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For weeks now Felipe Calderón, centre-right candidate for the ruling National Action Party (PAN) has been waging a highly effective advertising campaign to sully the image of Andrés Manuel López Obrador, his leftwing rival.

But now Mr Calderon has received a strong dose of his own medicine: Mr Lopez Obrador recently accused Mr Calderon’s brother-in-law of having won juicy state contracts during Mr Calderon’s time at the energy ministry, and then avoiding taxes.

Whether there is any truth to the allegations or not the impact was has been undeniable. Two polls published last week put Mr Lopez Obrador of the Revolutionary Democratic Party (PRD) back in the lead for the first time in two months. True, a third poll suggested he was still trailing slightly. But what all the polls show is that in the space of just a few days Mr Lopez Obrador has orchestrated a vigorous recovery that has put him right back in contention.

The speed with which such these dirty campaigns appear to affect electoral preferences suggests that Mexico has a large pool of so-called independent voters – people who do not identify themselves strongly with any of the parties. That means people can suddenly be put off voting for a candidate they planned to back just the day before.

That implies two things between now and July 2. The first is that the two leading candidates – Roberto Madrazo of the Institutional Revolutionary Party (PRI) has remained a relatively distant third for several months now – will be scouring their rivals’ past more than ever before in the hope of stumbling upon some sort of indiscretion.

The second is that it will be impossible to predict a winner. The two candidates plan to adopt opposing routes over the next six years and nobody will know which one Mexico will take until the urns close and the official count is published.

Caveat emptor

Surely, time has finally run out for Varig, Brazil’s flag-carrying airline under creditor protection with at least R$8bn in debt. Its auction on June 8 was a fiasco. Only one bidder appeared, representing Varig’s own employees. Its offer was about half the asking price of $860m and it has failed to prove sources for three quarters of its funding (the quarter it can prove is in credits owed by Varig, mostly in unpaid salaries). Playing for time, the judge in charge of Varig’s “judicial recovery” has twice delayed making any decision on the offer but this week events threaten to run out of his and Varig’s control.

Infraero, the government-run airports authority, says it will ground Varig from Monday if it continues to retain airport taxes received from passengers that it is supposed to pass on immediately. BR Distribuidora, the subsidiary of state-owned Petrobras that for months has been supplying fuel unpaid, says its patience too will expire on Monday. Monday is also the day when ILFC, a leasing company that owns 11 of Varig’s aircraft, is due to get its property back. Only about 40 of Varig’s 62 aircraft are in service and many more may be returned to source from June 21 if an injunction in Varig’s favour granted by a New York bankruptcy court is not extended once again.

Passenger numbers are falling and advance bookings are drying up, a situation that won’t be helped by an incident on Friday when part of an undercarriage fell off a Varig aeroplane landing in Brasília, fortunately causing no greater harm.

Varig’s only hope is in negotiations taking place this weekend with representatives of TAP, the Portuguese airline, Air Canada and Brookfield, a Toronto-based fund manager. TAP and Air Canada are Varig’s partners in the Star Alliance and Fernando Pinto, TAP’s Brazilian chief executive, made his career at Varig so he is at least familiar with the company. But shareholders of TAP and Air Canada should be concerned. There is no guarantee that any new owner of Varig will be protected from the company’s enormous liabilities.

Financial democracy

Among the very many obstacles that the Inter-American Development Bank faces in its efforts to push ahead with its new popular capitalism agenda for the region, is the high level of concentration in Latin America’s financial sector.

The Building Opportunity for the Majority initiative – launched last week with some fanfare by Luis Alberto Moreno, the bank’s Colombian and pro-US president – aims to integrate the region’s socially excluded poor and not quite so poor majority population through the development of social housing, telecommunications and basic infrastructure.

In addition, the IDB plans to redouble efforts to tackle bureaucracy that makes it so difficult for small and medium sized businesses to become legal. And on top of that it plans to channel more resources into micro-finance and press governments to make it easy for banks to get hold of collateral when defaults occur.

Financial democracy, in fact, is in many ways at the heart of the new agenda, partly because the steady growth of relatively small microfinance institutions like Bolivia’s Banco Sol and Peru’s Banco del Trabajo the rapid increase in remittance flows and – in Mexico and one or two other countries – the growth of mortgage finance, creates particularly fertile ground.

The problem is the pattern of concentration in which just a handful of banks control 60 per cent of financial assets in the region. The capital base of banks like BBVA and Banco Santander of Spain was often cited as a blessing when the region recovering from successive financial crises. But as Latin America tries to build on stability by developing its internal markets, the relative power of the giants could be a problem.

The trick for Mr Moreno and his IDB colleagues will be to stimulate enough interest among bigger banks to generate some critical mass in a sector that currently serves only about 5m customers across the region without making life impossible for the smaller players that have built up the business over the last decade or so.

It shouldn’t be too much of a problem to get banks interested. After all microfinance organisations and by the handful of banks – such as Mexico’s Banco Azteca – that have started to venture down market have been pretty profitable. In addition, banks are becoming more sensitive to social issues, if only to deflect growing political criticism from left-wing governments and the prospect of government intervention – such as the imposition of interest rate caps - in the sector. But it could be more difficult to control the fall-out for existing players as the big banks start building up market share.

Routine slaughter in São Paulo

With every week that passes since the wave of violence in São Paulo last month, the official numbers for those killed get bigger. Medical authorities now say 492 people died of gunshot wounds in the state between May 12 and 20. The figure includes those killed in “everyday” crimes and suicides as well as members of the police and other security services murdered by members of the PCC organised crime group. But the single biggest category covers events listed as “resistance to arrest followed by death” – ie, people killed by the police.

This is slaughter on a grand scale. Yet even under “normal” circumstances, São Paulo’s so-called military police (the uniformed force responsible for patrolling and responding to crimes in progress) kill almost 1,000 people each year for “resisting arrest”. Many are armed criminals killed in shoot-outs. But last month’s figures appear to confirm what human rights activists have argued for years: that police officers carry out summary executions of suspected criminals, sometimes far from any crime scene.

Civil rights groups say authorities have deliberately obstructed the release of data on last month’s killings and are calling for the dismissal of Saulo Abreu, the São Paulo state security chief. Public prosecutors are overseeing investigations into what happened. But until there is a radical overhaul of Brazil’s public security services, including streamlining of competing and often mutually-obstructive corporations and their replacement by one properly manned and trained force, the killing will continue.

Argentina and the IMF

Although President Nestor Kirchner formally said “ciao” to the IMF last month at a huge pro-government rally in central Buenos Aires, to ecstatic cheers from the crowd, the epilogue to the story of Argentina’s soured relationship with the Fund – which it paid off in one fell swoop in January – is still being written. The extent to which the Fund played a part in the implosion of Argentina’s economy in 2001-02 has been a matter of heated debate, and one that the Fund’s own Independent Evaluation Office contributed to importantly with a report in 2004. But now, this piece of self-criticism is being criticized for not being critical enough. This week, the IMF published on its website an “external” evaluation of its “independent” evaluators. Of the wide-ranging report’s varied conclusions, there was one that the Fund took issue with in particular: that “comments” by staff members caused the IEO to downplay the Fund’s responsibility in causing Argentina’s record-breaking debt default, while placing greater emphasis on the role of Argentine authorities. While the Fund and the IEO reject these claims (the IEO’s Montek Singh Ahluwalia wrote: “to expect that such a report would not be changed from the draft stage is to believe too much in immaculate conception!”) the Argentine government will doubtless be delighted with the findings. Particularly as they come just before the Fund’s latest Article IV recommendations are due to be published, in which advice against the use of price controls and ballooning public spending are likely to

feature prominently. For the time being, there seems to be little interest in paying any attention to such advice, however sensible it may be.

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

Richard.Lapper@FT.com

Copyright The Financial Times Limited 2017. All rights reserved.
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