Weekly Roundup: LatAm Markets Rebound, Ecuador Approves Constitution, and Brazil's Rise

Latin American Markets on the Mend

Markets across the Western Hemisphere took a beating on Monday after the Dow plunged nearly 800 points when U.S. lawmakers failed to pass a financial bailout plan. But Latin American markets experienced recovery on Tuesday: São Paulo’s Bovespa rose 7.6 percent after dropping 9.4 percent a day earlier and Mexico City’s IPC Index jumped more than 930 points based on new hopes for a U.S. rescue plan.

Even as confidence in the region’s markets appeared to be on the mend, South American leaders accuse the United States of fiscal carelessness. A Washington Post article offers a survey of criticism from regional presidents, including the leaders of Brazil, Argentina, Brazil, and Venezuela.

Several Latin American leaders delivered remarks at AS/COA programs during the week of September 22 and commented on global financial uncertainty. Access AS/COA program summaries to read more.

Financial Lessons from Colombia and Chile

With the world’s eyes on Washington as it seeks a plan in the face of financial crisis, the handling of past financial troubles in Latin America offers examples to learn from. Brookings Institution takes a look at the mid-1990s housing crunch in Colombia and concludes that providing debt relief for households encourages delinquencies and deepens financial woes. Wall Street Journal columnist Mary Anastasia O’Grady examines Chile’s 1982 economic crisis, highlighting how the Chilean plan helped banks attract fresh capital and protect depositors rather than use taxpayer money to buy troubled assets and debt from banks.

Brazil’s World-Stage Presence

In an article for Poder’s October issue, COA Vice President Eric Farnsworth emphasizes that the next U.S. administration must deepen ties with Brazil, which commands increasing importance as a global player as the world’s tenth largest economy. Farnsworth points out several areas for cooperation, ranging from energy to talks with Iran to trade negotiations.

In a September 22 speech delivered at an AS/COA event, Lula stressed the economic and social progress made in recent years in Brazil.

Lula, Chávez, Morales, and Correa Meet in Manaus

Presidents of Brazil, Venezuela, Bolivia, and Ecuador met in the Amazonian city of Manaus on Tuesday to discuss issues including a refinery project backed by Brazilian President Luiz Inácio Lula da Silva and his Venezuelan counterpart Hugo Chávez, the political crisis facing Bolivian President Evo Morales’ administration, sanctions imposed on Brazilian construction company Odebrecht by the government of Ecuador, and an infrastructure integration project involving all four countries.

Aside from these weighty topics listed on the meeting’s agenda, the leaders also discussed financial turbulence on Wall Street and its possible global impact. Chávez compared the global economic turmoil to “a hundred hurricanes” and Lula charged wealthy nations with fiscal “irresponsibility” that could affect developing countries.

Ecuador Approves New Constitution

In a Sunday referendum, Ecuadorians voted in support of a new constitution trumpeted by President Rafael Correa. The new document guarantees access to water, universal healthcare, pensions, and free education through high school. The constitution also centralizes executive powers, opening the door for Correa to seek reelection twice while granting the president with the power to dissolve Congress and carte blanche on macroeconomic decisions that until now rested with the Central Bank.

OpenDemocracy’s Guy Hedgecoe gives a bird’s eye view of Correa’s constitutional referendum, saying that it “may have been both divisive and controversial, yet it could ensure the leftist president enjoys an uninterrupted decade in power.”

Read an AS/COA interview with Latin America historian Alfonso Quiroz about the recent trend toward attempts at constitutional reform in Ecuador, Bolivia, and Venezuela.

PDVSA’s Bold Presence in Latin America

IPS News reports on the increasing clout gained by Petróleos de Venezuela (PDVSA) throughout Latin America as the state-owned firms lock in deals to sell cheaper oil, boost refinery capacity, and explore new oil fields from the Caribbean down to Argentina.

Russia Lends $1 Billion to Venezuela for Weapons

During a visit to Moscow, Venezuela’s President Hugo Chávez landed a $1 billion loan for weapons purchases. The pact builds on the two countries’ announcement of joint military exercises, with the Russian warship Peter the Great headed to the Caribbean. Moscow has also offered to assist Venezuela in the development of nuclear power reactors. Stronger ties between Caracas and Moscow come at a time of heightened tensions between Russia and the United States over Russia’s incursion into Georgia and Washington’s defense shield plans in eastern Europe.

U.S. House Votes to Extend ATPDEA

Renewal of the Andean Trade Promotion and Drug Eradication Act (ATPDEA) cleared the U.S. House of Representatives on September 29. The deal lowers tariffs to Andean nations, including Ecuador, Peru, and Bolivia. The passage of the measure “would further ease pressure on lawmakers to pass long-delayed free-trade agreements with Colombia, South Korea, and Panama,” reports Bloomberg.

In response to recent diplomatic tensions between the United States and Bolivia sparked after La Paz’s recent expulsion of the U.S. ambassador, the Office of the U.S. Trade Representative released a statement late last week threatening to leave Bolivia out of the ATPDEA. The announcement stated that “the Morales administration's recent actions related to narcotics cooperation are not those of a partner and are not consistent with the rules of these programs." This prompted OAS Secretary General Miguel Insulza to offer mediation help and “ensure that the measure is not implemented,” reports Mercopress.

Chile and a Multi-Polar World

Harvard International Review features an analysis by Chilean President Michelle Bachelet, who draws insight about the emergence of a worldwide multi-polar political system, the rise of developing economies as commercial alternatives, and the role Chile must play in the integration process taking place in the Western Hemisphere. “My country has been successful in taking advantage of the opportunities that globalization offers to developing nations by taking a hand in global governance,” writes Bachelet.
 
Municipal Election Campaigns at Full Pace in Brazil, Chile, and Venezuela

On October 5, Brazil holds its first round of municipal elections, with President Luiz Inácio Lula da Silva’s party leading the polls in major cities, including São Paulo and Rio de Janeiro, reports Infolatam.
 
In Venezuela, the political campaign began on September 28 for the November municipal elections, with President Hugo Chávez calling for unity among chavistas and closing ranks against opposition candidates in several provinces. Read AS/COA’s coverage of Chávez’s political moves in advance of the November elections.
 
Chile started its political campaign on September 25 for the October 26 election amid speculation about next year’s presidential race, which could feature political heavyweights OAS Secretary General José Miguel Insulza, and former Presidents Ricardo Lagos and Eduardo Frei. Read AS/COA analysis on the political tensions and divisions in Chile’s two main political coalitions Concertación and Alianza.

Deforestation Continues in Brazil

With deforestation of the Brazilian Amazon continuing to gain speed, Brazil’s Environment Ministry released a list of the 100 worst illegal loggers in the Amazon. The Brazilian government’s Institute of Colonization and Agrarian Reform (INCRA) topped the list. Since 2005, 550,000 acres have been deforested in areas controlled by INCRA, an agency that distributes land to the poor. The Environment Ministry plans to seek legal action against all illegal loggers on its list. Deforestation levels in the Amazon in August 2008 were roughly three times the level for the same month in 2007.

Middle Eastern Capital Flows into Latin America

Latin America has become more attractive to overseas—particularly Middle Eastern— investors in recent years, with private equity and venture capital growing dramatically. In 2007, private equity investment into the region surpassed $7 billion, up from $2.9 billion on 2006. For the Gulf, Latin American infrastructure and sustainable development projects fall in line with Sharia-compliant investment principles that prohibit investments in banks, alcohol, or weapons. “Central and Latin America have become increasingly market-friendly in recent years. This trend, along with the political stability that many countries in the region are currently enjoying, has created significant opportunities in many economic sectors, not least in the booming real estate sector,” says Arabian Ventures CEO Mishal Al Jarallah.

Singapore Tightens Ties with Latin America

Speaking at last week’s Latin Asian Business Forum, Singapore’s Minister of Trade and Industry Lim Hng Kiang highlights the growing opportunities for commercial cooperation between Asian countries and Latin America in the coming years. For example, 56 Singaporean companies are currently involved in almost 200 active projects in the region, including oil and gas contracts in Brazil, water treatment plants in Argentina and Mexico, and a refinery in Panama.
 
In a recent article, the UN’s Osvaldo Rosales and COA’s Eric Farnsworth explain the necessity for Latin American countries to seek out deepening ties with the Asia-Pacific region in the wake of the latest failed efforts to push forward the Doha Round of trade talks.

Cuba Caps Food Prices in Face of Shortages

After hurricanes Gustav and Ike destroyed almost one third of Cuba’s crops, the government of President Raúl Castro halted food price increases and threatened speculators who try to cash in from the crisis. “We face six hard months…but we can't lament, we have to plant,” says Cuban Vice Minister of Agriculture Alcides López in an interview with the Guardian.
 
Colombia and Paraguay Ink Security Deal

Paraguayan President Fernando Lugo visited Colombia on September 28 and signed a security cooperation agreement with his Colombian counterpart Álvaro Uribe. The pact aims to help eliminate kidnappings in the region, Semana reports.
 
AS/COA hosted President Lugo on September 23, when he described the political change that his administration represents after more than 60 years of political control by the Colorado Party.