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Bolivia is so heavily dependent economically on Brazil that the pragmatism of its giant neighbour might reasonably be assumed to be the decisive political influence on the government of President Evo Morales. Yet over the past few weeks Mr Morales has seemed more influenced by the more radical politics of conflict espoused by President Hugo Chávez of Venezuela.
Back in March, Mr Morales – who completes his hundredth day in office this week – picked a very public fight with Petrobrás, the Brazilian oil and gas company. Petrobrás buys most of Bolivia’s gas and can be expected to supply most investment dollars. Last week Mr Morales expelled EBX, a Brazilian steelmaker, for allegedly breaking environmental rules - without giving the company a chance to respond.
Meanwhile, links with Mr Chávez have been strengthened. Bolivia has bought a 5 per cent stake in Telesur, the Venezuelan news agency. In return Venezuela’s state bank is looking to acquire a Bolivian bank. High-profile ministerial visits from Caracas have become commonplace, and a few days ago, Mr Morales joined Mr Chávez in threatening to abandon the Andean community trade bloc and instead set up a “peoples’ trade area” involving Bolivia, Venezuela and Cuba.
And there are some signs that Mr Chávez is influencing the shape of the country’s new constituent assembly, for which elections are scheduled in July. Community groups and trade unions that expected to play a big role in the new legislature – whose goal is to re-found the Bolivian state – complain that they have been sidelined at the expense of Mr Morales’ Movement to Socialism party.
It is perhaps no coincidence that Venezuelan electoral experts are helping to register poor Bolivians to vote in the forthcoming elections.
Chile’s copper bonanza
Chile is flooded with dollars from rising copper revenues; its currency, the peso, is appreciating; and exporters in sectors like wine, fruit and salmon are complaining. Something needed to be done. So the new overseas funds being created by finance minister Andres Velasco have come not a moment too soon.
Mr Velasco, who will announce details of new pension and copper funds to his country’s congress on Tuesday, originally outlined his plans a couple of weeks ago in a bid to ease pressure on the peso, which has looked likely to break through the P500 to the dollar mark. The idea is that saving dollars abroad - rather than exchanging them locally - will ease pressure on a currency that has appreciated sharply this year on the back of soaring copper prices.
Copper prices have more the doubled over the past year, prompting analysts to ramp up forecasts. UBS, the investment bank, said on Friday that it expects an average price of $2.65/lb to be maintained well into 2007. The bank’s price forecasts for 2008 were upped from $1.22/lb to $2.50/lb.
Since copper generates nearly half of Chile’s export revenues and has contributed in large part to the rise in export revenues - from $18.2bn in 2002 to $39.5bn in 2005 - the country’s external accounts are enjoying a very buoyant outlook. Analysts surveyed recently by London-based Latin American Consensus Forecasts (www.consensuseconomics.com) expected overall exports to rise from $39.5bn in 2005 to $43.6bn in 2006, before falling back to $43bn in 2007.
That is already beginning to look pessimistic. In the first quarter alone sales from copper were 50 per cent higher than in the same period of 2005; in March sales were up by 64 per cent.
Mexico’s welcome move on monopolies
Three cheers for Mexico’s Congress. Just when it seemed that pressure from one or two of the country’s biggest economic groups was about to upset the passage of a bill aimed at giving extra power to Mexico’s antitrust authority, something strange happened early Friday morning: Legislators turned their backs on business and rubber-stamped the proposal.
The result of that heroic act is that Mexico’s Federal Competition Commission (CFC) will finally have the power to combat companies indulging in monopolistic and anti-competitive practices.
Among its stipulations: Fines for wrongdoers are to increase significantly; a new anonymity programme will protect those who denounce companies flouting the law; and, in extreme cases, the Commission will even be able to order companies to break up if it shows they occupy too-dominant a position in a given market. In short, Mexico will now have something resembling the antitrust authorities of fully developed countries.
All this is particularly good news for Mexico for at least two reasons. The most obvious is that the new powers bestowed on the CFC will allow the institution to keep Mexico’s biggest companies in check. The country has been losing competitiveness against other emerging markets, in large part because such strategic sectors as telecommunications are dominated by virtual monopolies that have stifled competition and kept prices artificially high. A beefier CFC is certainly no guarantee that things will change overnight. But it is an important step in the right direction.
Second, by passing the law, Congress has shown that it can have a vision of state, and that its decisions are not necessarily always the result of lobbying by those who have the greatest economic clout or financial influence.
Mexico is still constructing and strengthening its institutions after emerging, in 2000, from more than 70 years of one-party rule. That process still has a long way to go, but last week’s move by Congress shows that the country is on the right road.
Bail-out for Varig?
The judge responsible for steering Varig through its “judicial recovery” – the period of creditor protection during which companies facing bankruptcy may try to agree a recovery plan with their creditors – says a solution to the company’s problems will be presented on Tuesday.
Varig’s problems are vast. Brazil’s flag-carrying airline has debts estimated at R$8bn ($3.8bn, €3bn, £2.1bn) and mounting. Its supplier of fuel and the airport authority that grants permission to take off and land are both refusing further credit. Owners of its turbines and aircraft are demanding their property back. With no cash for maintenance, delays and cancellations are becoming routine. Passengers are deserting Varig for its rivals. Time has almost run out.
It is a tough test for the new judicial recovery law, in force since last year. The rules grant creditor protection only if the company and its creditors can agree a viable recovery plan. This has helped avoid in Varig’s case the kind of “rescue” deals agreed by other companies in the past, whereby assets go into a “new” company which is bought by investors, and liabilities stay behind in an “old” company against which creditors may take their chances through Brazil’s dysfunctional legal system.
Yet Varig may soon be saved by something similar. Under the plan expected to be revealed on Tuesday, a new company would be formed consisting of Varig’s loss-making domestic operations. This would go up for auction. The sale would be financed by Brazil’s national development bank, the BNDES, which would also provide a $100m bridging loan to see Varig through the sale period. Varig’s more lucrative international operations would form another company, saddled with the debts.
Yet despite protestations from President Luiz Inácio Lula da Silva - who insisted last week that public money would not be used to rescue Varig - the deal has many of the markings of a classic BNDES bail-out. But criticism should be tempered by the fact that Varig, while deeply in debt to the tax authorities, is also a giant creditor of the public sector. The federal government owes it as much as R$4.5bn from the cumulative effects of illegal price freezes in the past, and state governments owe it about another R$1.2bn from wrongly collected sales tax.
These debts add some weight to Varig’s insistence that the government should help. Investors certainly think it will happen: Varig’s shares soared by more than 33 per cent on Friday.
Notes by Richard Lapper, Jonathan Wheatley and Adam Thomson
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