September 17: Making it easier for Ortega

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A victory for Daniel Ortega was always a possibility at the Nicaraguan elections in November. But there is no need for the US administration to give the candidate of the left-wing Sandinista party a helping hand. Openly warning against the dangers of a victory by Mr Ortega as the US ambassador to Managua surprisingly did last week is a bad idea for several reasons. It makes it easier for Mr Ortega to capture nationalist sentiment which is not far below the surface in Nicaragua despite some bitter memories of Sandinista rule in the 1980s. And it makes it certain that – if he does win the contest - Mr Ortega will swing even more emphatically into the radical anti-US camp being constructed by Venezuela and Cuba . In addition, such partisan interference also contributes to growing polarisation in a country where independent electoral scrutiny is going to be very difficult. Mr Ortega’s Sandinista Party has an unhealthy influence over the country’s judges and as the former president told El Pais, the Spanish newspaper, even observation by the Organisation of American States will be controversial as far as the Sandinistas are concerned.

Unnecessary meddling by the State Department in Nicaragua had already paved the way for an unholy alliance between Mr Ortega and Adolfo Alemán, the corrupt former Liberal Party president, contributing to the political isolation of President Enrique Bolaños. Eduardo Montealgre, the Washington-backed right-winger, may still emerge triumphant but it is looking less likely. Last week’s poll by Zogby International gave the Sandinista leader a fifteen point lead in the polls, putting hin one percentage point short of the 35 per cent he needs for success. And, of course, it is not the first time that an ambassadorial intervention has had a negative consequence in the region. In Bolivia four years ago the US discovered that its warnings simply strengthened the appeal of Evo Morales, allowing him to finish second in that contest and establish the political base that eventually led to his presidential election in December last year.

Amlo’s empty threat?

Anyone who was in the Zócalo, Mexico City’s main square, on Saturday afternoon would probably have the distinct sensation that trouble is in store for Felipe Calderón, the country’s president-elect. Before tens of thousands of ecstatic supporters, Andreás Manuel López Obrador, the leftwing leader who lost out to Mr Calderón in July, said he would proclaim himself president-elect, establish a new government and continue his civil resistance campaign to make life impossible for Mr Calderon.

Sound like a revolution in the offing? Maybe. But there are at least three reasons to think that Mr López Obrador’s defiant tone may not have the resonance he is hoping for. The first is that by naming himself president-elect, the 52-year-old campaigner has locked himself into what will almost certainly be a poorly funded resistance movement with the gargantuan task of maintaining supporters’ enthusiasm and commitment for years to come at a time when many Mexicans are now bored of elections.

Second, Mr López Obrador needs to secure the explicit – and implicit – backing of his Democratic Revolution Party (PRD) as well as that of the Workers’ Party (PT) and Convergencia, the two parties who backed him in July’s election. Already, cracks seem to be appearing within the PRD, and many party members could gradually distance themselves from Mr Lopez Obrador’s bravado with time.

Third, and for all Mr López Obrador’s defiant tone, there have been at least two possibly significant step-downs in the last week. The first came when Mr López Obrador ordered an end to the 48-day occupation of Paseo de la Reforma, one of the capital’s central avenues, to allow the traditional military parade on September 16.

The second occurred when he backed down from his pledge to give the cry of independence on September 15 from the Zócalo. The details of the sudden change of plan are still murky but the outcome hints ever so slightly that even Mr López Obrador himself may be capable of striking deals.

There is no doubt that Mr Calderón, who takes office on December 1, faces a difficult task of uniting a divided and polarised electorate. But the threat posed by Mr López Obrador may not be all that it once seemed.

Bolivia lets rip

So much for the promise made on August 24 by Alvaro GarcÍa Linera, vice-president of Bolivia, that there would be no more surprise announcements from his government in the dispute with Brazil over the nationalisation of Bolivia’s hydrocarbons industry, announced on May 1. Last week, Bolivia delivered such a surprise in resounding style, saying not only that it was seizing refineries owned by Petrobras of Brazil but that all revenues from the refineries would henceforth go to YPFB, the Bolivian public-sector hydrocarbons company.

“What do they want me to do?” asked President Luiz Inácio Lula da Silva of Brazil. “Invade Bolivia?”

The timing of the move could not be much worse, coming just over two weeks before Mr Lula da Silva stands for re-election on October 1 – though even humiliation over foreign policy is unlikely to do much to dent the president’s commanding lead in the latest opinion polls.

Bolivia “froze” the initiative after a barrage of protest from Brazil – but it did not cancel it. Brazil may have been surprised by the manner of the announcement but its content was entirely predictable. President Evo Morales is delivering on repeated promises. On present form, expect Bolivia soon to seize Petrobras’s installations in two gas fields where it has invested $600m.

Yet even as the process of nationalisation unrolls as announced, Bolivia’s hydrocarbons policy is clearly in disarray. YPFB lacks the resources to manage the assets it has seized. And the government’s heavy-handedness is raising questions about the damage it will do to Bolivia’s broader interests.

Antonio Palocci, the comeback kid

When Antonio Palocci resigned as Brazil’s finance minister in March, his role as the strongman behind Brazil’s economic orthodoxy seemed to be over. Now his very freedom is at risk, as public prosecutors demand his indictment on crimes related to corruption scandals in Brasília and Ribeirão Preto, his home town, that could put him behind bars for up to 15 years.

Mr Palocci is keeping his cool. Unless the forces of justice act with unprecedented speed, he will be elected federal deputy in general elections on October 1 with about a million votes. Under Brazilian law, his new status will make it much harder to prosecute him. More interestingly, he will be back near the centre of power. Mr Palocci, insiders say, still has the ear of President Luiz Inácio Lula da Silva on economic policy, much to the consternation of senior ministers such as Dilma Rousseff (the president’s chief of staff) and Guido Mantega (finance minister) who favour more “developmentalist” policies.

Without ministerial status, of course, it will be harder for Mr Palocci to push for the policies he defended in the past, such as cutting government spending on payroll and pensions to provide money for investment and growth. But he has a zealot’s enthusiasm for reform that his adversaries may find hard to contain and he would be ideally placed to articulate support on the floor of the lower house. If so, he would be the one chance a second Lula administration might have of delivering the “spectacle of growth” promised four years ago that is so far nowhere to be seen. As long, that is, as he stays out of jail.

Kirchner’s ruse

It’s an old trick. After four consecutive years of economic growth of between 8 and 9 per cent, the Argentine government – in its budget proposals submitted to congress on Friday - is estimating an increase of only 4 per cent for 2007. No one really expects it to be that low, of course – most estimates for GDP growth next year are around 6-7 per cent. But by substantially underestimating the rate of expansiong, and therefore the corresponding levels of expected tax income, the government is guaranteeing surplus income which it can spend any way it pleases.

It all points to a big increase in spending. For a start, the budget bill to be debated over the coming weeks proposes a increase in spending for 2007 30 per cent higher than last year’s original proposal. With an election year now under way the rise is mainly to fund increases in wages, pensions, infrastructure spending and education. Remember in addition that the government recently won new “superpowers” allowing it to reallocate budget spending without congressional approval.

The danger? With government spending rising faster than income, economists worry that the fiscal surplus – one of the central pillars of Mr Kirchner’s success – will suffer. That old bugbear inflation, which largely thanks to price controls and tariff freezes has been kept in the wings during 2006, could yet return to centre stage.

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

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