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…

Weekend News Review - FARC, Customs corruption, and grenades

1) Colombian President Alvaro Uribe said that if the FARC keeps quiet and avoids any skirmishes with anyone for "three or four" months, then he will consider peace talks.

Up until now, Uribe has been staunchly against talking to the FARC. History has shown that the FARC is not always the most honest negotiators. But that was when the rebel army was much stronger. In its weakened state, peace might not be a bad idea.

Semana article here.

2) One of the conclusions of the 20th annual meeting of Interpol (held in Chile this year) was that Al-Qaeda (or any terrorist organization, really) could infiltrate Latin America because of lenient or in some cases (Ecuador and Nicaragua) non-existent immigration controls.

Of the 150 million or so annual visits to Latin America from other countries around the world, only 50 million passports are scanned, according to Ronald Noble, Interpol Secretary General.

Interpol is specifically worried about Central America.

3) Texas authorities seized some $120,000, gun parts, and "grenades" from a car headed south on Interstate-35, according to the San Antonio News.

Obviously the grenades are interesting. My sources mostly agree that grenades used in Mexico come from Guatemala. To sell grenades in the US, a merchant must operate a class two license, I believe, which is a very strict legal regime.

The article notes these grenades are "improvised".

4) A 34 year-old Customs agent was arrested this past Friday (April, 3rd) on charges that he arranged to "wave immigrant and drug smugglers through his inspection booth for money." If convicted he could serve up to 35 years in prison - ouch!

As a Sheriff in southern Arizona recently told me, this is a "sin of omission." To break the law, these men don't actually do anything. It's what they don't do - i.e. stop a car stuffed with coke - that breaks the law. To wave the right car and receive thousands a week for doing so, with little chance of apprehension, so long you don't flash the money or act out, is a tough thing to turn down. I often wonder about this kind of "soft" corruption, and whether or not the border is littered with these guys...

5) Not surprisingly, Chihuahua State Governor, Jose Reyes Baeza, was attacked on 22 February. One of his bodyguards was killed during the attack, and two were wounded. Two of the men allegedly responsible were arrested in the city of Chihuahua on 31 March. They were caught with AR-15 rifles stolen from the wounded bodyguards.

This news only came out in English on 5 April... That in itself is interesting.

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...