Adamant: Hardest metal

Hispanic mothers find comfort as children return from war

<a href=www.sun-sentinel.com>By Sandra Hernandez, Sun Sentinel Staff Writer Posted June 3 2003

Hollywood · Aleyda Rojas has spent much of the past five months fighting back tears. But on Monday, she didn't shy away from weeping openly as she embraced her son as he returned from the frontlines of Iraq.

"My dear, today you are reborn in my eyes," she said as mother and son were reunited at Fort Lauderdale-Hollywood International Airport. "I'm just so happy."

Scenes like these are increasingly repeated across the United States as soldiers return home to their families, and for them, for Rojas and a small group of South Florida Hispanic women, it marks the end of a painful, uncertain period.

In March, Rojas joined an informal support group for South Broward Latinas with family serving in the war. The women say it has helped them endure some of the toughest days of their lives.

"I don't know what I would have done without them," said Rojas, whose son Josué Samudio, 18, joined the Marines only two days after graduating from high school in the hopes of earning money for college. In January he was deployed to the Persian Gulf. He fought in Baghdad and was posted to guard Iraqi military officials.

Rojas credits the group with helping her cope with the isolation and worry that the dangers of war could find her son.

"I spoke with one of the women who told me she had gone through something similar, and I felt like I wasn't crazy," Rojas said.

Even so, four months under constant stress landed her in the hospital, where doctors discovered a heart condition in April. "Some nights I would come home from work, and I was so afraid that someone would be waiting to tell me something had happened to my son. My husband tells me I would often talk in my sleep and cry out, asking, `Where is Josué?'" she said.

Once she left the hospital, she continued to call the other mothers in the group to share the anxiety she felt for her son, so far from home. But mostly she turned to them to help understand the toll it was taking on her family here, including her husband and daughter, 6.

"It's hard to explain to someone that you are being hard on your husband or don't have patience with your little daughter because of the fear and stress."

One of the women she formed a bond with is Sol Rivero, whose daughter and son-in-law were both deployed to Iraq.

Rivero, who moved to Miami Lakes from Venezuela almost a decade ago, said she was heartened when Rojas called 10 days ago to tell her the news of her son's homecoming.

"I guess it reminds me my daughter is coming home soon, and it keeps me going," said Rivero, whose daughter Jinais Paiz, is scheduled to return at the end of June.

But for Rojas and the other women, the joy remains tinged with bittersweet thought of the soldiers who remain behind, like Grace Castro's son Jonah, who is expected to return in July.

"I am happy that my son is home, but I know there are mothers out there whose child is still there or have lost a son and I can't stop thinking about those families," Rojas said.

More than 105,000 Hispanics are serving in the military. They make up more than 9 percent of the enlisted men and women, according to the Department of Defense. Latinos account for 8 percent of the 1.2 million members of the ready reservists. More than 240,000 of all enlisted soldiers were deployed to the Middle East.

Sandra Hernandez can be reached at shernandez@sun-sentinel.com or 954-385-7923.

Research Memo: Rio Group Makes a Big Statement

Tuesday, 3 June 2003, 5:08 pm Press Release: Council on Hemispheric Affairs

www.coha.org Council on Hemispheric Affairs Monitoring Political, Economic and Diplomatic Issues Affecting the Western Hemisphere Memorandum to the Press 03.27 30 May 2003

COHA Research Memorandum: Rio Group Makes a Big Statement- But Will it be Heard in Washington?

  • Rio Summit meeting in Peru fails to salvage Peruvian president's popularity, but succeeds in establishing a "Latin American agenda," which distances member nations from U.S. policy, and sends a message of renewed solidarity among the 19-member group. Partnership between the Rio Group's two largest members, Mexico and Brazil, is destined to be an increasingly important factor in the inter-American relationship.
  • The Group expresses its unconditional support for the United Nations, and encourages a reinvigoration and reform of that body. Heads of state in attendance achieve a consensus in requesting an increased UN role in Colombian conflict, as opposed to the U.S.-funded Plan Colombia, which is being exclusively directed from Washington.
  • The so-called Cusco Consensus agrees on a regional approach to security, democratic governance, and alleviating poverty, and thereby broadly challenges the U.S.-promoted Washington Consensus that has dominated U.S.-Latin American relations, as well as having largely defined for several decades Latin America's relationship with the International Monetary Fund and World Bank.
  • Recent developments in Latin American electoral politics have combined with the recent conflict at the UN - and the White House's continued benign or malign neglect toward the rest of the hemisphere - to place U.S.-Latin American relations at a crossroads. The diplomacy of the next year could decide, among other things, the direction and even fate of the Free Trade Area of the Americas.

In Cusco, in the highlands of southeastern Peru, an increasingly unpopular Peruvian president, Alejandro Toledo, played host May 23-24 to the seventeenth summit of the 19-member Rio Group. Founded in 1986, the Group has become the preeminent all-Latin American forum on hemispheric issues, and an institution that may have been significantly strengthened by its most recent gathering.

The dignitaries attending the Cusco summit were brusquely greeted by rowdy protests led by Peru's Union of Education Workers. Helmeted police officers held off hoards of protestors attempting to march on the city's impressive colonial-era Plaza de Armas. Police intermittently volleyed tear gas into the crowd, which had gathered in the former capital of the Inca Empire, Peru's foremost tourist attraction. The protests were a reminder that the issues before the summit are very real, as governments throughout the region are being forced to deal with acute problems of lapses in the rule of law, deepening social stratification and troubled economies, leading to dramatically lower standards of living.

Consensus of Independence?

The teachers and protestors were certainly not the only ones demonstrating against paternalistic indifference. A theme of the meetings was the need for a "Latin American agenda" of cooperation that could counter overweening U.S. influence over the region.

Predictably, it was Venezuelan President Hugo Chávez who spoke out most forcefully against inviting any sort of unilaterally propelled outside military intervention in Latin American conflicts. He found his sentiments later incorporated in the newly named Cusco Consensus, which the assembled body proudly distributed at the close of the meeting. The Consensus pointedly promised its support to the United Nations and suggested that the Charter be strengthened to ensure the further vibrance of the organization.

In bringing in what could be dramatically new ideas regarding the ongoing civil war in Colombia, however, the Rio Group leaders may have made their strongest statement. As an alternative to ritualistically announcing their support for the U.S.-funded Plan Colombia, the Consensus notably asks that the United Nations - and not the United States - take a more prominent role in resolving the Colombian civil war.

Brazilian President Luiz Inácio Lula da Silva extended the snub of U.S. influence when he expressed his warm regard for absent Cuba - in the wake of Washington's recently stepped-up efforts to isolate Havana in response to its crackdown on dissidents. He expressed a desire to see Cuba - who has never taken part in the Rio Group's meetings since the organization's founding in 1986 - attend the next meeting, "at least as a special guest."

New Dogs, New Tricks

Among the heads of state present, this particular summit certainly had a more independent tone than recent meetings of the Rio Group. In the month prior to the meeting, the presidents of Costa Rica, Peru, and Brazil (the troika which is taking its turn as chair of the Rio Group) had shared a warm meeting in Moscow with Russian President Vladimir Putin, who promised that the visit would usher in a new era of political and economic partnership between Russia and Latin America.

The assembled body in Cusco was no doubt emboldened in its solidarity by the previous year's electoral results throughout the region, which saw the election of several populist candidates and the expansion of opposition to neo-liberal economic reforms by new political movements.

The Rio Group meeting was set against the backdrop of Washington's continued neglect of the Western Hemisphere over the past year, and, more generally, the refocusing of the Bush administration on its war on terror. In this context, the past year witnessed the continued chilling of U.S-Mexico and U.S.-Chile relations as a result of the Iraq war, as well as the revival and reinvigoration of the Chávez administration in Venezuela after an effort to economically asphyxiate his administration by the middle-class opposition narrowly failed, and the election as president of former Brazilian trade union leader Lula.

New Friends

Lula and Mexican President Vicente Fox - presidents of the Rio Group's two largest member nations - met before the formal meetings commenced and apparently found considerable common ground: both have had long careers as opposition party leaders in their countries, and they seem to have found a natural rapport with each other. Both acknowledged that the two countries, which share the largest volume of trade between any two countries in the Group, should further intensify their relations. Fox, in particular, would like to finalize trade agreements between Mexico and Mercosur (a trade community that consists of Brazil, Argentina, Paraguay, and Uruguay). Both presidents agreed that the United Nations should be reformed, and would like to see that one or both of their delegations be given a permanent seat on the Security Council. The two will together attend the upcoming G8 Summit in Evian, France, when they will request that the creditor countries consider their proposal that they reinvest some of the debt service payments they receive from Latin America back in the region.

Led by the example of Fox and Lula, the heads of state present at the gathering adopted projected regional integration measures among the Rio Group countries - and not necessarily including the United States - as a major theme of the meetings. Much of the final agreement, in fact, can be interpreted as a manifestation of regional solidarity in denouncing the Washington Consensus, which has dominated Latin America and the Caribbean and has been predicated on the supremacy of the White House's operational ties with the International Monetary Fund and the World Bank. While they did seek to create "by consensus a Latin American free trade zone," the Rio Group heads declined to discuss the larger Free Trade Zone of the Americas. If they had, the drift of their economic plans to deal with issues of debt and poverty would not necessarily have been congruent with the designs of the Bush administration: various leaders at the gathering, particularly Lula, railed against the developed world, and the Consensus focused on decreasing poverty throughout the region, emphasizing government expenditure, by utilizing debt relief savings and short-term loans to boost employment.

The Upshot

On Tuesday, the era of good feelings continued, as a number of leaders adjourned to Buenos Aires to meet with newly inaugurated center-left President Néstor Kirchner. These included Toledo, Chávez, Alvaro Uribe of Colombia, Jorge Batlle of Uruguay, Lucio Gutierrez of Ecuador, and Cuba's Fidel Castro - all of whom championed Latin American cooperation, including Kirchner in his inauguration speech. As its representative in Buenos Aires, the White House sent Secretary of Housing and Urban Development Mel Martinez - rather than a higher-ranking official whose presence might have served to deliver a stronger message of support to the new president. The snub, intentional or not, was not lost on the Argentine media or the Latin American leaders present.

Elsewhere, Lula spoke candidly about the summit's conclusions and talked of creating "balanced globalization" that will benefit the global south as well as the north. His country now assumes the presidency of the Group, and Lula appears poised to use his new pulpit to advance the cause of Latin America and the developing world. Due to the anticipated strong leadership he will offer, and given Washington's continued low hemispheric profile, next year's Rio Group summit in Brazil could serve to culminate a year of real change in the region's relations with the United States, particularly if the Colombia situation has come to a head by then. By this time next year, a meeting of Latin American heads of state could serve as a pivotal moment in determining the fate of the Free Trade Area of the Americas. In a broader sense, next year's meeting could very well further the hemisphere's regional movement toward autonomy from U.S. dominance.

This analysis was prepared by Charles Willson, research associate at the Council on Hemispheric Affairs. Issued 30 May 2003

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policy makers." For more information, please see our web page at www.coha.org; or contact our Washington offices by phone (202) 216-9261, fax (202) 223-6035, or email coha@coha.org.

COHA Research Memorandum: Which Way the FTAA?

Tuesday, 3 June 2003, 4:47 pm Press Release: <a href=>Council on Hemispheric Affairs

www.coha.org Council on Hemispheric Affairs Monitoring Political, Economic and Diplomatic Issues Affecting the Western Hemisphere Memorandum to the Press 03.29 2 June 2003

South American Regionalism-- Confronts American Unilateralism

  • Washington could be in for the fight of a lifetime.
  • Brazil could prove to be a master irritant for Washington's FTAA hopes.
  • UN Security Council imbroglio over Iraq is likely to leave a damaging legacy for U.S. trade strategy.
  • The rising strength of Mercosur raises the specter of a viable trading bloc that could provide the basis of an alternative to the FTAA for Latin America.

Though the Bush administration has up to now been able to find grounds to congratulate itself on a series of foreign policy "successes," however controversial some may have been, the creation of a Free Trade Area of the Americas-one of Bush's most treasured initiatives, which he placed at the top of his trade agenda at the beginning of his administration-now appears to be a distant, if not receding, goal. Recent actions by Brazil strongly suggest that a growing and increasingly integrated subregional bloc, of which it is at the center, is willing to do battle with Washington over its concept of hemispheric fair trade. This development has produced at best a slowdown in negotiations and at worst an uncertainty as to whether the concessions necessary for the successful completion of an agreement will be forthcoming at all. Moreover, the present FTAA controversy is only the opening wave of what can be expected to be a series of manifestations of increasing Latin American suspicion of the American international role in the aftermath of the Iraqi crisis. The rest of the hemisphere, which staunchly opposed both the belligerence and unilateralism characterizing U.S. policy towards Iraq, as well as the ruthlessness with which the Bush administration sought to impose its foreign policy views on UN Security Council dissenters, is likely to long nurse its wounds. The ill-will thus generated could very well overshadow hemispheric relations for years to come.

FTAA: A Dream Deferred

Several recent setbacks have highlighted the precariousness of Bush's FTAA negotiating strategy, the most important of which comes at the summit of G8 industrial nations in Evián, France that began on Sunday. There, President Luís Ignacio "Lula" da Silva of Brazil is proposing the creation of two new multilateral funds, one to support programs to eliminate world hunger and the other for needed infrastructure investment in Latin America specifically; Lula has hinted that American support for the latter fund will be a necessary quid pro quo for Brazil's willingness to move forward in FTAA negotiations, which Brasilia and Washington now co-chair. This follows an earlier announcement on Monday, May 26, by Brazilian Deputy Minister for South American Affairs Luiz Macedo Soares that Brazil will shortly be setting out a "new calendar" for the completion of FTAA negotiations-presumably replacing the 2005 deadline for an agreement with a more protracted schedule of talks. Foreign Minister Celso Amorim had indicated previously that Brazil believed it necessary to extend negotiations in light of the apparent deadlock with the U.S. over such issues as intellectual property rights and especially, agricultural subsidies.

For the Bush administration and especially US Trade Representative Robert Zoellick, these latest challenges are yet another frustrating episode in the complicated diplomatic dance with Brasilia. The attitude of Brazilian trade negotiators towards the proposed FTAA was cautious at best even under the previous neoliberal-friendly administration of Ferdinand Cardoso. With Lula's election in October 2002, along with the concomitant changes in Itamaraty, the Brazilian foreign ministry, the attitude of its trade negotiators hardened further in a direction distinctly unfavorable to Washington. Indeed, Lula's choice to be secretary general of Itamaraty, the number two position, was Samuel Pinheiro Guimarães, a former head of the ministry's think tank, who had been fired in the last half of Cardoso's second term for consistently expressing negative opinions about the FTAA. The new head of the trade negotiation unit, able negotiator Clodoaldo Hugueney, is likely to continue the Brazilian style of slow and cautious negotiations that seek a clear vision of what the final agreement would look like before a precipitous decision is made to bind Brazil more tightly to what is seen as a shaky US economy.

The other game in town: Mercosur resurgent?

Brazil's reluctance to accelerate FTAA negotiations is not merely a negative reaction to America's one-sided trade proposals, or a reflection of the increasing anti-American sentiment of the past two years, which was made apparent in the heated discourse displayed in several state and national-level campaigns in last year's Brazilian presidential elections. On the contrary, it is part of a broader Brazilian effort to facilitate greater economic and political integration among South American nations and particularly, Mercosur members, which would allow them to present a united front in negotiations with Washington. This change in policy is a reflection of the views of Lula's new foreign minister Celso Amorim, a key intellectual architect of the concept of South America as an operational geopolitical site.

Under Amorim's tenure, a subtle transformation has come over Brazil's subregional policy, one which sees Itamaraty as being increasingly happy not only to accept the mantle of leadership, but also the costs and obligations of such a position. Recent announcements that funds from the National Bank of Economic and Social Development (BNDES) are being used to fund infrastructure expansion in neighboring countries and that credit lines might be extended to assist Argentine economic regeneration by providing export financing suggest that Brazil is committed to creating a new, expanded role for itself.

The most visible component of the new emphasis on subregionalism, however, has been the diplomatic offensive launched by Lula to rebuild Mercosur (Mercado Común del Sur), the South American trading bloc formed in 1991, and composed of Brazil, Paraguay, Uruguay and Argentina, with Bolivia and Chile as associate members. In 2001, Mercosur was widely considered to be weak and almost fatally divided, having been serially hit by the 1999 currency devaluation in Brazil, Chile's announcement in late 2000 that it would pursue a unilateral trade agreement with the United States and delay full Mercosur membership until Mercosur tariffs were lowered further, along with a series of rancorous trade disputes between Brazil and Argentina, as well as the latter's complete financial meltdown. However, thanks to Lula's energetic personal diplomacy, Mercosur appears to be on the verge of a full-blown renaissance.

Venezuela Likely to Accede

On April 25, President Chávez confirmed Venezuela's intention to join Mercosur in a meeting with Lula; earlier in April, the latter signed a 'strategic alliance' with Peruvian President Alejandro Toledo setting out a blueprint for a free trade agreement with the Andean Community, South America's other major trading bloc. The indefatigable Brazilian president also sent letters to his counterparts in Mercosur-the presidents of Paraguay, Uruguay and Argentina-calling for the development of a joint position on government spending, services and investment, and even discussed with former Argentine president Duhalde the lofty (if distant) goal of establishing a common currency for the two nations.

However, significant uncertainty about the future of the bloc persisted through the Argentine presidential election, given that Menem, if elected, would certainly have returned Argentina to its staunchly pro-U.S. policies of the 1990s and remained lukewarm if not actively opposed to the strengthening of Mercosur. Thus the recent inauguration of Néstor Kirchner marks a significant moment for Lula and his cherished agenda of regional integration, as the Argentine leader gives all indications of being an eager partner in the attempt to strengthen intraregional ties. He has affirmed that Argentina's foreign policy priorities lie in the strategic alliance with Brazil and the deepening of Mercosur and its relations with its associated countries, and has stated that, "Our future lies in the political integration of Latin America, not in the automatic alignment to the U.S.A.."

Even more notable, the Lagos government in Chile-which because of its emphasis on separate trade negotiations with the U.S. appeared to be the least likely to prioritize regional integration-has been reacting positively to Lula's initiative and Kirchner's inauguration (concerning which Lagos stated that the same ideals now prevailed in the region as did in the early 1970s during the tenures of Presidents Salvador Allende and Hector Cámpora.) Though Chile remains unwilling at this point to follow Mercosur on tariff or trade policy, Lagos persists in affirming Chile's commitment to the evolution of Mercosur as a political, not merely a customs, union.

Certainly, many obstacles still lie ahead as momentum builds in Lula's quest for a "big house" concept of Mercosur, not least of which is the relatively weak domestic position of his diplomatic partners in Venezuela and Argentina. Nonetheless, these are heady days for Brazilian and other Latin American policymakers who have long hoped for a more united region vis-à-vis the United States. For Washington, on the other hand, the possible resurgence and even expansion of Mercosur must be profoundly troubling, because it raises the specter of a united Latin America willing and able to keep the U.S. at arm's distance. This could potentially lead to the evolution of a regional system that inverts the model mooted by academics in the 1990s to create a dual hub-spoke system with Brazil and Canada at the hub of two interlocking wheels-U.S. Trade Representative Robert Zoellick's greatest nightmare.

The American response: Playing Unilateralism Alone

Washington's reaction to developments in South America that potentially threaten the FTAA has been somewhat incoherent. It was hoped that the ratification of the bilateral trade agreement with Chile would smooth the way for a broader hemispheric deal by demonstrating to more reluctant partners the potential benefits of enhanced trade with the metropole while chipping away at any possible autochthonous South American consensus on the issue. This position was articulated by Zoellick at the beginning of negotiations with Chile; he stated in April 2001 that the initiation of this process was "sending a signal to Latin America [that] we want to move ahead on FTAA," and hinted at American willingness to negotiate a series of bilateral agreements like that with Chile that potentially could leave reluctant Brazil in the dust, isolated and spurned.

However, the strategy of using bilateral agreements to increase leverage for the FTAA was derailed by the explosive Iraq issue. During the debate in the UN Security Council, the two Latin American delegations holding seats there, Chile and Mexico, refused to fall in line with American policy and instead adopted a stance representative of the wider Latin American position, one which Brazil's Lula characterized as requiring explicit UNSC approval for any military action. The reaction from free traders in Washington was predictable. Speaking to the leading Chilean daily El Mercurio in mid-April, Representative Pat Toomey (R-PA) commented on potential fallout from the collapse of efforts to obtain a second UNSC resolution authorizing an attack against Iraq; more specifically, he indicated that Chile's refusal to toe the U.S. line had generated substantial congressional ill will that would make it very difficult to gain approval for any trade deal with that country, irrespective of how favorable it might be for this country. When the Chile deal was temporarily put on hold because of the fallout over Iraq, Bush was apparently left without an avenue for sundering the coalition of interests slowly growing around the position that Brazil had staked out in regional and international negotiations on foreign trade policy and other economic issues.

The Valdés Affair

Despite recent cosmetic changes that have led to increased optimism in Washington that hemispheric relations may be back on a more favorable track, the United States remains in an unenviable position: it now faces a growing subregional bloc of South American countries, led by Brazil and the indomitable Lula, which appears to be determined to prioritize regional integration and hold the United States and its FTAA plan at arm's length unless it works for them. Thanks to Santiago's humiliating replacement of Chile's representative to the UN, the distinguished diplomat Juan Gabriel Valdés, who vocally had opposed U.S. demands in the Security Council debates over Iraq, it now appears almost a certainty that the trade agreement with Chile will be signed and sent to Congress relatively soon, although an exact date is still to be set. (This sharp turn-around, based on a White House change of mood, is yet another example of Bush's tendency to personalize complex international issues.) However, the personal and political sacrifice that President Lagos has made by handing Valdés's head to the Bush foreign policy team is not necessarily what it seems and is playing out on several different levels.

First, suggestions that Valdés's replacement, Heraldo Muñoz, will bring a dramatic change in Chile's foreign policy at the UN could well prove mistaken. A classmate of Condoleezza Rice at Harvard, Muñoz is well-known to Washington, having previously served a term here as Chile's ambassador to the OAS. However, the highly respected and much esteemed Muñoz has followed a different academic path than his hawkish classmate Rice. He has cast aside the outdated versions of the Cold War for the more complicated comprehension of the imperatives of political economy needed to help make up a meaningful response to the foreign and domestic challenges facing his country. The maintenance of a strong commitment to multilateralism is entirely logical for Chile, a small country exposed to the vagaries of the international economy and with long memories of its isolation from distant shipping lines during both world wars-a country entirely dependent on the strength of international law both to preserve its territorial security and to ensure the market access needed for its economic survival.

A Firing's Repercussions

Moreover, White House hopes that the revivification of the Chile deal might lead to increased U.S. influence in South America and the reining in of the moves toward independence by the Mercosur bloc may be overly optimistic at best. Chile is accorded a central role in the South American geo-economic space being developed in the thinking of Amorim, which seemingly has been embraced wholeheartedly by the current Lula administration; Chile's plans to enter into a FTA with the US are being met with little substantive concern in Brasilia, precisely because foreign policy officials there have recognized for a decade that the Chilean economy is unique for the exceptionally high proportion of GDP accounted for by its exports. Lagos's recent comments about the importance of Mercosur and his warm welcome of his new counterpart, President Kirchner, suggest that Chile is by no means prepared to divorce itself from the rest of South America.

Most importantly, it is unlikely that the signing of the Chilean FTA will pave the way for either the conclusion of a series of bilateral agreements with other South American countries, as previously envisioned by Zoellick, or more rapid progress toward achieving the FTAA. Several other South American countries are under no illusion that they can inexorably prosper from the sort of trade agreement typified by the US-Chile FTA and are fully aware that several of its provisions-which would presumably be duplicated in subsequent bilateral or multilateral trade agreements-may be extremely disadvantageous to their own economies. These include full access into their domestic markets for American agricultural products and service industries, and, most galling, a provision that effectively forbids preferential purchasing of Latin American over U.S. goods for domestic projects. Though Chile may have been willing to swallow this rather sour pill, Brazil and a growing group of continental allies appear to find it far less palatable, and show every signs of being both willing and able to present a united regional bloc that will demand a FTAA that is fair to all of its members, both north and south of the equator.

Thus on the one hand, there is an increasing movement in South America, spearheaded by Lula in Brazil but also supported to differing degrees by Presidents Chávez of Venezuela, Lagos of Chile and Kirchner of Argentina, that seeks to prioritize greater continental, rather than hemispheric, integration and the strengthening of Mercosur prior to the coming on of the ultimate stages of FTAA negotiations. On the other, the Bush administration's hope that the negotiation of a bilateral trade pact with Chile would place more pressure on its neighbors to jump on the free trade bandwagon appears to be unfounded. This is especially true after Chile's recent crucifixion, in which President Lagos succumbed to pressure to sack his UN ambassador, an act that produced revulsion throughout Latin American capitals, and did no great service to the reputation of a pandering Lagos. Taken together, these developments suggest that prospects for the FTAA may be dimming as Brazil emerges as the center of a new consciousness of Latin American nationhood.

This analysis was prepared by Sean Burges, a research fellow, and Jessica Leight, a research associate, at the Council on Hemispheric Affairs. Issued 2 June 2003

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policy makers." For more information, please see our web page at www.coha.org; or contact our Washington offices by phone (202) 216-9261, fax (202) 223-6035, or email coha@coha.org.

Will Argentina Roar Again?

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

Brazil Real Falls on Swap Sale; Mexico Gains: Latin Currencies

June 2 (<a href=quote.bloomberg.com>Bloomberg) -- Brazil's real extended declines, falling for a second day, after the central bank refinanced 77.8 percent of maturing contracts used by investors to insure against exchange-rate risk, a result seen boosting demand for dollars.

Brazil's real shed 0.4 percent to 2.9805 per dollar at 2:32 p.m. New York time from Friday. The decline has cut the real's gains this year to 19 percent against the dollar. It remains the best performer of the world's 16 most-traded currencies. Mexico's peso rose, pacing increased U.S. manufacturing.

``Our threshold is for about a 75 percent refinancing; anything less should cause the real to decline,'' said Marco Sudano, director of the Treasury department at Uniao de Bancos Brasileiros SA, Brazil's fifth-largest commercial bank.

Today's auction of interest-rate swaps is the first since government ended a promise to refinance all of its $100 billion of outstanding swaps when they expire. With the government's failure to refinance all of the $1.41 billion due June 12, investors may have to buy dollars to hedge against declines in the real, a move that may cause the real to weaken.

2002

Brazil sold swaps and dollar-indexed Treasury bonds in an effort to bolster the currency when it came under attack during Argentina's debt crisis and before last-year's presidential elections in Brazil on concern a new president might lead South America's largest economy into default on $300 billion of bonds.

Under the contracts, the central bank guaranteed about $100 billion of investment against any decline in the real. While the government is now making money on its bet as real is the best performing of the world's 16 most widely traded currencies in 2003, it lost large sums last year when the real weakened 35 percent. The government wants to reduce its own exposure to such risks, the central bank said.

Brazil's 8 percent bond maturing in 2014 declined 0.56 cent to 88.63 cents on the dollar causing the yield to rise to 10.84 percent, according to J.P. Morgan Chase & Co.

Mexico

The Mexican peso rose for the third day in four after manufacturing in the U.S. rose for the first month since December, boosting prospects for growth in the world's biggest economy and Mexico's largest trading partner.

The peso rose 0.6 percent to 10.2580 per dollar and earlier rose 0.9 percent to 10.2175 per dollar. The peso has gained 10 percent against the dollar since falling to a record low of 11.2644 on March 6 and is up 1.3 percent in 2003, the 12th-best performance of the 16 most widely traded currencies.

The bulk of the peso's rise followed the release of the Institute for Supply Management's manufacturing index for May, showing a rise to 49.4 from 45.4 in April, building on reports last week showing rising output and consumer confidence. Mexico's $600 billion economy, Latin America's largest, sends about 85 percent of its exports to the U.S., representing about a quarter of its national income, and receives about 70 percent of its foreign investment from its northern neighbor.

``If you see improvement in U.S. manufacturing, it could be a sign that any slowdown in Mexico may be tempered,'' Jana Butland, a currency strategist at FleetBoston, adding that the currency was also buoyed by rising stocks in the U.S.

The Standard & Poor's 500 Index added 1.5 percent, the Dow Jones Industrial Average gained 1.6 percent and the Nasdaq Composite Index jumped 1.5 percent.

Mexico's export-assembly plants need a recovery in the U.S. and among American consumers to halt a slowdown that has cost about 200,000 jobs since the year 2000 and contributed to the central bank to forecast slow growth this year. Still, lower interest rates and slower inflation on the domestic front.

Regional Currencies

Chile's peso strengthened for a third day, gaining to 711.10 per dollar from 711.35, and Argentina's peso rose for a second day, adding 0.6 percent to 2.8450 per dollar from 2.8620 per dollar on Friday.

Peru's new sol strengthened for the second day in three, rising to 3.4918 per dollar from 3.4945 per dollar on Friday. Colombia's markets were closed for a national holiday. Venezuela fixed its bolivar at 1,598 per dollar earlier this year.

-- Jeb Blount in Rio de Janeiro at (5521) 2516-1552, or jblount@bloomberg.net, Alexander Hanrath in Mexico City (52-55) 5242-9252, or ahanrath1@bloomberg.net, through the New York newsroom (1-212) 318-2730 Editor: Jameson. type {WCRS } to rank the performance of 59 currencies tracked by Bloomberg. Click on or type {BRL HCP } to chart the historical change in price of the dollar against the real and the real against the dollar. Click on {CNP03910990106 } for graphs relating to the performance of Brazil's currency, benchmark 8 percent bond maturing in 2014, Bovespa stock index and interest rates.

Company news: 1323Z BZ CN

Regional news: NI BRAZIL NI LATAM NI EM NI FRX NI GFX NI MMK NI CEN NI BON NI TOP NI GOV NI MEX NI CHILE NI ARGENT NI PERU NI VENZ NI COLOM

#<768424.391099># -0- (BN ) Jun/02/2003 18:33 GMT

Last Updated: June 2, 2003 14:33 EDT

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