Heads We Win, Tails We Win
By Marin Katusa, Chief Energy Investment Strategist
Hugo Chàvez is undoubtedly one of the most polarizing politicians in the world today. The man who has led Venezuela for 14 years is vehemently anti-American, a proud voice for Venezuela’s poor, a patriot and a poet, and a firm believer that national resources belong to the nation and no one or nothing else.
That final Chàvez mainstay – that resources are best and most appropriately managed by the people for the people – has positioned Venezuela at the head of a group of Central and South American nations that are trying resource nationalization on for size as they struggle to make the most out of their oil and gas bounties. Venezuela is a global oil heavyweight – its 211-billion-barrel reserve is one of the top three national oil reserves worldwide – so Chàvez’s moves to nationalize his country’s massive oil machine gave neighboring countries the confidence to follow suit.
Sometimes national control over oil and gas resources can work well. Saudi Arabia, Brazil, and Kuwait are all prime examples of well-functioning, state-controlled oil sectors. However, resource nationalization is a tricky business, and more often than not the process goes awry.
Venezuela is no exception. Chàvez’s efforts to kick foreign firms out of Venezuela and use oil and gas revenues to fund social programs worked pretty well initially, but despite rising oil prices that early success has slipped away. In recent years Chàvez has demanded too much from the oil and gas sector, expecting ever-increasing revenues despite his reluctance to fund infrastructure and exploration programs. The result has been declining production, an exodus of technical expertise, and a pariah reputation in the international oil and gas industry.
Now, with a presidential election looming and Chàvez struggling with a cancer that it’s rumored will take his life within months, the path forward for the country that has been a firebrand for South American resource nationalization is far from clear.
Venezuela’s Love-Hate Relationship with Resource Nationalization
Venezuela nationalized its oil industry in 1976, at a time when many countries in the southern hemisphere were asserting sovereignty over their natural resources. The transformation of Petróleos de Venezuela SA (PDVSA) into a state-owned company was hailed as a national victory. However, it did not take long for trouble to begin.
In the 1990s global oil prices plunged and Venezuela, having based its budget on a certain level of oil income, found itself in deep economic trouble. PDVSA had 900 to 1,300 billion barrels of oil on its reserve books, but the company didn’t have the money or the technological know-how to tap into these reserves, most of which sat trapped in the geologically challenging Orinoco Belt. Seeing few other options, the country opened its oil sector to foreign investors: PDVSA started seeking out international partners willing to provide expertise and funding in exchange for a share of the profits. Big Oil arrived and started spending billions of dollars to unlock the heavy oil of the Orinoco.
Then Mr. Chàvez won the 1998 presidential election on a populist ticket that promised to use the country’s vast oil wealth to benefit the poor. Venezuela’s experiment with foreign involvement in its oil sector slowly came to a halt. Despite initially adopting “orthodox” economic policies, Chàvez soon started making good on his promise to his people – he gradually closed the door on international investment, raised rents, and changed fiscal agreements to retain ever more oil revenue for Venezuela. Imagine this: at one point the government take on oil contracts was more than 100% – foreign producers would have had to pay Chàvez for the privilege of producing oil in his country.
Chàvez brought a new form of politics to Venezuela. He identified with his supporters because he was one of them, having grown up poor, and he used language they understood, caring not that the elites saw such language as one of many signs that he was a buffoon with limited education and experience. His style stuck and the people grew to love him.
As he gained in popularity and confidence, Chàvez grew bolder in his moves to control Venezuelan oil in its entirety. In 2002 a group of PDVSA executives kick-started a general strike aimed at ousting Chàvez that lasted for a month and cut oil production to about 30% of normal levels; in response Chàvez fired nearly half of the company’s employees – 18,000 people in all – erasing large swaths of technical know-how in one fell swoop but sending a clear message that he would not tolerate dissent against his control over Venezuela’s oil.
By 2007 Chàvez had gained enough confidence to essentially complete his oil renationalization campaign – he expropriated oil assets in the Orinoco by issuing a decree that PDVSA hold at least 60% ownership in all international partnerships. What little was left of Big Oil pretty much packed up and left Venezuela. National oil production immediately fell by 25%.
You could say that was the beginning of the end, or the end of what had been a great beginning. That great beginning was undoubtedly aided by rising global oil prices: when Chàvez came to power, oil prices were sitting near $12 per barrel. By 2006 prices were averaging almost $60 a barrel, Venezuela’s coffers were overflowing, and the Venezuelan president felt unstoppable.
Those rising prices created such a sense of success around Chàvez’s experiment with renationalizing Venezuela’s oil and gas sector that Chàvez was able to convince his compatriot leaders in South America to follow in his footsteps. And it worked – Bolivia and Ecuador renationalized their oil sectors, and the concept of resource nationalization took hold in Argentina. As his geopolitical influence grew, Chàvez also devoted attention to the oil-needy nations in his neighborhood, implementing an oil-transfer program to energy-needy Central American and Caribbean countries. With his oil sector seemingly able to provide for so many, resource nationalization took on new life across South America, and Chavez was the movement’s proudest spokesman.
But here the word “seemingly” is key. As oil prices rose, PDVSA profits also rose, and it seemed that nationalization had been a boon to Venezuelan oil. But the increased profitability stemmed only from rising prices; the company itself was being strangled by a lack of investment – Chàvez spent all of PDVSA’s profits on his domestic fuel subsidies and social programs – and its dearth of technical expertise.
In short, a sector can only provide profits if it is also supplied with investment; and that is where Chàvez went wrong. Like so many other socialist leaders who nationalized resource sectors with great fanfare only to see the sectors wither away because of insufficient TLC, Chàvez failed to put money back into PDVSA.
Now the country’s once-proud oil and gas sector is in disarray. Infrastructure is old and insufficient, and production volumes are declining instead of climbing. In 2005 the company launched a new six-year plan calling for investment of US$239 billion to boost oil production to 5.8 million bpd by 2012. Instead, output has fallen from 2.9 million barrels per day (bpd) to 2.5 million bpd. Things are even worse when you look at Chàvez’s tenure as a whole: from 1998 to today, production has fallen from 3.5 million bpd to 2.5 million bpd, a decline of almost 30%:
Not only has production declined, but PDVSA’s financials have also deteriorated dramatically, its debt increasing from US$2.7 billion in 2005 to some US$33 billion now. Yet PDVSA continues to borrow money at an incredible rate, in large part to fund those domestic oil subsidies that are so very popular among Chàvez supporters. These subsidies cost the company US$15 billion a year.
The view forward is unclear. PDVSA lacks the technical expertise to take advantage of the heavy oil in the Orinoco. With foreign investment – and therefore involvement – in the oil sector banned and PDVSA drowning in debt, the prospects for turning Venezuela’s fading oil sector around are pretty dim.
Unless, of course, the sector is opened up to outside investment… which could well happen if Chàvez ceases to be part of the picture.
Over the last 12 months Chàvez has made regular trips to Havana for cancer treatments. The only official information about these treatments is that two malignant tumours were removed from his pelvic region. The secrecy surrounding Chàvez’s cancer and the fact that Chàvez, who rarely goes a few days without speaking directly to his people, enters radio silence during his trips to Cuba have fueled rumors of his declining health. Several times already these have ballooned into claims that the Venezuelan president had died.
The latest twist in the Chàvez cancer drama came from venerated journalist Dan Rather, the former CBS anchor who now hosts and directs Dan Rather Reports, a weekly news television show on HDNet. In a report he labeled as “exclusive,” Rather revealed on May 30 that he had been told that Chàvez is suffering from metastatic rhabdomyosarcoma, a rare and aggressive cancer that has “entered the end stage.” Rather said the information came from a highly respected source who is close to Chàvez and in a position to know his medical condition and history. This source says the prognosis is dire and that Chàvez is not expected to live “more than a couple of months at most.”
This is not the first time rumors of Chàvez’s pending death have surfaced. However, with his treatment having dragged on for a year already, with his uncharacteristic disappearances to Cuba growing longer and more frequent, and with Rather’s reputation for accuracy lending credence to this new information, it is time to ponder Venezuela – and South America – without Hugo Chàvez.
Chàvez would be incredibly difficult to replace. His rags-to-riches story line, bold governing style, and idiosyncratic mannerisms have earned adoration from the Venezuelan population, especially the poor and working class masses who constitute his prime electoral base. He also enjoys broad support from Venezuela’s military members.
This is a president who announces executive orders between readings of poetry, regularly draws families around their televisions to listen to his lengthy and often fiery speeches, and sings Venezuelan folk songs on a weekly show called Hello President. There are few people in the world who could match his charisma and earn such allegiance from a national population. That is why, even though others from Chàvez’s inner circle bear similar political views, most observers think any Chàvez successor would have a very difficult time maintaining the Chavista movement.
So when Chàvez dies, what might become of Venezuela? In the immediate aftermath, Vice President Elías Jaua would take power, according to the Constitution. In fact, Chàvez recently formed a nine-member State Council headed by Jaua to assist him with executive duties, a move many interpreted as a preparation for his impending demise.
In the longer term, Venezuelan political observers see five potential successors within Chàvez’s Socialist Party. All hold similar views, but none enjoy anything close to Chàvez’s recognition and support. The Party would have to hope that Chàvez’s reputation can carry one of these candidates to the presidency, but such a succession is far from assured.
If Chàvez dies before the October presidential election, opposition candidate Henrique Capriles would suddenly see his odds of winning jump dramatically. Polls show Capriles currently lagging behind Chàvez by roughly 5%, but the same polls found that Capriles would win the race by double-digit margins if he were to face a Chàvez successor instead of facing Hugo himself… unless, of course, the Socialists rig the election. Given that Chàvez has proven that a high regard for democracy is not a required characteristic for someone holding the Venezuelan presidency, this is not unlikely.
Capriles is a veteran politician, having previously served as governor of the state of Miranda despite being just 39 years old. He is a center-left politician who has cleverly focused on issues close to the day-to-day lives of Venezuelans: crime, corruption, declining services, inflation, and jobs. Capriles’ petroleum policies are less clear, but his rare comments on the matter indicate he would keep PDVSA as a national entity while allowing the company to engage in investment partnerships with foreign firms, much like the Brazilian national oil firm Petrobras.
If Chàvez is healthy enough to run, he will almost certainly win the election in October. If he is not, we see two possible paths. The first is that Capriles finds himself president of Venezuela, and South America loses its resource nationalization ringleader. However, a desire to change how Venezuela’s oil sector operates is very different from the actual ability to do so. The biggest obstacle to change: those domestic oil subsidies. If Capriles wants to revitalize PDVSA – indeed, if he simply wants to give PDVSA a chance at economic survival – he would have to significantly reduce the domestic oil subsidies, and likely also reduce social spending to free up some oil revenues for reinvestment into the country’s oil fields. And that would cause riots. We have seen it before, most recently in Nigeria: populations that are accustomed to having access to cheap oil are highly unwilling to let go of that benefit and will riot, often violently and for extended periods, at the mere suggestion that gas prices need to increase.
Oil-related riots in one of the world’s top-ten oil-producing nations would undoubtedly push global oil prices higher.
The other potential path for a post-Chàvez Venezuela is that his successor within the Socialist Party wins the presidency, legitimately or with the aid of electoral fraud. This Chàvez clone would then be stuck trying to fill Hugo’s shoes, a near-impossible task in which he would only have a chance at success by promising even more in the way of social spending. These expensive programs would put even greater strain on Venezuela’s budget, which is funded in large part by revenues from PDVSA. There would continue to be no money available to finance PDVSA’s spending needs, and production would continue to decline.
Guess what? This scenario – of continued production decline in a major world supplier – would also push global oil prices higher. The bottom line is that Chàvez has created a lose-lose scenario for Venezuelan oil. The country has become reliant on a one-way flow of money and cheap oil from PDVSA to society, but after a decade of neglect PDVSA is withering away and the flows are drying up. Even if Chàvez dies and a left-leaning leader like Capriles comes to power, Venezuela will have to convulse through many ugly years before a functional relationship can be reestablished between its oil riches and its social demands. In the meantime, Venezuelans and the world will have to do with only limited access to Venezuelan oil.
So, for those of us positioned to gain from a long-term rising oil price, it’s heads we win, tails we win.
Oil Prices to Ease Further This Year (Reuters)
The CEO of Royal Dutch Shell expects oil prices to continue easing through the rest of the year, as demand reacts to a slowing global economy and international tensions ease. Peter Voser’s statement came just as Brent crude dropped to a 16-month low – below US$96 per barrel – on the heels of further weak economic news from the US and China. In addition, concerns over the state of the European economy have taken the spotlight away from the lingering tensions between Iran and Western powers, which just three months ago helped to push Brent above US$128 a barrel.
Global Gas Demand to Grow by 2.7% Annually to 2017 (Platts)
Global demand for natural gas will rise by 2.7% annually for the next five years, a faster growth rate than previously expected. China and the United States are driving the additional demand by switching from coal to gas to generate electricity. In China alone consumption is expected to double to 273 billion cubic meters in 2017 from 130 billion cubic meters today, representing an average growth rate of 13% per year.
King Coal Still Reigns Despite Drop in Prices (Vancouver Sun)
Canadian coal companies are not slowing down exploration nor development programs despite a drop in prices in China, their main export market. Companies are generally viewing depressed prices as a transient problem and see demand from Asia remaining strong in the medium term, especially for British Columbia’s high-quality metallurgical coal.
South Sudan’s $4-Billion Question Answered: Oil Revenue Stolen by Corrupt Officials (The Globe and Mail)
It has been a mystery for years: how does South Sudan remain so poor and hungry when it receives billions of dollars in oil revenues every year? The answer is now clear: South Sudan’s president says corrupt officials have stolen $4 billion in oil revenues since 2005. He is asking those officials to return the stolen funds. Any returned funds would be especially useful at the moment, because a dispute with Sudan has shut in South Sudan’s oil production and thereby eliminated about 98% of the government’s official revenue.
Oil Rush in the Arctic Gambles with Nature and Diplomacy (The Guardian)
A small group of international scientists, politicians, and business leaders are gathered in the Ny-Alesund research station on the Norwegian island of Svalbard to discuss the path to a global low-carbon economy. Meanwhile, just outside the station an oil rush looms – one that threatens to spark territorial disputes and saber-rattling as a host of nations compete to claim rights to the Arctic seabed.
Germany Plans Massive Wind Power Grid (The Globe and Mail)
Germany’s utilities have tabled plans to build four high-voltage electricity lines to link wind turbines off the north coast with manufacturing centers in the south. The plan is a boost for Angela Merkel, who has been criticized for announcing an accelerated nuclear-power phase-out a year ago without producing an alternative plan. The lines are expected to cost around €20 billion
- Venezuela expands China oil-for-loan deal to $8 billion (chinadailymail.com)
- Report: Chavez’s Cancer Has Metastasized (hispanicallyspeakingnews.com)
Incensed Spain threatens Argentina after YPF seizure
MADRID – An incensed Spain threatened swift economic retaliation against Argentina on Tuesday after it announced plans to seize YPF, the South American nation’s biggest oil company, in a move which pushed down shares in Spanish energy giant Repsol, the controlling shareholder.
Madrid called in the Argentine ambassador in a rapidly escalating row over the nationalization order by Argentina’s populist and increasingly assertive president, Cristina Fernandez, a move which delighted many of her compatriots but alarmed some foreign governments and investors.
Promising action in the coming days, Spanish industry minister Jose Manuel Soria said: “With this attitude, this hostility from the Argentine authorities, there will be consequences that we’ll see over the next few days. They will be in the diplomatic field, the industrial field, and on energy.”
“Argentina has shot itself in the foot,” said Foreign Minister Jose Manual Garcia-Margallo.
Despite the rhetoric, Spain appeared to have little leverage over Buenos Aires – any action to be taken will be determined at a cabinet meeting on Friday – and Argentina has proven impervious to such pressure in the past.
Repsol said YPF was worth $18 billion as a whole and it would be seeking compensation on that basis, but the Spanish oil major’s shares fell by 7.5 percent in Madrid on Tuesday. The company said it could raise money in the bond market and sell some assets to help its cash flow.
Repsol described Argentina’s move as “clearly unlawful and seriously discriminatory” and said it would take legal action.
“This battle is not over,” Repsol Chairman Antonio Brufau said. “The expropriation is nothing more than a way of covering over the social and economic crisis facing Argentina right now.”
But Fernandez dismissed the risk of reprisals. “This president isn’t going to respond to any threats … because I represent the Argentine people. I’m the head of state, not a thug,” she said.
European Commission President Jose Manuel Barroso said he expected Argentina to uphold international agreements on business protection with Spain. “I am seriously disappointed about yesterday’s announcement,” he said in Brussels.
But action against Argentina appeared limited in scope. The EU Trade Commissioner would write to Argentina’s trade minister to “reiterate our serious concerns” while an EU-Argentine meeting this week would be postponed.
“It’s absolutely shameful considering everything that Spain has done for Argentina,” said a woman called Domi, who was filling her tank at a Repsol petrol station in Madrid.
“I hope the government takes measures and does something serious. They’ve pulled our leg long enough!”
Spanish media condemned the Argentine action, believed to be the biggest nationalization in the natural resources field since the seizure of Russia’s Yukos oil giant a decade ago.
La Razon newspaper carried a photograph of Fernandez on its front page in a pool of oil with the headline: “Kirchner’s Dirty War”, referring to her full name. The business newspaper La Gaceta de los Negocios called the takeover “an act of pillage”.
El Periodico spoke of “The New Evita”, pointing out that Fernandez had announced the nationalization in a room decorated with a large portrait of Eva Peron, the actress who was married to a president and revered by many Argentines as a populist mother of the nation and champion of the poor.
Repsol’s Brufau said he suspected nationalization of YPF was imminent when he tried to contact Fernandez last Friday and was told that the president “was angry” and did not want to speak.
YPF has been under pressure from Fernandez’s centre-left government to boost oil production, and its share price has plunged in recent months on speculation about a state takeover.
Spanish investment in Argentina may now be at risk after the move on YPF. In the “reconquista” or reconquest, of the 1990s, newly privatized Spanish businesses bought Latin American banks, telephone companies and utilities, much as their armor-clad ancestors had conquered the region 500 years earlier.
Through its latest nationalization move, Argentina runs the risk of frightening off foreign investors, key to contributing money to help develop one of the world’s largest reserves of shale oil and gas recently discovered in the Vaca Muerta area.
ACE UP ITS SLEEVE?
This led some analysts to question whether Argentina might have an ace up its sleeve in the form of a new partner such as China Petrochemical Corp (Sinopec Group).
Repsol has, however, identified Vaca Muerta as “the cause of the pillage”, or the reason Argentina went after its YPF share.
A Chinese website said Sinopec was in talks with Repsol to buy YPF for more than $15 billion, although other sources said the nationalization move would probably get in the way of such a deal. Sinopec dismissed the report as a rumor.
Fernandez said the government would ask Congress, which she controls, to approve a bill to expropriate a controlling 51 percent stake in YPF by seizing shares held exclusively by Repsol, saying energy was a “vital resource”.
“If this policy continues – draining fields dry, no exploration and practically no investment – the country will end up having no viable future, not because of a lack of resources but because of business policies,” she said.
YPF’s market value is $10.6 billion, although an Argentine tribunal will be responsible for valuing the company as part of the takeover. Central bank reserves or state pension funds could be used for compensation.
Fernandez, who still wears the black of mourning 18 months after the death of her husband and predecessor as president Nestor Kirchner, stunned investors in 2008 when she nationalized private pension funds. She has also renationalized the country’s flagship airline, Aerolineas Argentinas.
Such measures are popular with ordinary Argentines, many of whom blame free-market policies such as the privatizations of the 1990s for the economic crisis and debt default of 2001/02.
Her announcement of the YPF takeover plan, however, drew strong warnings from Spain, Mexico and the European Union, a key market for Argentina’s soymeal exports.
Mexico’s President Felipe Calderon said Fernandez’s plan would damage chances for future foreign investment in Argentina and hurt Repsol, in which Mexico’s state oil monopoly Pemex holds a 10-percent stake.
Venezuela, where socialist President Hugo Chavez has nationalized almost all the oil industry, applauded her move.
The row over YPF comes as Fernandez heaps pressure on Britain over oil exploration off the Falkland Islands, over which Argentina claims sovereignty.
- Spain threatens Argentina after YPF seizure (business.financialpost.com)
- Argentina To Seize Control Of Oil Firm (news.sky.com)
- EU calls off meeting with Argentina over Repsol (newsok.com)
- Argentina moves to renationalize leading oil company (ctv.ca)
Latin America : Business climate is king again
By Brian Winter SAO PAULO | Thu Jan 12, 2012 9:20am EST
(Reuters) – Here’s an economic riddle of sorts: Which economy grew faster over the last seven years? A) President Hugo Chavez‘s Venezuela, famous for its forced nationalizations and “21st century socialism,” or B) Chile, long renowned as a capitalist paradise for investors.
It might surprise some outsiders to learn that the answer is actually A. In recent years, commodities prices have dictated growth in Latin America more than any other factor, meaning that countries could trample on businesses but still grow briskly as long as they exported plenty of raw materials such as oil and iron ore to China and elsewhere.
Venezuela, the region’s No. 1 oil exporter, has averaged about 4.6 percent economic growth since 2005, compared to 4 percent in Chile, the world’s leader in copper. An even clearer example of commodities’ almighty reign was Argentina, which averaged 7 percent growth during the same period as record soy and other farm exports helped offset the government’s hostile stance toward energy companies and some other investors.
Now, it looks as if the trend is shifting. In Latin America, 2012 seems set to be the year in which business climate clearly reestablishes its supremacy as the main driver of growth.
The countries expected to grow the fastest in 2012 are also generally the ones that are perceived by the World Bank and others as treating investors the best. That means Chile, Peru and Colombia should lead the pack, while Venezuela and even Brazil will lag a step behind – just as they did last year.
Graphic on region’s economies: r.reuters.com/bed95s
What has changed? The global economy.
Demand for many commodities is expected to slacken in 2012 due to economic problems in buyer markets such as China and Europe. That means it will be up to Latin American countries to generate more of their own growth – and the ones that fare best will be those who have made their labor laws more flexible, cut red tape, and taken other steps to stimulate business.
“There’s no question we’re seeing a change,” said David Rees, Latin America economist for Capital Economics in London. “The external drivers of growth are drying up and these countries will have to look to other sources like investment in order to keep up the pace.”
A DOGFIGHT FOR FIRST PLACE AMONG INVESTORS
One way to measure the trend is by looking at the World Bank’s annual “Doing Business” study, which ranks the business climate in 183 countries around the world based on how well they protect investors; the ease of starting a business; the simplicity of paying taxes; and other factors.
The cluster of Latin American countries that rank a clear step above their other regional peers in the survey are Chile (39), Peru (41) and Colombia (42).
All three of those economies are forecast to grow 4.5 percent or more this year, according to the International Monetary Fund‘s latest forecasts, made in October. Countries that rank lower in the Doing Business survey, such as Guatemala (97), Brazil (126) and Venezuela (177) are all forecast to grow in the 3.5 percent range or lower.
The divergent trend is even more pronounced in more recent 2012 forecasts by Wall Street firms such as Morgan Stanley.
The region’s other two big economies also appear to be headed in opposite directions.
Growth in Argentina (113) is expected by the IMF to be around 4.5 percent this year – but that’s just about half of last year’s pace. Meanwhile, Mexico’s (53) relatively open, low-tax economy should show resilience, with growth of 3.6 percent – well above its roughly 2 percent trend level since 2005.
Most of the countries at the top of the economic league table have vigorously implemented pro-business reforms in recent years, often with the explicit goal of improving their standing in the Doing Business rankings.
Peru, Chile and Colombia have been battling each other for supremacy within Latin America for years, said Luis Plata, a former Colombian trade minister. “We fought hard to be first,” he said in an interview. “It became a competition.”
“The rankings improve your standing with investors, but … the real reason to do it is to help you identify deep changes in the system, things that will help your economy grow better,” Plata said.
For this year’s “champion,” the dividends are clear. Chile saw foreign investment of $13.79 billion in 2011, a historic high that contributed to the country’s fastest economic growth in years. A top Chilean official told Reuters last month that the government expects a new record in foreign investment this year.
STALLED REFORMS IN BRAZIL
In countries closer to the bottom of the table, attitudes are notably different.
Argentine President Cristina Fernandez has shown few signs of softening an antagonistic stance toward some investors that in recent years has seen her government nationalize private pension funds and face widespread suspicions of manipulating basic economic data such as inflation.
Venezuela’s economy remained buoyant for years thanks largely to its status as South America’s biggest oil exporter, but Chavez’s frequent confrontations with business have hollowed out much of the private sector and left the economy dependent on state spending.
In Brazil, Latin America’s largest economy, the picture is slightly more complex. While successive governments have catered to private enterprise to a much greater extent than Argentina and Venezuela, Brazil has also failed to push any major pro-business reforms through Congress in a decade.
As a result, investors have become frustrated with the country’s high costs and red tape. Brazil dropped six spots in the latest Doing Business survey – more than any other big economy in Latin America – and ranks in the world’s bottom third in categories such as trading across borders, dealing with construction permits, and ease of paying taxes.
Partly as a result of the business climate, some economists believe that Brazil may be downshifting into a new era of 3 percent to 4 percent economic growth, which would be a letdown after the faster pace of previous years.
“Brazil hasn’t kept pace with some other (Latin American) countries on some of the really important long-term questions, and they may pay the price for that,” said Gray Newman, chief Latin America economist for Morgan Stanley.
“People focus on things like inflation, and that’s good, but what about – How long does it take to open a business? How easy is it to hire and fire?” Newman said. “The economies that are moving forward are the ones that have looked at those metrics, and have put them at the heart of government policy.”
(Editing by Todd Benson and Kieran Murray)
- Iranian president to tour Latin America (mb50.wordpress.com)
- Here’s What Lies Ahead For Latin America This Year (businessinsider.com)
- Ahmadinejad in Latin America: What’s Iran’s Agenda in the Western Hemisphere? (globalspin.blogs.time.com)
- Why Your Business Needs Latin America (greatfinds.icrossing.com)
- 2011 Tech Rewind: This year in Latin America (thenextweb.com)
- Iran’s president looks to Latin America as global sanctions grow (news.blogs.cnn.com)
- Is there a threat to the U.S. behind meetings of Latin American, Iranian leaders? – Alaska Dispatch (alaskadispatch.com)
Iranian president to tour Latin America
Mahmoud Ahmadinejad heads to Caracas looking to expand ties and lessen impact of sanctions
Saeed Kamali Dehghan, Tom Phillips in Rio de Janeiro and Virginia Lopez in Caracas
The Iranian president, Mahmoud Ahmadinejad, is due to touch down in Venezuela on Sunday on the first leg of a Latin American tour aimed at lifting his regime out of international isolation and bolstering its sanctions-hit economy.
Ahmadinejad, who is facing growing economic discontent at home and pressure from the west over Iran’s disputed nuclear programme, will also visit Nicaragua, Cuba, Ecuador and possibly Guatemala in a search for new and improved economic partnerships to reduce the impact of sanctions. The five-day Latin America visit is scheduled to start in the Venezuelan capital, Caracas, with meetings with president Hugo Chávez, a long-time ally.
Ahmadinejad is then expected to travel to Managua for the swearing-in of the Nicaraguan president, Daniel Ortega, before travelling to Cuba and Ecuador. Reports suggest he may also visit Guatemala.
The president’s entourage is expected to include the energy minister, Majid Namjoo, who has said the tour is aimed at promoting commercial ties with Latin American countries. Analysts view Ahmadinejad’s excursion as a reaction to growing economic difficulties at home and political isolation abroad.
Michael Shifter, president of the Washington-based thinktank Inter-American Dialogue, said Iran had economic and geopolitical agendas in Latin America.
“Iran has real economic difficulties and is isolated, so the trip makes sense in that context,” he said. “Latin America, in contrast, is in pretty good economic shape and is increasingly active in global, diplomatic affairs.”
Maria Teresa Romero, professor of international studies at the Universidad Central de Venezuela, said the trip was also intended as a warning signal to Washington.
“That Iran’s president has chosen to visit the region – and only the more staunch political opponents to the US – at a moment when tensions between the US and Iran are escalating is a challenge, a threat, from the Iranian government to the US that sends a clear message: ‘We can go to your backyard when we want to,'” she said.
Iran is grappling with a range of domestic and international problems.Its currency, the rial, has plunged to a record low in recent weeks, causing mayhem at the Iranian stock market and prompting fears over the future effects of the sanctions on the economy.
High unemployment, political power struggles and fears of unrest before the parliamentary elections in March have made the domestic political atmosphere increasingly tense.
At an international level, Iran has resorted to sabre-rattling and threatening countries involved in a campaign to bring sanctions against its central bank and impose a ban on the import of its oil.
Iran raised the stakes, warningthe west it might close the strait of Hormuz, a strategically important passageway in the Gulf through which one fifth of the world’s oil is transported, should greater sanctions on its oil be imposed.
Latin America has become an increasing priority for Ahmadinejad since his election in 2005. New embassies have opened in six countries, while state-run Press TV has also been beefing up its presence in the region, with correspondents in Caracas and more recently Sao Paulo.
On the eve of Ahmadinejad’s visit, one Press TV report said: “The promotion of all-out co-operation with Latin American countries is among the top priorities of the Islamic republic’s foreign policy.”
But Shifter said Iran’s president should not hope for big advances during his tour. Ahmadinejad will not visit Brazil, the regional economic powerhouse, as he did during his previous visit in 2009 – an indication that relations have cooled since Dilma Rousseff took over as president.
“Iran should probably keep its expectations in check. If Iran’s goal is to extend its influence, Latin America does not offer a hospitable environment. It is telling that the larger, more significant countries are not part of Ahmadinejad’s itinerary. These countries may want greater independence from Washington, and may be flexing their muscles a bit on the global stage, but they are not keen to be aligned strategically with Tehran,” he said.
Romero said that in the case of Hugo Chávez, who faces a tricky presidential election in October, the visit could even backfire.
“This is an electoral year in both the US and Venezuela, and I would be surprised if the Republicans don’t use this kind of event to exert more pressure on the Obama administration. I think sanctions against Iran are likely to strengthen, but I also think they could be extended to Venezuela.”
- State Department: Ahmadinejad Trip to Latin America a Sign of Desperation (foxnews.com)
- US: Iran ‘flailing’ for friends in Latin America (seattletimes.nwsource.com)
- Iran Leader’s ‘Tour of Tyrants’ Raises Concerns – Military.com (m.military.com)
- Iran accused of diplomacy offensive in US backyard (smh.com.au)
- Iran Seeking To Expand Influence In Latin America (mysanantonio.com)
- Iranian president expected to visit Latin America – Los Angeles Times (latimesblogs.latimes.com)
Obama Hits Iran-Venezuela Ties. Now What?
Posted By José R. Cárdenas
One certainly hopes that President Obama’s recent criticism of Iran-Venezuela relations indicates a new willingness on the part of his administration to confront the growing menace of the radical Islamist regime in the Western Hemisphere.
In comments submitted to the Venezuelan newspaper El Universal, the president said that Hugo Chávez‘s ties to Iran “have not served the interests of Venezuela or the Venezuelan people” and expressed concern about his anti-democratic behavior and his failure “to contribute to the security in the region.”
“Here in the Americas,” he said, “we take Iranian activities, including in Venezuela, very seriously and we will continue to monitor them closely.”
The president’s comments came on the heels of further explosive revelations on the extent of Iranian subversion of U.S. interests in the region. Earlier this month, the Spanish-language network Univision aired an investigative documentary,“The Iranian Threat” — the product of months of research — that included incriminating information on Venezuelan and Iranian diplomats in Mexico discussing waging cyberattacks on sensitive U.S. computer systems, including those of nuclear power plants.
Shortly thereafter, U.S. law enforcement officials revealed details of an investigation into a Lebanese bank in Canada that laid out Hezbollah’s sophisticated global money-laundering operations that includes direct involvement by senior officials in the lucrative South American drug trade. The revelations put the lie to the State Department’s long-repeated talking point that Hezbollah merely “raises funds” in Latin America for its operations in the Middle East.
Both reports drew sharp reactions from Capitol Hill, where a number of members have expressed deep dissatisfaction with the direction of the administration’s regional policy. Senator Bob Menéndez (D-NJ), Chairman of the Senate Foreign Relations Subcommittee on the Western Hemisphere, said he would hold hearings on Iran’s destructive role in the region when the Senate reconvenes in 2012.
House Foreign Affairs Chairman Ileana Ros-Lehtinen (R-FL) said she would request the State Department to conduct its own investigation “into Iran’s deeply troubling partnerships with regional dictators such as Chavez, Morales, Correa, Ortega and the Castro brothers.”
(It bears noting as well that in the Nov. 22 Republican presidential candidates’ National Security Debate, the threat posed by radical Islam operating in the Western Hemisphere was featured prominently as a national security issue that official Washington was neglecting.)
Thankfully, it appears the steady drumbeat of concern about Iran and their Hezbollah proxies’ strategic push into the Americas has finally caught the White House’s attention. To date, U.S. law enforcement agencies have had to confront this threat virtually alone. It is time the entire Executive Branch foreign policy apparatus joins in, including the slumbering State Department.
Most importantly, it is time for ramping up actions to back up the president’s words. This includes not only identifying more individuals, companies, and/or governments found to be aiding and abetting Iran and Hezbollah in their nefarious activities and bringing the full weight of sanctions against them, but also conducting a full-bore public diplomacy campaign for regional audiences on Iran’s intentions and activities in the region and the dangers for their societies therein.
To date, consorting with Iran has been a freebie for anti-American demagogues like Chávez, Ecuador’s Rafael Correa, and Bolivia’s Evo Morales. The administration needs to move now to raise the costs.
- The Mottled Relationship: Iran and Latin America (mb50.wordpress.com)
- U.S. authorities probing alleged cyberattack plot by Venezuela & Iran..the old chestnut is back (seeker401.wordpress.com)
- Iran, Latin American Ties Grow (myfoxny.com)
Update: Iran Conducting Anti-U.S. Operations from Latin America
Israel Ortega and James Phillips
December 9, 2011 at 2:35 pm
Iran is conducting anti-U.S. operations from Latin America, including military training camps in Venezuela, and expanding its reach across the border from the U.S. in Mexico, according to footage unveiled late Thursday by the largest Spanish-language network in the United States, Univision. The documentary showed a former Iran senior official accepting a plan to launch from Mexico a cyber war on the United States, one that would cripple U.S. computer systems, including the White House, the FBI, the CIA and several nuclear plants. The official, former Iranian Ambassador to Mexico … More
- Iran Conducting Anti-U.S. Operations In Latin America (video) (nicedeb.wordpress.com)
- Iran Conducting Anti-U.S. Operations from Latin America (atlasshrugs2000.typepad.com)
- Documentary on Emerging Iranian Threat to U.S. and Latin America (video) (creepingsharia.wordpress.com)
- Amb. Marc Ginsberg: Tehran’s Tango: Iran’s Terror Beachhead South of the Border (huffingtonpost.com)
- Iran, Latin American Ties Grow (myfoxny.com)
- Geronimo Story Reaches Latin America and Beyond (indiancountrytodaymedianetwork.com)
- Iran’s Springboard to America’s Backyard (wakeupamerica11.wordpress.com)
- U.S. should embrace Latin America (cnn.com)