Not for a decade has an elected Ecuadorian president finished a constitutionally mandated term in office. And it looks a fair bet that Rafael Correa, the radical ally of Venezuela’s Hugo Chávez who takes office on Monday, will also fail to last the full four years.
Inexperienced and without a political party of his own, Mr Correa seems to have spent most of his time since election in November in creating enemies. Debt restructuring plans have worried financial markets; the proposed closure of the Manta military base has annoyed Washington; and planned constitutional reform is meeting opposition from Ecuador’s traditional political elites, especially those based in the country’s biggest city of Guayaquil.
Admittedly, Mr Correa did manage to win one ally last week when he persuaded former President Lucio Gutiérrez to throw his weight behind the plans to hold a referendum on constitutional reform. Mr Gutiérrez’s Patriotic Society Party won 24 of the 100 seats in congress and the deal has allowed Mr Correa – backed by deputies from nine smaller mainly left-wing parties - to assemble a narrow legislative majority.
Theoretically, that should calm immediate political tensions. Ever optimistic, some market analysts believe that a strengthened Mr Correa will be less likely to pursue his debt restructuring plans. However, this still looks like being an unstable presidency. The new power broker, Mr Gutiérrez, was a notoriously inconsistent leader before congress threw him out of office in 2005. And in Ecuador political alliances are generally even more short-lived than presidencies.
The mess in Mercosur
Expect Mercosur to get into an even bigger tangle when leaders of the five members of the South American customs union meet in Rio de Janeiro on Thursday for a two day summit. And Venezuela which joined the group last year is likely to be central to any controversy. On the one hand, the radical President Hugo Chávez can be relied upon to irritate his more cautious Brazilian hosts by grandstanding about the benefits to the region of “21st Century Socialism”. On the other, the bid by Venezuela’s ally, Bolivia, to become the sixth member of the club is going to create a headache for negotiators. Bolivia is currently an associate member like Chile, Colombia, Ecuador and Peru. If it were to join Bolivia would have to agree to accept Mercosur’s common external tariff, which at an average of about 12 per cent is much higher than its own average of about 5 per cent. That would require a disruptive hike in protection. But any move by Brazil, Argentina and Venezuela to allow an exception would increase frictions with Uruguay and Paraguay, the two smaller Mercosur members who have tried unsuccessfully to negotiate their own more flexible application of the external tariff rules.
The timing was bad, but Brazil’s announcement that further concessions for private companies to run federal highways have been suspended does not mean that President Luiz Inácio Lula da Silva is embarking on Hugo Chávez-style state socialism.
The announcement, its subsequent partial retraction, and an extraordinary statement soon after by Brazil’s deputy attorney general comparing highway concession holders to drug traffickers, do, however, suggest something almost equally worrying – a lack of direction in policy making at the highest levels of government. As one member of the highway concessions industry said on Friday: “This government is completely lost and doesn’t know which way to turn.”
It is bad enough that the issue of whether private companies should run public services is under discussion again a decade after Brazil put its first highway concessions out to tender. Merely re-opening the debate has rattled investors, just as the government urgently needs to find new sources of capital to fund a much-needed overhaul of transport infrastructure.
What is worse is that the macro-economic stability won at great cost by the previous government and largely maintained during the first Lula administration may now itself be under threat. As at least one commentator has noted, Brazil’s fiscal responsibility law, one of the cornerstones of stability, is no longer being respected as it should. If this is a trend to be continued, it is policy drift of the worst type.
Ortega’s sensible start
Last week, Managua played host to a jamboree of socialism. The swearing-in ceremony of President Daniel Ortega, Nicaragua’s new president, was notable for the ant-imperialistic rants of Evo Morales, Bolivia’s president, the attack on multinational companies by Hugo Chávez of Venezuela and the two-fold decision by Mr Ortega to join Alba, Chavez’s political gang of leftwing states, and to restore full diplomatic and trade relations with Cuba.
This might raise alarms in some quarters, but none of it should be surprising. True, Mr Ortega gave Mr Chávez a welcome like no other leader attending the ceremony. Yet it is precisely that sort of gesture that has helped the Sandinista leader secure Venezuelan promises of generous economic and social-assistance help that Nicaragua so badly needs.
The same goes for taking his country into Alba, of which Venezuela, Cuba and Bolivia are already members – a move most experts agree assures political and economic support from Mr Chavez without involving any hard or fast compromises.
Study Mr Ortega’s acceptance speech and subsequent comments, meanwhile, and what most stands out is the absence of socialist rhetoric.
Of course, these are early days and Mr Ortega’s continuing vagueness on economic policy is no guarantee that he will not embrace Mr Chavez’s brand of socialism further down the line. But so far, the 61-year-old former guerrilla leader has played his hand sensibly. He has done what he had to do to secure the kind of financial support that has so conspicuously been absent from Nicaragua’s relationship with the US. At the same time, he has avoided the populist pitfalls many of his detractors thought he would fall into.
Argentina’s soya tax
Argentina’s farmers must be getting quite used to government intervention in the sector by now - over the last year they have put up with export bans and restrictions on beef, wheat, corn and milk products, rising export duties and price controls, all with the ultimate aim of controlling inflation. But until last week those specialising in soya had been largely unaffected.
Not any more. The idea this time is for the government to use the $400m in extra revenues generated by the tax increase to subsidise wheat, corn and some other farm production in order to control inflationary pressure. Products like bread, pasta and beef that account for a significant chunk of the basket monitored to measure inflation are to be targeted.
Price controls have been reasonably successful so far. Inflation has now been pushed down into single digits according to figures released recently (9.8 per cent for 2006, compared to 12.3 per cent in 2005). But inflationary pressures are far from being quashed, with some analysts even forecasting a slight rise this year, so the pressure is not off the agricultural sector. Apart from increasing the probability of more farmers’ strikes this year (there were two last year), this kind of measure will not help Argentina’s already damaged business climate. But higher levels of investment are needed if the threat of inflation is to be properly snuffed out.
Notes by Richard Lapper, Jonathan Wheatley, Adam Thomson and Benedict Mander