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Last updated: September 10, 2006 10:47 pm

September 10: Chávez, Castro and the non-aligned

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The bond between Cuba’s President Fidel Castro and Venezuela’s President Hugo Chávez has become ever more evident in the weeks that have followed the Cuban leader’s hospitalisation just over a month ago.

Mr Chávez has been at the Cuban leader’s bedside on three separate occasions. And the Venezuelan will be in Havana again this week for the fourteenth summit of the non-aligned movement. He will be an enthusiastic participant in the Cuban campaign to win support for fiercely anti-American geopolitical objectives, whose hardness may – according to this admittedly partial critic - even shock complacent policymakers in Washington and the west at large.

However, to anyone watching Mr Chávez in recent weeks, anti-Americanism, no matter how extreme, will hardly be a surprise. After all, the Venezuelan leader has been taking pot-shots at President George W. Bush - and making common cause with US enemies - at every conceivable opportunity during two recent international trips that have taken him to capitals in Asia, Africa and the Middle East.

More interesting will be the extent to which the broader non-aligned group – whose Latin American members include moderate, pro-US countries like Colombia, Guatemala, Honduras and the Dominican Republic – swings behind Mr Castro and Mr Chávez. Meanwhile, back in Venezuela the key issue will be how well Mr Chávez’s frenetic international grandstanding plays.

There is at least a chance that December’s election could be more competitive, now that the opposition has chosen to back a single consensus candidate, Manuel Rosales, the governor of western Zulia state. True, polls show that Mr Chávez remains popular, with ratings of 47-48 per cent, according to one recent survey. But Venezuelan analysts attribute this to Mr Chávez’s generous social policies, rather than his foreign adventures.

Mexico’s two presidents

Mexico finally has a president-elect. Or does it have two? Andrés Manuel López Obrador, the losing leftwing candidate in July’s presidential election, has vowed not to recognise the victory of centre-right Felipe Calderón, which the country’s electoral tribunal ratified last week.

Instead, Mr López Obrador has suggested that he will make life impossible for Mr Calderón, and that he will not recognise the country’s institutions. The first step in his strategy is his promise to proclaim himself head of an “alternative government” on September 16, Mexico’s independence day. He has even flirted with the idea of writing a new constitution “for the people”.

On the surface, all this looks menacing for Mr Calderón as he tries to heal the wounds inflicted by a bitter election that has divided the country. But the reality may be far less troubling.

The problem with Mr López Obrador’s plan is that there is no end in sight. Political resistance along the lines exercised by Mr López Obrador inevitably erodes support over time – the leftwing campaigner even admitted so in a recent interview with the FT.

With no specific prize or goal on the horizon, it is likely that many of the people who now support Mr López Obrador so vehemently will, sooner or later, realise that it is more productive to regroup for the next campaign.

It is also likely that many members of Mr López Obrador’s Democratic Revolution Party (PRD), who until now have backed him unconditionally, will want to use the political space they won in the election to further the party’s political and social agenda.

That will involve not only recognising the country’s institutions but also making alliances or brokering agreements in the legislature with Mr Calderón’s National Action Party (PAN). In this context, Mr López Obrador could even find himself sidelined.

Correa emerges

For most of the past 12 months the bid by Rafael Correa to win the Ecuadorean presidency has looked destined to fail. A political outsider whose brief spell as finance minister last year was markedly unsuccessful, Mr Correa lacks the backing of an established party and did not manage to reach double figures in early polling ahead of next month’s election.

But the word in Quito is that Mr Correa – a close ally of Venezuela’s President Hugo Chávez – is the man to watch ahead of the October 15 contest. With polls showing around 14 per cent support, the former university professor is still trailing León Roldós of the centre-left and Cynthia Viteri of the right Social Christians. But unlike his opponents Mr Correa is picking up ground.

This seems mainly due to the fact that many voters are sick of the established political elites represented by Mr Roldós and Ms Viteri. Legislators seeking re-election will win only 14 per cent of votes, with the big majority of Ecuadoreans either undecided or entirely ignorant of the election, according to a recent Cedatos/Gallup International poll.

A victory for Mr Correa ought to generate more than passing interest in Washington. According to one columnist at Ecuador’s Hoy Online, when Correa says he will close the US military base at Manta, he means it. “He is not posing for the campaign. He is as he seems: radical, arrogant, intolerant - all characteristics that tend to seduce the electorate.”

Brazil makes it simpler

Once again the World Bank/IFC’s annual Doing Business report has ranked Brazil as one of the world’s least welcoming environments in terms of the time taken, costs incurred and bureaucracy to be overcome in setting up and running a company.

So it its welcome news that Brazil’s lower house of Congress has approved (after a mere two years of deliberation) a bill to considerably simplify bureaucracy and cut taxes for small and medium-sized businesses.

Among other measures, the new law should help cut the amount of time taken to open a company from about five months to a matter of weeks. It will also allow companies to pay federal, state and municipal taxes under a simplified system, cutting not only bureaucracy but also the amount paid. The simplified tax system – known as Supersimples – is expected to attract 200,000 to 400,000 companies out of informality and into the formal economy, providing income for the tax and social security systems and a host of benefits for employers and their employees.

The bill has yet to be approved by the senate, where the National Confederation of Industry - which led a campaign among business people supporting the new law - hopes its scope will be amplified.

To really boost growth, of course, Brazil needs measures to cut public spending, which will face considerable opposition – not least from the government itself. But the new law remains a welcome step in the right direction.

Argentina and Repsol

Although it may be hard to swallow rumours that Argentina’s government is seriously considering a Bolivia-style renationalisation of the former state oil and gas company YPF, the idea of renewed state involvement of some form or another is less far-fetched.

Indeed, Spain’s Repsol YPF (which bought YPF for $15bn in 1999) announced in May that it is considering freely floating up to 20 per cent of YPF on the local stock market when the time is right – although at the time, both Repsol’s management and Argentine government officials denied rumours that the state was in fact planning on forcibly taking a majority stake.

But Christopher Ecclestone, of the Buenos Aires Trust Company, suggests in a recent research note that the government would indeed like to see state energy company Enarsa acquiring a strategic stake in YPF, and that Repsol may even go as far as divesting all of YPF.

The argument is persuasive particularly because many parties would benefit. The Argentine government stands to gain increased control over its imperilled energy sector (YPF produces 40 per cent of Argentina’s oil and 28 per cent of its natural gas) in which production of oil has been steadily declining since Repsol acquired YPF, as have reserves, the exploration and development of which has been negligible.

It would also be an excellent opportunity for YPF investors, as well as the tiny Argentine stock market as a whole. Mr Ecclestone reckons that Repsol YPF – with a price-earnings ratio of less than 10 times – is “damned cheap”, and that demand would drive up the price-earnings ratio of a separately listed YPF by 50 per cent, with local Argentine investors not sharing the same concerns as more global investors in energy companies. YPF would also massively boost the exchange’s market capitalisation and quickly become one of its most liquid shares, rivalling Tenaris.

A leaner Repsol could even breathe new life into the company, and its valuation. However, free of YPF – which constitutes about half of the $35bn market capitalisation of Repsol YPF, and may function as a kind of poison pill to its potential buyers, fearful of Argentine risk – Repsol would also become a much more attractive and feasible acquisition target. That could turn Repsol management off the idea – assuming, that is, that the decision is all theirs.

Notes by Richard Lapper, Adam Thomson, Jonathan Wheatley and Benedict Mander

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