Friday, June 28th 2002 - 21:00 UTC

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Protests and a blip of hope;“Forget Mercosur”; Unconvincing Lula; Menem leads among Peronists; “We're not an island”; Elections in Bolivia

Protests and a blip of hope

Thousands of Argentines marched in the streets of Buenos Aires demanding the resignation of president Eduardo Duhalde following the killing of two young people during a violent protest of unemployed earlier in the week. Last Wednesday hundreds of unemployed and homeless attempted to block a bridge leading to the city of Buenos Aires demanding jobs and food, but were seriously repressed by security forces, turning the day into the most violent since last December when a bloody popular uprising forced the resignation of elected president Fernando De la Rúa after thirty people were killed, mostly fighting police forces. This Thursday evening an estimated 10,000 people, mostly unemployed and left wing organizations marched in downtown Buenos Aires from Congress to Plaza de Mayo, where Casa Rosada, government house is located, and protected by a strong security ring. The two killings and tens of wounded occurred at a very delicate moment for the Duhalde administration with the president's popularity at its lowest, 8%, according to the latest polls, and with not much prospects of a quick agreement with the International Monetary Fund and other creditors. Argentina last December defaulted on 140 billion US dollars foreign debt and devalued the currency, plunging the country into a social and political powder keg with over half the population living in poverty and 25% unemployment. However, Alfredo Astanoff, Chief Cabinet Minister said that "the government was not at stake, it's not a matter of names. Argentina is facing the worst crisis ever and simply can't stand any more violence". A government spokesperson added that the "violent occupation of the Avellaneda bridge" was an "isolated event", but didn't discard other similar actions since according to intelligence sources the protest march was "deliberately infiltrated". The blocking of routes, bridges and vital crossings has become a common event in Argentina, but this is the first time protestors apparently reacted violently against police forces that counterattacked with rubber bullets and tear gas. The Duhalde administration has gradually become less passive with the ongoing protests and during previous weeks had warned it will not tolerate "violent acts", such as happened this week when protestors yielded sticks, stones, Molotov bombs and apparently firearms. In the middle of street protests and the deepening of the social and political situation the only encouraging news came from Calgary, Canada, where the G 8 meeting is taking place. Spanish president José Aznar, who currently holds the chair of the European Union Council formally requested the IMF to resume credit aid to Argentina in an attempt to avoid financial and political contagion spreading to the region. "I believe the Argentine government has fulfilled substantially IMF conditions, with great responsibility and hardship, so it's time to formally open negotiations with Argentina and prepare a financial aid package", indicated Mr. Aznar. Spain has much at stake in Argentina since during the nineties it became the main overseas investor in the country.

"Forget Mercosur"

The president of the Chilean Chamber of Commerce said the Chilean Government must reassess its position regarding Mercosur agreements and discard any idea of a full incorporation to the South American trade block. Mr. Fernando Lihn in a long interview with Santiago media argued that the political instability in the region's countries could have a negative effect on Chile, particularly if "we have agreements that closely link us to these nations undergoing this type of situation". Mr. Lihn added that the agreements signed so far with Mercosur have been "highly damaging" for the Chilean private sector, and requested that the treaties be renegotiated. The president of the Chamber of Commerce stressed that more favorable and efficient mechanisms are needed for the solving of trade disputes, as well as some kind of insurance against currency devaluations of the countries involved in regional transactions. "Full integration of Chile in Mercosur is an illusion", emphasized Mr. Lihn, recalling that in spite of President Raúl Lagos efforts to bring the country closer to Mercosur, his intentions have been gradually vanishing as a direct consequence of the growing financial and political instability in the region.

Unconvincing Lula

"The only was to eradicate the market volatility is for all presidential candidates to commit themselves with current economic policy", said Brazil's Finance Minister Pedro Malán addressing the Economic Affairs Committee of the Brazilian Senate. "We can make Brazil's country risk to fall if all candidates promise fiscal responsibility, a floating exchange rate, and keep to the current inflation and monetary targets. The extent of coherence and commitment to these policies is the fundamental component of any risk assessment", underlined Mr. Malán. The Finance Minister was convened to the Senate to explain the current volatility that has sent the Brazilian currency tumbling, rocketed country risk and made Brazilian shares and bonds drop to record lows. Brazil is holding presidential elections next October and the leading candidate with an ample margin according to the polls is Socialist Luiz Inacio Lula da Silva, who has promised to support current economic policies, but investors fear it could be just lip service to cool tempers, since the four times candidate in previous elections preached the moratorium of Brazilian foreign debt. Given the recent Argentine experience no wonder every body is jittery. Besides any further commitment to the current IMF sponsored policies could cost Mr. Lula dearly in votes. According to Mr. Malán the next government needs to generate a primary budget surplus higher than the current 3,75% of GDP, more strict inflationary targets, and a greater operational margin (autonomy) for the Central Bank. "The stronger the fiscal and inflation situation, the less exchange rate fluctuation", said the Brazilian Finance Minister to the Senate Committee. Further on Mr. Malán said that although all presidential hopefuls support a floating exchange rate, "all of them must be completely convincing that there is no "secret target or limited floating". Mr. Malán added that only those ignorant of Brazil and Nigeria can endorse a similar country risk for both countries, as happened last week. Brazil's country risk last week shot over the 1700 mark just behind Argentina and Nigeria. Latest Central Bank statistics indicate that Brazil's current account deficit in May reached just over 7 billion US dollars, equivalent to 3,21% of GDP, compared to the 11,2 billion US dollars of the same five months period a year ago and equivalent to 5,37% of GDP.

Menem leads among Peronists

Former Argentine president Carlos Menem who ambitions a third mandate leads among Peronist hopefuls according to a poll published this week in the Buenos Aires press. If internal elections were held this week in the Peronist Party, Mr. Menem would win with 21% of the vote followed closely by former president Adolfo Rodríguez Sáa and the governor of Santa Fe province Carlos Reutemann, with 19% and 17%, indicates an Ipsos-Mora poll published in La Nación. Rodríguez Sáa belongs to a strong political family that dominates a small province, one of the few that is not in the red and actually has substantial reserves although trapped in the bank freeze. Following the downfall of president De la Rúa, he was named by the General Assembly Argentine president for a week when he defaulted the country's foreign debt. Mr. Reutemann, a former Formula 1 international pilot, is one of the main leaders of the Peronist party, and twice governor of the influential Santa Fe province. The poll at national level shows Mr. Menem in fourth place among the leading self nominated presidential candidates with 7% of vote intention. Following the designation by the General Assembly last January of Mr. Eduado Duhalde as president, elections in Argentina are scheduled for October 2003. The leading candidate is Elisa Carrió, a dissident Radical party woman Deputy who formed her own grouping and is the most vocal critic of the current political and economic system. She managed 19%. She's followed by Rodríguez Saá with 11% and another left wing extravagant Deputy, Luis Zamora, with 9%. In line with the protest vote of the October 2001 legislative elections, when blank and annulled votes disputed ballots with elected candidates, 14% of those polled said they would vote blank. However the poll also indicates that 15% believe that Mr. Menem will be Argentina's next president and that Elisa Carrió is effectively the most vocal critic of Argentine politics.

"We're not an island"

The president of the Chilean Senate Finance Committee, Carlos Ominami, warned that Chile was "not totally protected" and "was not an island that could remain undeterred by the effects of the regional turbulence", particularly regarding trade with neighboring countries. "We sell to Argentina, we sell to Brazil and if Brazil faces a recession it will have an effect on the Chilean economy", said Senator Ominami. Mr. Ominami added that effects were not only limited to trade but also included investments, "since we happen to live in a turbulent, instable neighborhood, and if contagion extends to the region, investors will look some where else". The exchange rate and the US dollar is another sensible area, because this has a direct impact in the Chile's imports and exports, particularly for a country that acquires most of its oil and natural gas overseas. "So far we are managing", said Mr. Ominami, in spite of the fact that the Chilean peso dropped over 5% against the US dollar during the last week and now stands above 705 pesos for the US currency, the lowest recorded in 2002. This has forced an immediate rise in fuel prices in Chile. Mr. Ominami recalled Chilean president Raúl Lagos words who said that the "region is undergoing an extremely difficult situation, and it's not only countries such as Argentina, but larger countries such as Brazil and Mexico that are facing some of the turbulance". However the Senator pointed out that "Chile any way has a more solid growth than the rest of Latinamerica, and our foreign debt situation is completely different to that of Brazil and Mexico". Chile's foreign debt is only 9% of current GDP, while Argentina's is over 100%, and Mexico's almost 20%. Central Bank statistics indicate that in the first five months of 2002, Chile managed a 1,5 billion US dollars surplus, in spite of the poor price for copper the country's main export. International reserves at the en of May stood at 15,1 billion US dollars.

Elections in Bolivia

Bolivia's three leading candidates for next Sunday's presidential election made vague promises about how to overcome the current economic downturn that is affecting one of South America's poorest nations but one of its richest in mineral and energy reserves. During a televised national debate former Army Captain Manfred Reyes Vila, four times mayor of Cochabamba and leading in the polls talked about a "productive revolution" in agriculture, supported with government financing. Most Bolivians, particularly the Indian population are peasants and agriculture is their main source of income. Mr. Reyes Vila made it quiet clear during the debate that he does not support the current open economy free market policies and is rather inclined for a strong government participation. "Our party will make no alliance with those that favor neo-liberal policies", remarked Mr. Reyes Vila. Former president Gonzalo Sánchez Lozada, second in the polls, promised "jobs, jobs and more jobs", to be created with a strong public works program including road building, irrigation for 11,000 peasant families and gas distribution system for all main Bolivian cities. Bolivia's main export is natural gas, with pipelines to Argentina and Sao Paulo in Brazil. Mr. Sánchez Lozada is a strong advocate of an open economy and free market. Third candidate, and also a former president, Jaime Paz Zamora, said that the upturn of the Bolivian economy must come through the recovery of the natural gas wells in Southern Bolivia, property of foreign companies. Next Sunday, besides the Executive ticket, Bolivians will be electing 130 deputies and 27 Senators. If none of the candidates obtains the 45% threshold, the Legislative decides, and given the political party system in Bolivia all sorts of alliances are potentially possible, meaning the candidate with most votes will not necessarily obtain the presidential sash, as has happened in the past.

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