The world’s eyes may be focused on the Olympic Games taking place in London, but for those needing a break there is at least one alternative that is being provided courtesy of the government of Argentina: a countdown clock on the main page of the Ministry of Economy’s website and on various large television screens in the lobby of the ministry’s headquarters in Buenos Aires.
There, authorities have been displaying in days, hours, minutes, and seconds the time to repayment on Friday, August 3, of the last $2.2 billion installment of a dollar-denominated, benchmark government bond known as the Boden 2012. Economy Minister Hernán Lorenzino has been sending out enthusiastic tweets about the upcoming event since early July, bragging about the payment as evidence of the government’s determination to reduce its indebtedness—which explains the message to the right of the clock that translates as “Without debt we are more free.” He has also proudly pointed out that the Boden payment demonstrates that, in contrast to the approach taken by European governments nowadays, Argentina is able to meet its debt obligations without having to impose painful fiscal-austerity measures (“sin ajuste social”).
And to squash rumors to the contrary, President Cristina Kirchner has given repeated assurances that despite a dearth of dollars in circulation in the country because of stringent capital controls, which have spawned various parallel markets where dollars cost 40-50 percent more than in the official market, “the Boden 2012 will be paid as we have to: in dollars.” Both of them have recalled that paying off this obligation is in line with the policy of deleveraging (desendeudamiento) that was inaugurated in 2006 by the late President Néstor Kirchner, when he paid off the government’s debt to the IMF (almost $10 billion) years ahead of schedule.
A grand total of $17.6 billion of these Boden bonds were issued during 2002-03 by the government of Eduardo Duhalde to Argentine bank customers and to the banks themselves, in the wake of decisions to default on the public debt and to devalue the currency. The former saw their dollar-denominated term deposits frozen indefinitely (the so-called corralón), and the latter faced insolvency after the government decreed that dollar loans and deposits were to be converted into pesos at different exchange rates—such that everyone who owed the banks dollars could repay them cheaply, at the pre-devaluation exchange rate.
The ugly choice faced by depositors was to take payment in these 10-year dollar bonds or else agree to the disadvantageous conversion of their deposits into pesos while regaining gradual access to them. Most of those who took the Boden bonds later resold them for cash at a huge discount, mainly to risk-prone domestic and foreign investors who were not in a hurry to collect.
While it is good to see the Argentine government honoring one of its most infamous debts, the hype surrounding the upcoming payment of the Boden 2012 serves to illustrate the misinformation campaign which the Cristina and Néstor Kirchner administrations have pursued when it comes to matters financial and economic. The reason why the government has not had to raise taxes or cut spending European-style in order to come up with the requisite $2.2 billion is because the economy ministry is simply helping itself to a portion of the central bank’s official international reserves in order to make Friday’s payment.
For years now, the government has been borrowing or outright taking dollars from the monetary authority to meet the bulk of its upcoming debt payments. The tradition was inaugurated by the late Néstor Kirchner when he pre-paid his government’s debt to the IMF back in 2006. He did so by getting the cash from the central bank and handing back a 10-year bond paying a rock-bottom coupon.
Moreover, it is not at all true that Argentina has been reducing its public debt. Official statistics show that the public debt actually increased by more than one-fifth in just the past two years, from $147 billion as of end-2009 to $179 billion as of end-2011. This is because the government budget has been in the red for several years now, and thus has needed to be financed through new debt issuance. Besides, these figures do not include the many billions of dollars that Argentina owes to unpaid bondholders who have won court judgments (mainly in the United States) and arbitral awards (mainly through ICSID—the International Center for Settlement of Investment Disputes in Washington DC) against the government in Buenos Aires. The Kirchner administration is also silent on the issue of settling the more than $7 billion that it owes official export-credit agencies such as the Export-Import Bank of the United States and its equivalents in Europe and elsewhere, to which not a dime of interest or principal payments has been made since defaulting to them starting in December 2001.
It is good publicity for Argentina that the debt countdown clock measures the time to a single, major upcoming payment. The more revealing and relevant clock—one that would show how much Argentina has yet to pay back—would convey an unflattering picture.
Arturo C. Porzecanski is a senior associate with the CSIS Americas Program and a professor of international economics at American University in Washington, DC.
This month, the Due Process of Law Foundation released a report on the state of judicial independence in El Salvador and found it lacking. At issue are maneuvers by sitting national assemblies to name sets of Supreme Court judges more than once during their term. That wouldn’t be a problem in the United States where justices stay on the bench for life or until they retire, at which time the president nominates a replacement for approval by the Senate. El Salvador has a different system, however. The constitution charges the national assembly to appoint five judges to the 15-member court every three years. They sit for nine years and can be reappointed.
Here’s the problem. The constitution says that the national assembly can only do this once during its own three-year term. The current assembly which sits from 2009 to 2012, already appointed five new judges to the court in the summer of 2009. In April 2012, just before its term ended, the assembly appointed another set of five, denying that right to the incoming assembly. It was something like trying to get your insurance to pay for two annual physical exams that occurred in the same 12-month period.
Why would lawmakers do that? It seems that in 2009, four new supreme court judges were appointed to the constitutional chamber, to be responsible for determining the constitutionality of laws and to decide disputes between the executive and legislative branches of government. This particular group of judges has proven to be more activist and independent than its predecessors, refusing to be pressured by the country’s dominant political and economic actors from both the left and the right. One 2010 ruling irked bosses in El Salvador’s two major political factions—that a candidate need not be a member of a party to run for office.
This June, the constitutional chamber ruled that the assembly’s latest supreme court appointments were invalid. Further irritating the assembly, it also ruled that appointments made at the end of the 2006 term were similarly bogus because there had also been a previous round of appointments in that three-year period. In both cases, it would seem the new assembly would have to re-do these appointments. Of course, the political makeup of the outgoing and incoming assemblies is a complication, but that is the situation in a nutshell.
What might be viewed as the positive evolution of El Salvador’s system of check and balances has faced attacks mostly from lawmakers who see the court as a maverick. During the last year, the old assembly passed a decree requiring all chamber rulings to be unanimous. It also tried to undercut the authority of the supreme court’s president, and shorten the terms of justices. Protests forced the reversal of these measures.
A majority of assembly delegates and the president have chosen to ignore the June ruling. When the constitutional chamber proposed a new vote to replace contested appointments, lawmakers filed a complaint with the Central American Court of Justice, the judicial organ of the Central American Integration System (SICA). Ironically, SICA’s jurisdiction is limited to regional integration issues. Nevertheless, it handed down a hasty decision against El Salvador’s court. So now, five new appointees are supposedly taking seats in the supreme court that may have not been legally vacated.
From almost any angle, it seems like a family feud Salvadorans should resolve themselves. It’s a stretch to think SICA has the jurisdiction to tell them what to do, and it would be foolish for President Obama to try if pressed by the U.S. Congress. As experience has shown elsewhere in the Americas, checks and balances are not easy to live with. But their presence results in a more stable government where no one branch can bully the other, and hence abuse the public. Numerous civil society organizations have spoken out against what appears to be a pronounced disregard for constitutional order and top courts’ efforts to maintain independence from political interests. However, foreign investors could be the court of final appeal, taking a look at this situation and deciding to seek opportunities where the rule of law is stronger.
Janae Edwards is an intern scholar with the CSIS Americas Program.
Two-way trade between China and Latin America has grown impressively, amounting to almost US $240 billion last year. At present, China is Latin America’s second largest trade partner. Besides bilateral trade talks between Chinese Prime Minister Wen Jiabao and the presidents of Brazil, Uruguay, Argentina, and Chile individually, Wen expressed interest in signing a trade agreement with Mercosur. Even though the joint statement between China and Mercosur during the June Mercosur summit did not mention an intent to negotiate, China expects to boost bilateral trade with the bloc to at least US $200 billion in 2016.
Moreover, Wen’s June 26 speech before the Economic Commission for Latin America and the Caribbean (ECLAC) summit in Santiago, Chile clearly demonstrated China’s aims at deepening trade with the region by importing more Latin American manufactured goods and value-added products besides the usual commodities. In contrast to China’s inroads, Mexico remains the primary trade partner in the region for the United States, accounting for more than half of all U.S.-Latin America trade in the region.
Overall, Wen’s trip seemed like a valedictory. Among notable achievements, he signed a 10-year cooperation plan with Brazil in such fields as science and technology, space cooperation, energy, besides a US$30 billion currency swap that allows foreign exchange transactions in local currencies. Wen expressed interest in such infrastructure projects as the construction of a new deep seaport at La Angostura in Punta del Este in Uruguay, a bridge in southern Chile, and the modernization of a railway route in Argentina. He also proposed agricultural research and development centers as well as the establishment of an agricultural ministers’ forum.
Common economic interests also reflect some shared political positions that seem at odds with U.S. positions. Shared views include:
• Encouragement for the United Nations’ to take a lead role in conflict resolution in Africa and the Middle East;
• A general belief in Iran’s right to have a peaceful nuclear energy program;
• Backing for UN-Arab League peace envoy Kofi Annan on his six-point peace plan for Syria; and
• Similar reform proposals for international organizations.
While the United State remains neutral, China’s sympathy for Argentina’s claim on the Falkland/Malvinas Islands could translate into Argentine support for Chinese positions in the United Nations and other international bodies. Furthermore, Wen’s address at ECLAC shows Chinese interest in deeper political consultations with Latin America, to begin with the establishment of a foreign ministers’ dialogue mechanism, legislative exchanges, and exchanges with political parties—although on China’s side, the meetings would be with only one party.
Behind Wen’s smile is a hard edge. Chinese investment carries the scent of Chinese ownership of joint projects and loans with repayment plans that guarantee continued access to raw materials. Given increasing trade and expanding cooperation between China and Latin America, now may be a good time for the U.S. to think strategically about strengthening its cooperation with countries in the region against the backdrop of rising influence from the other side of the Pacific.
Siremorn Asvapromtada is an intern scholar with the CSIS Americas Program.
Over a week after Mexico’s election, the Congressional balance of power is now clear. Although initial signs pointed to an almost three way split in both chambers, as the remaining votes were counted the PRI party and its allies came close to achieving a majority. This suggests that it will be much easier for the PRI to achieve legislative progress, either by negotiating a simple majority, or by working with the PAN to secure two thirds of the votes in both houses, essential for constitutional reform.
Given this new clarity in terms of the political balance, there is renewed hope that there will be a push on structural reforms in the fall of this year. In fact, the PRI has already called on outgoing President Calderón to make progress in reforming the areas of energy, labor, and state finances before he leaves office in December. This strongly suggests that the PRI and the PAN are ready to work together towards reform. Although the same PRI representative that was interviewed suggested that energy reform would not involve any change to the constitution, the emerging consensus among experts in the sector is that constitutional changes will be required to make reform worthwhile.
The prospects for constitutional reform are quite encouraging given the fact that in the Chamber of Deputies, an alliance between the PRI, PVEM, PANAL and PAN would deliver 72 percent of the votes, while in the Senate, the same alliance would ensure 77 percent support. It is unlikely that the PAN will deliver its votes without something in return (perhaps with regards to fiscal reforms) and this will require intense negotiation between the two parties, but we can now be moderately optimistic about this.
Duncan Wood is a senior associate with the CSIS Americas Program.
The July 1, 2012 general elections in Mexico found some individuals uncorking champagne bottles and others crying in their beer. Here is my list of notable winners and losers and what it means for Mexican politics.
• The Toluca Group, highly effective PRIista politicians from Mexico State that spearheaded the successful presidential candidacy of Enrique Peña Nieto.
• Peña Nieto’s campaign manager Luis Videgary Caso, 44, a Ph.D. in economics from the Massachusetts Institute of Technology, disciple of former secretary of finance Pedro Aspe Armella (1988-94/62), and ex-chairman of the budget committee in the Chamber of Deputies (2009-1/2012). Videgary Caso could be the chief of staff in Los Pinos.
• Miguel Ángel Mancera, the Distrito Federal attorney general (2008-12) who steamrolled opponents to succeed Mexico City’s outgoing Chief of Government (mayor) Marcelo Ebrard Casaubón, 52. Ebrard’s supporters are already lofting his presidential star for 2018 via www.facebook.com/Ebrard2018#!Ebrard2018. Mancera faces several obstacles, among them that Ebrard and two-time presidential candidate Andrés Manuel López Obrador will see him as competition for their own presidential campaigns in 2018.
• The PRD and leftist allies not only swept the capital, but snatched the governorships of Tabasco and Morelos with Arturo Nuñez Jiménez and Graco Ramírez, respectively.
• The Mexican Green Ecological Party (PVEM) emerged with 34 deputies and 9 senators. Other minor parties also prospered: the Workers’ Party (PT) garnered 19 deputies and 4 senators and the Citizens’ Movement (MC) came away with 15 deputies and 2 senators; the New Alliance Party (PANAL), the creation of the Elba Esther Gordillo’s controversial SNTE teachers’ union, picked up 10 deputies and one senator.
• Former president Carlos Salinas de Gortari, 64, who kept a low profile assisting Peña Nieto with advice and contacts. Salinas will use his friendship with Diego “Jefe Diego” Fernández de Cevallos and other moderate PANistas to join with the PRI-PVEM-PT-MC-PANAL coalition to support reforms in labor, energy, and security sectors.
• The Televisa Group that allegedly earned hundreds of millions of dollars thanks to general coverage of, and technical-logistical assistance to, Peña Nieto’s campaign.
• Ambassador Earl Anthony Wayne, 62, and the U.S. Embassy for strict non-intervention in the election.
• Carlos Romero Deschamps, 55, boss of the notoriously corrupt oil workers union, whom Peña Nieto will pressure to help open Pemex, the state oil monopoly, to private investment.
• Manlio Fabio Beltrones, 59, an old-guard PRIista with new ideas, who is the nation’s shrewdest operator and who reconciled himself to losing the nomination to Peña Nieto and is likely to become leader of his party’s approximately 207 deputies in the 500-seat Chamber of Deputies.
• Emilio Gamboa Patrón, 61, an inseparable ally of Beltrones, who is expected to preside over the PRI’s approximately 53 members in the 128-seat Senate.
• The National Action Party (PAN) whose contenders for president, Mexico Federal District chief of government, governor of Jalisco, and governor of Morelos all went down in flames. Before ex-president Vicente Fox came on the scene in 2000, the PAN was a middle-class, social-Christian, democratic party possessed of highly respected leaders. Now it exhibits all the deficiencies of competing parties, and is fragmented into at least six currents: (1) President Felipe Calderón loyalists, (2) Josefina Vázquez Mota followers, (3) Senator Santiago Creel confidantes, (4) pragmatists like Diego Fernández de Cevallos, (5) hard-charging northern businessmen known as “Los Bárbaros del Norte,” and (6) right-wing Catholics.
• Andrés Manuel López Obrador, who compelled the left to ally with the PRI to frustrate President Calderón’s legislative agenda, is now driving PANistas to cooperate with the PRI in castigating his own failure to respect the Federal Electoral Institute’s vote count. One PAN notable said, “The only fair election for López Obrador is the one he wins.”
• Rogelio Medina de la Cruz, 40, PRIista governor of Nuevo León, whose administration limped along with poor management, corruption, narco-violence, and political setbacks. Even though he is in bad graces with Peña Nieto, two other leaders from Nuevo León—Ildefonso Guajardo (possible economy secretary) and Javier Treviño Cantu are up-and-comers.
• Ivonne Ortega Pacheco, 40, the PRI’s “dinosauric” governor of Yucatán, a state drowning in corruption and whose gubernatorial dauphin Rolando Zapata Bello, 43, won by a much closer margin than anticipated.
• Tycoon Carlos Slim Helú, 72, the world’s richest man, may pay a political price for reportedly supporting López Obrador.
• The Specialized Attorney for Electoral Crimes, which failed to control, much less publicize or penalize, Peña Nieto’s astronomical campaign spending (See, Jenaro Villamil, “El erario mexiquense,” Proceso, July 2, 2012.)
• The #YoSoy132 movement that arose from middle-class students at such prestigious universities as the Ibero-Americana, ITAM, and the Tecnológica de Monterrey (ITESM). Many of the now-divided Yosoyistas have cast their lot with López Obrador whose messianic orientation, old-fashioned PRI-like ideas, authoritarianism, disloyalty to supporters, and penchant for confrontations are antithetical to the interests of the movement’s founders.
• The Defense Ministry inasmuch as Peña Nieto went outside to recruit retired Colombian General Oscar Naranjo Trujillo as his security adviser, who was the Calí Cartel’s nemesis and, as head of the Colombian National Police (2009-12), a key player in substantially reducing urban violence.
• Beatriz Paredes Rangel, 59, a veteran who did a competent job as PRI party president (2007-12), is a longshot for a cabinet post. She may be asked to head an embassy on the so-called “Revlón Line” of attractive posts, possibly Brasilia, as a consolation.
• Manuel Bartlett Díaz, 75, a PRI past-master in vote legerdemain, who upon failing to win a senate seat this year immediately screamed foul play.
• National Education Workers Syndicate president Elba Esther Gordillo (known as La Maestra) may face a tough education secretary who will challenge her colonization of public education.
Grayson is the Class of 1938 Professor of Government Emeritus, a senior associate at the Center for Strategic & International Studies, and an associate scholar at the Foreign Policy Research Institute. Transaction Press recently published his latest book, coauthored with Samuel Logan, titled The Executioner’s Men: Los Zetas, Rogue Soldiers, Criminal Entrepreneurs, and the Shadow State They Created.
The fast-track impeachment of Paraguay’s former president Fernando Lugo may have been misguided, but it supplied an opportunity to ram through approval of Venezuela’s full entrance into Mercosur. Dominant members—namely Brazil and Argentina—had been pushing its admission for years. There were even rumors of potential maneuvers to circumvent Mercosur rules despite disapproval by Paraguay’s conservative congress. With Paraguay’s membership conveniently suspended after Lugo’s impeachment, the customs union’s two giants seemingly had the consensus they needed to get Venezuela into the club.
Besides the contradiction of suspending Paraguay for following its own constitutional procedures to remove a chief executive and, at the same meeting, approving Venezuela to become a full member despite its poor adherence to democratic principles (manipulated elections, press censorship, property seizures, etc.), a question remains. Was it a strategic bet for Mercosur, or an ill-advised gamble for what is beginning to look like a club of losers?
Back in 2006, when the first steps to make Venezuela a full member were taken between Mercosur leaders and President Hugo Chávez, the possible gains for the bloc were more evident than today. Brazil would gain most, by opening Venezuela’s market to its food and clothing exports, while Venezuela would have to impose external tariffs for non-Mercosur countries like China. But that was then. Now Venezuela is heavily compromised to China, through Chinese investments and having to pay off Chinese loans in oil. Russia is Venezuela’s major defense partner, and with Iran it has numerous joint ventures and an open borders policy. Think any of that will fall under Mercosur authority?
One of Venezuela’s most attractive attributes could also be a problem. Vast oil reserves make the country desirable for economic integration, but the state oil monopoly Petróleos de Venezuela S.A. (PDVSA) is performing far below previous capacity as funds needed for reinvestment in refinery and field maintenance have been diverted to social spending as well as Chávez’s foreign political adventures. Furthermore, a significant part of the production is destined to pay off international loans taken out by the government, reducing what’s available for export markets.
Full member status also gives Venezuela veto power in all agreements in which Mercosur negotiates. Thus, Venezuela could potentially interfere in economic decisions based on its divergent political position, making agreements with countries outside the bloc much harder to achieve. It is worth noting that Chávez has already suggested that Mercosur should move past its commercial character and consider social and political matters as well. The need for Venezuela’s approval could be an open door for Chávez to meddle.
Even though Mercosur is considered a weak institution that has yet to fulfill original goals, it has well established regulations and procedures that full members must follow. Some of those can lead to problems. The expropriation ban immediately comes to mind. Chávez has already broken them, nationalizing property of Venezuelan citizens and seizing assets owned by citizens from Mercosur countries within Venezuela’s territory, such as the oil nationalization process in 2007 which affected directly Brazil’s oil company, Petróleo Brasileiro (Petrobras).
Other issues concern existing free trade agreements with Colombia and Israel. Venezuela’s relationship with Colombia may be patched up for the moment, but it remains far from stable as long as Chávez is president. In the case of Israel, things get more complicated. Chávez broke diplomatic relations with Israel in 2009 and has forged close ties with Iran and Syria. It’s doubtful he will follow Dilma Rousseff’s pragmatic lead on Middle East trade and diplomacy, or abstain from interfering with the policies of other members.
All of the potential negatives arise from Chávez being the now and forever president of Venezuela. So maybe Brazil’s Rousseff and Argentine president Cristina Fernández de Kirchner know something that the rest of us don’t. Or maybe they are taking the long view. Either way, prospects are doubtful. First, a health crisis or electoral loss for Chávez in October elections could provoke a crisis with Chavistas taking extra-constitutional measures to keep from losing power. Venezuela would be an economic basket-case.
Even if by some miracle opposition candidate Henrique Capriles won the vote and was inaugurated, Chávez’s diversion of the nation’s treasury into secret accounts will take years to unravel, prolonging an economic turnaround. And then there is Ecuador, next in line to get into Mercosur. Under Rafael Correa it has become a mini-Venezuela in the making.
Maybe Dilma and Cristina think they can reform their two mischief-making counterparts by embracing them or at least be in a position to clean up the mess when their authoritarian regimes collapse. Meanwhile, most of the Pacific coast countries in the Americas are pursuing durable free trade agreements with serious industrial economies in the rest of the world.
Maite Rabelo is an intern scholar with the CSIS Americas Program.
Image Credit: Argentina's Office of the Presidency
On July 2, Andrés Manuel López Obrador (AMLO), the PRD’s presidential candidate, announced that he would challenge the results of the previous day’s presidential election on the grounds that the PRI party had engaged in widespread electoral fraud and vote buying. Although AMLO said that he will wait for the official results to be announced on Wednesday by the Federal Electoral Institute (IFE), it is clear that he intends to challenge the legitimacy of the PRI government.
Immediately following the announcement, thousands of AMLO supporters took to the streets in support of the leftist presidential candidate. This brought to mind the post-electoral chaos of 2006, and the long street protests and sit-ins in the center of Mexico City. City residents are nervous about the prospects of another post-electoral conflict, remembering the severe disruption of 2006.
However, it is unlikely that AMLO will be able to generate similar support this time around, and he is likely aware of this fact. It has even been suggested that this is his way of bowing out of the national political scene without being seen to have accepted defeat by the forces of the Mexican political and economic elite. Indeed, reports from within the party say that the PRD’s leading forces are urging him to accept the results and to conduct his protests along official institutional lines rather than take to the streets. Time will tell if he is willing to follow this advice.
Duncan Wood is a senior associate with the CSIS Americas Program.
Although the PRI’s Enrique Peña Nieto clearly won the presidential election last night, his margin of victory was disappointing and the party has failed to win a majority in either of the chambers of Congress. It is estimated that the two chambers will break down as follows:
Those of us who were alive in 1988 remember the “you are no Jack Kennedy” lecture Senator Lloyd Bensten gave Senator Dan Quayle during the U.S. vice presidential debates. Too bad no one is around to tell Argentine President Cristina Fernández de Kirchner “you are no Eva Perón, nor are you her husband, for that matter.” Except maybe for Hugo Moyano, Secretary General of Argentina's powerful workers’ union, the Confederación General de Trabajo (CGT).
After a hasty debate in which President Fernando Lugo was given almost no chance to defend himself, Paraguay’s Senate voted on June 22 to remove him from office. Some onlookers like Argentine president Cristina Fernández de Kirchner, Bolivia’s Evo Morales, and Ecuador’s Rafael Correa called it a coup. Other observers compared Lugo’s fate to ousted president José Manuel “Mel” Zelaya of Honduras. It wasn’t a coup and Lugo is no Zelaya.