Top stories this week are likely to include: continued fallout over YPF expropriation; Leon Panetta to South America; Humala approves controversial mining project; and IMF warns of protectionism in Latin America.
Global Response to YPF Seizure: Repsol has threatened to take legal action against any company that invests in YPF SA, its Argentine subsidiary that was nationalized last week. This will complicate efforts by Argentine Planning Minister Julio de Vido to elicit investments in YPF. Beyond Repsol’s response, Argentine President Cristina Fernández de Kirchner faces continued condemnation from Spain and the European Parliament, which is looking at the possibility of imposing trade sanctions on Argentine imports. Petrobras, Brazil’s state-owned oil corporation, has pledged to expand cooperation with Argentina. Look for further official reaction from Europe this week.
Panetta in South America: U.S. Secretary of Defense Leon Panetta departs today for a five-day tour in South America, where he will visit Colombia, Brazil and Chile. A defense official reports that Panetta will stop in Bogotá to evaluate U.S.-funded Plan Colombia and discuss further measures to combat the Revolutionary Armed Forces of Colombia (FARC). Then, he heads to Brasilia and Rio de Janeiro to discuss potential military deals, including Embraer’s participation in a now-cancelled military aircraft contract for the U.S. effort in Afghanistan. AQ Senior Editor Jason Marczak notes, “Although the Embraer deal was worth less than $400 million, getting it back on track would be a huge plus for U.S.-Brazil relations.” Panetta and his Brazilian and Chilean counterparts will also discuss drug interdiction measures off the coasts of Africa and Central America—two of the world’s worst drug transit points.
Peru Approves Conga Mine: Peruvian President Ollanta Humala gave conditional approval last week to the controversial Conga mining project, constructed by U.S.-owned Newmont Mining Corporation. Previously, it had been stalled due to environmental concerns and protests by local Indigenous peoples in the Cajamarca region. Independent environmental auditors recommended a series of changes including larger artificial reservoirs that would allow for the adequate supply of water to local populations; Humala gave Newmont the green light for construction on the condition that these suggestions be met. Cajamarca President Gregorio Santos remains unconvinced, so watch out for the possibility of further local backlash.
IMF Warns of Protectionism: During its spring meetings over the weekend, the International Monetary Fund predicted 3.75 percent growth for the Latin America and Caribbean region this year. The IMF also warned emerging economies against adopting protectionist measures in response to the “accommodative monetary policy” adopted by the U.S. and other developed countries. The 3.75 percent figure represents a moderation of the region’s 4.5 percent growth in 2011. Given Brazil’s criticism of the United States’ monetary behavior, pay attention to whether Latin American economies heed the IMF’s advice.
*RELATED – Angelina Jolie Visits Refugees in Ecuador: In her capacity as a United Nations High Commissioner for Refugees ambassador, Angelina Jolie visited displaced Colombian refugees in Ecuador over the weekend. Read an Americas Quarterly dispatch on refugees in Ecuador from the Winter 2012 issue.
News yesterday that the U.S. Department of Defense is poised to undertake force reductions and base closings in response to challenging national economic circumstances contrasts sharply with trends elsewhere in the hemisphere to ramp up defense spending and military purchases.
According to Defense Secretary Leon Panetta, army and Marine Corps. force reductions should save $487 billion over 10 years without compromising overall U.S. military readiness. Others called the proposed cuts dangerous; Arizona Republican Senator John McCain says Panetta’s plan “ignores the lessons of history,” and will result in a military “too small to respond effectively to events that may unfold over the next few years.”
While the U.S. is reducing defense spending our neighbors in the hemisphere are increasing theirs. In the most recent issue of Americas Quarterly, U.S. Army War College professor Gabriel Marcella argues that Latin America’s defense spending is projected to grow significantly by 2014—much of which is to finance arms purchases from China.
In recent years, China has sold $58 million worth of Karakorum jets to Bolivia, $150 million in air surveillance systems to Venezuela and has donated military equipment to Bolivia, Guyana, Colombia and Peru. The question of whether these activities threaten U.S. interests is open to debate, but according to Marcella, “U.S. officials are not publicly concerned about China’s military activities. Frank Mora, deputy assistant secretary of defense for Western Hemisphere Affairs, stated in 2009 that while the U.S. stands for transparency, China’s arms and technology transfers are standard in the international community, and that some of the equipment can help Latin American governments improve security and counter drug trafficking.”