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Peruvian politics are rarely predictable. But as the interminable counting of votes cast in the presidential election on April 9 wraps up this week (click here for coverage and here for results) it would be surprising if Lourdes Flores, the most market-friendly of the leading contenders, made it into the second-round run-off in May or June.
Without her, voters will face a run-off between Ollanta Humala, the radical nationalist who won the most votes, and Alan García, president from 1985 to 1990. Foreign investors will face their worst nightmare.
Mr Humala promises “21st century nationalisation” and tax increases on international companies operating in Peru. When Mr García was last in power he nationalised banks, restricted foreign debt payments and precipitated a slide into economic chaos.
Yet last week HSBC joined JPMorgan and Merrill Lynch in upgrading Peru, saying Mr García “would be fairly committed to pro-market policies” and Mr Humala would, at least initially, “offer some assurances of macroeconomic stability”.
Mr Garcia’s rebirth as the darling of investment banks may spring from the same wishful thinking that led to investors piling into Peruvian sovereign debt the day after the election on the basis of early (and ultimately misleading) exit polls that showed Ms Flores held a narrow lead over the former president in the race for the run-off.
Funnily enough, there was no sign of any Wall Street analysts in Trujillo a few days before the first round of voting when, in a speech to the party faithful, Mr García promised to intervene in an array of sectors including water, electricity, telecoms, gas, banking, fishing and education.
Sure, Mr García has ruled out nationalisation and says he will sign a trade agreement with the US “if it benefits Peru”. But, like Mr Humala, he has pledged to overturn Peru’s market-friendly constitution to allow the state to meddle in the economy.
As campaigning in the first round progressed, Mr García also increasingly converged on Mr Humala’s hostility to foreign corporations. He vowed to revise contracts, attacked “neoliberalism” and pledged “revolution”.
If he wins, Mr García will no doubt be touted as “the new Lula” after Brazil’s leftwing but market-friendly leader. But if things turn out differently, investors who counted on him not to follow his interventionist and populist instincts won’t be able to say they weren’t warned.
Pass the pizza
The president of Brazil’s Senate will decide on Tuesday whether to set up another inquiry into the corruption scandal that has dogged the government since last May.
It is hard to see the need. One joint Senate and lower house inquiry has already concluded that leaders of President Luiz Inácio Lula da Silva’s Workers’ party orchestrated a scheme paying bribes to legislators in exchange for supporting his government. The prosecutor general backed its conclusions and accused 40 people in and near the government, including the president’s former closest aides, of running a “criminal organisation”. A separate Senate inquiry is due to report in June and will produce further evidence of misuse of public funds and of companies paying bribes in exchange for government contracts.
Yet in spite of the volume of evidence amassed by congressmen, prosecutors and the police, the president’s political opponents have failed to use the scandal to dent his popularity and Mr Lula da Silva is the front runner in the race to elections in October. Now opposition senators want a new inquiry to investigate allegations involving the president’s family and close personal associates, in the hope finally of tarnishing Mr Lula da Silva’s saintly image.
On present form, there is scant prospect of this happening. Typifying the opposition’s rudderlessness, senators who requested the inquiry have already admitted there is little chance of its going ahead in an election year. “We don’t want to give the public the impression we are trying to complicate anybody’s personal situation,” said one opposition leader, raising the question of why, then, he requested the inquiry in the first place.
Isolated opposition voices have called for the president’s impeachment – indeed, one formal request was lodged this month. It will go nowhere. The reason is that Mr Lula da Silva still enjoys enormous support among the poor – by far the biggest group of Brazilian voters – and the opposition knows it. When former president Fernando Collor de Mello was ejected from the presidency in 1992 on charges of personal enrichment, the impetus for impeachment was driven by popular disgust at his playboy lifestyle. Mr Lula da Silva still has a political base of sufficient power to snuff out any impeachment proceedings at the outset.
The amounts of money diverted by the current scandal dwarf anything stolen by Mr Collor de Mello and the larger costs in terms of lost opportunities through stalled reforms – not to mention the dilution of democracy – are enormous. Nevertheless, as Brazilians say when crimes go unpunished, the scandal now looks certain to end in pizza.
Anyone wondering how foreign investors view the three-month-old administration of Evo Morales, Bolivia’s leftist president, need look no further than the auction of El Mutún, an iron ore deposit in the country’s south-east. (Click here for one blogger’s perspective.)
El Mutún, with an estimated 40bn tonnes of ore, should be an attractive prospect. The auction was originally due for February but the Morales government called it off and last week rescheduled for May 20.
Ten international companies had originally expressed an interest, including CVRD of Brazil, Rio Tinto, the Anglo-Australian miner, and Teck Cominco of Canada.
This time around, none of those giants put its name forward and only five companies said they wanted the concession.
Five became four when Shandong Luneng of China withdrew. Four almost certainly became three last week after the government first ordered EBX of Brazil to halt work on a pig iron project in Puerto Suarez on Bolivia’s south-eastern border with Brazil, then ordered the company out of the country.
EBX clearly thought it had secured the necessary paperwork for the project. But the government said it had breached environmental law and, rather than negotiate, simply kicked the company out. In a characteristic outburst, Mr Morales warned he would expel any company that breached Bolivian law.
Locals are desperate for the jobs the EBX project would bring – so desperate, that when three government ministers came to break the news they were briefly kidnapped and had to be freed by security forces.
The government’s clumsy response is typical of an administration whose relations with big foreign investors in the gas industry have gone rotten. Despite several announcements of impending agreements on new investment, none has materialised.
Mr Morales appears to be using hostility to international investors as a sop to dissidents on the left who want him to nationalise Lloyd Aero Boliviano, the hopelessly indebted airline.
Yet if Bolivia, South America’s poorest country, cannot secure fresh foreign investment it will be unable to tackle its worsening social problems.
Meanwhile, the government has announced it will buy a 5 per cent stake in Telesur, the Venezuelan-run regional TV channel. That may keep things sweet with Hugo Chávez, Mr Morales’s brother-in-arms in Caracas, but it shows an irrational and muddled set of priorities.
Too good to be true?
On Tuesday, the lower house of Mexico’s Congress is due to vote on a bill that would go a long way to providing the country with an effective anti-trust body.
The proposal would give the Federal Competition Commission, Mexico’s competition watchdog, adequate tools to stop companies flouting the law.
Among other powers, the CFC would be able to impose substantially higher fines (four times higher than now), while individuals and companies would be encouraged via an anonymity programme to denounce unfair competition. In extreme cases, the CFC would have the power to force companies to break up.
Too good to be true? It could be: last week, Telmex, the country’s dominant telecommunications operator, began a campaign to stop the initiative. In a circular, it claims the changes would make the CFC too powerful. It also complains about the size of the potential fines, which it says would be “ruinous”. The CFC says Telmex has also been lobbying members of Congress to try to kill off the bill.
This is a big test for Congress. Mexico is losing competitiveness against other emerging-market countries. One reason is the size of the monsters that dominate the corporate landscape, reducing competition to a minimum and keeping prices artificially high. Telmex is a case in point. It operates 94 per cent of all fixed lines in Mexico, and “offers” some of the highest telephone charges in the world.
Congress now has the chance to redeem itself after it recently passed changes to the country’s radio, television and telecommunications laws, which most independent experts say only strengthened the positions of the existing companies, particularly Televisa, the private-sector broadcaster.
But this is Mexico and – as past experience has proved so often – there is no guarantee Congress will do the right thing.
A weaker Mercosur
Argentine activists are up in arms about two cellulose mills to be built just over the border with Uruguay. But long before the mills will be able to cause the environmental harm activists fear, they are causing collateral damage of a different kind.
Bickering between Argentina and Uruguay over the project is bringing Mercosur, the regional trade bloc, to its knees. Failed attempts to settle the dispute through Mercosur, which also includes Brazil and Paraguay, prompted Tabare Vazquez, Uruguay’s president, to declare peevishly this week that Mercosur “doesn’t work”. Mr Vazquez then forbade his employment minister from attending a Mercosur meeting in Argentina, saying it would not be appropriate until the trade bloc functioned “correctly”.
His comments, made in Paraguay, did not fall on deaf ears. Paraguayans are similarly frustrated at Mercosur’s lack of progress in boosting intra-regional trade and, like Uruguayans, feel overshadowed by Mercosur’s two much larger members. Argentina and Brazil, meanwhile, made mockery of Mercosur’s commitment to free trade earlier this year when they introduced measures to protect Argentine companies from Brazilian imports. Now Uruguay and Paraguay are seeking bilateral trade deals with the US, which in Uruguay’s case now accounts for more than half of its trade.
As relations within Mercosur become increasingly strained, the confrontational style of Néstor Kirchner, Argentina’s president, is beginning to upset others outside the bloc. Mauri Pekkarinen, the Finnish trade minister, cancelled a visit to Argentina this week after Mr Kirchner unleashed a broadside at Finland’s government for not intervening in the activities of Botnia, the Finnish company that is building the larger of the two cellulose plants. Peter Mandelson, the EU trade commissioner, called Botnia an “innocent victim” of the conflict between Argentina and Uruguay, thus widening it further.
Meanwhile, attempts by Brazil’s president Luiz Inácio Lula da Silva to talk to Tarja Halonen, the Finnish president, about the matter during her visit to Brazil earlier this month have been met coldly by Argentines, who consider the affair strictly bilateral.
Even Venezuela’s outspoken president, Hugo Chávez, weighed in by blaming the conflict on “imperialism”. The spat is getting out of hand and shows no signs of letting up. It can spell only bad news for the future of Mercosur.
Notes by Hal Weitzman, Jonathan Wheatley, Adam Thomson and Benedict Mander
Contact Jonathan Wheatley with your comments
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