September 3: Amlo’s party

As Mexico’s highest electoral authority prepares to announce the winner of the disputed July 2 presidential election the question most people are now asking is what the elected legislators, governors and other representatives of Andrés Manuel López Obrador’s leftwing Democratic Revolution Party (PRD) will do.

With Felipe Calderón’s victory looking odds on and Mr López Obrador apparently digging in for a long and confrontational campaign of defiance, it is becoming an urgent issue. On Friday night it looked as though the PRD were about to back their leader’s radicalism, when the party’s newly-elected congressmen took over the legislature and stopped President Vicente Fox from reading out his annual state of the nation address.

But the party could still opt to take a more pragmatic line. PRD members do not want to display any break with Mr López Obrador’s protest movement until a president-elect is named because they would risk shouldering the blame if Mr Calderón emerges triumphant. However, as soon as there is a decision – and assuming Mr Calderón is confirmed president-elect – the political costs of not getting down to business as usual rise dramatically.

PRD congressmen have already absorbed one important cost of sticking by Mr López Obrador when last week they found themselves excluded from the leadership of two important lower house committees, thanks to an alliance between Mr Calderón’s PAN and the Institutional Revolutionary Party (PRI).

PRD leaders keen to capitalise on the party’s improved congressional performance might soon start to distance themselves from their leader, leaving Mr López Obrador more dependent on more extremist followers. Divisions within the López Obrador camp are looking increasingly likely.

Ortega’s advance

By any standards, the latest twist in Nicaragua’s election drama should have rendered the US speechless: in spite of Washington’s concerted efforts to kill off Daniel Ortega and his leftwing Sandinista movement, Mr Ortega has suddenly emerged with a real chance of returning to the presidency of Nicaragua on November 5.

A recent poll conducted by Cid-Gallup puts the 61-year-old leftwing campaigner on 29 per cent compared with less than 23 per cent for Eduardo Montealegre of the Nicaraguan Liberal Alliance (ALN), who is in second place. The same poll suggests that he could achieve the 35 per cent necessary – together with a five percentage-point advantage over his nearest rival – to avoid a second round of voting.

The trouble is that the US is far from speechless. Paul Trivelli, the US ambassador to Managua, has spoken openly and frequently of his country’s dislike of Mr Ortega and recently even said that he was “a tiger who has not changed his stripes”.

The US has its reasons for being so vociferous – not least the fact that it sees Mr Ortega’s possible victory as a sign of the expanding influence of President Hugo Chávez. Mr Chávez doubtless dreams of an Ortega victory, and sees the poverty-stricken Central American country as fertile soil in which to plant a cutting from his so-called Bolivarian revolution.

Even so, the US should guard silence. Its semi-permanent commentary on the Nicaraguan elections and, in particular, its public disapproval of Mr Ortega’s candidacy, only reinforces the image of a cultural and economic giant determined to meddle in the democratic process of a small and impoverished country.

Brazil’s lacklustre growth….

At first glance it might seem odd that the International Monetary Fund is looking to increase the quotas – or shareholdings - of Mexico rather than Brazil as it seeks to reflect the increasing weight of big developing countries in the world economy. After all, Brazil is the Latin American country benefiting most from the rise of China and the buoyancy of commodity prices and the hemispheric BRIC that has been so heavily favoured by Wall Street. But look at Brazil’s mediocre growth performance and the Fund’s decision is not really surprising. As the Brazilian journalist Rolf Kuntz pointed out in a recent article in O Estado de Sao Paulo, the Brazilian daily, in the years between 1990 and 2004 Brazil’s economy grew by 30.7 per cent. During the same period Mexico expanded by 157.5 per cent, while Turkey, another country which will receive a quota adjustment, has doubled in size. The economies of South Korea and China – the other two countries given greater recognition – have grown by a cumulative 157.7 per cent and 444.7 per cent per cent respectively. Growth, of course, has been one of the most disappointing features of the current Brazilian administration. In spite of enjoying what is probably the best combination of external conditions for at least half a century, Brazil’s economy under the guidance of President Luiz Inácio Lula da Silva has expanded by an average of 2 per cent a year. Figures for the second quarter of this year, published last week, showed a rise of just 0.5 per cent quarter on quarter. Bureaucracy, high interest rates and the overvalued Real are all casting a shadow over prospects. Economists are hastily revising 4 per cent growth targets. The only surprising thing is that none of this seems to have any effect on voters.

….and trouble in its car sector

The strike at Volkswagen’s 50-year old factory outside São Paulo, where the company wants to shed 3,600 jobs when a no-redundancy agreement runs out in November, is not only about the inflexible nature of Brazil’s labour market and failure of management at VW. It also shows the urgent need for structural reform to prevent Brazil de-industrialising and becoming mainly a producer of low value-added commodities.

Brazil’s auto industry is heavily over invested. It will produce 2.6m vehicles this year at factories able to make 3.5m. With domestic sales stagnant, manufacturers have turned to export markets to take up the slack. But here they face several problems. One is the high value of the currency, which has gained 65 per cent against the US dollar since the end of 2002. Another is the additional loss of competitiveness caused by the high cost of doing business in Brazil – the heavy tax burden, high cost of capital, inadequate infrastructure and so on. To address both sets of issues involves tackling fiscal imbalances that the government seems determined to ignore. Last week it announced plans to hire 46,600 new public sector workers at an annual cost of R$1.3bn, just the kind of spending it must cut rather than increase.

The auto industry faces another problem. To encourage investment in the late 1990s, the government granted manufacturers protection from overseas competitors in the form of 35 per cent duties on auto imports from outside the Mercosur trading block. This provides an incentive not to modernise and raises reciprocal barriers to Brazil’s access to export markets. If Brazil really wants to promote its industrial sector it must move into the future, not the past

Bolivia’s trade dilemma

Alvaro Garcia, Bolivia’s deputy president, is not a man to be envied as he makes his way to Washington this week on a quest to save the trade preferences enjoyed by his country’s textile exporters. Bolivia’s relations with the US have sunk to a low ebb, with President Evo Morales resorting all too frequently to Chávez-style denunciation of US intentions. Drugs are a particular bone of contention, with the US arguing Bolivia is not doing enough to control coca production. But on one issue at least Bolivia needs US support. As many as 10,000 Bolivians – many of them living in the city of El Alto, one of Mr Morales’ strongholds, earn their living sewing jeans, shirts and other cheap clothes that are exported duty free to the US under the terms of the Andean Trade Promotion and Drug Eradication Act. That act expires at the end of the year. Mr Garcia may harbour hopes that US legislators can be persuaded to renew it in order to keep drugs co-operation alive. But the word in Washington is that congressmen are in no mood to embrace that idea. With protectionist winds blowing strongly, it will be difficult enough to persuade them to vote for free trade deals with US allies like Colombia and Peru, let alone concessions for avowed anti-imperialists like Mr Morales.

Notes by Adam Thomson, Richard Lapper and Jonathan Wheatley

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