The International Element of Argentine Domestic Problems

The recent food riots in Haiti were just the tip of an iceberg that extends as far south as Argentina. Brazil and Argentina are the world’s top producers of soy, after the United States, and Argentina is the world’s top wheat producer.

Both countries are under increasing pressure to reduce exports to safe guard the economy and the county’s own food stuffs. But Argentina is in a very difficult position where the government is at the beginning of what may prove to be a long and nasty process of readjusting food supplies, prices, and the balance between international demand and local needs. It will be a process felt across the world.

The 30-day truce between farmers and the Argentine government will end on 2 May. So far, negotiations have not gone well, as farmers are reluctant to pay even higher export taxes – the third tax hike on soy, for example. As the personal grudge the Kirchners have against the Argentine mega-farm aristocracy wages on, it is likely further disruptions in export for meat, soy, and wheat will continue into the near future.

Argentina’s internal wheat demand is some five million tons a year. It produces 15 million tons of wheat annually, exporting ten.

The battle over food exports in Argentina and the spike in food prices world wide has exacerbated a far deeper problem the country has with inflation. The country’s Agricultural Minister recently resigned, in part, due to his decision not to be a member of an administration that actively works to hide the truth about inflation.

As the real value of the Argentine peso against the dollar continues to slip, food prices in Argentina will rise. It is one thing to work a month and not be able to buy a luxury item. It is entirely another to work full time and not be able to buy food.

Expect the situation in Argentina to rapidly decline into street-level protests, perhaps even riots if the prices continue to scale up. The effects Argentina’s internal problems will have on the international level will be felt in the poorest countries most dependent on Argentine wheat. West African countries are at the top of this list.

Well aware of the situation in Argentina, Brazilian President Lula announced on 25 April that his country will increase wheat production to reduce dependency on Argentina. Lula’s announcement is in part politics, but it also reveals his take on the Argentine crisis. It is one the Brazilian leader expects will not improve for months, perhaps even years, to come.

Meanwhile, Venezuela simmers. Chavez said on 24 April that one day Venezuela will be a food exporter. Today, however, it is one of the region’s few net food importers. Chavez is likely worried about supply from Argentina as well as international food prices in general as his price controls may slip as government subsidies are not able to keep up with the rising price of food.

If price controls on the retail side do slip, many Venezuelans would find themselves waiting in long lines for basic foodstuffs only to realize they can’t afford them now – not an ideal combination for stability.

Brazil will again take the lead to do what it can to fight the rising cost of corn, wheat, soy, and other foodstuffs, as demonstrated by its recent donation of money for food to Haiti. But Brazil cannot act alone. If Argentina is unable to meet the world’s demand for wheat and soy, the ripple effect will reach from the middle class outlets in the United States to the smallest market in West Africa and beyond.

South American Defense Council

Speaking from the Miraflores Presidential Palace in Caracas, Venezuela on 14 April, Brazilian Defense Minister Nelson Jobim was confident the South American Defense Council (CDS) could be organized by the end of 2008.

“I believe the council can be installed by the end of the year,” he said.

Since 14 April, Jobim has moved on to visit Suriname, with visits planned for Guyana, Colombia, Ecuador, Peru, Paraguay, and Argentina.

The formation of the CDS would be the headstone of a region-wide military alliance that, according to Jobim, would not be the classical military alliance as it would not involve operational units.

Yet the formation of this alliance has caused concern in Washington as it is the region’s first military alliance that explicitly does not want the involvement of the United States. This concern, however is unfounded, and if Washington tries to get involved, it would find itself undercutting Brazilian leadership, allowing Chavez room to proselytize his message and anti-American position within the military alliance.

Many observers from inside the beltway do not take two important truths into account.

Despite photo opportunities and many hugs, Lula and Chavez are not friends. Lula's administration is populated with old-school revolutionaries who share some of Chavez’s vision but have little respect for his implementation process. Lula, after years of trying and failing to be president of Brazil learned the hard way that being a die-hard Socialist is no path to power in Brazil. As a lame-duck president, he is more interested now in his legacy and in passing the torch of leadership to a hand picked successor.

Keeping Brazil at the top of the region’s geopolitical totum pole is a top priority as voters in the next election will likely remember Lula’s often stated promises to make Brazil a global player. The first step up that ladder is regional dominance. Checking Chavez is essential to that goal.

The idea for this military alliance was born in Brasilia and appeases the Brazilian military voices who have been calling out for a check on Chavez and his military spending. Bringing Chavez under the reigns of a regional military alliance, in theory, gives the Brazilians room to exert some control over Chavez in a multilateral forum of regional friends where he is least likely to employ his unsavory acts of public outrage to spark nationalist tension at home.

This alliance also allows Lula to quietly remind Chavez who is the real power house on the continent. The Venezuelan military has shiny new toys, but neither Chavez nor his generals have the persuasive pull enjoyed by Brazilian military leaders, backed up by Brazilian military factories and years of service for militaries around the region.

The Bolivian army, for example, could not mobilize without Brazilian vehicles, parts, and service. The Colombian Air Force recently used Brazilian built Supertucano aircraft to bomb the FARC camp in Ecuador. Supertucanos were used on nearly all the major bombing missions against FARC encampments in 2007. They have had a major impact on the Colombian Military's increased in air raids. Brazil has the region’s largest arms and ammunition industry in the region and is region’s leader in nuclear technology, followed closely behind by Argentina.

With Lula calling the shots for his representative at the South American Defense Council, he remains in a position to apply pressure on Chavez to keep him quiet and involved in Venezuelan domestic matters, a focus that would benefit the Venezuelan president.

The region’s other military leaders are more likely to fall into step behind Brazil and if Chavez were to pull out of the alliance, he would remain more isolated within his own region than he is today – a stated goal of US foreign policy for Venezuela.

Washington frets about a military alliance in South America, but if Washington leaders can be objective about Brazil’s goals, they would see therein an ally that can do far better in controlling Chavez. If Washington meddles in the South American Defense Council, it would find a loud voice in Chavez and the Brazilians would be forced to join in, cursing Washington all the while for not letting them take the lead.

The Other Border

With so much focus on the US-Mexico border, it is easy to forget about Mexico’s border with Guatemala. It is one that in the coming months and years will likely become a concern and a serious problem if Mexico is forced to fight a two-front war against organized crime.

Two problematic areas have been established.

One is in southern Guatemala where the Suchiate river largely defines the Guatemala-Mexico border. This is an illegal immigrant corridor through which hundreds of thousands of undocumented Central Americans pass into the Mexican state of Chiapas.

And it is not just Latinos. On 3 April, six adult male Iraqis were apprehended after having crossed the Suchiate river on a raft holding falsified Dutch and Greek passports purchased in Guatemala. A total of 29 Iraquis were arrested in Chiapas in 2007.

Those who help Central Americans and other cross Mexico’s two borders are called “polleros” or sometimes “coyotes”. From 2000 to 2005, some 15,000 polleros were arrested in Mexico, and according to the Mexican National Migration Institute, 3,739 were prosecuted. The gap between arrests and prosecutions indicates a high level of complicity between polleros and the authorities tasked with stopping them.

A similar high number of arrests and low number of prosecutions continues through today, indicating the reports published concerning arrests of polleros or illegal migrants should be taken lightly as it is likely arresting officers will take a bribe. This system if catch and release then has served to enrich corrupt police officers more than it has to stop illegal border crossings into Mexico.

The other problematic area is in northern Guatemala in the department of Peten, where a largely lawless border area facilitates the ongoing construction of clandestine airstrips and the resulting movement of illicit cargo across the border into Mexico. It is an ideal smuggling route as there is relatively little government presence in the Peten and even less on the border.

Five principle border crossing routes have been identified by Guatemalan authorities: Pipiles, Santa Rosita, Bonanza, crossing into Chiapas, and El Repasto and El Sacrificio crossing into Campeche state. Near these border crossings in Guatemala are any number of landing strips, where men connected with Mexican trucking companies arrive at prescheduled times to pick up the cargo and transport to distribution centers further inside Mexico.

The Guatemalan government believes the Sinaloa Federation, the Gulf Cartel, and the Juarez Cartel all have agents working in the Peten region to move drugs into Mexico. These groups and others have worked in the Peten with near impunity for nearly a decade. So far, the Guatemalan government is powerless to stop them and help from the United States and Mexico is not on the horizon.

Together, both of these corridors represent the number one reason why Guatemala is a magnet for drug trafficking and illegal immigration. The combined result is more than the state of Chiapas, historically one of the most poor Mexican states, can handle.

With all eyes fixated to the north where President Calderón has focused the might of the Mexican military to combat organized crime, there is little help coming from the federal level to assist with what is clearly another major national problem in Mexico. It is one that has a clear spillover effect in the United States, the ultimate destination of both the drugs and humans that pass from Central America across Mexico’s other border to ultimately arrive on the northern shores of the Rio Grande.

Lula-Chavez Recife Summit Summary

Venezuelan President Hugo Chavez arrived in the northern Brazilian city of Recife on 25 March to review with Brazilian President Lula the Abreu e Lima petroleum refinery, to be built under an agreement between Petrobras and PDVSA. The meeting itself resulted in little more than photo opportunities, but it did reveal a growing weakness in Chavez’s position. By the end of the summit, Chavez revealed he doesn’t have the money to pay for his end of the refinery. He agreed in principle to a regional military alliance, and signed deals that open up more trade flowing from Brazil to Venezuela.

Contrary to what many believe, Lula and Chavez are not good friends. They do have some ideological overlap, but Lula is interested in seeing his country take the regional leadership role for good. And if he has to crush Chavez to make that happen, so be it. But Lula’s tactics are not direct. He’d rather smile and hug Chavez, and only afterwards use Petrobras, a military alliance, and an unequal trade balance to pull Venezuela into a dependency that forces Chavez to acquiesce to Brazil’s political leadership in the region.

It is no secret that PDVSA has a cash flow problems. Chavez has outspent his enormous oil windfall and despite the high price of Venezuelan heavy crude, PDVSA cannot keep up with the production necessary to sustain Chavez’s expenditure appetite. It’s a matter of expertise and the ability to run an efficient refinery. Petrobras has both.

The Abreu e Lima refinery will have the capacity to produce some 200,000 barrels of oil a day with the potential of expansion to 400,000. Talk of the refinery has been ongoing since 2005 with no formal agreement in place.

During the presidential summit, no formal agreement was reached, indicating that Chavez simply doesn’t have the cash to put up his part the US$4 billion price tag for the refinery.

Most in Brazil expect Petrobras to build the refinery itself, scrapping the proposed 60-40 split between Petrobras and PDVSA. Lula’s bet is that by 2010, when construction of the refinery is expected to be complete, Chavez will have no choice but to do what it takes to get PDVSA crude oil into the Petrobras heavy crude oil refinery.

Lula has also moved to arrange agreements to continue exporting to Venezuela. Milk, beef, and other foodstuffs are at the top of the list, and trade between the two countries is expected to rise from US$5 billion in 2007 to US$8 billion in 2008. This increase in trade will undoubtedly become unbalanced in Brazil’s favor as Venezuela continues to import the food its own farmers and merchants can no longer sell Venezuelans at competitive prices.

Finally, with talk of the South American Defense Council on the regional agenda, it is likely Venezuela will sign onto the agreement. Brazil’s Defense Minister will travel to Caracas in the middle of April, and it is possible he obtains backing from the Venezuelan military. It would pave the way to bring other countries on board. Along with Venezuela, there is some indication that Brazil will pull in Bolivia, Colombia, Guyana, Ecuador, Peru, and Paraguay.

This summit did little for Chavez. He did manage to secure more foodstuffs for Venezuela and indicate that he’s at least interested in the military alliance. For Brazil, the summit was enough to solidify in Lula’s mind what many in Brazil have been thinking all along. It was wise to let Chavez act like the regional leader for a time. He had the money and some interesting ideas. But he burned hot and fast. In the coming months and years, it will become undeniably clear to Chavez and the rest of South America that Brazil is coming into its own and that Chavez was just a fad