July 30, 2012
Top stories this week are likely to include: Chávez travels to Brazil for Venezuela’s formal incorporation into Mercosur; Foreign mining to continue in Peru, as Humala marks one year in office and reaffirms commitment to social spending; Cuba set to further open its economy; Argentina tightens control over energy industry; and Colombia’s economy slows.
Chávez travels to Brazil: Venezuelan President Hugo Chávez travels to Brasilia today—his first official foreign trip of the year—to attend Tuesday’s Mercosur summit. The gathering has been convened to formalize Venezuela’s entry into Latin America’s largest trade bloc, whose members include Argentina, Brazil, Paraguay, and Uruguay. Paraguay’s membership was suspended on June 28 following the ouster of President Fernando Lugo. For six years, Venezuela’s entry had been blocked by the Paraguayan parliament, but once suspended, the other three countries quickly moved forward with Venezuela’s membership. Still, questions remain about the process in which Venezuela has joined Mercosur: “Suspending Paraguay due to Mercosur’s determination that it undemocratically removed President Lugo, and then using the opening created to then welcome in Chávez is a double standard. Clearly, realpolitik won out over ideology,” says AQ Senior Editor Jason Marczak. It is expected that Chávez will use the visit as a sign of his good health and strength to compete in Venezuela’s presidential elections on October 7.
Mining—and associated controversies—to continue in Peru: Production is expected to resume in the next few days at the La Oroya metallurgical complex in the Peruvian Andes, after the plant—owned by the U.S.-based company Doe Run—had been shut down for three years. Rocío Chávez, the manager of Doe Run Peru, said operations will begin with the zinc-processing circuit and continue with the processing of lead and copper.
The announcement that metallurgical operations would resume in the small mountain town of La Oroya, where economy has long depended on mining but where residents have suffered from exposure to the plant’s toxic wastes and emissions, coincided with President Ollanta Humala celebrating one year in office. With his approval rate having fallen to an all-time low of 40 percent—largely a result of social unrest over mining (today there are more than 250 disputes nationwide over natural resources)—Humala vowed to ramp up social spending for the poor and spread the benefits of Peru’s economic boom to all its citizens.
Cuba to continue opening its economy: Following last week’s meeting of the National Assembly, Cuba will begin implementing a series of reforms that will continue moving its economy in a more market-friendly direction. A new tax law—to be published next month and to go into effect next year—will replace an old Soviet-style system and eventually require everyone to pay income and property taxes for the first time since the 1960s, according to Marino Murillo, head of the Communist Party commission responsible for implementing reforms. Murillo also announced that an unspecified number of state-owned companies will be partially deregulated by the end of the year. They will be allowed to make day-to-day business decisions without awaiting government approval and will be evaluated on “four or five indicators” such as earnings and productivity. In addition, 222 small- to medium-size businesses will become cooperatives—previously an option only available in the agricultural sector.
Read more about Cuba’s economic opening in the latest issue of Americas Quarterly.
Controversy over government intervention in Argentina’s energy industry: Controversy over the state’s role in the economy is likely to continue this week in Argentina, following Deputy Economy Minister Axel Kicillof’s announcement last Friday that the federal government will assume greater control over private oil companies. According to a decree published in the Official Gazette, oil companies operating in Argentina will have to present an annual investment plan by September 30 and could face fines or other sanctions if they fail to comply with this and other rules. This morning, Planning Minister Julio de Vido denied that the government is “intervening” in the energy sector, calling the new regulations “planning, pure and simple,” but that is unlikely to put Argentine and foreign business communities at ease.
Colombian economy at risk of downturn: Economists and administration officials are likely to be keeping a close eye on Colombia’s economy as prices for oil—the country’s top export—continue to decline. On Friday Colombia’s central bank unexpectedly reduced its overnight lending rate from 5.25 percent to 5 percent—the country’s first interest-rate cut in two years. Central Bank president Jose Dario Uribe said, “Global economic growth continues to weaken more than expected;” the bank adjusted its forecast for economic growth in Colombia in 2012 to 3 to 5 percent, down from its previous target of 4 to 6 percent. Andres Langebaek, senior economist at Banco Davivienda SA, who correctly predicted the cut, forecasts that the Central bank will cut rates a further 0.75 percentage point by year-end. Analysts will be on alert for inflation, although the risk is “really benevolent,” said Camila Estrada, chief analyst at Bogotá-based Helm Bank SA.