June 11: Too soon to call a turn

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A decisive triumph for Álvaro Uribe in Colombia, defeat for Ollanta Humala in Peru, and in Mexico right-winger Felipe Calderón edging ahead in the polls ahead of July's election. The last three weeks have been good ones for Latin American moderates.

So after the drama of Bolivia's gas nationalisation, the shock takeover of Occidental in Ecuador and the relentless radicalisation of Venezuela in recent months, is the tide finally turning in favour of those who advocate a more market-oriented approach.

Some people seem to think so. Investors who reacted ecstatically to Alan Garcia's triumph in Peru. So did Venezuelan opposition politicians. Monday's Washington Post suggested that other Latin American leaders - such as Mr Calderón - will win votes by standing up to Mr Chávez. Beatrice Rangel, a Miami-based Venezuelan consultant, says Latin American voters are learning to differentiate between populism and social democracy.

Unfortunately, some of this at least is overdone. The scale of violence makes Colombia something of an exceptional case. Mr Calderón's surge in the polls owed more to the resonance of allegations about potential mismanagement of the economy by a future Andrés Manuel López Obrador government rather than the somewhat unconvincing efforts to link the left-winger to Mr Chávez. In any event, the election is still very much in the balance (see the Mexico note below).

And in Peru, President Alan Garcia will struggle to contain the growing influence of Chavismo. Mr Humala may have lost the election but in its wake he has a solid base of support among the poorest and most marginal groups and is well placed to disrupt the new government.

Indeed, his performance in the election could prove to be every bit as significant as Evo Morales' second place showing in Bolivia four years ago. Mr Garcia is certainly a smarter politician than his hapless predecessor but he lacks a congressional majority and is distrusted by the private sector and many middle class Peruvians.

In this context, the idea that Venezuela's Hugo Chávez is quietly sulking in a corner licking his wounds is fanciful. Ecuador and Nicaragua are still massively vulnerable to a shift towards the populist Chavista left. Indeed, Ecuador is already half-way after its ill-judged decision to expel Occidental Petroleum condemned trade talks with the US to inevitable failure. Mr Chávez's Bolivarian show is still very much on the road.

The bottom of the pyramid

Building a market among the 213m Latin Americans who earn less than than $2 a day will be the theme of a conference at the Inter-American Development Bank this week, marking the first major initiative by Luis Alberto Moreno since he took over the presidency of the bank last year. The conference looks set to focus on how to extend financial services, telecommunications and other goods to the poor, along the lines described by the Indian economist MK Prahalad. Mr Prahalad's book 'The Fortune at the Bottom of the Pyramid', which details the way in which Indian companies such as Hindustan Lever, ICICI Bank, and Aravind Eye Care have challenged conventional business assumptions about costs, product design and distribution to successfully develop sales in poor areas, is already something of a business school classic.

Latin America has its own 'Bottom of the Pyramid' champions - Cemex and Elektra Group of Mexico and Casas Bahia of Brazil, for example. But the really exciting potential in the region is being generated by the explosive growth of remittances that reached $53.6bn in 2005. The trick will be find ways to channel these flows into the credit system and allow recipients to invest more of their money into assets like houses or small businesses.

This will not be easy. For a start, Latin American governments need to do much more to reduce the red tape faced by small business and make it easier to invest remittances in productive activities, especially in the depressed towns and villages from where many migrants come. In some areas of Mexico and El Salvador these towns are becoming ghost towns - ghost towns with decent roads, pavements and some fine US-style houses all paid for by remittances - but ghost towns nonetheless.

Varig's agony sends worst possible signal

Is there no end to the agony of Varig, Brazil's flag-carrying airline under creditor protection with R$8bn in debt? Its auction on Thursday ended inconclusively (and background reports here and here) with the judge in charge giving himself first until Friday then until Monday, June 12, to decide whether to accept an offer of R$1.01bn - a little more than half the minimum price - from TGV, a group representing Varig employees.

The offer includes just R$285m in cash and it is unclear where TGV will get even this amount. The judge postponed his ruling on Friday when a surprise second offer appeared, of $800m - close to the $860m minimum - from a little-known Brazilian entrepreneur called Michael Breslow. Yet this offer relies entirely on finance from Brazil’s development bank, the BNDES.

If Luiz Roberto Ayoub, the judge in charge, were following the letter of the law he would have rejected both offers out of hand. But in Brazil the letter of the law does not count for very much, as Judge Ayoub himself made clear on Thursday. ‘What the law says is one thing,' he said. 'Interpretation of the law is something else.'

The judge's hesitancy is easy to understand. Varig is an object of national pride that employs nearly 10,000 people. Numerous appeals have been made to the government to bail it out. But the government has stood firm, leaving Judge Ayoub with sole personal responsibility for pulling out the plug.

But by desperately casting around for a last-minute miracle cure (he has said the airlines and other investors that failed to bid at Thursday's auction may still present bids if they wish) he is doing more harm than good. Aircraft leasing companies are preparing to take their business out of Brazil for ever, infuriated by his and other judges' habit of 'interpreting' the law in Varig's favour, such as by saying that preserving Brazilian jobs overrides the rights of leasing companies clearly stated in what should be legally-enforceable contracts.

There could hardly be a worse test of Brazil's new 'judicial recovery' law, nor a worse signal to investors on the country's business environment.

The risk from López Obrador

Businessmen, investors and economists have spent much of the last two years observing the rise of the left in Mexico and asking themselves what damage, if any, it could do to the country's finances if it won the presidential election on July 2.

With Andrés Manuel López Obrador, the leftwing candidate, in a technical tie with the business-friendly Felipe Calderón - and with most polls ruling out the chances of other candidates - the question is more pressing than ever.

Optimists have pointed to at least four rays of hope: vaguely market-friendly comments from Mr López Obrador himself; the likelihood of a divided Congress capable of applying the brakes to a happy-go-lucky president; an independent central bank; and this year's fiscal responsibility law, which forces the government to send a balanced budget to Congress every year.

The result of all these checks and balances, say the optimists, is something akin to 'bullet-proofed' public finances.

Convinced' Don't be. Of the two candidates, Mr López Obrador could easily prove the more agile operator in Congress, forming alliances with the many left-leaning members of the Institutional Revolutionary Party (PRI), to which he once belonged.

Second, the central bank's independence is as fragile as an eggshell: the new president will have to replace one of the five members of the central bank's board as one of his first acts in power. And within three years, he will have hand-picked three, including the governor himself.

As for the fiscal responsibility law, gaping loopholes make it all but meaningless if a radical administration gains office. For example, governments do not have to balance their books in 'exceptional' times - a loose word that could mean many things.

That leaves the businessmen, investors and economists with a handful of vague promises made on the campaign trail. And that, unfortunately, is usually not enough.

Notes by Richard Lapper, Adam Thomson and Jonathan Wheatley

Contact richard.lapper@ft.com

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