COLOMBIA
Two major political developments are unfolding in Colombia. The first relates to the evolving negotiations between Colombia and Venezuela over the return of Venezuelan businessman and suspected drug kingpin WalidMakled, who is in Colombian custody. Colombia has agreed to extradite Makled, who claims to be privy to intelligence implicating Venezuelan officials in nefarious activities has appeared to make Venezuela very nervous. As a result, relations between the two states have warmed, with Venezuela moving to cooperate significantly on the capture and extradition of Colombian militants. The two countries have also discussed closer collaboration between Colombian state-controlled energy firm Ecopetrol and Venezuelan state-owned energy firm Petroleos de Venezuela (PDVSA). It is not clear at this point how long Colombia plans to hold Makled, but the issue has led to some confusion among the actors -- with Colombian President Manuel Santos stating and then refuting that FARC rebel camps are no longer in Venezuela, and a reported statement of dubious credibility from FARC leader Alfonso Cano that high level leaders have been recalled to Colombia. The second major development in Colombian politics is the debate starting up in the senate as to whether or not the state will allow an additional 10 percent stake in Ecopetrol to be sold to investors. Santos had attempted to release the shares by presidential emergency decree, but the courts rejected the action, returning the issue to the legislature for debate.
VENEZUELA
Venezuelan President Hugo Chavez issued a decree in April raising the windfall tax on petroleum sales. The new law expands on the 2008 windfall tax by raising from 50 percent to 80 percent the tax on oil income above $70 per barrel and implements a 95 percent tax for every dollar above $100 per barrel. The tax will funnel money directly to the National Development Fund (Fonden). Among myriad other uses,Chavez will use this money to finance the social projects he uses to maintain support among the poor. High oil prices, which for the Venezuela basket of oils is hovering around $108 per barrel, are a boon for Chavez, who is experiencing significant challenges at home with a deteriorating electricity sector, rising inflation and a shaky housing sector. With presidential elections approaching in December of 2012 and a newly announced opposition primary election in February, Chavez will need a great deal of capital to finance welfare campaigns and shore up support.
ARGENTINA
Troubles persist among unions in Santa Cruz province, whose strikes have halted crude oil in the region. Though the union struck an initial deal with the government, union leaders reportedly did not consult the union members. The union members have subsequently promised to strike until union head Hector Segovia resigns. The standoff is underway and likely to complicate energy production into May. The danger is that if these strikes continue much longer, Argentina -- which already suffers from supply challenges -- will experience significant gasoline shortages despite government assurances to the contrary.
PERU
With the first round of elections completed in April, the next month will be dominated by the competition between the two top candidates OllantaHumala and Keiko Fujimori. At the time of writing a few weeks after the first round, it appears that Fujimori has been able to pick up the approval of supporters of PKK candidate and economist Pedro Pablo Kuczynski as well as former Lima Mayor Luis Castañeda for a total approval rating of 36 percent of the population. Humala, for his part, appears to have secured the support of voters who otherwise would have voted for former Peruvian President Alejandro Toledo, for a total approval rating of 42 percent. At this point in time, it seems unlikely that Fujimori will be able to generate an upswing in public opinion that would allow her to win the election, although she is reaching out to undecided voters and to those who have indicated they will decline to vote. As the clear front runner, Humala has made a concerted effort to portray himself as a moderate leftist like former Brazilian President LuizInacio Lula da Silva, and has emphasized his intentions to have a peaceful relationship with Chile (reversing his stance in the 2006 elections). Nevertheless, Humala can be expected to take a very strong nationalist stance, with policies that emphasize poverty alleviation and income redistribution. Negotiations on the Camisea natural gas project have been put off till the new president is selected. Should Humala win, the government can be expected to push for export royalties that will incentivize the sale of natural gas within the domestic market, as opposed to the international market.
BRAZIL
Brazil will continue to be absorbed by concerns about the appreciating real in May, which has risen 45 percent over the past two years against the dollar. The issue has increased in urgency as cheap credit abroad and intense interest in the possibilities of high returns in Brazilian investments has increased capital flows into Brazil. Though there has been a great deal of discussion of inflation -- which has reached 6.4 percent, just below the central bank's higher end target of 6.5 percent -- as a possible problem, the real issue is the threat of a long term strategic decline in Brazil's manufacturing sector. The appreciation of the real reduces the competitiveness of the Brazilian export sector, which already suffers from serious inefficiencies that are a product of Brazil's highly protective trade policies, restrictive labor laws and inadequate infrastructure. This threat compounds the impact on the export sector of increased flow of cheap Chinese manufactured goods, which have caused deep concern among Brazilian manufacturers, but at the same time, have the beneficial impact of keeping consumer prices low.
MEXICO
Violence is increasing in the northern Mexican states of Tamaulipas, Nuevo Leon, Chihuahua, and Sonora. Los Zetas are battling the combined forces of the Gulf cartel and the Sinaloa Federation for control of plazas and smuggling corridors in the northeast, while Zeta groups are helping the Cartel Pacifico Sur and the Vicente Carrillo Fuentes cartels fight the incursions of the Sinaloa Federation in Sonora and Chihuahua states respectively. Further south, violence continues to escalate as the Independent Cartel of Acapulco and the Cartel Pacifico Sur (former factions of the BLO) battle each other - and the Sinaloa Federation - for control of Guerrero state and its seaport Acapulco, as well as Durango and Jalisco states. The Sinaloa Federation is expanding its areas of control aggressively, taking advantage of the weakened and fractured La FamiliaMichoacana and its possible alter ego group the Knights Templar in Michoacan state, constricting the Vicente Carrillo Fuentes cartel in Juarez and the Arellano Felix Organization in Tijuana. Los Zetas has lost a few more of its older more seasoned plaza bosses, and as a result we expect to see increased out-of-control behavior from Zeta cells in Nuevo Leon, San Luis Potosi and Tamaulipas states. The likely winner in all of these regional conflicts will be Sinaloa Federation, and the outlook for May is one of escalating violence in all sectors as the regional cartels will be fighting for their existence.
ECUADOR
Ecuadorians will go to the polls on May 7 to vote for changes to the constitution proposed by Ecuadorian President Rafael Correa. The included in the referendum are constitutional changes that will centralize control over the judiciary under the central government, increase the amount of time that individuals may be held in detention without being charged with a crime, further regulate the investments of media and financial firms and regulate the content of media publications. The reforms appear to have wide popular support and can be expected to pass. Correa may win the referendum, but trouble may again be brewing among Ecuador’s police officers, who staged significant unrest in September, 2010to clarify, this was a strike in protest of a law that would reduce their benefits?. According to Ecuadorian National Police chief of staff Wilson Alulema, opposition elements have been encouraging another police revolt through the dissemination of flyers and emails containing allegations against the government. Safe to say that should another strike and related unrest take place (is it not clear when this may happen or is this possible within the next few weeks?), it could lead to a degradation in the security environment (were the protests last year just in Quito or country wide?), which poses logistical and personal safety concerns for foreigners and foreign business operations in the country. All of this comes at a time when Ecuadorian relations with the United States have deteriorated significantly. Ambassadors have been expelled from both countries, and business is being conducted through the mediation of the business attaches. Correa has expressed optimism that the rift will be short lived, and Quito has made significant overtures to the United States.