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S T R AT E G I C F O R E C A S T I N G , I N C .STRATFOR is the world’s leading private intelligence firm providing corporations, governments and individuals with intelligence and analysis to anticipate the political, economic, and security issues vital to their interests. Armed with powerful intelligence-gathering capabilities and working in close collaboration with STRATFOR’s experienced team of professionals, our clients are better able to protect their assets, diminish risk, and increase opportunities to compete in the global market.

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ii© 2005 Strategic Forecasting, Inc.

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A b o u t S t r at f o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i i i

L at i n A m e r i c a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

E x e c u t i v e S u m m a r y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 M a y : T h e M o n t h i n R e v i e w . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 K e y I s s u e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 T h e M o n t h A h e a d : F o r e c a s t s f o r J u n e . . . . . . . . . . . . . . . . . . . 1 2 T r e n d s , S t a t s a n d I n d i c a t o r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5 N o t e w o r t h y E v e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8

S t r at f o r S e r v i c e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9

C o n ta c t S t r at f o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1

iii© 2005 Strategic Forecasting, Inc.

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STRATFOR is the world’s leading private intelligence firm providing corporations, governments and indi-viduals with geopolitical intelligence and analysis to manage risk and anticipate the political, economic and security issues vital to their interests. Armed with powerful intelligence-gathering capabilities and work-ing in close collaboration with STRATFOR’s expert team of analysts, clients are better able to protect their assets, diminish risk, compete in the global market and increase opportunities. STRATFOR has an unparal-leled record for accuracy and clarity in its forecasts and has been called “the Shadow CIA” by Barron’s.

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1© 2005 Strategic Forecasting, Inc.

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s Bolivian President Carlos Mesa’s government drew closer to collapse, the country’s political turmoil was disrupting regional investment plans in oil and gas ventures and aggravating an energy shortage in Argentina, Uruguay and Chile. Venezuelan President Hugo Chavez has finally acknowledged his country’s oil production shortages and is bearing down hard on foreign investors. U.S. President George

W. Bush is responding, backing a U.S.-friendly candidate to lead the Organization of American States in hopes the organization will crack down on anti-democratic movements such as the one Chavez is leading.

T h i s M o n t h ’ s H i g h l i g h t s : I n E v e r y I s s u e : • Upheaval in Bolivia • Trends, Stats and Indicators • Cracks in the Southern Cone • Noteworthy Events • Stumbling in Colombia • Militarizing Venezuela While PDVSA Collapes • Washington’s New Moves

A


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SE x e c u t i v e S u m m a r y

ecurity- and energy-related issues garnered the most attention in Latin America during May. The promulgation in Bolivia of a new Hydrocarbons Law on May 17 triggered protests in La Paz by thousands of indigenous peasants and left-leaning groups that demanded the resignation of President Carlos Mesa, the immediate

dissolution of Congress and the nationalization of the oil and gas industry. The armed forces, which declared its full support for the president, are keeping Mesa in power for now. Military support for Mesa could be less than full, however, given demands by two rebellious army lieutenant colonels for the establishment of a popular government in Bolivia led by a military figure like Venezuelan President Hugo Chavez. Bolivia’s political crisis continues to disrupt regional investment plans in oil and gas ventures, and is aggravating a structural energy shortage that affects Argentina, Brazil and Chile.

In Venezuela, private oil economists released new data in May that confirms Petroleos de Venezuela (PDVSA) has lost about 1 million barrels per day of net crude oil production capacity since the end of 1998. Chavez denied these reports but acknowledged a slight drop in PDVSA’s production, which he blamed on sabotage by the CIA. At the same time, the Chavez government intensified its attacks against foreign oil companies, charging them with violating their contracts with PDVSA, evading taxes willfully and supporting efforts by opposition groups to destabilize the government.

Bolivia will continue to experience instability in June. Nicaragua also could experience more instability. Chavez will lash out more aggressively at the U.S. government as Venezuela’s internal oil production and economic difficulties become more obvious to Venezuelan voters.

The Bush administration moved on several fronts during May to re-engage with Latin America and the Caribbean. Former Chilean Interior Minister Jose Miguel Insulza, elected secretary-general of the Organization of American States (OAS) in Washington, has indicated he will support U.S. efforts to reform the OAS Democratic Charter to create mechanisms to monitor democratic governance in Latin America and the Caribbean. The proposal is part of a broader regional U.S. strategy aimed at isolating Chavez, whose growing alignment with Cuba on economic, political and security issues is perceived by the Bush administration as a potential threat to U.S. strategic interests and democratic governance in Latin America.

The Bush administration also launched lobbying efforts to win more congressionally approved security assistance for Colombia, and to build a bipartisan consensus to ensure congressional approval of the U.S.-Central America/Dominican Republic Free Trade Agreement before the summer congressional recess in August.


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M a y : T h e M o n t h i n R e v i e w

U p h e a v a l i n B o l i v i aBolivia’s Congress approved a controversial new Hydrocarbons Law during May and sent it to President Carlos Mesa for his signature and promulgation. Instead, Mesa returned the law unsigned to Congress, saying it would cut off new foreign direct investment in Bolivia. The president of Congress, however, stepped in to promulgate the law, which increases royalties on oil and gas production to 18 percent and sets the income tax rate at 32 percent.

Spokesmen with foreign oil companies Petroleo Brasileiro SA (Petrobras) and Spain’s Repsol YPF SA warned that the new law likely will cause a suspension of planned investments. They also warned that the law is unconstitutional and violates existing contracts and international agreements with other governments. Foreign oil companies likely will sue in Bolivia’s Constitutional Court to have the law nullified, though they probably will lose. More than half the country’s population — the largely indigenous and poor — believe the new law is too weak in its fiscal treatment of foreign oil companies and the defense of Bolivian sovereignty.

The new law’s May 17 promulgation by the president of Congress coincided with renewed protests against the Mesa government in La Paz. Since mid-May, thousands of indigenous peasants, miners, union workers, coca growers, university students and other left-leaning groups have maintained almost daily demonstrations in La Paz to force a change of government. These protesters are demanding Mesa’s resignation, the dissolution of Congress and the nationalization of Bolivia’s hydrocarbons industry without any compensation to the foreign oil companies. The protesters also oppose intensifying efforts by wealthy lowland departments, mainly Santa Cruz and Tarija, to break away from the central government and establish autonomous regional governments.

Frequent clashes have broken out between groups of protesters and police forces armed with tear gas and water cannons surrounding the congressional and presidential buildings in Murillo Plaza in downtown La Paz. Some injuries and arrests have occurred. As of May 31, however, no major eruption of violence had taken place and the protests had not spread from La Paz to

Since mid-May, thousands of Bolivians have staged almost-daily protests in La Paz in an effort to force a change of government.


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other cities — likely because the armed forces warned May 22 that it would deal promptly and harshly with anyone involved in a violent or disruptive attack. Bolivia’s military leaders also warned they would stop any efforts to Balkanize the country. Additionally, the military’s top generals and admirals declared their full support for the Mesa government.

The military’s public façade of internal unity cracked May 25, however, when two renegade army lieutenant colonels read a statement on a private television station calling for Mesa to resign immediately so a military government of the people could be established. Separately, Jaime Solares, president of the Bolivian Workers Central, called for the immediate installation of a people’s government led by a military figure like Venezuelan President Chavez.

Both officers were swiftly expelled from the army with bad conduct discharges, and military spokesman issued assurances that there was no risk of a military rebellion or coup against Mesa. Separately, senior government officials also called for the arrest of Solares and other opposition leaders on charges of sedition and inciting revolt. However, Stratfor highly doubts the military’s assurances that all is well within the armed forces. Bolivia’s military is suffering the same divisions visible between the country’s civilian highland and lowland inhabitants.

C r a c k s i n t h e S o u t h e r n C o n eThe regional impact of the Bolivian crisis worsened in May. The Hydrocarbons Law forced investors in Brazil and Argentina to suspend plans to build a new natural gas pipeline linking Bolivia to northeast Argentina, and to construct a $1 billion petrochemicals facility near the border between Bolivia and Brazil. Bolivia, however, is only one factor in a growing natural gas shortage that is affecting economic growth in Argentina, Chile and Uruguay. During May, Argentina suspended natural gas exports to Chile to ensure that Argentina’s electric utilities and industries have enough gas to meet their needs. Argentina’s growing domestic gas-supply shortage is due to insufficient investment in new production capacity since 2001, combined with the government’s refusal to allow local increases in consumer rates.

A growing natural gas shortage is affecting economic growth in Argentina, Chile and Uruguay. Argentina’s gas shortage is becoming critical.


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Argentina’s domestic gas-supply shortage is becoming critical, although a national energy shortage likely will not significantly impact Argentine economic output until 2007. Chile’s gas-supply difficulties are more immediate, however. It cannot count on gas supplies from Argentina, and Bolivia refuses to export natural gas to Chile because of a century-old territorial dispute. Bolivia also has warned Peru against selling any Peruvian natural gas to Chile or else no Bolivian natural gas will be exported through Peruvian pipelines and seaports. If Chilean producers are forced to switch from natural gas to other costlier fuels for their energy needs, higher production costs could bite into the economy’s performance, affect export competitiveness and slightly slow the economy’s growth.

The Bolivian political crisis also is affecting regional economic integration efforts that form part of Brazil’s strategy of turning the Mercosur South American Customs Union into a political union modeled after the European Union. Besides affecting future regional natural gas supplies, Bolivia’s political crisis also is disrupting plans to build a regional network of highways and cargo transportation systems linking the Atlantic and Pacific coasts of South America. These regional highway links are critical to Brazil’s efforts to develop competitive export markets in Asia.

The Bolivian crisis, however, is only part of a larger economic crisis with political implications in Mercosur-member countries Argentina and Uruguay. Argentina’s economic recovery is standing on spindly pillars and is not sustainable over the medium term. Uruguay also is at risk of a financial crisis that could hurt the new socialist government of President Tabare Vasquez.

Separately, Brazilian President Luiz Inacio “Lula” da Silva on May 10-11 hosted in Brasilia the first summit of the Arab League and the South American Community of Nations, which was created in 2004. By hosting the summit, da Silva aimed to enhance Brazil’s international profile as a regional power, develop new commercial relations with Arab countries and raise his own global image as Latin America’s leading socialist statesman. Da Silva lost control of the event, however, when Chavez joined various Arab delegations in berating Israel and the United States. Also, no breakthrough in trade occurred. S t u m b l i n g i n C o l o m b i aAfter several years of optimistic official U.S. reports that the war on drugs was being won in Colombia, U.S. government officials acknowledged in May that coca cultivation is increasing in that country despite intensive aerial fumigation efforts financed by U.S. taxpayers.


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At the same time, new opinion polls showed that President Alvaro Uribe Velez is losing popularity among voters who are starting to question official claims that the Revolutionary Armed Forces of Colombia is being defeated. For the first time, it appears that Uribe’s re-election in the 2006 presidential campaign is no longer a sure bet. Uribe’s government has asked the United States for $130 million in additional aid for fiscal 2005 to expand aerial fumigation activities in Colombia — a request the U.S. Congress likely will approve. Colombia under Uribe is the Bush administration’s strongest strategic ally in Latin America, and Washington will seek to keep that alliance intact.

M i l i t a r i z i n g Ve n e z u e l a W h i l e P D V S A C o l l a p s e sThe Chavez government has claimed officially since 2003 that Venezuela is producing more than 3.2 million barrels per day (bpd) of crude oil, though it has never published independently audited figures to confirm the claims. Stratfor has been saying since 2003, however, that Venezuela’s oil production levels were significantly inflated. Chavez finally acknowledged publicly in May that Venezuela’s oil production is running about 100,000 bpd below its official Organization of the Petroleum Exporting Countries quota of 3.1 million bpd, though he blamed the slowdown on sabotage committed by unnamed individuals working for the CIA.

Independent oil economists in Caracas, including a former director of the central bank’s economic research division, however, issued new figures showing that Petroleos de Venezuela (PDVSA) has lost 1 million bpd of net crude oil production capacity since the end of 1998. Chavez became president of Venezuela in January 1999. The true extent of PDVSA’s oil-out-put collapse has been disguised by rising production of foreign oil companies involved in strategic associations with PDVSA and oilfield operating contracts that the government suspended in March 2005. These foreign companies

For the first time, it appears that Colombian President Alvaro Uribe Velez’s re-election in 2006 is not a sure bet.

The true extent of PDVSA’s oil-output collapse has been disguised by the rising production of foreign oil companies involved in strategic associations with the Venezuelan oil company.


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now account for more than 1 million bpd of Venezuela’s total oil produc-tion, which totals only 2.3 million bpd and not more than 3.2 million bpd as claimed earlier by the Chavez government.

Venezuelan voters have not yet felt the collapse in PDVSA’s production, mainly because oil prices remain high. Venezuela’s average export price as of the week ending May 27 was nearly $40 a barrel. Venezuela’s government also has more than $27 billion of international currency reserves at the central bank, of which slightly more than $19 billion are liquid reserves the government can tap in a pinch. Chavez’s mismanagement of PDVSA and his mistreatment of foreign oil companies, however, are slowly strangling PDVSA, which is Venezuela’s primary source of economic wealth.

Insufficient investment in well maintenance during 2005 probably will reduce PDVSA’s net production capacity by another 200,000 bpd. This could be reversed if PDVSA signs new production contracts with foreign companies. In May, however, the Chavez government intensified its attacks against foreign oil companies, charging that all oil majors — which include ExxonMobil, Total and Statoil — were evading income taxes, violating their contracts with PDVSA and helping government opponents destabilize the country. Although foreign oil companies are eager to expand investments in Venezuela, the Chavez government’s attacks against the companies are discouraging investments.


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Amid the negative reports about PDVSA’s operational health, Chavez said Venezuela would launch a nuclear power development program with the assistance of Iran and other European and Latin American countries. Within 24 hours, the governments of Brazil, Colombia and Mexico rejected Chavez’s remarks. Brazil’s government also declared it would never engage in a nuclear development project involving Iran. Separately, Venezuelan and Russian defense officials announced that the weapons acquired from Russia would start to arrive in Venezuela during the second semester of 2005. Defense officials in Moscow also revealed that Venezuela is negotiating the purchase of 24 Sukhoi SU-27 Flanker jets worth $250 million.

Chavez also launched new attacks against the U.S. government in May, threatening to break diplomatic relations with Washington if the Bush administration refused to extradite Cuban-Venezuelan anti-Castro activist Luis Posada Carriles, who was detained in Miami in mid-May after he publicly admitted that he illegally entered the United States in April. Cuba’s government has accused Posada Carriles of terrorist attacks against Cuban hotels and aircraft and of plotting to kill Cuban President Fidel Castro. The United States rejected Chavez’s demands, and on May 30 Chavez backed away from his threats to break diplomatic relations.

Relations between Washington and Caracas, however, will continue to deteriorate in June, partly as a result of growing U.S. government efforts to isolate Chavez regionally and undermine local support for the Venezuelan leader. On May 26, the U.S. Embassy in Caracas informed Supreme Court President Omar Mora that his U.S. entry visa had been revoked under provisions of the Patriot Act. Stratfor also learned that the U.S. government is investigating dozens of senior Venezuelan government officials who allegedly have deposited millions of dollars in U.S. and European banks.

W a s h i n g t o n ’ s N e w M o v e sThe Bush administration moved on three fronts during May to strengthen its renewed political and economic engagement with Latin America and the Caribbean. This re-engagement started in April with U.S. Secretary of State Condoleezza Rice’s trip to Brazil, Chile, Colombia and El Salvador.

Venezuelan President Hugo Chavez backed off of his threat to break diplomatic relations with the United States.


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On May 2, Chilean Interior Minister Jose Miguel Insulza was elected secretary-general of the Organization of American States in Washington, D.C., with the Bush administration’s support. U.S. President George W. Bush and his administration also intensified efforts to ensure congressional support for continuing and increasing U.S. security and military aid to Colombia. Finally, Bush launched a drive in Congress to win enough votes to approve the proposed U.S.-Central America/Dominican Republic Free Trade Agreement (DR-CAFTA).

Insulza reciprocated the U.S. government’s support by pledging to work on the creation of a new Organization of American States (OAS) mechanism for permanently monitoring the state of democracy in Latin America. The Bush administration wants the OAS to amend its Democratic Charter to allow sanctions against democratically elected governments that stray from the path of democracy. The target of this proposed reform is the Chavez government. The regional monitoring mechanism forms part of the developing U.S. strategy to contain Chavez.

The Bush administration’s efforts to ensure sufficient congressional support to increase aid flows to Colombia and approve the DR-CAFTA agreement also are vital components of its regional re-engagement strategy. Supporting Colombia’s efforts to defeat militant groups and eradicate illegal drugs are key strategic goals of U.S. security policy in Latin America. However, as Chavez militarizes his government in Venezuela and consolidates his strategic military and economic alliance with Cuba, Colombia’s importance to U.S. security interests as a regional counterweight to Chavez’s militarism is also increasing.

Bush also needs congressional approval of DR-CAFTA to build stronger political and security links with Central America and the Caribbean, where Chavez has used Venezuela’s oil wealth to neutralize the possibility that these countries might support the United States in trying to contain Chavez regionally.

These developments in Washington indicate that Rice is imposing some much-needed order within the State Department on U.S. foreign policy toward

The Bush administration wants the OAS to amend its charter to allow sanctions against democratically elected governments that stray from the path of democracy.


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Latin America. It remains to be seen, however, if these U.S. initiatives will reverse the loss of U.S. influence in the region and help to calm political instability in many countries ruled by nominally pro-U.S. governments.

Congress will continue to increase U.S. military and security assistance to Colombia. The Bush administration’s efforts to reform the OAS, however, likely will be challenged by Venezuela and other countries, including Brazil, Argentina and Mexico. Also, congressional approval of DR-CAFTA is uncertain at best.

Moreover, current trends in the region that are adverse to U.S. strategic interests will continue even if the Bush administration achieves all of its objectives — including OAS reforms, congressional approval of DR-CAFTA and increased security assistance for Colombia.

Although the United States remains Latin America’s most important trading partner, South America in particular will continue to distance itself from the U.S. sphere of influence. Also, China will continue aggressive efforts to expand its economic and security presence in Latin America. The region’s political shift toward the left will continue, but a split between moderate and radical socialists will become increasingly visible. Political instability will intensify in the Andes region. Chavez will align Venezuela’s government even more tightly with Cuba and seek to intensify his political confrontation with the Bush administration as the incompetence and corruption of his Bolivarian government become more evident to Venezuelan voters, including the president’s poor followers. All of these trends were visible in May.

K e y I s s u e s

L e a d i n g w i t h C l a y F e e tDevelopments in South America during May demonstrated the limitations of Brazil’s foreign policy. President da Silva wants to position Brazil as the undisputed top economic and political power in Latin America and he wants Brazil to have a permanent seat on the U.N. Security Council. Brazil’s government has clay feet, however, when it comes to exercising real leadership in South America. In fact, Brazil consistently refuses to substantively engage in any regional problems involving Argentina, Bolivia, Chile, Colombia, Ecuador and Venezuela.


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This was evident in May, when the Brazilian government rejected Argentine pleas to negotiate trade safeguards to reduce Argentina’s trade deficit with Brazil. Da Silva also declined to voice any support for Mesa’s embattled presidency and against groups determined to force an undemocratic regime change in Bolivia. Da Silva also declined U.S. requests to lobby Chavez to stop his verbal attacks against the United States and seek more diplomatic avenues to solve bilateral differences. At the same time, though, Brazil refuses to seriously engage the United States in talks to create a Free Trade Area of the Americas. Finally, da Silva failed to prevent the Arab League-South American summit from degenerating into political attacks against the United States and Israel.

Brazilian regional engagement is critical to broader U.S. strategic interests in Latin America. Da Silva demonstrated in May, however, that he is unwilling to exercise leadership in managing regional crises in Brazil’s neighborhood.

G r o w i n g I n s t a b i l i t yAttention in May focused on the political turmoil in Bolivia, which has become an ungovernable country. Mesa barely held on to power during the month, and likely will not survive much longer in the presidency. Bolivia is not the only politically unstable country in the region, however.

Tensions in Ecuador have eased since President Eduardo Palacio assumed power on April 21, though Palacio is at best a caretaker president who will stay in power only by adopting more nationalist and left-leaning policies. Peruvian President Alejandro Toledo Manrique’s corruption troubles continued, while indigenous regions in southern and western Peru became increasingly unstable, forcing Toledo to extend a regional state of emergency for 90 days.

In Nicaragua, President Enrique Bolanos declared an economic state of emergency, suspending some constitutional guarantees for 100 days. He blamed high oil prices for disrupting economic activity, though his real reason for suspending the constitutional guarantees was to block the opposition Sandinista National Liberation Front from organizing more protests against him in an effort to force his resignation.

In Venezuela, President Chavez’s grip on power has not yet slipped appreciably, although several developments illustrate the deepening cracks in his Bolivarian Revolution. Three opinion polls conducted in May by


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Venezuelan polling companies found that the president’s personal popularity remains at about 70 percent. However, these polls also showed his government is perceived increasingly as corrupt, incompetent and unable to deliver on Chavez’s promises of sustained economic growth and improving living standards. For the first time, increasing numbers of Chavez supporters — or chavistas — joined local anti-government protests around the country. Signs of renewed discontent in the military also appeared in May. For the first time since 2003 pamphlets against Chavez were circulated anonymously inside military bases around Venezuela.

T h e M o n t h A h e a d : F o r e c a s t s f o r J u n e

H i g h l i g h t s : • Intensifying U.S.-Chavez Confrontation • Increasing Instability, Possible Regime Change in Bolivia • Argentina’s Underlying Economic Weakness Shows • Mercosur’s Internal Rifts Increase

From a U.S. perspective, the top issues in Latin America in June will be proposed reforms of the OAS and the increasing political confrontation with the Chavez government. Another top U.S. concern in June will be to ensure congressional approval for the DR-CAFTA trade agreement with Central America. For Latin America in general, energy and security will remain top issues during June.

Chavez’s pursuit of a confrontation with the Bush administration will continue, while his internal political problems will become more obvious. These problems include PDVSA’s collapsing production, saber rattling in the military, escalating power struggles between opposing groups within the ruling coalition that backs Chavez and continuing disclosures of widespread corruption inside the Chavez government. Chavez will react to these problems with more attacks against the U.S. government. He also will react to U.S. government efforts to push its reforms in the OAS.

The Bush administration will help to fuel doubts about the Chavez government in Venezuela by releasing information to international and Venezuelan news media detailing the enormous extent to which senior Chavez government officials are enriching themselves illicitly.


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The Bolivian crisis will continue in June. Left-leaning opposition groups continue their street protests in an effort to force a change of government. Mesa also will come under growing attack from business leaders and opposition political figures for not exercising effective presidential power. Mora’s decision to return the unsigned Hydrocarbons Law to Congress in mid-May instead of vetoing the law likely damaged irreparably his support among right-leaning lowland business groups.

The Bush administration will intensify lobbying activities in June to obtain congressional approval for $130 million in additional anti-narcotics aid for Colombia. At the same time, the administration will lobby aggressively for votes to pass the DR-CAFTA trade agreement with Central America and the Dominican Republic. The additional Colombia aid likely will be granted, but the DR-CAFTA looks to be put on hold due to the lack of “yes” votes.

Doubts about the health of Argentina’s economic recovery will increase in June. Now that the three-year drama of restructuring Argentina’s defaulted debt is largely over, more attention is focusing on the underlying condition of Argentina’s apparent economic comeback. In effect, while President Nestor Kirchner is taking credit for Argentina’s economic revival and proclaiming that the bad times are over, the reality is that Argentina still has an unresolved debt payments crisis, and inflationary pressures are heating up dangerously for a country with a history of hyperinflation. Argentina’s neighbor Uruguay also confronts a financial crisis that will become more obvious in June.

Internal trade and political rifts within Mercosur are likely to become more visible in June. International news media have portrayed tensions between Kirchner and da Silva as being largely an issue of personality conflicts. Kirchner reportedly is upset with da Silva for not supporting Argentina sufficiently, and for placing Brazil’s strategic interests above Argentina’s concerns. In fact, these rifts are only a reflection of deeper structural problems within Mercosur.

One problem is that Argentina is not competitive, even within Mercosur, where a common external tariff protects Argentine exporters and other Mercosur members from real competition with non-Mercosur members such as the United States and the Western European economies. Kirchner is claiming credit for rescuing Argentina’s economy. The reality, however, is that Argentina’s economic comeback will be short lived. During June, the extent of Argentina’s economic difficulties will command more international attention.


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Another critical problem affecting Mercosur is Brazil’s clay feet. TheBrazilians want to be regional leaders, but the Brazilian economy is toosmall and ultimately uncompetitive to act as the southern cone’s primaryeconomic driver. Brazil’s government and private sector also lack thefinancial resources to function as a primary regional source of privatedirect investment and economic development assistance. In the WesternHemisphere only the United States has that capacity. The Brazilian inabilityto match regional integration rhetoric with economically substantiveinitiatives to achieve real economic integration will become more apparentin June as Bolivia’s political crisis and economic weakness in Argentina andUruguay become more pronounced.

More instability likely is in store for Nicaragua during June. Bolanos is a weak president opposed by a coalition of the Sandinista Front for National Liberation and Liberal Party, which have joined forces in an effort to force him out of the presidency or neutralize his executive powers completely.


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T r e n d s , S tat s a n d I n d i c at o r s

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

n/a = not available

All data are provided by the governments of respective countries, unless otherwise noted.

1 CIA World Factbook 2 UNCTAD 3 WAIPA 4 Latin Business Chronicle 5 Strategis 6 ISEC

151.9

599.8

9.4

93.7

95.2

18.5

19.4

29.9

15.8

26.1

3.6

7.4

676.5

4.4

13.8

7.00

67.9

12.0

107.5

37.9

179.1

8.89

16.0

45.3

4.2

8.8

13.4

6.7

12.7

8.1

7.0

106.2

5.6

3.2

6.0

27.5

3.4

26.2

3,912

8,100 12004 est.

1,125

5,856

2,145

4,361

2,190

2,145

2,335

n/a

419

1,035

9,600

788

4,524

1,155

2,349

3,543

4,148

9.100 Q4 2004

-0.200 2003

0.028

7.300 Q4 2004

4.260 Q4 2004

3.900

n/a

2.700

0.021

1953

-0.009

0.025

4.900 Q4 2004

0.040

0.008

0.028

6.800 Q4 2004

2.500 2003

11.20 Q4 2004

1.400 1 2004 est.

147.0 5

4.400 6

6.000 3

2.352

1.600 2003

1.100

993.0 mn 2

496.3 mn

n/a

n/a

176.0 mn

17.20 2

196.9 mn 2

332.0 mn 2

73.70 mn 2

1.400 2

268.4 mn 2

3.100 2

12.00 Mar.

11.50 1 2004 est.

0.092 1

7.900 Mar.

14.00 Q4 2004

0.066 1

0.170 1

0.111

n/a

0.075

Over 2/3 1

0.285 1

3.950 Mar.

0.078 1

0.126 1

0.151 1

0.096

0.130 1

12.00 Q4 2004

29.40

73.10

2.000

29.20 1

n/a

6.184 1

5.400 1

7.500 1

4.100

2.900

483.00 mn

1.900

182.4 1

750.0 mn 1

3.300

2.900 1

9.000 Q4 2004

2.198

35.80 1

13.00 2003 est.

48.30 2003

2.500 2003

22.53 1

n/a

7.842 1

8.000 1

7.600 1

5.300

7.700

1.200 1

2.400

190.0

2.200

3.700

3.300 1

9.600 1

2.190

14.90 1

4.40 2003 est.

14.8 ’03-’04

n/a

1.10

5.90

11.5

n/a

n/a

n/a

n/a

n/a

n/a

4.70

9.30 1

2.00 1

5.10 1

3.70

19.4 2003

21.7

18.10 Jul ‘04

52.94 1 2004 est.

1.214 1

16.02 1

n/a

1.700

426.0 mn

1.400

1.800

3.000

80.60 mn 1

1.400 1

620.7

670.0 mn

1.076

1.100 1

12.70 1

2.300 1

25.70

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

s

Inco

min

g FD

I co

ntrac

ted bi

llions

USD

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

n/a = not available



151.9

599.8

9.4

93.7

95.2

18.5

19.4

29.9

15.8

26.1

3.6

7.4

676.5

4.4

13.8

7.00

67.9

12.0

107.5

37.9

179.1

8.89

16.0

45.3

4.2

8.8

13.4

6.7

12.7

8.1

7.0

106.2

5.6

3.2

6.0

27.5

3.4

26.2

3,912

8,100 12004 est.

1,125

5,856

2,145

4,361

2,190

2,145

2,335

n/a

419

1,035

9,600

788

4,524

1,155

2,349

3,543

4,148

9.100 Q4 2004

-0.200 2003

0.028

7.300 Q4 2004

4.260 Q4 2004

3.900

n/a

2.700

0.021

1953

-0.009

0.025

4.900 Q4 2004

0.040

0.008

0.028

6.800 Q4 2004

2.500 2003

11.20 Q4 2004

1.400 1 2004 est.

147.0 5

4.400 6

6.000 3

2.352

1.600 2003

1.100

993.0 mn 2

496.3 mn

n/a

n/a

176.0 mn

17.20 2

196.9 mn 2

332.0 mn 2

73.70 mn 2

1.400 2

268.4 mn 2

3.100 2

12.00 Mar.

11.50 1 2004 est.

0.092 1

7.900 Mar.

14.00 Q4 2004

0.066 1

0.170 1

0.111

n/a

0.075

Over 2/3 1

0.285 1

3.950 Mar.

0.078 1

0.126 1

0.151 1

0.096

0.130 1

12.00 Q4 2004

29.40

73.10

2.000

29.20 1

n/a

6.184 1

5.400 1

7.500 1

4.100

2.900

483.00 mn

1.900

182.4 1

750.0 mn 1

3.300

2.900 1

9.000 Q4 2004

2.198

35.80 1

13.00 2003 est.

48.30 2003

2.500 2003

22.53 1

n/a

7.842 1

8.000 1

7.600 1

5.300

7.700

1.200 1

2.400

190.0

2.200

3.700

3.300 1

9.600 1

2.190

14.90 1

4.40 2003 est.

14.8 ’03-’04

n/a

1.10

5.90

11.5

n/a

n/a

n/a

n/a

n/a

n/a

4.70

9.30 1

2.00 1

5.10 1

3.70

19.4 2003

21.7

18.10 Jul ‘04

52.94 1 2004 est.

1.214 1

16.02 1

n/a

1.700

426.0 mn

1.400

1.800

3.000

80.60 mn 1

1.400 1

620.7

670.0 mn

1.076

1.100 1

12.70 1

2.300 1

25.70

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

s

Inco

min

g FD

I co

ntrac

ted bi

llions

USD

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us


J U N E 2 0 0 5

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

n/a = not available



151.9

599.8

9.4

93.7

95.2

18.5

19.4

29.9

15.8

26.1

3.6

7.4

676.5

4.4

13.8

7.00

67.9

12.0

107.5

37.9

179.1

8.89

16.0

45.3

4.2

8.8

13.4

6.7

12.7

8.1

7.0

106.2

5.6

3.2

6.0

27.5

3.4

26.2

3,912

8,100 12004 est.

1,125

5,856

2,145

4,361

2,190

2,145

2,335

n/a

419

1,035

9,600

788

4,524

1,155

2,349

3,543

4,148

9.100 Q4 2004

-0.200 2003

0.028

7.300 Q4 2004

4.260 Q4 2004

3.900

n/a

2.700

0.021

1953

-0.009

0.025

4.900 Q4 2004

0.040

0.008

0.028

6.800 Q4 2004

2.500 2003

11.20 Q4 2004

1.400 1 2004 est.

147.0 5

4.400 6

6.000 3

2.352

1.600 2003

1.100

993.0 mn 2

496.3 mn

n/a

n/a

176.0 mn

17.20 2

196.9 mn 2

332.0 mn 2

73.70 mn 2

1.400 2

268.4 mn 2

3.100 2

12.00 Mar.

11.50 1 2004 est.

0.092 1

7.900 Mar.

14.00 Q4 2004

0.066 1

0.170 1

0.111

n/a

0.075

Over 2/3 1

0.285 1

3.950 Mar.

0.078 1

0.126 1

0.151 1

0.096

0.130 1

12.00 Q4 2004

29.40

73.10

2.000

29.20 1

n/a

6.184 1

5.400 1

7.500 1

4.100

2.900

483.00 mn

1.900

182.4 1

750.0 mn 1

3.300

2.900 1

9.000 Q4 2004

2.198

35.80 1

13.00 2003 est.

48.30 2003

2.500 2003

22.53 1

n/a

7.842 1

8.000 1

7.600 1

5.300

7.700

1.200 1

2.400

190.0

2.200

3.700

3.300 1

9.600 1

2.190

14.90 1

4.40 2003 est.

14.8 ’03-’04

n/a

1.10

5.90

11.5

n/a

n/a

n/a

n/a

n/a

n/a

4.70

9.30 1

2.00 1

5.10 1

3.70

19.4 2003

21.7

18.10 Jul ‘04

52.94 1 2004 est.

1.214 1

16.02 1

n/a

1.700

426.0 mn

1.400

1.800

3.000

80.60 mn 1

1.400 1

620.7

670.0 mn

1.076

1.100 1

12.70 1

2.300 1

25.70

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

s

Inco

min

g FD

I co

ntrac

ted bi

llions

USD

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

n/a = not available



151.9

599.8

9.4

93.7

95.2

18.5

19.4

29.9

15.8

26.1

3.6

7.4

676.5

4.4

13.8

7.00

67.9

12.0

107.5

37.9

179.1

8.89

16.0

45.3

4.2

8.8

13.4

6.7

12.7

8.1

7.0

106.2

5.6

3.2

6.0

27.5

3.4

26.2

3,912

8,100 12004 est.

1,125

5,856

2,145

4,361

2,190

2,145

2,335

n/a

419

1,035

9,600

788

4,524

1,155

2,349

3,543

4,148

9.100 Q4 2004

-0.200 2003

0.028

7.300 Q4 2004

4.260 Q4 2004

3.900

n/a

2.700

0.021

1953

-0.009

0.025

4.900 Q4 2004

0.040

0.008

0.028

6.800 Q4 2004

2.500 2003

11.20 Q4 2004

1.400 1 2004 est.

147.0 5

4.400 6

6.000 3

2.352

1.600 2003

1.100

993.0 mn 2

496.3 mn

n/a

n/a

176.0 mn

17.20 2

196.9 mn 2

332.0 mn 2

73.70 mn 2

1.400 2

268.4 mn 2

3.100 2

12.00 Mar.

11.50 1 2004 est.

0.092 1

7.900 Mar.

14.00 Q4 2004

0.066 1

0.170 1

0.111

n/a

0.075

Over 2/3 1

0.285 1

3.950 Mar.

0.078 1

0.126 1

0.151 1

0.096

0.130 1

12.00 Q4 2004

29.40

73.10

2.000

29.20 1

n/a

6.184 1

5.400 1

7.500 1

4.100

2.900

483.00 mn

1.900

182.4 1

750.0 mn 1

3.300

2.900 1

9.000 Q4 2004

2.198

35.80 1

13.00 2003 est.

48.30 2003

2.500 2003

22.53 1

n/a

7.842 1

8.000 1

7.600 1

5.300

7.700

1.200 1

2.400

190.0

2.200

3.700

3.300 1

9.600 1

2.190

14.90 1

4.40 2003 est.

14.8 ’03-’04

n/a

1.10

5.90

11.5

n/a

n/a

n/a

n/a

n/a

n/a

4.70

9.30 1

2.00 1

5.10 1

3.70

19.4 2003

21.7

18.10 Jul ‘04

52.94 1 2004 est.

1.214 1

16.02 1

n/a

1.700

426.0 mn

1.400

1.800

3.000

80.60 mn 1

1.400 1

620.7

670.0 mn

1.076

1.100 1

12.70 1

2.300 1

25.70

GDP

bil

lions

USD a

t 200

4 mar

ket p

rices

Popu

latio

n mi

llions

GDP

per

cap

ita

billio

ns US

D at 2

004 m

arke

t pric

es

GDP

gro

wth

%

chan

ge fr

om ye

ar pr

eviou

s

Inco

min

g FD

I co

ntrac

ted bi

llions

USD

Unem

ploy

men

t % Ex

ports

billio

ns US

D

Fore

ign

Curr

ency

Res

erve

s

billio

ns US

D

Impo

rts

billio

ns US

D

Infla

tion

CPI %

chan

ge fr

om m

onth

previo

us



J U N E 2 0 0 5

Argentina

Brazil

Bolivia

Chile

Colombia

Costa Rica

Dominican Rep.

Ecuador

El Salvador

Guatemala

Haiti

Honduras

Mexico

Nicaragua

Panama

Paraguay

Peru

Uruguay

Venezuela

*Closing Rates

Beginning

2.9100

2.5292

8.1050

582.50

2350.0

472.05

28.500

25000

8.7550

7.6100

40.439

19.600

11.038

16.350

1.0050

6290.0

3.2560

25.075

2148.3

Low

2.8820

2.3645

8.0670

569.00

2318.0

471.05

26.216

25000

8.745

7.5700

36.285

17.990

10.813

16.250

0.9950

6220.0

3.2505

23.900

2144.6

High

2.9150

2.5272

8.0720

583.70

2350.9

474.20

29.750

25000

8.7550

7.5950

37.661

18.282

11.066

16.370

1.0050

6260.0

3.2590

25.075

2148.0

End

2.8850

2.3700

8.1100

580.30

2340.0

475.20

29.750

25000

8.7570

7.6300

39.804

19.680

10.875

16.370

1.0050

6270.0

3.2550

24.100

2150.0

Regional Currency Rates



J U N E 2 0 0 5

N o t e w o r t h y E v e n t s

May 1: Honduran President Ricardo Maduro is hospitalized with minor injuries after the single engine Cessna 206 in which he, his daughter and a pilot are traveling makes a forced landing in the Caribbean Sea near the Honduran city of Tela.

May 2: Chilean Interior Minister Jose Miguel Insulza is elected secretary-general of the Organization of American States with 31 affirmative votes, two abstentions and one blank vote.

May 3: Angolan President Jose Eduardo dos Santos meets with Brazilian President Luiz Inacio “Lula” da Silva before a two-day visit with President Nestor Kirchner of Argentina.

May 3: A congressional committee in Peru issues a report accusing President Alejandro Toledo Manrique of participating in a criminal conspiracy and violating the public’s trust. The committee report claims that forged voter signatures were used to register Toledo’s Peru Posible party so he could run for president in 2000.

May 3: Venezuelan President Hugo Chavez admits publicly for the first time that Petroleos de Venezuela is experiencing oil production difficulties. Chavez blames sabotage and bad management for the drop in production.

May 3: U.S. Defense Secretary Donald Rumsfeld says Washington will take no direct action to stop President Hugo Chavez’s efforts to impose a socialist state in Venezuela, predicting its people eventually will solve their problems without external interference. Separately, U.S. Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega says the Bush administration has “many other priorities” in Latin America.

May 3: Venezuela’s Defense Ministry is in talks with Russia’s Sukhoi Corp. over the possible purchase of two squadrons of SU-25 ground-attack jets and SU-27 fighter-bombers. Venezuelan officials also are in talks with Mikoyan-Gurevich Corp. to acquire at least $250 million worth of MiG-29 SMT fighters.

May 4: In Honduras, Security Minister Oscar Alvarez says the U.S. government is concerned that international terrorists could use illegally acquired Honduran passports to sneak into the United States and launch attacks.


J U N E 2 0 0 5

May 4: The U.S. Embassy in Colombia confirms that two U.S. soldiers were arrested May 3 in Tolima department on suspicion of illegally selling munitions to unidentified Colombian armed groups.

May 4: In Mexico, the attorney general’s office drops charges of contempt of court against Mexico City Mayor Andres Manuel Lopez Obrador because the law does not clearly state what sentence he would face. The decision clears the way for Obrador to seek the presidency.

May 4: Argentina successfully completes its first debt issue in more than four years: 1 billion pesos ($345 million) of national debt bonds, payable in 2014. Foreign and local investors oversubscribed the issued debt by 216.5 percent.

May 5: Deputy Foreign Minister Jorge Gumucio says Bolivia will start to export natural gas by 2009 through the port of Ilo in southern Peru. The remarks come after Mexican President Vicente Fox and Bolivian President Carlos Mesa sign an agreement that stipulates the natural gas would be exported to Mexico by a reconstituted Yacimientos Petroliferos Fiscales Bolivianos, Bolivia’s state-owned oil company.

May 5: Colombian soldiers find six Nicaraguan army assault rifles in a Revolutionary Armed Forces of Colombia camp near the Yurumangui River. Troops also seize 12,000 rounds of ammunition and nearly 700 hand grenades.

May 6: Mexican President Vicente Fox meets with Mexico City Mayor Andres Manuel Lopez Obrador to ease political tensions that spiked when Congress impeached the mayor for an alleged irregularity.

May 8: Two leading opposition figures in Venezuela — Claudio Fermin, former mayor of Caracas, and Carlos Melo, a political activist — say they will form a new party known as the Popular Assembly to unite against President Hugo Chavez and to “rescue political discourse.”

May 8: Preliminary returns in Uruguay’s municipal elections indicate that candidates for the ruling United Left coalition have won 60 percent and 63 percent respectively in Montevideo and Canelones, the country’s most populous provinces.


J U N E 2 0 0 5

May 8: Venezuelan President Hugo Chavez says foreign oil companies will be audited and that retroactive income taxes dating back as far as the mid-1990s will be levied. Any oil company refusing to pay past-due taxes will be expelled from Venezuela.

May 8: Colombian Sen. Jimmy Chamorro, a member of the Senate Foreign Relations Commission, says Venezuela plans to buy 300,000 AK assault rifles from Russia — not 100,000 rifles, as Venezuelan officials claim.

May 9: Argentine President Nestor Kirchner discusses trade tensions with Brazilian President Luiz Inacio “Lula” da Silva. Brazilian Foreign Minister Celso Amorim says Brasilia will reject proposals for bilateral safeguard mechanisms meant to protect Argentine industry from being flooded by Brazilian exports.

May 9: The Emir of Qatar cancels a visit to Venezuela; no explanation is given to the public.

May 9: In Brasilia, Venezuelan President Hugo Chavez says the governments of Argentina and Brazil have agreed with Venezuela to create a regional petroleum company to be called PetroSur.

May 10: Argentina offers a bilateral trade-reform proposal to Brazil that would “balance” trade within Mercosur. Brasilia will not consider requests for a bilateral system of safeguards to protect Argentine producers from Brazilian exporters, which one official said would be “the death of Mercosur.”

May 10-11: The first summit of the leaders of the Arab League and the recently created South American Community of Nations is held in Brazil, ending in the signing of the Declaration of Brasilia that criticizes U.S. sanctions against Syria and condemns terrorism. It also asserts the right of people “to resist foreign occupation in accordance with the principles of international legality and in compliance with international humanitarian law.” It calls for greater economic and political cooperation and for Israel to withdraw to pre-1967 borders.

May 12: Europe’s fifth-largest oil company, Repsol YPF SA of Spain, is willing to “heavily” invest in Venezuela to help develop new reserves and expand the nation’s oil production, says Chief Financial Officer Luis Manas.


J U N E 2 0 0 5

May 12: In Bolivia, Congress rejects a proposal by President Carlos Mesa to hold a national unity meeting to discuss the country’s controversial Hydrocarbons Law. The law is approved by Congress and sent to Mesa, who wants to negotiate for a law more accommodating to foreign investors.

May 13: A car bomb explodes in Santa Cruz, Bolivia, outside the local headquarters of Brazilian oil company Petroleo Brasileiro SA. No one is injured. A group calling itself the Patriotic Bloc claims credit and warns of more attacks unless Bolivia nationalizes the oil and gas industry.

May 13: Authorities seize 13.9 tons of cocaine — estimated to be worth $350 million — on the banks of the River Mira near Tumaco, in southern Colombia. Calling it the biggest single cocaine bust in history, police claim the drugs belonged to an alliance of drug traffickers from Cali and Medellin, the Revolutionary Armed Forces of Colombia and the paramilitary United Self-Defense Forces of Colombia.

May 16: The Bolivian Workers Central announces a nationwide strike following President Carlos Mesa’s refusal to sign the controversial new Hydrocarbons Law. Police in La Paz use tear gas and water cannons to disperse hundreds of peasants and workers, who are seeking nationalization of the oil and gas industry, as they attempt to storm Congress.

May 17-19: A delegation from the Mercosur South American trading bloc meets leading Russian officials, including Prime Minister Mikhail Fradkov, in Moscow. The talks, the first between Mercosur and Russia, mark an effort to promote political, trade and investment ties — with a specific focus on Russian cooperation in high technology, energy, and transport programs in South America.

May 17: Brazilian oil company Petroleo Brasileiro SA (Petrobras) plans to study the situation in Venezuela before deciding its future in the country, Petrobras’ Finance Chief Sergio Gabrielli says.

May 17: Department of Homeland Security officials in Miami detain Cuban-Venezuelan militant Luis Posada Carriles. Venezuela’s government demands Posada Carriles’ extradition from the United States in connection with the bombing of a Cubana airliner in 1976.

May 17: Venezuelan Defense Minister General Jorge Garcia Carneiro signs a contract to buy 100,000 AK-103 assault rifles from Russia. The contract


J U N E 2 0 0 5

also includes a technology transfer to help Venezuela’s military industries make the weapon under license, making Venezuela the first country besides Russia to manufacture the weapon.

May 17: Reports emerge that the Revolutionary Armed Forces of Colombia has developed 10 new supply-smuggling “corridors” linking the departments of Narino and Putumayo in southwestern Colombia with the northern Ecuadorian provinces of Carchi, Esmeraldas, Orellana and Sucumbios. Corrupt Ecuadorian military personnel reportedly aided the development of the corridors.

May 17: About 12,000 members of the Brazilian Landless Peasants Movement march to the U.S. Embassy in Brasilia and pelt the entrance with garbage to protest U.S. intervention in Cuba, Haiti, Iraq and Venezuela.

May 17: The Bolivian Hydrocarbons Chamber, a group representing the foreign oil companies operating in Bolivia, call the country’s new Hydrocarbons Law enacted by Congress a “confiscatory” statute that will “affect negatively future investments” in Bolivia.

May 18: Brazil will accept a permanent seat on the U.N. Security Council without any veto voting rights, Foreign Minister Celso Amorim says.

May 18: In Brazil, the central bank raises the reference-lending rate to 19.75 percent from 19.50 percent in the ninth increase in nine months. The bank’s next announcement on interest rates will come June 15.

May 19: At least 95 Chilean soldiers are reported missing after their battalion of 433 people encounters a heavy snowstorm while descending the Andes Mountains after participating in a high-altitude training exercise near the Antuco volcano.

May 19: The International Monetary Fund approves Argentina’s request for a one-year extension on a $2.5 billion loan-repayment deadline. The payment now is due in 2007.

May 19: Argentina must invest $33 billion in energy-capacity expansions between 2005 and 2020 to achieve 5 percent annual market growth. To maintain its 23-year-long annual growth rate of 1.2 percent, Argentina must invest $17.4 billion over the next 15 years.


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May 20: Bolivian armed forces commander Adm. Luis Aranda says the military will not allow congressional confrontations over the issue of regional autonomy to deteriorate into clashes that could endanger Bolivia’s unity. Separately, Victor Mena, a leader of the country’s unionized miners, warns that if departments such as Santa Cruz and Tarija seek to break away from the central government and adopt autonomous administrations, miners will “mobilize” against the lowland departments.

May 20: Argentine energy analysts say Bolivia’s new Hydrocarbons Law will aggravate energy shortages in Argentina if foreign companies in Bolivia suspend investment plans to expand natural gas production capacity. They also say the law will derail construction of the Northeast Gas Pipeline, which would supply Argentina with 20 million cubic meters per day of natural gas.

May 20: China State Construction Engineering plans to invest up to $1.5 billion in Peru to build highways, seaports and airports that would be operated under private concession contracts

May 20: Two EU parliamentarians planning to attend a meeting with Cuban dissidents are expelled from Cuba. The governments of Germany, Italy, Poland and the Czech Republic join the European Union in repudiating the Cuban government’s action. Cuba also expels six Polish nationals and detains an Italian journalist.

May 20: Antonio Brufau, president of Spanish oil firm Repsol YPF SA, says Argentina will become a net importer of energy in 10 to 15 years if the Argentine people do not learn to consume energy more efficiently and invest in critically needed capacity expansions.

May 20: In Paraguay, Justice and Labor Minister Juan Dario Mongez resigns, one day after President Nicanor Duarte accepts the resignation of Finance Minister Dionisio Borda. Duarte also accepts the resignation of Paraguay’s central bank president and says Foreign Minister Leila Rachid will resign in August for “personal reasons.”

May 22: President Hugo Chavez says Venezuela will launch a nuclear development program “for peaceful purposes, not to make bombs,” with the participation of other Latin American countries, Europe and Iran. He also says Argentina plans to restart its nuclear development program and that Mexico seeks to launch one of its own.


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May 22: Venezuelan President Hugo Chavez says his government will suspend diplomatic relations with the United States if the Bush administration does not extradite Luis Posada Carriles to Caracas. Chavez claims to have “proof” that Posada Carriles participated in actions to destabilize his government in April 2002, when he was toppled from power for about 48 hours.

May 22: Foreign oil companies owe the Venezuelan government $4 billion in unpaid royalties and taxes dating back to 2000, Energy and Mines Minister Rafael Ramirez says.

May 22: News emerges that the government of Britain is concerned that Argentina might attempt to launch a surprise invasion of the Falkland Islands and increases the British military presence in the South Atlantic Islands to 5,000 troops.

May 23: Colombia will purchase weapons from China to strengthen its offensive capabilities against militant and paramilitary groups, President Alvaro Uribe Velez says. This would be the first time Colombia has acquired weapons from China.

May 23: Mexico reportedly is short 1.2 billion cubic feet per day in supplies of natural gas and needs to spend about $25 billion a year over the coming decade to achieve self-sufficiency in natural gas production. Because Mexico now invests only $6.5 billion annually, according to Energy Department officials, a natural gas supply crunch could come as soon as 2007.

May 23: International airports, seaports and border crossings in Nicaragua are placed on alert after warnings are received that two suspected al Qaeda members could be traveling in Central America. The suspects are identified as Ahmad Salim Sawydan, a Kenyan national, and a Yemeni known as Altuwiti.

May 23: Brazil’s government says it will not cooperate with any Venezuelan nuclear development program involving Iran. Government officials in Chile, Colombia and Mexico also voice concerns about the possibility of a Venezuelan nuclear development program involving Iran, but some Argentine government officials react favorably to the idea of nuclear cooperation agreements with Venezuela.


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May 24-26: The Brazilian and Colombian air forces engage in a joint training exercise meant to refine bilateral protocols for identifying and interdicting private aircraft suspected of transporting drugs and weapons over the Amazon region.

May 24: In Bolivia, Interior Minister Saul Lara says some political actors are seeking “contact” with the armed forces and national police in efforts to destabilize the nation. Separately, Argentine daily newspaper Clarin reports that the Bolivian Workers Central plans to negotiate a consensus with the military to install a nationalist, left-leaning military government in Bolivia.

May 25: Representatives of a self-described “generational military movement” in Bolivia appear on a privately owned Bolivian television station and call for the immediate resignation of President Carlos Mesa, the dissolution of Congress and the nationalization of the oil and gas industry. An army lieutenant colonel identified as Julio Cesar Galindo appears to be the visible head of the clandestine military movement. Army Lt. Col. Julio Herrera reads the statement.

May 25: Bolivia’s top military commanders declare their unified support for President Carlos Mesa and say the Defense Ministry will investigate officers who called for Mesa’s resignation.

May 25: Venezuelan Energy and Petroleum Minister Rafael Ramirez says that Sincor, a strategic venture between Total CFP of France, Statoil of Norway and Petroleos de Venezuela, is the “worst case” of abuse committed by a foreign oil company in Venezuela in terms of not paying its fair share of royalties and taxes. Ramirez’s words contradict President Hugo Chavez’s decision in March to approve a proposed expansion of Sincor’s capacity over the next five years.

May 26: Fuel shortages are increasing in Bolivia’s capital La Paz and the neighboring industrial city of El Alto, forcing many service stations to ration supplies to drivers. Eyewitness reports also suggest, however, that the protests that have paralyzed La Paz since May 23 are losing momentum with the start of a four-day holiday weekend.

May 26: Four international producers of fixed-wing, turboprop combat aircraft have withdrawn from Colombia’s bidding process for 24 combat aircraft, claiming the bidding process lacks transparency and is biased in favor of Brazilian aircraft maker Embraer.


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May 26: Argentina’s government announces it will extend existing capital controls so investors placing money in the country will have to keep it there for a full year rather than for the existing six-month period. The six-month restriction has been in place since June 2003.

May 27: The United States rejects the Venezuelan government’s request that Cuban-Venezuelan anti-Castro militant Luis Posada Carriles — charged with conspiring to blow up a Cubana de Aviacion aircraft — be kept under arrest in the United States while Venezuela formally seeks his extradition.

May 27: The Bolivian armed forces discharge the two army lieutenant colonels who called May 25 for the resignation of President Carlos Mesa and the installation of a military government.

May 28: Demonstrators in the Venezuelan capital of Caracas demand that the United States extradite Luis Posada Carriles to stand trial for the 1976 bombing of a Cuban airliner.

May 30: Senior officials and businessmen from Russia and Venezuela meet in Caracas to explore potential economic cooperation and joint investment.

May 30: Venezuela’s information minister dismisses reports that President Hugo Chavez is ill after Chavez cancels weekend radio and television appearances. A source in the Miraflores presidential palace says, however, that Chavez has suffered a manic depressive episode. Chavez appears on Venezuelan television late in the day with assurances that he is well, though his demeanor is unusually subdued.

May 31: Relations between Chile and Argentina are excellent but the countries will form an ad-hoc committee to discuss cutting promised Argentine deliveries of natural gas by 50 percent to resolve an energy dispute between the two, says Chilean Foreign Minister Ignacio Walker.

May 31: Bolivian President Carlos Mesa says a “conspiracy” is under way to prevent Congress from meeting to discuss ways of easing the country’s political crisis. Protests against Mesa’s government continue in La Paz with thousands of indigenous peasants, miners and workers seeking to block access to Murillo Plaza, where Congress and the presidential buildings are located.


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May 31: China plans to invest $550 million in a Chilean copper mining venture, China Minmetals Corp. and Chile’s Codelco announce.

J u n e a n d B e y o n d

June 5-7: The General Assembly of the Organization of American States meets in Fort Lauderdale, Fla. U.S. President George W. Bush will address the assembly June 6.

C h a n g e s

Organization of American StatesOAS President Jose Miguel Insulza is a veteran socialist politician in Chile who has held numerous public posts, including foreign minister, before he was appointed to head the Interior Ministry by President Ricardo Lagos. He is well regarded regionally as a person who can bring balance to an OAS that was rocked by scandal in 2004 and more recently has been the scene of the escalating political confrontation between Venezuelan President Hugo Chavez and the administration of U.S. President George W. Bush.

ChileNew Interior Minister Francisco Vidal is a veteran political operative close to President Ricardo Lagos. Before his appointment, Vidal was minister of the Government Secretariat, where he worked closely with Lagos and served as the government’s top official spokesman.

Minister of the Government Secretariat Oswaldo Puccio, who replaced Vidal, is a veteran diplomat who was serving as Chile’s Ambassador to Brazil.

ParaguayPresident Nicanor Duarte partially restructured his Cabinet in May as part of his preparations to compete for the post of leader of the ruling Colorado Party in internal party primary elections scheduled for 2006. Duarte’s strategy is to lock in control of the party and then seek re-election as president of Paraguay in 2008.

Ernesto Bergen is appointed finance minister after Duarte fires Dionisio Borda, a political independent who was considered immune to presidential


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pressures. Duarte fired Borda to clear the way for a public spending increase to help him win the presidency of the Colorado Party. Bergen, previously Industry and Commerce minister, is viewed as generally supportive of in-creased public spending to stimulate economic growth and consumption.

New Industry and Commerce Minister Raul Vera is an economist who reportedly believes in government-supported industrial development policies. Vera likely will work cooperatively with Bergen to increase public spending to boost economic activity and job creation.

Newly named Central Bank President Monica Perez is a former official with the International Monetary Fund. Her first official action is to demand explanations from the Finance Ministry about $425 million in missing funds that were loaned to Paraguay in 1999 by the government of Taiwan. Perez is loyal to Duarte, and her apparent purpose in raising questions about the missing Taiwanese funds is to neutralize Borda politically before he can start challenging Duarte’s plans to boost public spending, which likely will increase inflationary pressures, the fiscal deficit and government indebtedness over the next three years.

New Justice and Labor Minister Ruben Candia replaced Juan Dario Monges, who returned to the chamber of deputies. Candia, an attorney, is a veteran Colorado Party activist and labor rights lawyer. His appointment is likely meant to ensure that potential labor strikes by public workers are kept to a minimum.

BoliviaNational Congress President Hormando Vaca Diez signed Bolivia’s Hydrocarbons Law on May 17 after President Carlos Mesa refused to sign it, but also declined to veto it officially. The new law establishes a royalty of 18 percent on oil and natural gas production and an income tax rate of 32 percent on private oil companies. The law also re-establishes state-owned Bolivian oil company Yacimientos Petroleros Fiscales de Bolivia, although no funds have been set aside for recapitalizing the company.


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