1. The Dutch government ruled that Hugo Carvajal did merit diplomatic immunity, forcing the government of Aruba to release him. Flying back home to Venezuela, the corrupt narco-general was given a hero's welcome by the Maduro government.

    Maduro's approval rating is hovering around or below 40%. There is a perception the Maduro government is too focused on defending the interests of a Bolivarian elite instead of the population. There is a perception that they hide corruption and allow corrupt leaders to hold positions of power. There is a perception that drug trafficking and the violence associated with it is increasing, and that segments of the security forces are partially to blame. There is a perception that Maduro is a weak leader who allows himself to be manipulated by other forces within the party.

    It's not just the opposition, but the general public and party base that are concerned over these problems. Over the weekend, Maduro faced a PSUV party congress in which a portion of the party base showed disapproval with how the party and country are being run.

    When the Maduro government greeted Carvajal as a hero, they reinforced everything that the general public and PSUV party base view as wrong with the Maduro government.
  2. In February 2008, Semana Magazine called General Hugo Carvajal "El Montesinos de Chávez." It was a recognition that the head of Venezuela's intelligence services was helping the FARC traffic drugs and was supplying the group with weapons. Others have called Carvajal one of the top capos within the "Cartel de los Soles," the drug trafficking group that is managed by some of the top levels of the Venezuelan military. The US government placed sanctions against Carvajal for his role in trafficking drugs and aiding the FARC.

    Yesterday, Aruba detained Carvajal, setting off a potential extradition battle. Carvajal had traveled to Aruba (on a private plane with $20,000 in US cash) while awaiting his acceptance as Venezuela's top diplomat there. President Maduro loudly denounced the "kidnapping" of the general.

    In any drug trafficking organization, taking out the top leader often leads to infighting and instability. What happens when that drug trafficking organization is also part of the Venezuelan military? While most of the world watches Maduro and the US fight it out over Carvajal's extradition, the less public fight to watch may be who tries to take Carvajal's place within Cartel de los Soles.
  3. In an article for Southern Pulse earlier this year, I pointed out that Nicaragua's Canal deal includes numerous infrastructure projects on top of the Canal.
    Most importantly, the agreement says that HKND has a right to build all, some or none of the projects on its list depending on forthcoming feasibility studies and investments. This means that Wang Jing’s HKND could control territory along a potential canal route, build and control ports, pipelines and free trade zones with limited tariffs and economic sovereignty, without ever building the actual Canal.
    Nicaragua formalized the rights to projects in the autonomous canal zones in its constitutional reforms last year.

    Most people understand that the canal is a potential engineering and environmental disaster that may never be built, but there are certainly profitable infrastructure projects within the agreement that HKND and the Sandinistas are likely to pursue. The question has been what projects would HKND actually build. I thought the port concessions, airport concessions and potential free trade zones for manufacturing were the likely real goals of the agreement from both the Chinese and Nicaraguan sides.

    However, Confidencial reports a major piece of news this week:
    HKND revealed a gigantic tourist project announced as the “San Lorenzo vacation resort”, located more than 10 kilometers south of Brito, i.e., a considerable distance from the canal route. This area includes seven miles of beaches, - Ocotal, Majagual Pitahayas and Maderas- a stone’s throw from San Juan del Sur. These lands comprise hundreds of properties owned by Nicaraguans and foreigners and a dozen hotels, including the world-renown Eco touristic Morgan's Rock.
    If this is true, HKND and the Ortega government will use the canal agreement and subsequent constitutional changes to expropriate some of Nicaragua's coastline and build a vacation resort, which was completely unmentioned in the original canal debate. Foreign investors who doubted whether it was safe to invest in Nicaragua's tourism industry may be proven correct.
  4. China is lending Venezuela another $4 billion dollars. In exchange, Venezuela will ship another 100,000 barrels of oil per day to China as repayment for an unspecified amount of time. Venezuela already owes China around $40 billion in similar deals.

    Just to run the back of the envelope math for you, 100,000 barrels per day at $90 per barrel would be worth $4 billion for Venezuela in about 15 months.

    How long do you think the Chinese loan term is for? If it's 18 months, then China will get nearly an extra one billion dollars worth of oil, a 20% return on its loan. Nice deal. If the repayment is over two years, then it's an extra $2.5 billion in oil on top of the initial $4 billion payoff. That's a return of over 60% on a two year loan. That's Venezuela choosing to receive $4 billion today instead of $6.5 billion by mid-2016.

    If this was a Wall Street hedge fund taking advantage of Venezuela's weakened financial position to take 60% return rates, I'm sure the word "vulture fund" would be tossed around. However, this is more of a payday lending scheme than a vulture fund play. The funny thing is China doesn't need the oil profit as much as it needs to locked-in oil supply. The profit is a bonus and a payment on risk given that China, like every Wall Street market analyst, can't be certain when Venezuelan financial and political stability will eventually run out.

    China's other agreements with Venezuela are also fairly favored towards China, similar to the agreements I described with Argentina yesterday. For example, one of the agreements signed says China is lending PDVSA money (on top of the $4 billion mentioned above) so the Venezuelan government can purchase 1,500 buses from China. For a country like Venezuela whose vehicle manufacturing industry has crashed, being lent money (repaid in oil) to purchase foreign autos instead of rebuilding domestic industry is Galeano-style Open Veins dependency.

    Of course, by not involving the United States, Venezuela will claim China's agreements to lock in oil and export markets at huge profits are part of "socialism" and "anti-imperialism."
  5. Chinese President Xi Jinping and Argentina President Cristina Fernandez de Kirchner signed about 20 different agreements during Xi's trip to the region.

    China will agree to an $11 billion currency swap that will allow Argentina to pay for its Chinese imports in yuan. While this gives Argentina a bit of breathing room on its foreign currency reserves, it's China giving money to Argentina so that Argentina can buy Chinese (and only Chinese) goods.

    China will loan Argentina $4.7 billion to build two hydroelectric dams. The dam bids have already been won by China Gezhouba Group Corp.

    China will loan $2.1 billion to finance a railway project intended to help Argentina export more grain and soy at cheaper prices to China.

    On nuclear energy, China will provide financing to Argentina's nuclear powerplant upgrades. The goods and services related to those upgrades will be purchased from China's National Nuclear Corporation.

    On telecommunications, China's assistance means Huawei will receive preferential treatment in upcoming bidding processes.

    On mining, China will increase investments into Argentina's lithium, potassium, copper and iron mines to export those goods to China.

    Given the amount of time and energy Argentina has spent in recent decades complaining about "strings attached" to various international financing agreements including the IMF, the Kirchner government pretty much rolled over to all of China's requirements within these deals. This isn't free money for Argentina. Every time China invests, they expect business and a locked in supply chain in return. When China hands out a loan to Latin America, it often comes with the condition that the money be used to purchase Chinese products and services.

    With Argentina's current economic situation and the pressure they are facing from the debt negotiations, it isn't a surprising move for Kirchner to turn to the Chinese for assistance. China is a potential deep-pocket ally as Argentina faces roadblocks in more traditional debt markets, but the conditions attached to those loans and aid packages matter. If Argentina once worried about a loss of "sovereignty" during previous economic negotiations with the US, Europe and international financial groups, then they should perhaps look at what concessions they are signing here with China.
  6. This week, Russian President Vladimir Putin made his way through Cuba, Nicaragua, Argentina and Brazil, and you can read all the glowing coverage of it here on RT. He forgave Russia's debt to Cuba, signed cooperation agreements, and convinced Brazil to avoid any critical statements on Ukraine.

    A few hours later, Russian military equipment was used to attack a Malaysian Airlines plane in a Russian-backed rebel controlled region of Ukraine, killing 300 people. We still don't know all the details, but it appears fairly likely that the world can blame Russia's role in instigating the conflict, backing the rebels, and arming them with equipment capable of shooting international civilian aircraft flying at cruising altitude.

    In a few days, most of the world isn't going to remember that Putin was in Latin America this week. Some of Russia's allies in the region including Nicaragua and Cuba will certainly back the Russian version of events, in spite of weak evidence.

    However, even if they don't publicly speak out much, I think many Latin American leaders including Brazil will remember the Russian president coming to their region, telling them one narrative, then having it immediately contradicted by events. It has the potential to have a long term negative impact on Brazil-Russia and even Argentina-Russia relations.
  7. By now I’m sure you’ve read several analyses about how Brazil’s terrible World Cup showing will NOT affect President Rousseff’s reelection. That’s probably correct. As I predicted over a year ago, the Brazilian election is likely to go to a second round. However, like all Latin American presidential incumbents, Rousseff remains the favorite for reelection.

    Admitting that the World Cup loss won’t impact the election does raise the question of what sort of surprise event would make Rousseff’s reelection less likely.

    Like almost any fair election anywhere in the world, the economy is the number one issue for voters. To that end, two of Brazil’s neighbors and biggest trading partners are facing fairly negative economic conditions.

    Argentina is in a recession, facing 30% inflation, and mismanaging the current debt crisis, which could lead to significantly higher political or economic instability. Overall, the Kirchner administration has treated its Mercosur partners as economic competitors rather than partners, harming the whole region’s economy and dividing the group.

    Venezuela, also in a recession and facing 50% inflation, is four to six months behind in paying all its Brazilian debtors including the construction giant Odebrecht. If Maduro actually feels any ideological affinity for Rousseff, he could do her a big favor by paying back overdue debts to Brazilian companies soon. Though that would help Rousseff, given Venezuela’s inflation (among the highest rates in the world) and awful currency control mess, that decision may be out of Maduro’s hands.

    Problems in both neighboring countries are weighing down Brazil’s economy and the potential for a sudden crisis certainly exists in either case.

    I’m not predicting either Argentina or Venezuela will face an economic disaster in the coming months (both will likely plod along as usual). But if you’re looking at potential risks to Brazil’s economy and Rousseff’s reelection, a sudden economic drop in either of Brazil's neighbors is the most probable of the unexpected external shocks that Brazil could face and it would immediately place Rousseff’s reelection at risk.
  8. Even as we talk about a refugee and migrant crisis along the border, there are two larger points that place the 100,000 Central American refugees who will cross the border this year into context.

    The border is more secure than ever. There are more border patrol agents, more cameras, more technology watching the border and stopping various crossings than at any point in history. The number of apprehended migrants under the Obama administration is far lower than the numbers under Presidents Clinton and Bush, as far fewer migrants attempt the journey today in 2014 compared to 2004 or 1994 (and the number of deportations are higher). That so many migrants this year are handing themselves directly to border patrol suggests the level of security coverage that is currently on the border.

    The border has significant legal activity. Over one million people legally cross the US-Mexico border every day. Over a billion dollars in legal trade occurs every day across the border. These legal activities are absolutely vital to the economies of both the US and Mexico and far outstrip the illegal activity including migrant border crossings. Were that legal trade or migration be slowed or shut down, it would be devastating to both countries. As we talk about the crisis on the border regarding refugees and migrants, we need to remember the context that the number of refugees crossing illegally is a small trickle of water compared to the huge flow of legal migration and trade that occurs.
  9. As part of trying to reduce the number of child migrants arriving at the US-Mexico border, the US has launched a media campaign in Mexico and Central America.
    The Dangers Awareness Campaign materials include print, radio and TV ads with the universal message:
    -The journey is too dangerous;
    -Children will not get legal papers if they make it.
    -They are the future—let’s protect them.
    All three messages are accurate. It would be best for Central American parents to hear them and not send their children. However, that first message is not one we should be proud of.

    "The journey is too dangerous." It's true, but it shouldn't be. Citizen security is a major goal of US policy in this hemisphere, particularly under CARSI and the Merida Initiative. In telling Central Americans that the journey is dangerous, the US government is tacitly admitting the security policies that the US and its partners are promoting in the region aren't working. In advertising and promoting the insecurity of the journey through Central America and Mexico as a deterrence, the US is embracing a message and a situation about the region's security that we're supposed to be trying to change.

    We (the United States, Mexico, the rest of Latin America) should want that journey to be safer. We should want people, even those without the correct paperwork, to be able to travel by land from Panama City to Montreal without the fear of being assaulted, raped or killed at any point along the way. We should view the current lack of security along travel routes as part of the security problem that is driving migrants and refugees to leave, not a deterrence message to be promoted.

    The success of US policy will not occur if we convince Central Americans that the trip is too dangerous. Success will be when the region is safe enough that people can make that trip without fear.
  10. Reading the NYT editorial on Afghanistan this morning, I came across this:
    With American troops withdrawing from the country, Afghanistan is at a precarious moment. As the United Nations reported on Tuesday, 1,564 civilians have been killed and 3,289 injured during the first half of this year, a 24 percent increase compared with the same period last year, driven by increased ground combat between the Taliban and Afghan government forces.
    Tragic as those numbers are, if you're someone who focuses time on Central America you read those numbers and thought, "Only 1,500 dead?"

    As of mid-June 2014, Honduras registered 2,634 homicides. That's among a population of eight million vs Afghanistan's 30 million.

    The UN report about Afghanistan cited by the NYT says 295 children have been killed in Afghanistan's violence so far in 2014. Today's excellent NYT article on Honduras's violence says 409 children have been killed so far this year. Once again, Honduras is a country with less than 1/3 the population of Afghanistan, and the numbers of victims of violence are still higher.

    I care about what happens in Afghanistan. I have friends who have served over there. I certainly remember the Taliban's support to those who committed the 9/11 attacks. But anyone who looks at these statistics about Central America needs to question US priorities in terms of time, attention and budget.

    Which country's violence impacts the US more on a day-to-day basis? Which country's violence is leading directly to refugee camps inside the United States' borders? Which country's potential political implosion (again) will have more of an impact on the US and its neighbors?

    The Obama administration has requested a $59 billion budget supplemental for Afghanistan and only $300 million for all of Central America's Northern Triangle. If the US could move two billion from our efforts in Afghanistan (where that amount of money is essentially treated by Congress as a rounding error) to Central America, it could have a game-changing impact on the security and stability of our neighbors.

    General Kelly, Commander of Southcom, recently said the security situation in Central America and along the US-Mexico border is an "existential" threat. While I disagree with his choice of words, his point about budget cuts impacting the military and the entire US government's ability to help our neighbors in Latin America and maintain our own security is absolutely accurate.

    It's ridiculous that the US government is going to spend over $50 billion on Afghanistan in 2014 while Congress argues over less than 2% of that amount in Central America. My opinion: Congress should take 5% of the money planned for Afghanistan, $2.5 to $3 billion, and reappropriate it to US efforts in Latin America. It should be split down the middle in terms of security assistance and economic aid. That money would have an immediate impact and show that the challenge is being taken seriously.

    Academics, bloggers and think tank analysts who speak and write about Latin America's security challenges and potential US government policies should frame the debate in terms of what is done and how much is spent elsewhere in the world. We need to start using big budget numbers and arguing that Latin America deserves the US attention and assistance more than the Middle East or South Asia. We need to have a public debate with people who work on Middle East and South Asia issues that money would be better spent in Central America than Afghanistan. We can win that argument if we're willing to hold it.
Loading