July 23: Candidates should calm passions

Mexico’s post-electoral landscape has brought out the worst in the country’s two main candidates: Felipe Calderón of the ruling centre-right National Action Party (PAN) and Andrés Manuel López Obrador of the leftwing Democratic Revolution Party (PRD).

Amlo, as Mr López Obrador is popularly known, refused to accept his narrow loss to Mr Calderón and accused the electoral authorities of manipulating the count even though he had promised unconditionally to respect their decision.

Since then Mr López Obrador has bungled the presentation of video evidence supposedly demonstrating that there was fraud. In addition, many lawyers say the 800-page document he submitted as evidence of foul play to the country’s electoral tribunal, which has a month to proclaim a definitive winner, is a model of how not to assemble a convincing legal case.

Most recently Amlo announced he would not recognise a Calderón government and, worryingly, even refused to condemn the actions of several PRD supporters who last week intimidated Mr Calderón.

Mr Calderón has been similarly provocative. Refusing to wait for the tribunal’s official decision, he smugly announced he would start a national tour to thank the people for his support. He did so standing in front of a backdrop saying “President 2006 – 2012”. Admittedly, he has now decided to postpone the tour. But for many Mexicans it came too late to avoid insult.

In a country deeply divided along geographic and class lines – the north voted for Mr Calderón and the south for Amlo in the closest election in Mexican history – both candidates should calm passions rather than provoke them.

Whether the tribunal confirms victory for Mr Calderón, orders a partial or full recount of the votes or, in an extreme case, calls for new elections, the coming months will be a test for whoever ends up in power. The new president will not have a clear mandate from the population, and such provocations from both sides will only make it harder to weave together vital alliances in Congress. It is time the candidates stopped thinking about their own good and started thinking about their country.

Chávez’s revenge?

At first glance Ecuador’s presidential race looks a lot like a re-run of Peru’s election earlier this year.

There is a woman on the right: Cynthia Viteri of the Social Christians, now the most market-friendly candidate. Rafael Correa, a former finance minister and ally of Hugo Chávez, is staking out the radical nationalist left. In the middle is León Roldós, an experienced former vice-president whose centre-left rhetoric has so far gone down better with potential voters.

Opinion polls show Mr Roldós with up to a 10-point lead over Ms Viteri, while Mr Correa trails in third place. But it’s too early to bet on Ecuador following its southern neighbour’s lead.

The polling samples are focused around the cities, flattering Mr Roldós, whose support base is Quito, and Ms Viteri, whose stronghold is Guayaquil. Just as Alan García scraped into the second round by benefiting from the fight between the two frontrunners, Mr Correa – boosted by a hidden rural vote – could make second place on October 15.

Moreover, more than half of all voters are undecided. Hugo Barber of Perfiles de Opinion, a local pollster, says this is the highest level of uncertainty he has ever seen at this point in the electoral cycle.

A Roldós-Correa run-off would pit an experienced but lacklustre communicator against a charismatic underdog. Mr Correa may have proved himself somewhat incompetent in office, but on the stump he is likely to be the more impressive option. Also, in the wake of the expulsion of Occidental and the seizure of its assets, the middle of the road in Ecuador has shifted towards him.

Elections in Peru and Mexico in recent months have seen radicals edged out by centrist candidates. But Ecuador could give solace to Mr Chávez’s aspirations for regional influence.

Limits of orthodoxy

By appointing a fiscally orthodox banker as his finance minister, Alan García, who takes office on Friday, has set a firm foundation for correcting the disastrous economic record he inflicted on Peru during his 1985-1990 presidency.

Analysts in Lima and on Wall Street made reassuring noises. Luis Carranza should be able to ensure a continuation of Peru’s export-driven economic growth – 6.7 per cent last year and up to 6 per cent this year. His instinct will be to curb spending, keep inflation down and maintain a stable exchange rate.

The real prize will be the securing of investment-grade status, which analysts say is theoretically possible within 18-24 months. That would attract even greater interest in Peru’s rich mineral deposits, booming agricultural sector and growing tourism industry.

But Peru’s investment-grade hurdle is not so much fiscal as institutional and social. To secure an upgrade, Mr García will need to show not just that he can continue the financial orthodoxy of his predecessor, but that he can improve judicial security and bring the political stability that comes with widespread social development.

With low expectations and profound disaffection in much of the country, he will need to act quickly to improve the reputation of discredited institutions and open up the benefits of economic growth to the half of all Peruvians who live on less than $2 a day.

Colombia’s tax move

Colombia has been moving to make life easier for international investors in its natural resources sectors, bucking the regional trend. But in spite of its liberal economic approach, the country has one of the least business-friendly tax systems in the world.

Indeed, according to the last Doing Business Survey prepared by the International Finance Corporation, Colombia was the sixth worst performer in terms of the ease of paying taxes, marginally better than Algeria, Ukraine, Congo, Mauritania and Belarus but, surprisingly, worse than its Latin American neighbours Bolivia and Venezuela.

So President Alvaro Uribe’s announcement on Thursday that his new government will prioritise measures to simplify the system is to be welcomed. (See Reuters Spanish language for a summary of the measures - for an English-language analysis which includes local left-wing criticisms). The number of tax regulations slashed from more than 1,000 to less than 300.

That may sound impressive, but the devil will be in the details. Value added tax is to be sensibly extended but it will still be charged according to three separate rates (admittedly that is less than the current number: a staggering nine).

The risk of commodity dependence

Odd that Fidel Castro should single out the risk of Latin America’s exposure to falls in commodity prices at the Mercosur summit on Friday.

Was it a coded message to Venezuela’s Hugo Chávez? After all no leader is quite so dependent on the commodity boom. According to a survey by Cem Karacadag at CSFB Venezuela, Argentina and Ecuador all depend for 60 per cent of their export revenues on commodities, while Venezuela, together with Mexico and Ecuador also depend a lot on oil revenues for tax income.

Mr Karacadag concludes that overall Latin American dependence on commodities has risen. But he also says that “continued strength of global demand arguably lowers the likelihood of a sharp and rapid downturn in commodity prices in the near term.”

Another feature of the report is also good news for the Venezuelan leader. Although average commodity prices have doubled in real terms since 2002, prices are still below their historical average levels over the period between 1970 and 2005, and well below their levels of the 1970s.

Varig’s new challenges

The immediate future of Varig, the Brazilian airline, may have been secured following last week’s sale to its former subsidiary, Varig Log, but the company’s new owners face some unenviable challenges over the next few weeks.

First, they have to obtain new aircraft quickly. Varig has just 13 at present – down from 58 in December – and it needs to acquire at least 30 more aircraft if it is to have a chance of retaining concessions to operate routes serving 30 domestic and 20 overseas cities. The bill to sign those leasing contracts amounts to $40m. Competitors will be free to take over any routes not operating in a month’s time.

Second, it needs to persuade passengers to fly with it. Varig’s brand has been pretty resilient, but it is now being damaged daily by press stories of interminable delays for Varig passengers stuck in Garulhos airport in São Paulo over the past couple of days.

Then there is the small matter of sacking 9,500 workers and rehiring only 1,680. Don’t be surprised if there are some more twists and turns.

Edited by Richard Lapper. Notes by Adam Thomson, Hal Weitzman and Richard Lapper.

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