

    For a sample of what you’ll find there, see FLOW chief Michael Strong on a “Cambrian explosion in government”:

The anti-democratic right has moved from the failed experiment in “reinventing government” by adopting corporate practices to replacing government entirely with corporate satraps run by “the market.”

Strong’s blog urging others to become libertarians is revealing.  He illustrates what inevitably happens when one rejects democracy and embraces plutocracy and markets “freed” from regulation.  Strong implicitly admits that his vision of “economic freedom” requires that business elites have de facto immunity from being prosecuted for the crimes that made them wealthy even if they cause catastrophic financial crises and maim and kill millions.  For a man who hates communists, Strong has bought in fully to the idea that in order to make an omelet one must break many eggs.  He wants to start by breaking tens of thousands of Hondurans.

    But creativity, innovation, and entrepreneurship are crucially dependent on freedom.  One of the reasons I became a libertarian is the realization that I care more about making peoples’ lives better than I cared about “social justice” or tracking down bad people who made money being bad.  While I remain interested in reputation systems to ensure that bad people less frequently get away with getting rich by being bad, I have decided that it is far more important to focus on making lives better than to focus on prosecuting the bad.  I believe with increased freedom we can create peace, prosperity, happiness, and well-being for all, rapidly, in an environmentally sustainable world, and this goal is far more valuable than is the goal of fighting bad guys who happen to get rich through pandering and deceit.

This passage is so puerile on so many levels that it should be required reading in every class in white-collar criminology. What a wonderful city father jefe Strong will be for his Honduran subjects.

Let us consider first who will rise to power in business, and as our rulers, under Strong’s anti-democratic vision of a world in which the corporate CEOs will run our economy, our pseudo-governments, and (if sufficiently megalomaniacal) our private lives.  In an earlier passage in the same document, Strong emphasizes Haykek’s prediction that the worst people inevitably rise to leadership in a communist system because there is no rule of law.  The largely peaceful dissolution of communism and the USSR should cause some caution in accepting Strong’s claim of inevitability.  What Strong ignores is what classical economists understood hundreds of years ago. Without a rule of law the worst people will tend to prevail through force and fraud.  Strong also ignores the Gresham’s dynamic.  As Jonathan Swift explained in Gulliver’s Travels and as George Akerlof showed in his classic 1970 article on markets for “lemons,” when cheaters gain a competitive advantage market forces become perverse and “bad ethics drives good ethics” from the market place.

The need to block a Gresham’s dynamic is one of the lessons we stress as white-collar criminologists.  Entire industries can become dominated by “control fraud” when a Gresham’s dynamic arises.  Consider Strong’s examples of the elite business crimes he doesn’t worry all that much about.  It turns out that he gives no examples.  He doesn’t do so for an excellent reason.  As soon as one begins to discuss actual business crimes it becomes impossible to believe that anyone who is indifferent to such crimes is fit for decent society.  Note that Strong’s emphasis is his indifference to elites becoming wealthy through “deceit.”  His excuse for this indifference, which he repeats (with minor variants) in three successive sentences is that “I care more about making peoples’ lives better.”  The logical disconnect, obvious to anyone who has read white-collar criminology or George Akerlof and Paul Romer’s article (Looting: the Economic Underworld of Bankruptcy for Profit), is that business crimes make peoples’ lives worse.  Strong claims Paul Romer as one of the principal influences on his work, so he has no excuse for ignoring the terrible consequences of business “deceit” for peoples’ lives.  Strong also ignores what he had written only a few sentences earlier:

    Worse yet, under capitalism often highly decent, hard-working human beings are harmed by these evil people, and are impoverished, or may be actively harmed by the actions of evil, rich capitalists.

I will only summarize why business crimes make peoples’ lives worse.  Each of these forms of control fraud can kick off a Gresham’s dynamic absent vigorous government enforcement:  accounting control fraud (which drove the S&L debacle, the Enron-era frauds, and the ongoing crisis), anti-employee control frauds which can endanger workers’ health and lives, anti-purchaser control frauds (Akerlof emphasized lemons with poor quality, but did not emphasize that they can maim and kill the customer), and anti-public control frauds that target the general public (e.g., bribery, tax fraud and illegal dumping of toxic waste).  Frauds can also cause extreme negative externalities.  The defining element at law of fraud is deceit.  I get you to trust me then betray that trust in order to become wealthier by stealing from you.  Elite fraud, therefore, is the most effective acid for eroding trust.  Trust is vital to the success of most institutions.  The ongoing crisis became acute when bankers no longer trusted other bankers’ asset valuations and thousands of markets shut down.

Strong’s inability to see that business crimes harm people is inexplicable given his earlier admission that they do so, but it is one of several logical failures in the same paragraph.  He also fails to see why it is destructive for CEOs to become wealthy through crime.  Remember that Strong’s fundamental critique arises from public choice theory.  He argues that wealthy special interests will use their power to distort public decisions so that they benefit the wealthy and powerful rather than the overall public.  If CEOs can become wealthier through running control frauds than their more talented, honest peers, then the worst CEOs will dominate pubic policies and use those policies to harm their honest competitors and the general public. They will also be the CEOs most likely and most able to hire the most vicious mercenaries in order to conquer, loot, and intimidate opponents.

Control fraud produces particularly pernicious implications of “private choice” theory.  It can be extremely difficult for an honest CEO to guide the firm to high profitability, but as Akerlof and Romer emphasized fraud is often a “sure thing.”  The result is that many CEOs can easily mimic the fraud scheme that their rival has adopted to report exceptional profits.  Fraudulent CEOs will typically ensure that their compensation is very large and based largely on short-term reported income.   The reported exceptional profits produced by control frauds other than accounting control fraud are real – a firm gains a real competitive advantage by not paying corporate income taxes, bribing a governmental or corporate officer to obtain valuable contracts, or dumping toxic waste in the river.  The ability of other CEOs to mimic easily the tax fraud, bribery, or illegal dumping means that the Gresham’s dynamic is likely to be particularly powerful and swift when these forms of control fraud are not stopped by government regulators and prosecutors.

Accounting control fraud does not create a real competitive advantage, but modern executive compensation created a Gresham’s dynamic for this form of fraud because the CFO who fails to mimic a rival’s accounting fraud has only a trivial chance of reporting extraordinary (albeit fictional) profits.  If the CFO fails to mimic his rival’s accounting fraud he and his CEO will not “earn” enormous bonuses and the CFO will be at increased risk of being fired.  Even an inept CFO can easily mimic the accounting control fraud “recipe,” which produces a “sure thing” – record reported (albeit fictional) profits and a guarantee of nearly instant wealth for the CFO, the CEO, and other senior officers.

The accounting control fraud recipe begins to explain why fraud can cause hundreds of millions of peoples’ lives to be worse.  The recipe that makes accounting fraud a “sure thing” and maximizes a lender’s (or a purchaser’s) reported income has four ingredients.

    Grew like crazy (preferably around 50% annually) by
    Making (or purchasing) really crappy loans at a premium yield, while
    Employing extreme leverage, and
    Providing only miniscule allowances for loan and lease losses (ALLL) for the inevitable extreme losses that the fraud recipe must produce

Note that this recipe maximizes real losses.  Indeed, Akerlof and Romer emphasized that it produced loans that – at the time they were made – had a negative expected value.

The recipe also calls for extreme growth even when there is a glut of whatever product the loans are funding.  If a significant number of firms mimic the same fraud scheme employing the fraud recipe they can hyper-inflate a financial bubble and cause severe financial crises, severe recessions and depressions causing terrible unemployment, the collapse of many markets, and steep drops in stock prices and in the price of whatever product was funded by the fraudulent lenders when the bubble inevitably bursts.  Accounting control fraud epidemics like the epidemic of fraudulent “liar’s loans” by lenders that drove the ongoing crisis make hundreds of millions of peoples’ lives horrifically worse.  Strong assumes that increased “economic freedom” helps everyone:  “I believe with increased freedom we can create peace, prosperity, happiness, and well-being for all, rapidly, in an environmentally sustainable world….”  Private mercenary wars fought on behalf of rival privatized city-states would cause wars.  The three “de’s” – deregulation, desupervision, and de facto decriminalization – produce criminogenic environments that Akerlof & Romer warned about in their 1993 article on looting.

    “Neither the public nor economists foresaw that [S&L deregulation was] bound to produce looting.  Nor, unaware of the concept, could they have known how serious it would be.  Thus the regulators in the field who understood what was happening from the beginning found lukewarm support, at best, for their cause. Now we know better.  If we learn from experience, history need not repeat itself” (George Akerlof & Paul Romer.1993: 60).

Again, Strong says Romer is his guru on the concept of “model cities.”  He needs to absorb the warning that Akerlof and Romer issued about removing the vital regulatory “cops on the beat.”  Strong does not “know better” because he has refused to “learn from experience.”

It is revealing that Strong believes he has to choose between preventing control fraud and “economic freedom.”  His logic requires a belief that we would cripple “economic freedom” if we prevented or even punished those who became wealthy through control fraud.  Economic freedom, as Strong implicitly defines it, is a very strange concept if it means the “freedom” to become wealthy by looting the public and causing recurrent, intensifying financial crises.  Somehow, I doubt that he explained this unique concept of “economic freedom” to the citizens of Honduras.

In the same document, Strong denies that global climate change is a serious, present risk and endorses the claims that environmentalists are “terrorists” and represent the greatest threat to the environment and humanity.  (No, he has no relevant expertise.  See my column yesterday on why ideology explains conservatives’ rejection of science and embrace of the pseudo-science known as theoclassical economics.  Strong is a devotee of theoclassical economics.)  When denial fails, Coase is Strong’s preferred answer to all environmental issues (i.e., corporations or plutocrats should own all the wild animals, the atmosphere, national monuments, the mountains, glaciers, forests, waterfalls, lakes, rivers, aquifers, the ocean, canyons, bridges, dams, roads, airports, railways, water and sewer systems, and the rest of the universe).  Honduras is a great place to experiment with the gentle mercy of plutocrats who will own not only the city but everything else.  For the sake of brevity, I simply urge the reader to read the assumptions Coase said were necessary for privatization to “work.”  The assumptions are never met in the real world and will not be met in Honduras.  Strong, however, believes that private ownership automatically optimizes the environment.  Because he believes that environmentalists are “terrorists,” Honduran “greens” should begin to create “safe houses” on an urgent basis.  They may soon need to escape Strong’s mercenaries in the Honduran Supreme Court reverses the panel decision.

Strong is not even the most extreme advocate of privatized governments not subject to antiquated democratic restraints.

    Patri Friedman [Milton’s grandson] thinks mankind needs to take to the seas and start new countries.

    “Let a thousand nations bloom on the high seas,” he says.

    “We’re still using the legal systems of 1787,” he told a crowd of more than 300. “Why don’t we see more innovation in politics,” he asked.

    Think of governments as businesses, he argues. “This is the world’s biggest industry,” he says. The most successful franchise … loses more than a trillion dollars a year. “The worst companies kill many of their own customers,” he adds.

    What a business opportunity. “What we need are new countries,” he says. “Seasteading is the entrepreneurial way to fix government, by competing with governments rather than complaining.”

    The first step would involve boats providing services such as medical tourism. Then seasteaders could move on to platforms. Finally, in several decades, floating cities.

The stability of the U.S. Constitution, instead of reflecting well on the Framers, becomes an indictment.  Something so old, which has produced the most successful nation in history, must be obsolete.  [The federal budget deficit is not remotely akin to a business losing a trillion dollars.  The federal government is not akin to a business.]  Why do we “need new countries?”  What kind of constitution do Friedman and Strong want?  They do not want to tell us because they would produce grossly inferior anti-democratic constitutions that would fail within a generation.  The crushing economic and environmental problems of creating viable “floating cities” are so severe – and gratuitous – that the idea can only make sense to someone who despises existing democratic governments.  The unforgivable sin of America and so much of post-World War II Europe to the anti-democratic fringe like Strong and Petra Friedman is that they work so well without being on the road to serfdom.

Strong’s Honduran effort showed moral defects from the beginning.  Strong says that he got the idea to buy a Honduran city after listening to a TED talk by Paul Romer.  Romer has long advocated creating model governments that would follow best practices in fighting corruption and providing responsive government.  Romer clearly had strong concerns that the corporate owners who might be most eager to acquire a Honduran city would be the worst possible leaders of a city and could discredit Romer’s entire project.  Romer worked with the Honduran government to try to create standards for the project and the acquirer.  Romer wanted a principle of total transparency.  Honduras’ government initially indicated approval of such standards and the appointment of a commission led by Romer to monitor proposed acquirers and their compliance with the standards.  The Honduran government is very weak, of dubious legitimacy, corrupt, and seeks to serve the interests of the thin crust of wealthy Hondurans.  These characteristics made Honduras an attractive place to experiment with model cities and greatly increased the chances that Honduras would approve the purchase of a Honduran city by a U.S. corporation – an action that would normally cause a Latin American government to fall.  These same characteristics made it unlikely that the Honduran government would actually adopt and enforce good government standards.  It was equally unlikely that Honduras would appoint (and listen to) an independent commission that would monitor compliance and provide transparency.  When Honduras reneged on both protective aspects, Romer publicly withdrew from the entire process and plan, an event that prompted a New York Times story on September 30, 2012 entitled “Plan for Charter City to Fight Honduras Poverty Loses Its Initiator.”

    But now, Mr. Romer, an expert on economic growth, is out of his own project, tripped up by the sort of opaque decision making that his plan was supposed to change.

    An internal contradiction in the theory is playing out: To set up a new city with clear new rules, you must first deal with governments that are trapped in the old ones.

    The tipping point came with the announcement a few weeks ago that the Honduran agency set up to oversee the project had signed a memorandum of understanding with its first investor group.

    The news came as surprise to Mr. Romer. He believed that a temporary transparency commission he had formed with a group of well-known experts should have been consulted. He withdrew from the project.

    The law setting up Honduras’s experiment in a charter city, a special development region, or RED in its Spanish initials, creates flexibility that promotes innovations, but requires strict disclosure along the way, Mr. Romer said. “The one absolute principle is a commitment to transparency,” he said.

    The investor group is led by Michael Strong, an activist who has worked in the past with libertarians like John Mackey, the founder of Whole Foods. He promises that his investors include Silicon Valley entrepreneurs and Central American investors, but when pressed for details, named only one Guatemalan businessman.

    With $15 million on hand, he said, the group will begin with a small pilot project to build infrastructure and is already talking to prospective tenants.

    Mr. Strong also said he had plans in the future to build low-cost housing and set up schools, but he admitted that “A lot of things we don’t know until the RED government goes up.”

    With so few details made public, even the normally pro-government newspapers in Honduras have begun to question whether there is any real money behind the project.

    Opponents on the left have been filing challenges with the Honduran Supreme Court against the charter cities plan. The news of the investment deal brought more.

    According to Mr. Strong and others involved in the project, including Mark Klugmann, an American consultant who is working with Mr. Sánchez, the transparency board never legally existed. Mr. Sánchez agreed, although he had never disputed the existence of the board in the past.

    Mr. Romer said that President Lobo signed the decree in his presence in December. But he acknowledged that the board was on tenuous legal footing because of the challenges in the Supreme Court. The decree was never published.

The defects of the Honduran government would have been reduced if the acquirer who stepped forward were a supporter of Romer’s vision and voluntarily complied with these standards and sought an independent review of their proposal by Romer and other experts who would rigorously critique their plans.  Strong claims that Romer prompted Strong’s plan to acquire a Honduran city, but Strong deliberately ran right over Romer.  Strong’s claim that the failure of the Honduran government to honor its commitments designed to ensure transparency and prevent abusive takeovers justifies his failure to provide transparency and pass a rigorous, independent review exemplifies Strong’s moral failures.  He illustrates why “economic freedom” without democratic protections leads to a race to the bottom in which the worst CEOs will end up owning our cities.  Romer is brilliant, but he has been betrayed by both the Honduran government and Strong.  Indeed, Strong’s supporters are blogging attacks on Romer.
_______________________________

Seaga warns against IMF dictates
BALFORD HENRY. Jamaica Observer. October 9, 2012

FORMER Prime Minister Edward Seaga yesterday warned Jamaicans against willingly accepting imported solutions, including the dictates of the International Monetary Fund (IMF), to address the country's problems.

Seaga said that the same "brainwashed mentality", which proclaimed that everything from the "Great House" was good and better, was the same one dictating that "imported investments, imported socialism, imported federalism, imported IMF dictates, and imported globalisation" are all good and better.

"They are, but only in part. We must determine what is good and reject vehemently what is not, or we will become modern day slaves to new masters in a new colonial-like regime, making true independence a fiction," he told Parliament.

The veteran parliamentarian was responding to nearly three hours of tributes from his former colleagues at Gordon House, during the special sitting of both Houses of Parliament honouring him for his contribution to Jamaica's post-Independence development, as well as his 45 years as the longest-serving member of the Jamaican Parliament in history.

Tributes were given by both Prime Minister Portia Simpson Miller and Opposition Leader Andrew Holness, as well as other members of both Houses during the sitting. They all paid tribute to his performance as a parliamentarian as well as his achievements as minister of development and welfare, 1962- 1967; minister of finance and development, 1967-1972; and prime minister and minister of finance, 1980-1989.

Simpson Miller called him "a good and faithful servant of Jamaica for more than 50 years", who had defined the most remarkable standards of public service.

Holness, who now heads the Jamaica Labour Party (JLP) that Seaga led for some 31 years up to 2005, thanked Seaga on behalf of the JLP, describing him as "a practical man" for whom Jamaica is better off for having produced.

Seaga listened to the tributes, stonefaced for the most part, dressed in a dark suit and grey tie. With him were his wife Carla, and his younger daughter Gabrielle.

Former Prime Minister PJ Patterson, Seaga's political rival for many years, was seated immediately behind him.

Seaga was given a rousing ovation by the parliamentarians when he rose to speak, and he did not disappoint in an approximately 40-minute address.

He said that Jamaica's misfortune is that policymakers have little agreed policies or agreed principles on which to devise sustainable policies which would allow them to pass the baton successfully from one to the other.

"Hence, the end product of the relay is a non-productive passing of batons that are fumbled and dropped, and runners who take two steps forward and two steps backwards," he explained.

"Time now to stop following and fumbling, time to lead the way," he said.

Region: Trade, Security, Economy and Integration [contents]

How Latin America May Lead the World in Decriminalizing Drug Use
Alfonso Serrano. TIME. October 9, 2012

Guatemalan President Otto Perez Molina has never been soft on crime. The 30-year military veteran rose to power last year on the wings of his law-and-order platform, crystalized in his campaign slogan: “Iron fist, head, and heart.” And he recently approved the creation of two military bases, outfitted with 2,500 soldiers, to guard against the growing presence of drug cartels that have turned Guatemala into a trafficking corridor and fueled some of the world’s highest murder rates.

Since February, though, Perez Molina has coupled his tough talk on crime with calls for a drastic change in crime-fighting tactics centered on the legalization and decriminalization of drugs. Legalization, he insists, should supplement military buildup to stem drug-related violence in Latin America. In September, Perez Molina proposed drug legalization at the United Nations General Assembly. The move angered Washington but was championed by the presidents of Mexico and Colombia, who appealed to the General Assembly with a similar message. And last week, Perez Molina repeated calls for a shift in the global war on drugs during a U.N.-sponsored gathering of regional leaders in Antigua, Guatemala. “The current plan,” he told the press, “is not going to give us results.”

In the last few months, Latin American presidents across the political spectrum have joined Perez Molina in spearheading a hemispheric debate on drug legalization—unprecedented for sitting heads of state. Traditional drug policy focused solely on prohibition—a method dictated by the United States since Richard Nixon created the Drug Enforcement Administration 40 years ago—has run its course, they argue. In its place, Latin America has proposed a series of measure focusing on alternative strategies, emerging as the key player in the global reform movement.

“The genie has escaped from the bottle and it isn’t going away,” Hannah Hetzer tells TIME. Hetzer, Latin America coordinator for U.S.-based Drug Policy Alliance, recently returned from Uruguay, where she addressed members of parliament on the drug legalization movement in the United States. “More and more countries in Latin America are following their own diverse set of drug policy reforms.”

While no Latin American nation has legalized drugs yet, several have taken steps to decriminalize narcotics. Argentina introduced a measure in congress this year that would decriminalize the possession of all drugs for personal use. Chile’s congress, meanwhile, is contemplating a bill that would decriminalize the cultivation of marijuana for personal use. And a Colombian court recently upheld a law that decriminalizes the possession of small amounts of cocaine. Like Mexico, Colombia has also decriminalized the possession of small amounts of marijuana.

But no country has proposed more drastic reform than Uruguay. President José Mujica’s center-left Broad Front party introduced a measure this summer that would not only legalize marijuana consumption, but also place the government at the helm of production and distribution. The bill, which would allow citizens to purchase up to 40 grams of cannabis per month, materialized as the tiny nation of 3.5 million inhabitants scrambles to battle drug-related violence.

“Our central concern is how narcotics trafficking is progressively altering certain aspects of Uruguayan culture and society,” Julio Calzada, secretary-general of Uruguay’s National Committee on Drugs, tells TIME. “The proposal aspires to regulate the marijuana market with strict state control, which would allow us guarantee users marijuana access without being in contact with the criminal world.”

The measure, which would allow the government to regulate the estimated $40 million marijuana market, will be debated in Uruguay’s congress for the next six months. Although party divisions exist, Calzada believes there is enough political support to approve some form of the bill next spring. Most opposition to the bill, Calzada points out, has come from marijuana users who worry about excessive government control and from physicians who fear increased rates of drug addiction.

The United States, meanwhile, has resisted any alternatives to its prohibitionist drug policy. But signs of a possible shift are starting to bubble. Earlier this year at the Summit of the Americas in Colombia, the Obama administration said that legalization was worthy of debate. And during a visit to Mexico in March, Vice President Joe Biden called the debate over drug legalization “legitimate,” but he underlined that the administration would not alter its stance opposing legislation.

Latin America has also encountered a roadblock in the United Nations, despite repeated calls for the global organization to organize an international conference on drug policy alternatives that go beyond mere prohibition. Just last week, the governments of Guatemala, Colombia and Mexico issued a joint statement calling for the United Nations to exercise leadership in the war on drugs, “including regulatory and market measures, with the goal of establishing a new paradigm that keeps resources from flowing into the hands of organized crime.” There has been no response from the U.N.

While Latin America insists that policy change must be the focus of a coordinated global effort, the region seem bent on advancing reform, with or without international support. “There is a political and global need to advance the mechanisms of drug regulation that don’t rely exclusively on prohibition,” Calzada told TIME. “We have systematically called for ample discussion on these matters on the international stage, but we have only found obstacles. Ultimately, Latin America has the autonomy to advance measures that we feel are most pertinent for our citizens.”
_______________________________

IMF vote reform bogged down by delays, deadlock
Lesley Wroughton. Reuters. October 9, 2012

(Reuters) - The politics of mathematics has deadlocked IMF discussions on shifting voting power to emerging economies such as China, as European countries dig in their heels over changes to a little-known formula with big implications.

Governance reforms in the International Monetary Fund have been years in the making. A historic deal sealed in 2010 - and supposed to come into force this week in Tokyo where the IMF and World Bank are holding annual meetings - would make China the third-largest voting member and revamp the Fund's board to reduce Western Europe's dominance.

But that has been stalled by the U.S. presidential election. Washington has effective veto power over the 2010 package. Approving it would mean putting more money into the IMF, something the Obama administration is reluctant to do before the election.

The 2010 deal was part of a broader plan by the IMF to recognize within the organization the growing economic clout of emerging economies.

The next phase, which the IMF had hoped would be completed by January 2013, involves establishing a formula that would determine voting shares based on economic size, capital flows, foreign exchange reserves and other variables. Depending on the weighting, different countries benefit, which helps explain the wrangling over the math.

"The message being sent by the institution is that it is having enormous difficulty adapting its structure and functioning to the 21st Century," Paulo Nogueira Batista, the IMF executive director for Brazil and a constituency of other Latin American and Caribbean countries, told Reuters.

China, Brazil and other large emerging market economies have long contended that the IMF's current voting set-up unfairly benefits Europe and the United States, which dominated the IMF since its founding after World War Two.

They argue that if the IMF expects them to contribute more both to IMF resources and to the global economy, they deserve more power within the Fund.

That was the reasoning behind two sets of IMF reforms in 2008 and 2010.

PRIORITIES

Ted Truman, a senior fellow at Washington's Peterson Institute and a former assistant Secretary of the U.S. Treasury for international affairs from 1998-2001, said IMF reforms may not be Washington's highest priority even after the election.

"One question is whether the U.S. will be able to do this as part of the lame duck exercise, which would be positive. But my sense is maybe it won't be the highest priority of the administration and not the lowest either.

"I don't think you have to be too partisan to say if (Mitt) Romney wins... this is not going to be the highest national priority for the new administration. If Obama wins, then you are likely to have a continuity of policy with regard to the Fund," said Truman.

Ironically, it was the United States that pressed hard for IMF quota and board reform in 2009. U.S. Treasury Secretary Timothy Geithner, himself a former IMF official, conducted shuttle diplomacy between European and emerging economies to try to reach a reform deal.

David Lipton, the No. 2 official at the IMF and the highest ranking American, said the Obama administration had been clear that it would not be able to seek congressional approval for more IMF funding before the November election.

He said there was still time to reach a compromise on IMF governance reform and described an "emerging consensus" behind increasing the weight given to GDP to determine voting shares.

"It is a complicated matter and different countries have different interests right now, but I think it would be wrong to surmise the membership doesn't stand strongly behind modernizing the governance structure of the IMF to keep up with the evolution of the global economy," Lipton told Reuters in an interview in Tokyo.

"There will be some elbow-throwing in the course of these discussions."

MATHS BECOMES POLITICAL

Any change to the quota formula that gives more weight to purchasing power GDP - which measures the buying power of an economy instead of just the dollar value - would benefit China and other developing economies.

European countries want to put more emphasis on openness, the most hotly debated of all the measurements, because it captures among many things the vast trade flows among euro zone countries. Removing the openness measure, or scaling it back, would sharply reduce Europe's influence in the IMF and shift power to China, India and Brazil, according to an IMF report.

"There is no room to compromise with nonsense. Openness makes no economic sense, it has no meaning, it is just a device to sustain over-representation of Europe and other small developed economies," Nogueira Batista said.

"I have been in this institution long enough to know that the call for compromise is often coded language for status quo," he added.

European representatives to the IMF declined to comment. In Brussels, European officials said the U.S. delays had given them more time to hammer out a reform agreement.

The January 2013 target for a reconfigured formula could be delayed until 2014, in time for the deadline of the next review of membership quotas, according to officials with knowledge of the talks.

The wrangling with Europe over the formula has added to frustrations among developing countries over what they say is Europe's resistance to giving up some of its power in the Fund.

Added to that now is growing anger among many developing countries over Europe's handling of its debt crisis, which they say risks pushing the rest of the world into another recession.

Earlier this year, emerging and developing countries ponied up billions of dollars to help countries cope with the euro zone crisis and some want that reflected in the voting power shift.

"The Europeans are losing ground relative to the rest of the world all the time, both in the economic and political sense," Peterson's Truman said. "So the very fact that many of the non-European members of the Fund are annoyed with Europe for pushing the world economy to the edge of another recession doesn't help their economic posture."

(Additional reporting by Vincent Lee in Seoul; Editing by Emily Kaiser and Neil Fullick)

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