The key issue in the hard negotiations that are set to occur following Bolivia’s theatrical hydrocarbons nationalisation will be the price of gas. Brazil is the biggest market for Bolivia’s gas, accounting for the bulk of the export revenues earned from the commodity. But on its long-term contracts Brazil pays $3.80 per million BTUs, a little more than half the current price on the US spot market.

President Evo Morales wants a better price to help fund his ambitious social programmes. And although Petrobras of Brazil might on the surface appear to be an ideal partner – it is state-owned and had promised billions of dollars in investment – the company has been intransigent on the price issue. Negotiations over the last couple of months have got nowhere and seem to be one of the reasons why Mr Morales has chosen to up the stakes so dramatically.

Luiz Inácio Lula da Silva, Brazil’s president, will be reluctant to concede price rises since these could feed through into higher rates of inflation and make it more difficult to reduce interest rates, adversely affecting growth prospects in an election year.

By contrast, it may be easier for Total, BG, Repsol and other private companies to agree new contract terms with Mr Morales. All will be keen to continue operating in Bolivia, given the capital they have invested and the attractive prospects for prices. Even so it is hard to see any of the companies currently in Bolivia stumping up fresh capital. In the long-term, Bolivia will probably have to look elsewhere – to Venezuela or the state companies of China, perhaps - for new investment.

Bad week for Lula

It started with the nationalisation of Bolivian gas, not the most fraternal of gestures from the leftwing leader next door. It ended with a potentially-explosive newspaper interview with a former party comrade, Silvio Pereira, secretary of Mr Lula da Silva’s Workers’ party (PT) until last July when he was fired over his role in the alleged corruption scheme that has dogged the government for a year.

Rumours swirled round Brasília before its publication that the interview would implicate the president personally in the scheme. In the end it was less dramatic: Mr Pereira put Mr Lula da Silva among top party decision makers when the scheme was supposedly at its height but fell short of accusing him of direct involvement.

Opposition leaders have jumped on the interview and may use it to fuel efforts to start impeachment proceedings this week. Pressure on the president to give a more convincing explanation of his innocence will certainly increase. But so far, in spite of the hundreds of millions of dollars involved and the farce the scheme has made of Brazilian democracy, voters have shown hardly any interest at all. Expect Mr Lula da Silva to keep walking away.

A pointless summit

More than 50 heads of state from Europe and Latin America gather in Vienna this week for a summit meeting. It is hard to see the point. Although the European Union may be taking expansion in its stride, Latin America’s own efforts at integrating regional trade are a shambles.

Mercosur is beset by internal tensions and, after the decisions of Venezuela and Bolivia to leave, the Andean Community is on its last legs. The South American Community – formed with some fanfare just over a year ago – is a joke. As for investment, the climate could hardly be worse. Recent developments in Venezuela, Bolivia, Ecuador and Argentina raise the spectre of a broader offensive against foreign capital in the region.

This will not dissipate until some thorny problems are resolved. Bolivia’s gas nationalisation is one. The Argentine government’s relentless campaign against two European paper and pulp plant investments in Uruguay is another. Some hard negotiation is going to be necessary. The vacuous protocol and logistical complexities of summitry are unnecessary and expensive distractions.

Palacio’s dilemma

Ecuador’s President Alfredo Palacio likes to pretend that his country’s efforts to win a free trade deal with the US are unrelated to a recent thaw in relations with Occidental, the Los-Angeles-based oil company.

Don’t be deceived. The fact that the government has softened its previously intransigent stance in a legal dispute with the US company is intimately related to desperate efforts to revive the trade agreement. Ecuadorean businesses are anxious to secure access to the US market, not least because Ecuador’s neighbours, Colombia and Peru, have already secured agreements.

But disputes like the one with Occidental and the recent decision to impose a 50 per cent windfall tax are complicating matters because they are seen as undermining investment protection rules that are essential elements of trade deals. Indeed, US talks were abruptly halted in March after the windfall tax was announced.

Developments are likely next week because US trade negotiators have set a deadline of May 15 in order for them to have any hope of winning US congressional approval before this year’s elections. The problem for President Palacio is that both the proposed trade pact and Occidental’s presence are opposed by left-wingers. Indigenous groups and trades unions are promising a revival of the social protest that shook Amazonian oil-rich provinces a few weeks ago.

Mexico’s new front-runner

For the first time in two years there is more than just one name in Mexican politics. The newcomer is Felipe Calderón of the centre-right National Action Party (PAN), who has suddenly emerged with a real chance of becoming Mexico’s president. Two polls this month – one published in the Reforma daily and another by Televisa, the private broadcaster – show that Mr Calderón has now overtaken longtime frontrunner Andrés Manuel López Obrador, leftwing candidate for the Democratic Revolution Party (PRD). In the Reforma poll Mr Calderón leads by seven points with 40 per cent.

What has happened? The answer is a change of mood among so-called swing voters: Mexicans who do not identify strongly with any particular party. Most pollsters say that as much as half the Mexican electorate falls into this category, making it by far the most critical group in the July 2 election. According to the Reforma poll 42 per cent of this group now intends to vote for Mr Calderón against just 36 per cent for Mr López Obrador. A month ago the PRD candidate held 38 per cent against Mr Calderón’s 37 per cent.

Swing voters have been influenced by three things. The first two are now well known: an aggressive PAN advertising campaign aimed at associating Mr López Obrador with economic chaos, and the leftwing candidate’s imprudent decision to insult Vicente Fox, the president.

The third and newest factor, however, is Mr Calderón’s solid performance during a televised debate at the end of last month and Mr López Obrador’s conspicuous absence resulting from his decision weeks before not to participate.

It is still too early to say with any confidence that Mr Calderón has enough momentum to win. Mr López Obrador still has enormous appeal among Mexico’s poor – a huge group from which Mr Calderón continues to appear very distant at times. And swing voters, by definition, are a fickle bunch.

What is certain, though, is that in a tight race the second and final debate among the leading candidates could prove decisive. The debate will take place on June 6, less than a month before the vote, and Mr López Obrador has promised to be there. It is likely to be the most interesting show Mexicans – and observers of Mexican politics – will get to see this year.

Notes by Richard Lapper, Jonathan Wheatley and Adam Thomson

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