War and Trade

The Venezuelan government has replaced Colombia with the United States as a main supplier of meat, fabric, clothes, cooking oil, and pharmaceuticals among other items.

Since July 2009, when President Chavez ordered a freeze in Venezuelan-Colombian relations, diplomatic ties have been severed with commercial ties under considerable restraint.

Chavez has looked to China, Argentina, Brazil, Uruguay, Bolivia, Ecuador, and now the United States to provide goods that Colombia previously sold to the Venezuelan market.

Obviously, this is a clear case of Chavez placing political considerations over economic good sense. Transaction costs alone dictate that the farther an item has to travel before arrival in market, the higher the cost, apart from the time it takes to establish new relationships, determine which products to buy, and so on.

Replacing Colombia with Ecuador or Venezuela probably doesn't make much of a difference, and given the extremely low cost of Chinese goods, there's probably an acceptable pay off there, economically and politically.

But when Chavez turns to the "evil empire" for a long list of goods, he's increasing transaction costs and further deepening the double standard under which his government operates with the United States.

Chavez is happy to sell the US oil and buy US goods, but he's just as quick to claim that the US is about to invade.

At the core of the decision to purchase goods from everyone but Colombia, however, is that Chavez is distancing Venezuela from his western neighbor, and the de facto nature of the two country's close commercial ties has been the strongest argument for why Caracas will not go to war with Bogota.

Yet the war drums continue to beat. Rumors of war circulate, and on both sides information continues to circulate about military activity on the border, including illegal fly overs and tense troop encounters.

As I wrote before, Venezuela would not do well to enter a protracted war with Colombia, but a quick and dirty firefight that ends before even the media picks up on it would serve Chavez's rhetorical purposes well - all just in time for the September legislative elections…

Chavez, CTD?

When I worked as an emergency medical technician many years ago, we used a short-hand lingo to describe the status of victims. We used "CTD" to describe someone who didn't have long to live. Their lives, like the water in a bathtub soon to disappear down the pipes, was "circling the drain."

With all the recent protests and such in Venezuela, I've fielded a few questions here and there concerning Chavez's chances for political survival. I have to say, they still look pretty good. Students continue to protest, and they have solid grievances, from the closure of television stations to energy and water shortages, and violence. In Caracas alone, some 34 people died from 29 to 31 January.

And on 1 February, a group of former Chavez supporters published their call for him to resign. This group, known as the Polo Consitutional "urged" the ruler to resign.

Yet on the same day, Chavez opened government coffers once again to solve his problems. He has announced a US$1 billion fund for investments in Venezuela's energy infrastructure, announcing a raft of projects designed to fill the gap between the country's energy demand and stagnant supplies, focused mostly on the Guri damn hydroelectric plant.

Ahead of the September legislative elections, we've seen Chavez stumble but he has a long way to go before he falls. The recent currency devaluation doubled the amount of money he has available to spend inside Venezuela. And as the price for oil remains relatively high, Chavez continues to collect foreign exchange. We're watching a long list of items, however, to see where and when support for the embattled president will begin to deteriorate. At the top of the list is food and water. Inflation, security, and jobs round out the top four.

Chavez has his work cut out for him, but there's plenty of time before the elections. As one local journalist said, Chavez will shoot for 70% control of the National Assembly, but even if he wins 60% he'll still be happy and solidly in control of the country's legislative agenda and output.

Chavez: Going out with a bang

During a lecture I gave yesterday on Mexican DTOs and criminal insurgencies, one of the students brought up President Chavez and the civilian militias in Venezuela.

He wondered out loud about how civilians with little training and a handgun could - over time - contribute to insecurity in the South American country. And that got me thinking...

A friend who travels to Caracas regularly has told me that even in the light of day you can't walk through the middle of town in a suit without feeling like you might be mugged at any moment. I felt the same way the last time I was there.

And as SouthernPulse has reported, there were over 14,000 murders in Venezuela during 2008 - compared to a little under 14,500 murders in Mexico between December 2006 and December 2008.

After a quick look, I found an interesting piece on Venezuela's civilian militias, recently published by Colombia's Semana Magazine.

The "Milicia Bolivariana" is a fifth fighting force made up of civilians. A presidential decree formally inaugurated this militia in October of this year, and plans to have at the least a million individuals prepared to repel any invasion of Venezuela.

Chavez tried to slip the creation of this militia in the 2007 referendum, but it was not approved. Only when the National Assembly approved the "lye organica" for Venezuela's military was his militias finally added as part of Venezuela's fighting forces.

The militias will have two components. One referred to as territorial, and the other combat. The territorial component will be made up of what amounts to domestic spies, something similar to the revolutionary defense committees in Cuba, which have had everyone in Cuba speaking in a whisper for decades.

The combat component seems to be little more than a formal expansion of the so-called "circles bolivarianos", which are made up of uber-Chavez supporters (see photo), armed to defend his policies across the country capital city, especially in the slums of Caracas, and some would argue in countries across South America such as Bolivia, Ecuador, Colombia, Argentina, and Peru.

These men essentially formed street gangs that have over time become quietly marginalized by the Chavez government, some argue, because Chavez realizes that they were a mistake, one that today cannot be controlled. And here I must recall the high murder rate in Caracas, as I would suspect that homicides have a lot to do with what left of the circles bolivarianos."

Venezuelan security analysts agree that there are between nine and 15 million illegal weapons in circulation in Venezuela today. That is, there is little control over stockpiles or any efforts to remove these arms from circulation.

Add to that reality one where normal civilians are armed, waiting to be called to war by their president, and we have an extremely volatile situation, especially around election time.

As we watch Chavez's popularity slip, I'm becoming more convinced that when he goes, not if, he'll go out with a bang, or perhaps a few million "bangs."

Lula's UNASUR Summit

Southern Pulse Intel Brief | 27 August 2009

republished here with permission from Southern Pulse editors.

Brazilian President Luis Inacio “Lula” da Silva generated the most interesting news this week, ahead of the 28 August UNASUR summit, to be hosted by Argentina in the ski-resort town of Bariloche.

On 22 August, Lula signed a raft of agreements with Bolivian President Evo Morales in Bolivia’s Chapare region. An agreement worth US$332 million underpins the construction of a 306-kilometer highway from Villa de Tunari in the Chapare to the eastern Bolivian department of Beni.

Brazil has also agreed to import tariff-free textiles worth some US$21 million, which is the same amount of money Bolivia lost due to Washington’s decision not to renew the US-Andean Trade Promotion and Drug Eradication Act (ATPDEA) last year. The two leaders also discussed changes in the Brazil-Bolivia natural gas deal, as well as cooperation for bilateral efforts to combat the drug trade, but no solid agreements surfaced.

By many accounts, this meeting was a significant win for Morales, who has been under pressure to find alternative markets for Bolivia’s textiles. The highway construction will also please Chapare leaders, who are Morales’ closest political supporters. He will need them later this year for the run up to Bolivia’s 6 December 2009 presidential elections

For his part, Lula has assured support from Bolivia, despite Morales' anti-US stance, at the UNASUR summit, which promises to be contentious with both Venezuela and Colombia in attendance, and with Ecuador currently holding the president’s chair, which Colombia will likely view as an unfair arbiter.

While Lula has voiced some concern about Colombia’s agreement to allow the US military access to seven military bases in Colombia, he does not side with Chavez, nor can he take such a hardened position against Colombia. UNASUR is widely considered Brazil’s initiative and the strongest effort towards unifying South America under Brazil’s leadership. Lula cannot lean too far to the left in criticizing Colombia and the US at the risk of distancing himself from regional moderates and Washington.

The concern over US bases in Colombia does signal that the United States can still tilt the balance of soft-power in the region, but Lula’s deft diplomacy will likely win out. He did invite President Obama to attend the summit, and while Obama will likely not attend, Lula can at least maintain an open posture towards Washington, signaling that as the de facto regional leader, Brazil has nothing to fear from the US’ increased military presence in Colombia. He also did receive assurances from Obama’s National Security Advisor, Jim Jones, in early August that there would be a “good explanation” for the US’ presence in Colombia.

But Brazil would like a commitment: Obama will not use the Colombian bases to launch missions into other countries. This request is also one made on behalf of all of Colombia’s neighbors - a conciliatory geopolitical stroke ahead of the summit to make sure that Ecuador, Colombia, and Venezuela can at least agree on something.

FARC kills eight soldiers

When I see news about the FARC killing eight soldiers in Colombia, near the Venezuelan border, I'm reminded that there is still some fight in this old revolutionary dog.

The Colombian government argues that the FARC is on the decline, with high desertion rates, and a declining revenue base.

And it's true. The FARC today is not what it was five years ago, or three years ago. I think we're looking at the "middle of the end" for the FARC.

But I have to consider the possibility that the FARC has, for years now, made concerted efforts to move beyond Colombian borders into Venezuela and Ecuador. Some time ago, we prepared a piece on the FARC's presence outside of Colombia. Venezuela is certainly a welcoming environment.

Given the country's well established role as a drug transit zone, and the ongoing allegations that at least a section of the Venezuelan National Guard is a drug smuggling organization (called the Sun Cartel by DEA agents in Venezuela before they got kicked out the first time), it is certainly a great place to operate compared to Colombia.

In Ecuador, the president is not a vocal supporter, but he is willing to look the other way, and allow the FARC to operate just inside Ecuador. Even if he isn't willing to let the FARC play on Ecuadorian soil, Correa has limited political currency, and I'm not sure he wants to spend it on making a loud and expensive campaign against the FARC.

Back to those eight soldiers. They fell under attack from the 49th front of the FARC, according to La Semana. The 49th front is known to operate on both sides of the border between Venezuela and Colombia. It is also considered the Caribbean front of the FARC, operating around the Guajira peninsula.

It will be interesting to see if Chavez answers Uribe's call to hunt down these FARC soldiers. I doubt it.

(image from colombiareports.com)

Chavez attacking his opposition

On the first day of April, officials from Venezuela's Military Intelligence Division (DIM) arrived at the house of former Defense Minister Raul Isaias Baduel. They said they had a warrant, but never showed the papers.

When Baduel resisted, the men drew arms and forced him into their awaiting car under duress.

Baduel's lawyer is worried that he may be killed while in custody.

As you may recall, Baduel made a very public split from Chavez ahead of the November 2007 Constitutional referendum. One story on Chavez's defeat and Baduel's role is here.

A piece I wrote at the time is here.

In other news, another leader in the Venezuelan opposition, former presidential candidate Manuel Rosales, went into hiding on 31 March as word of investigation into corruption swirled in Venezuelan national media.

A Reuters story is here.

Bottom line, Chavez is worried. He's targeting the most powerful members of Venezuela's traditional opposition ahead of the next round of elections.

Finally, I'll add that a new opposition party has emerged in Venezuela. As reported by Southern Pulse | Networked Intelligence on 24 March, the National Assembly in Defense of Popular Power held its first party meeting on 23 March in Caracas. The name suggests that this party will go after winning votes from the poor Venezuelans who have become disillusioned with Chavez.

A few words on Bolivia

In the best interests of maintaining a balance between work and play, I decided many months ago to stop trying to cover the whole region. Bolivia is one of the countries I have allowed slip off my radar. I do receive quite a bit of information from sources in the country, but I can no longer take the time to sift through that information and try to present a sensible analysis for my readers.

But I cannot ignore how much Bolivia has distanced itself from Washington in the past few months.

Bolivia has lost trade preferences for a long list of its export products, meaning the US is no longer an export market for Bolivia. This decision hinged mostly on Bolivia’s ongoing cooperation in the War on Drugs. Seizures and the arrest of drug traffickers makes up part of what seems to be a largely subjective decision, mostly based on how much Washington “likes” the current administration in Bolivia.

Morales has been very clear about using the United States as a scapegoat in his domestic battle to keep the whole country under his control. I believe that when he expels the US ambassador and USAID, he does so mostly to keep his core constituency happy. Unfortunately the fallout on the international level is one where Washington will not stand by and let a Bolivian leader sling mud.

Now the Peace Core is packing up and leaving, as is the Drug Enforcement Administration.

I would argue that Bolivia is now firmly inside the Venezuelan orbit. Morales has effectively cut himself off from any would be channels of dialogue or mutual support with Washington and has apparently placed his bets with the success of the Chavez regime – a considerable risk simply considering that all his geopolitical eggs should not be in one basket.

I wouldn’t venture to guess what will happen next in Bolivia, but wanted to point out Bolivia’s current status to call attention to a situation I think will seriously deteriorate over the coming months and could likely explode before the end of 2009, if not before.

Best case scenario: Morales manages to keep the low lands under his control and moves the country forward on shaky legs.

Worst case scenario: Bolivia slides into civil war, with Chavez backing Morales in a fight to keep control of the low lands. If this were to unfold, it will be interesting to see how Brazil and Argentina react – both receive a significant portion of gas imports from Bolivia’s low land regions.

Correa's Tightrope

Ecuadorian President Rafael Correa announced on 19 July radio show that Iran and China may invest in the planned refinery to be constructed in Ecuadorís Manabi province on the Pacific coast.

It was an announcement loaded with political innuendo yet takes a step in the direction toward Correa's pragmatic plan to make Ecuador a regional hub of international trade between Asia and South America.

The refinery, named ìEloy Alfaro Delgado is the result of a joint venture between Petroecuador and PDVSA, with 51 and 49 percent shares respectively. Presidents Correa and Chavez were present for the ground breaking ceremony on 15 July, the same day the accords forming the joint venture were signed.

Construction on the US$6 billion refinery is expected to end in 2013, with the refinery supplying 300,000 barrels of oil a day to foreign markets and quite possibly to China alone.

China's involvement is more pragmatic than political. Ever eager for South American natural resources, China's involvement in the refinery is a clear-cut business decision, one that will lock up more refined petrol products for China and increase the likelihood that the refinery will actually be built.

Money from both Iran and Venezuela, however, remains in question.

Just three days prior to his radio announcement, Correa had met with a high-level member of Iran's Trade office, Majid Salehi. The two discussed trade cooperation and bilateral relations, according to a presidential office announcement. This meeting came on the heels of a May agreement for both countries to open trade offices in Quito and Tehran. Political ties between the two countries seem to have tightened, but itís not clear if this will translate for an real economic upshot for Correa.

Iran's ability to lend strong financial support to Ecuador's blossoming trade position is limited, according to World Markets Research, but the country's name on the project allows Correa plenty of rhetorical space, allowing him an opportunity to stoke nationalistic fires.

When announcing Iran's involvement Correa stated that "Iran has a lot of experience in the oil field, it has been a producer for a long time, almost a century.

Somebody may say: Iran, Axis of Evil, but what do I care what other countries think? We have to be masters of our own destiny. We have nothing against Iran. Iran has done nothing to us," Correa said.

Venezuela's participation in this project is under an equal amount of financial uncertainty, generating a level of instability in both this project and Ecuadorís overall trade relationship with its South American ally.

According to testimony heard on 17 July before the US' Congressional Committee on House Foreign Affairs Subcommittee on the Western Hemisphere, PDVSA had to borrow some US$16 billion in 2007 to maintain operations. The company is under a number of international lawsuits for its inability to keep up with the deliverables as stipulated by supply contracts. And the company has in some cases sold off international assets to assuage its cash flow problem.

Meanwhile, Ecuador's Central Bank published in early February trade figures revealing that Venezuela has surpassed the United States as Ecuador's leading supplier of fuel. The small country does export crude oil, but has no refining capability, forcing it to import diesel, petrol, and other refined products.

In 2007, Ecuador imported some US$262 million diesel from the US, down from US$628 in 2006. Venezuela filled this gap with some US$423 in diesel exports in 2007. This growing dependence on Venezuela is yet another reason why Ecuador has pushed ahead with plans for a refinery.

Despite Venezuela's possible financial shortfall, Ecuador may find all the project financing it needs from China. The small South American country is an increasingly interesting position vis-a-vis its geographic advantages. And the Manabi refinery is but one development.

When the US military's lease on Manta terminates in 2009, Ecuador will likely use the Manta port and heavy-duty runway to construct a regional import/export center. If plans for a cargo rail line that will link Manta with Manaus in Brazil's Amazonas state come to fruition, Manta would indeed become a regional hub of trade activity, and with the refinery, make Ecuador that much more attractive in Asia's eyes.

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.

Two Fronts Against Colombia

Colombian relations with Ecuador chilled after Colombia delivered a bomb strike on the Ecuadorian side of the border. The FARC’s number two, known as Raul Reyes, was killed, making the strike justifiable for Colombia but still inexcusable for Ecuador.

Speaking more to a domestic audience than the Colombians, Ecuadorian President Rafael Correa reacted strongly to the Colombian incursion. He has sent a cursory amount of troops to the Colombian border for a show of strength, not intimidation. He has also begun a regional tour to seek support for his cause, and is scheduled to meet with Hugo Chavez on 5 March after his current meetings with Alan Garcia in Peru have been concluded.

Chavez, who has maintained a rhetorical offensive against Colombia since November last year, has taken advantage of Ecuador’s ire to propel his rhetoric and actions to a new level of war mongering. Chavez has now sent troops and tanks to the Venezuelan-Colombian border, has closed a major border crossing point, and promises that trouble will come if Colombia makes any move to invade.

Uribe will not send Colombian troops to either border, however. Interesting though is his abrupt change in tact. Until 4 March, Uribe had resisted playing into Chavez’s game of name calling and public argument. Now Uribe has announced that he will sue Chavez at the International Criminal Court for financing genocide.

Few doubt that Uribe has the information to back up his claims. Colombian intelligence agents have been planting the seeds of intelligence gathering in Venezuela for over a decade. Rumors that Chavez has in one way or another loaned or granted the FARC 300 million are likely supported by as yet undisclosed evidence. Already information has been leaked to Colombian media, which has taken the mantel for its country and is currently in full attack mode against Chavez – likely allowing Uribe to keep out of the public eye as Colombian journalists lambaste the Venezuelan leader with a number of accusations.

Not the least of which has been a recent accusation that Chavez offered a “stake” in oil companies to the FARC. The nature of this agreement is unclear, but if true, its ramifications for the state sponsorship of an internationally recognized terrorist group and insurgent army are serious enough to potentially cause Chavez some serious trouble at home.

Correa’s ruffled feathers are little more than a show of national unity and a savvy politician seeing an opportunity to gather support. Correa knows that Raul Reyes’ death benefits his country nearly as much as it benefits Colombia. And it is Chavez, not Uribe, that is in the most precarious position. Uribe appears to have lost his patience and will now push forward with a credible smear campaign that may loosen tight blocks of “chavista” support inside Venezuela, further reducing Chavez’s already dwindling support base.

With 24 percent inflation, scarce supplies of basic foodstuffs and a soaring crime rate around the country, it behooves Chavez to keep his supporters’ attention focused elsewhere. Yet if by chasing after war with Colombia, Chavez actually brews a conflict, he must be careful to control blood shed and come out a clear winner. If not, there is a significant chance he will lose the conflict and his presidency...

Russian Subs and Echoes of War

By now talk of Venezuelan military purchases from Russia has become a repetition of Chavez’s shopping list with the occasional mention of a new item. In light of the current situation between Venezuela and Colombia, Chavez’s interest in purchasing three Varshavianka-class submarines for an unofficial amount of one billion dollars becomes slightly more interesting.

Echoes of war between the two countries resound more in Chavez’s rhetoric and Colombian newspapers than they do in the offices of Colombia’s political and military leaders. But those who pay close attention to the matter have become more alarmed than usual. Chavez’s rhetoric appears especially fierce. Close cooperation between his government and the FARC, as well as the possible presence of Venezuelan ammunition in the hands of FARC guerrillas, underline an interesting observation made by Adam Isacson, Director of Programs with the Center for International Policy Studies in Washington.

In a recent conversation, he mentioned that when you’ve got two neighbors with one – Venezuela - that allegedly supplies arms and ammunition to the guerrilla army of the other – the FARC in Colombia – you’ve got a tense situation, one that is not present anywhere else in the world, save sections of Africa, and maybe the Middle East.

On top of that, add Chavez’s rhetoric, and the possibility of both Venezuelan and Colombian troop presence on a shared border known to be, in large swathes, FARC-controlled territory. In a dense forest, where a gun shot could come from any one of the three groups, causing an immediate reaction, it is not a far stretch to see how the current echoes of war could descend to something quite different.

Chavez’s announced trip to Russia to sign the contract for these three subs certainly does not help reduce tension. Once the contract for Russian attack subs has been signed, Chavez will likely make lightly-veiled statements to bristle the Colombian president flanked by a stoic background of Russian officials.

The Varshavianka-class submarine is a patrol submarine capable of taking out targets on land, on the surface or underwater. Along with the purchase of three submarines, Chavez will discuss his long-term plans to purchase another hundred patrol boats of various sizes.

Currently Colombian officials assert little worry over Chavez’s war-mongering. Claims that his speeches are designed to keep Venezuelans focus away from many domestic problems may be accurate for now. But the day may come when the Venezuelan military could pose a serious threat to Colombia. What’s more worrying than the possibility of war today is the likelihood of strained relations over the long-term due to Chavez’s completely understandable military upgrade.

As usual, it will be the citizens of both countries that will suffer, especially along the border where the local economy is so closely tied together that even slight interruptions of cross-border traffic is enough to cause a small violent outbreaks on a local level. Problem is, such a small spark might be all it takes to set fire to a much larger conflict.

The FARC's pulse and Mexican army hemmorage

With so much chatter on the international wires about the FARC hostages in Colombia, what will become of Ingred Bettencourt, and other issues revolving around the dance between Colombian president Alvaro Uribe, Hugo Chavez, and the FARC leadership, it is interesting to take a reading on the health of the FARC itself.

For many years, the FARC survived through kidnapping. As it has obviously become more involved in the drug trade, exporting cocaine from Colombia became a substantial portion of the insurgency’s revenue. Some argue that money earned from selling drugs indirectly to US consumers has by far surpassed revenue earned from collected kidnapping ransoms, to the point where kidnapping has become more of a political tool and less of a business. Given the current back and forth with Hugo Chavez, a geopolitical dance that has significantly raised awareness of the FARC on an international level, it seems this strategy, if indeed it is a strategy, may be working.

Yet within the FARC itself, a number of set backs from the death of key tactical leaders in 2007 to the loss of territory inside Colombia has hobbled the group. Despite the fact that the FARC’s founder has said that 2007 will be an offensive year for the FARC, it is hard to see just how the FARC can improve its position through the use of military force. Guns and ammunition aside, the FARC needs soldiers, yet according to the Colombian military, some six members of the FARC and the other insurgency, the ELN, abandon the rank and file every day. This is, admittedly, a biased source for information on the FARC, but it allows for an interesting numbers game.

If both the FARC and the ELN lose six soldiers a day, then it is possible that the FARC itself loses at least three a day, or 21 a week, 84 a month, and 1,008 a year. This number may seem small, but it gives an idea of how the ideology within the rank and file, the personal reasons to remain a member of the FARC, has perhaps faltered within the group itself. Do insurgent soldiers sign up because they believe in the same values shared by the FARC founders over forty years ago? Or maybe they sign up because it’s the best option in a world of limited opportunity. Either way, the rank and file of the FARC seems to be wavering. Do FARC footsoldiers have the heart to take an offensive stance that will likely lead to direct confrontation with a highly professional Colomban army?

Finally, a point of comparison: when FARC soldiers run away, where do they go? Likely not to the Colombian army, but when members of the Mexican army run away, it is possible, even likely in some cases, that they join the rank and file of Mexican drug trafficking organizations (DTOs).

According to some sources, new recruits sign up for military training already knowing that after training and sometime in the field they will switch sides to join the DTOs. Between 2002 and 2006, some 150,333 Mexican soldiers decided to desert their post. There is little doubt many of them now fight for the Sinaloa Federation, the Gulf Cartel, or one of the many, smaller DTOs in Mexico.

2007 Wrap Up and a peek at 2008

As this will be our last newsletter of 2007, we wanted to review briefly some of the year’s highlights and then take a peek into 2008.

Highlighted themes in 2007 include Chavez’s reach for more power and the resulting international friction between himself and Lula in Brazil. Bolivia has struggled with a Constituent Assembly. Truth telling in Colombia has unveiled a host of close ties between politicians and paramilitaries, but nothing yet has touched President Uribe.

Ecuador is flirting with China and the idea of a new port in Manta, where the US currently operates a military Forward Operating Location. And Kirchner succeeded in placing his wife in the president’s seat in Argentina.

Political violence in Guatemala underlines the strengthening grip of organized crime on that country’s political class. And ongoing violence in Mexico, as well as violence across the border into the United States, has prompted the discussion and now debate over the Merida Initiative.

In 2008, many of these ongoing themes will evolve and likely come to a head. We’re most interested in observing how the Merida Initiative is actually implemented. Will private contractors such as Blackwater USA or Dyncorp actually be used? Could increased pressure on drug trafficking organizations in Mexico lead to a spill over effect into Central America?

The last thing Guatemala needs is more Mexican criminals. Already, President-elect Colom has his hands full. His first 100 days will undoubtedly be marked by attempts from Guatemalan organized crime to show him – overtly or covertly – just how much they control wide swaths of his country.

We’re also interested to see how the humanitarian exchange process plays out in Colombia. Might Betancourt see freedom? We hear that Uribe invited Lula to mediate a humanitarian exchange process during President Cristina Fernández de Kirchner’s inauguration. For Lula it would be an opportunity to show the region and the world that he can succeed where Chavez has failed – a perfect maneuver for what appears to be an indirect approach to usurp Chavez from his regional leadership role.It is one he has purchased, not earned.

What will happen when the Venezuelan Bolivar drops two zeros (or three for that matter) in January? This slight change in the Venezuelan currency is certainly more cosmetic than economically sensible, as is the recently adjusted Venezuelan hour. It doesn’t make much sense to move the clock by half an hour, does it? Inside Venezuela a galvanized opposition has some momentum. In 2008, we will see how and where this momentum is used. May we see Chavez’s political core crumble? Not likely, but it will be interesting to see if the military takes a more active role in checking the president.

Can Morales hold his country together? The recent declaration of autonomy from the low-lands provinces seems serious enough, but Morales has – as of this printing – not sent in any troops to force order or obedience. He took the time to travel to the MercoSur meeting, so he cannot be too worried about the apparent mess at home.

Lula recently visited with promise of more Petrobras investment. He also told Morales to have “patience, patience, and more patience” with the opposition. Sometimes all it takes are a few words. Lula will likely work to bring Bolivia back into the Brazilian sphere of influence, further asserting his regional leadership role over Chavez.

Meanwhile, inside Brazil, we will be watching two important issues. First, the aviation crisis is still not resolved. How will Lula manage to keep Brazil’s skies safe? Might there be another accident? We’ve seen on many occasions reports of near misses in Brazilian media that some how doesn’t make it to the international scene. Just as important is Lula’s recent loss in the Brazilian Congress over the CPMF tax – one that taxes the movement of money through Brazilian banks. The bottom line is Lula’s administration will have roughly US$ 20 billion less to spend on social programs to pass along to state and municipal budgets in 2008.

Internationally this loss could hurt Brazil’s investment grade, we’re told by the Financial Times and sources in Brasilia, but what does it mean for the Brazilian economy in the long run?

Overall, 2008 promises to be another interesting year in Latin America. For now, and through the end of 2007, we will simply observe...

Hitting the highlights after a long absence

This is number 6/2007. My apologies for the long absence. We are back. I will endeavor to produce this newsletter once a month at the very least. Since March, I have been working with a European company, Riskline, covering political risk and security in the region. We also have a developing blog. It has been time consuming but rewarding work! My own website, where you may find commentary and analysis on politics, security, and energy in the region, has been updated (mostly) as of this posting.

In this edition:

So many items are worth mention. I will try to cover the highlights here and get into more detail in future posts.

The Brazilian president's response to the worst aircraft accident in Brazilian history was dismal at best. The country suffers from a significant lack of infrastructure development, and the bureaucracy that supervises commercial aviation in Brazil is complicated and stuffed with political appointees. Many have little to no experience with matters of aviation security.

In Argentina, a couple recent scandals, one involving US$ 800,000 illegally brought to Argentina by a Venezuelan businessman on a private jet chartered by the Argentine national energy company, have tainted president Nestor Kirchner's popularity a little. But they seem to have not affected his wife's campaign for president. Elections are set for October. All expect Kirchner's wife to win, which means little by way of a chance in governance or economic policy - not a good sign for the country's long term growth and stability.

In Ecuador and Bolivia, presidents Rafael Correa and Evo Morales continue to push forward with a Constituent Assembly to rewrite the country's constitution, re-founding it to reflect the needs of the poor. In Bolivia, the process has been met with widespread protests, some for others against the government. Lately, Evo's left flank has become rankled over their perception of his soft stance on reform, a trend that might force Morales into the middle of protests from the both ends of the Bolivian political spectrum. In Ecuador, Correa remains popular but he has only just begun the process.

Venezuela's Hugo Chavez continues to push forward with Socialist reforms at home while purchasing support abroad. He has encountered significant resistance in trying to reform Venezuela's political system under one party, and a string of corruption scandals pointing at Venezuelan energy company PDVSA have begun to attract negative attention at the domestic level. The latest scandal involving the Venezuelan businessman in Argentina has also chilled relations between the two countries. To save face, Kirchner is demanding that Chavez investigate the corruption on his end, but that would force Chavez to face the ugly truth about corruption in his country. It's a stand off, but Kirchner will grow quiet soon. After all, it was Chavez who was just in Argentina to buy yet another US$ 500 million in Argentine government bonds.

In Guatemala, presidential and congressional elections set for September have grown ugly. Over 50 people have been killed in a string of events that points to the close involvement of organized crime in the Guatemalan political field. Financial support of municipal and departmental candidates will ensure a leap forward for organized crime in terms of controlling Guatemalan politicians. The future for this Central American country does not look good. I suspect it will become a much more violent place in the very near future.

Meanwhile, presidents George W. Bush and Felipe Calderon of Mexico are expected to announce the latest developments of a closely guarded plan for the two countries to cooperate in the latest front for Washington's War on Drugs. It has become hard to ignore the violence along the US-Mexico border. And since Calderon has come into office (December 2006), he has proven his determination to take the fight to his country's criminals, a posture that has earned him some respect in Washington. There are many challenges ahead for a US-Mexico plan, but both sides are seriously talking and Mexican security is on President Bush's agenda - something that never happened during the administration of Vicente Fox.