Brazzil Foreign Policy June 2003

The fact that the IMF has gone out of its way to help Brazil, while treating Argentina harshly, reflects the difference in the regional and international importance of the two countries. Argentineans did not like this treatment but Brazil has become the de facto Latin America's main power.

John Fitzpatrick

Having new neighbors can make you a bit apprehensive. What if they have unsocial habits and make a lot of noise, have dogs that howl all night long, or don't paint the fences and let the neighborhood go to ruin? At the same time, would it not be great if they were an improvement on the previous neighbors who were always causing you problems?

This is the position Brazil finds itself in with Argentina, which has a new president, Nestor Kirchner. Since other neighbors like Venezuela, Colombia, Peru and Paraguay are bothersome, to say the least, Brazil must be hoping—but is certainly not betting on it—that the new tenant in the Casa Rosada presidential palace in Buenos Aires will bring some calm to the street at last.

While Brazil was damaged by the meltdown of the Argentinean economy just over two years ago, many Brazilians were secretly pleased to see their southern neighbor, which they regard as arrogant and insensitive, humbled*. The economic collapse led to the fall of the government in December of 2001, the deaths of around 30 people in rioting, and a default on Argentina's debt**.

Brazil paid a high price for the end of the decade-long system, which linked the Argentinean peso to the U.S. dollar. There was a spillover effect, as nervous foreign investors tarred other emerging economies with the Argentinean brush. It led to a rise in the Brazil country risk, making it more expensive for Brazilian companies to raise funds abroad, and a fall in the value of the Brazilian currency, the real. It almost virtually ended Brazilian exports to Argentina, one of its main trading partners, and the only other heavyweight in the Mercosul free trade body.

Will Kirchner Join Lula and Dance to IMF Tune?

Things have changed enormously over the last year in both countries. Here in Brazil we have a new president, Luiz Inácio Lula da Silva, from the left-wing Workers' Party (PT). Not only has Lula thrown out his old left-wing ideological baggage and started dancing to the IMF tune, but he has also raised Brazil's regional and international profile. This could lead to tension with Argentina.

In his election campaign, Kirchner promised that new economic growth, job creation and better social services would come from government spending. He was also reported to have said he would refuse to repay foreign creditors if this meant denying help to the poor***. This, of course, would put him in conflict with the IMF, which has been playing hardball with Argentina and demanding reforms, including a budget surplus of 5 percent of GDP.

Brazil will be praying for Kirchner to forget his electoral rhetoric, cooperate with the IMF and avoid a return to the bad old days. Lula's government has shown itself to be serious in tackling Brazil's financial problems, and is trying to reform the costly state pension scheme and inefficient tax system. Lula wants Congress to pass these reforms this year, and faces a tough battle. Should Argentina's crisis deepen, this could once again spread to Brazil and delay these crucial reforms.

However, Argentina needs more than Brazil's prayers and advice. It needs the kind of financial assistance Brazil has received from the IMF and other international bodies over the last few years. The IMF has admitted that, perhaps, it has been a bit tougher than it needed to be with Argentina. But, at the same time, the IMF will not bail out a new untried regime without concrete evidence that it is not wasting its time. Kirchner must reach a deal with the IMF by September, when Argentina is due to repay a loan of almost US$3 billion.

Sham Victory in Presidential Election

Kirchner is of Swiss descent, but even this will not help him with the IMF money men in Washington or the gnomes in Zurich. The fear is that he will be too weak to govern. His victory in the recent election was a sham, since he gained office when his main opponent, former president Carlos Menem, stood down before the run-off. Since the three main candidates were Peronists, the people were voting for individuals rather than policies.

Menem knew he had no chance of winning and, by his irresponsible act, deprived Kirchner of any legitimacy, since he only gained 22 percent of the votes cast in the first round of balloting. Kirchner's "victory" was also partly due to the support he got from the outgoing president, Eduardo Duhalde, a power broker in Buenos Aires province.

Duhalde, also a Peronist, was one of a series of stand-in presidents after Fernando de la Rua resigned in December 2001. To give him his due, Duhalde showed more tenacity than his predecessors, and in recent months the Argentinean economy has started showing some small signs of an upturn. However, some observers believe that Kirchner is now in Duhalde's pocket.

Kirchner's previous experience was as governor of a small province in Patagonia with a population of around 200,000. Whether he can turn Argentina around is extremely doubtful. He got off to a bad start by warning the armed forces to keep out of politics and reshuffling the high command. Since the Argentinean army has been quiet over the last decade, this was a pretty inept thing to do. It led to criticism from within the military.

At the same time, Kirchner was criticized by the head of the Central Bank, Alfonso Prat-Gay, who accused him of talking "nonsense" by calling for a weaker peso to help exporters. "I would recommend the recently elected president not put his credibility on the line for something that is not predictable," the Central Bank chief said in a public rebuke. So far the Central Bank boss has kept his job, but who knows for how long.

Brazil in the Spotlight

The fact that the IMF has gone out of its way to help Brazil, while treating Argentina harshly, reflects the difference in the regional and international importance of the two countries. A collapse of the Brazilian economy would have had a more contagious global effect than that which resulted from the Argentinean debacle. Argentineans did not like this treatment but it reflected reality.

Brazil is currently in the spotlight and Lula's approach is being studied, not just in Latin America but elsewhere in the world. Lula and the PT may have got rid of their old beliefs virtually overnight but, at least, Lula has credibility. He resisted the military dictatorship, mobilized the industrialized trade unions, created the PT and fought hard to get where he is today, personally and politically. He has learned to change unlike, say, Fidel Castro in Cuba, whose regime is out of touch with today's world order or, more pertinently, political leaders in Argentina where Peronism still casts a long shadow.

The fact that Lula has been appointed the unofficial spokesman of the developing world at the G-8 summit is proof of this rising stature. Other Latin American leaders have acknowledged that Brazil is the continent's main power, and have indicated that they will expect Lula to represent their interests in talks with the U.S. on forming the FTAA—the proposed Free Trade Area of the Americas. Even Argentina has grudgingly accepted this.

However, old habits die hard and it was interesting to note that, during a visit to Brasília this week, the new Argentinean foreign minister did not endorse one of Brazil's aims—a permanent seat on the U.N. Security Council. This is not a particularly important matter at the moment, but it shows that differences remain between the two neighbors and rivals.       

John Fitzpatrick is a Scottish journalist who first visited Brazil in 1987 and has lived in São Paulo since 1995. He writes on politics and finance and runs his own company, Celtic Comunicações—  www.celt.com.br, which specializes in editorial and translation services for Brazilian and foreign clients. You can reach him at jf@celt.com.br   

© John Fitzpatrick 2003

This article appeared originally in Infobrazil, at www.infobrazil.com

Monica Perin <a href=austin.bizjournals.com>Houston Business Journal

The terrorist bombings in Saudi Arabia and Morocco that killed 70 people in the past two weeks have upped the ante for U.S. companies that operate in high-risk countries.

And federal officials warn that more such attacks against U.S. interests are highly likely in the near future, which prompted the Bush administration to raise the color-coded threat level to orange, or "high," earlier this week.

Security specialists in the private sector are advising clients who operate in such places to upgrade their emergency preparedness plans.

"They need to assess their physical security and counter-terrorism mechanisms and beef them up," says Jim Francis of Kroll International, a global security firm based in New York.

But oil industry and security experts in Houston doubt that even these latest events will cause major changes in business operations in the oil patch.

"Companies will incur security premiums, but these concerns have been baked in the cake since 9/11," says Greg Barnes, managing partner in the Houston office of Korn Ferry International executive recruiting firm.

"Definitely it's going to get harder to recruit" people to take assignments in places like Saudi Arabia, says Ralph Stevens of Houston-based Preng & Associates, a global energy search firm.

"I would guess that taking family there will be less likely than before, and that only essential personnel will be there," says Stevens.

John Griffin, who heads the Houston-based upstream and oilfields services practice of Korn Ferry, predicts three things will happen:

• Companies will expand their expatriate base to other groups of less targeted people, such as Asians or other foreign nationals, and decrease recruiting of Westerners.
• People who are close to their goals of making a certain amount of money, retiring and getting another job will stay in Saudi Arabia but send their families home.
• Companies will pay more and heighten security to get people to stay there or go there.

"At the end of the day, it will be a matter of money, whether in direct salaries or increased security," Griffin says.

Premium pay

Oil companies have traditionally paid premiums to employees working in difficult or inconvenient places. Executives who have been paid $200,000 to $350,000 a year might now get additional premiums of as much as 75 percent to work there.

But a proposed change in tax laws could offset increases in compensation.

David Preng, president of Preng & Associates, says many expatriates are concerned about a Bush administration proposal to remove the current tax exemption on the first $80,000 earned abroad.

"This, coupled with security concerns, may cause some people to re-evaluate their current posting or alter their current thinking about accepting an overseas posting," Preng says.

His colleague Stevens expresses doubts that companies will try to "throw money" at the problem.

"All the money in the world can't buy your life, "Stevens says. "People will either be willing to do it, or not willing -- premiums aside."

In the past, he says, security wasn't an overriding issue for his clients who did business in Saudi Arabia, although the perceived risk level would vary by company from mid-level to high.

Now, he says, "it'll jump all the way to the top."

Although oil industry companies are tight-lipped about what measures they are taking as a result of the Saudi bombings, Stevens says he knows some people have been taken out and sent to England.

Locally, Baker Hughes Inc., Schlumberger and Shell Oil Co. declined to comment. Exxon Mobil, BP and ChevronTexaco also have remained mum in response to media queries.

A U.S. spokesman for the American Business Council of the Gulf Countries told the Associated Press that he has not heard of any foreign companies planning to "pull the plug" on operations in that region.

And a Philadelphia-based firm that manages travel for companies told AP there has been a spike in departures from Saudi Arabia by family members of Western executives, but not a lot of employees have left.

The U.S. Bureau of Consular Affairs estimates that about 150,000 Americans live in the Middle East.

Other hot spots

In recent months Shell and ChevronTexaco have evacuated employees from Nigeria, while other companies have followed suit in Venezuela and Indonesia because of local uprisings. Companies such as Schlumberger evacuated employees from Kuwait before the start of the Iraq war, but they have since returned.

Houston security expert Kevin Swailes, president of Swailes & Associates, points out that kidnappings and terrorist attacks have been going on for years in counties such as Colombia, Nigeria, the Ivory Coast and elsewhere.

"Companies that operate in these environments understand the risks and they are very proactive," Swailes says. "They have to be out in front of it."

Companies active in Saudi Arabia will be "reassessing what they have in place, the nature of their business operations in-country, and whether they still feel comfortable with those protocols after the recent acts," he says.

In the long run, he says, organizations that are better-equipped for handling the risk will stay put.

"You won't see a huge shift," Swailes says.

<a href=>Venezuela's Electronic News Posted: Monday, June 02, 2003 By: David Coleman

Venezuela's Environment & Natural Resources (MARNR) Minister Ana Elisa Osorio says that regulations contained in a decree pertaining to the Imataca Rainforest Reserve will not affect the massive Las Cristinas gold mining development in southeastern Bolivar State. "The area was already designated as a mining zone and even though it may be submitted to public consultation, the status of the development of Las Cristinas as a gold mining resource is such that it already counts on all necessary regulatory permits and authorizations."

"There will continue to be sectors of the Imataca which will be given over to gold mining just as much as there will be sectors allowing for forestry development and others covered by an integrated protection policy where there will be no exploitation whatsoever."

As it stands at the moment, the Imataca hosts some 94 mining concessions and 257 mining contracts, which latter are expected to be reactivated in the next few months. ... they cover some 26% of the total Imataca reserve and contain gold reserves conservatively estimated at between 10,000 and 14,000 metric tonnes which will generate some 20,000 direct jobs over the next 30+ years of sustainable extraction.

Last year, Venezuela's Mining Chamber (CAMIVEN) has asked the National Executive to intervene to clarify a myriad of controversies surrounding the commercial and industrial use of lands within the Imataca reserve since it contains valuable gold and other mineral reserves which will otherwise remain unused.   Camiven president Gilberto Sanchez Albornoz had highlighted the fact that serious delays in authorizing mining and environmental permits in the reserve had resulted in a flora of informal and illegal mining operations which pose a serious threat on the sensitive ecological balance throughout the 3.2 million hectares extent of the Imataca from the borders of Bolivar State with Delta Amacuro down to Roca Verdes in southern Venezuela on its borders with Brazil.

While details of the MARNR-sponsored consultations are still to be announced, they will be held later this month in two phases including inter-institutional consultations involving universities, heavy industries and mining companies as well as government agencies; and an open public forum to inform local businesses and traders about the general effect the Imataca decree will have on the economy of the Guayana region.

MARN Minister Osorio says that while the consultations will pave the way for interested parties to introduce minor modifications and commentaries, the general concept has already been established and will be presented in its final form to the Council of Ministers for approval during Q3 2003.

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Monday, June 02, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita

VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: The Venezuelan public's purchasing power is less every day in the new circumstances of the Venezuelan economy, burdened with restrictive measures that, far from contributing to stability, perpetuate distortions that express themselves in the form of more unemployed workers and lower real salaries for those who still have jobs with every passing month.

The Consumer Price Index for the Caracas Metropolitan Area (CPI-CMA) rose 2.3% in May. Its cumulative variation in the first five months of the year reached 13.8%, higher than the 10.54% cumulative inflation rate recorded in the January-May 2002 period. Prices rose both for controlled goods and services and for those not under control. The CPI's Food and Non-Alcoholic Beverages category underwent a 6.6% acceleration and there was a 7.7% general variation, reflecting previous warnings by CENDA that the standard food basket would cost substantially more in May.

This inflationary surge was provoked by the near-total restriction of the foreign exchange market, which has prevented a free flow of goods between Venezuela and the outside world and resulted in a limited supply of goods; hence, prices have risen. Another contributing factor is the continuation of inflationary expectations stemming from fiscal considerations, in view of the low volume of tax collections and the stronger pressure posed by expanding liquidity for placement of public bonds.

The annualized inflation rate (May 2003/May 2002) came to 35%, a great deal higher than the 18.32% rate for the May 2002/May 2001 period. All signs indicate that inflation will be considerably higher this year, especially in view of the inflationary impact of a possible relaxation of the exchange controls and a deregulation of prices. Some analysts are projecting an inflation rate above 50% for the year.

<a href=www.vheadline.com>Venezuela's Electronic news Posted: Monday, June 02, 2003 By: Patrick J. O'Donoghue

The South American Vaccination Week kicked off on Sunday and Venezuela aims at vaccinating more than a million and a half children against measles and other viral diseases. 

President Hugo Chavez Frias says the campaign will last till June 8 and costs 7 billion bolivares. Anti-measles shots will be administered to a quarter of a million children between 6-11 months,  500,000 1-year olds,  212,000 2-4 yr. olds, 480,000 from 5-29 years, as well as 28, 500 between 5-14 years living in border areas. 

Vaccinations to counter polio, and hepatitis B and the famous triple will be applied . The President claims that when he took office infant mortality stood at 25 of 1,000 and now it is 17 of every 1,000 ... "it's still too high." 

Metropolitan Mayor Alfredo Peña visited J.M de Los Rios Children's hospital to review the start of the campaign and took the opportunity to complain that the municipal health budget has been reduced 50%. 

• Peña reveals that 60% of patients in Caracas hospitals are from the provinces causing overcrowding and lack of medical supplies.

Referring to 900 million bolivares that the government approved to treat children with heart condition, Pena admits he doesn't know where it is and angrily reports that the donation of hospital equipment from Spain has been diverted to the Finance Ministry for one reason or another.