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…

Perspective

Colombian National Police released statistics earlier this week revealing that investigators registered 14,715 homicides between 1 January and 6 December 2009.

There were over 14,000 homicides registered in Venezuela in 2008.

By the end of November, authorities had registered 7,396 homicides in Mexico, passing 16,000 since December 1, 2006.

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."

Breaking the Silence

Posts have been thin and sporadic of late - such is the life of a freelance journalist. Wells have dried up, so like most of my brethren, I'm scrambling to keep pace with the changing nature of the media industry…

Here are some updates:

With John Sullivan, I published a piece on how Costa Rica and Panama have been caught in the middle between Mexico and Colombia, where organized criminal operatives from both countries have pushed into new territory.

Since that publication, we have seen a string of murders in Panama City, and just this past week, the head of the Sinaloa Federation in Costa Rica was arrested in Puntarenas (See Southern Pulse newsletter, Networked Intelligence tomorrow afternoon for details).

Honduras continues to provide some interesting developments. Since I published a piece on Honduras and how mainstream media should be focusing on what's going on behind the so-called coup de teat, we've seen a sharp up-tick in narco-flights landing in various points across the country.

Most of the flights, according to both Honduran and Colombian officials, originate in Venezuela, where the bulk of air traffic has shifted - it was once the purview of Colombian traffickers.

And Caracas has quietly become one of the most dangerous places on earth. With over 14,000 murders last year (country wide but many in Caracas), and police as corrupt as ever, Caracas has become a nightmarish place to visit. I'm told that you can't walk on the streets in a business suit after dark, and during the day, you should stick to the main streets. I felt this tension on my last visit to the city in November 2005.

Side streets, apparently, are teeming with young thieves. Dairy products and meat are hard to come by, and soon the entire city will begin rationing water, with rolling "water cut offs," scheduled by the government in 48 hour segments. Can you imagine being mugged for a bottle of water? Back in Mexico, we continue to watch an ever-changing situation. Many of the country's states remain in solid control of one of the many DTOs there, but the agreements between various groups form and break like ice melting and re-freezing from one day to the next.

From what I understand, the Beltran-Leyva Organization (BLO) has hired Los Zetas to strengthen its fight against the Sinaloa Federation. The Carrillo-Fuentes Organization (CFO) cooperates with BLO and the Zetas, and remains very active with its own group of sicarios.

Los Zetas, meanwhile, have targeted Sinaloa and Michoacan.

The Arellano-Felix Organization continues to crumble, and now faces a very real threat from inside Tijuana. The tit-for-tat murder and dismemberment of cops and others in the state of Michoacan indicates that the Zetas are pressuring members of La Familia, who have initiated La Familia Guerrense for the state of Guerrero. The Zetas are also pushing into Sinaloa, and the recent kidnapping if nearly two dozen ranch workers outside of Culiacan indicates that the powers that be in that area are worried about Zeta infiltration. After all, these guys - and their trainees - are well versed in training locals to act on their behalf…

I'll also add that I recently published a piece on diamond smuggling in South America, with a focus on Guyana, Venezuela, and Brazil. The Panamanians will soon open the region's only diamond trading hub, and some are worried that it will become a funnel for illegal diamonds leaving the region.

Iran and Venezuela: The 2009 Dosado

This Southern Pulse Intel Brief, dated 24 September 2009, is republished here with permission from the Southern Pulse editors.

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In a recent interview with conservative French newspaper Le Fiargo, Venezuelan President Hugo Chavez thanked Iranian President Mahmoud Ahmadinejad for the technology transfer required to develop a nuclear energy program in Venezuela. The agreement, Chavez claims, was signed in early September, and serves as a capstone for the tightening of relations between the two countries over the course of 2009.

While visiting Ahmadinejad on his eighth trip to Iran during the week of 5 September, Chavez reportedly followed up on 186 separate agreements formed between the two countries since 2005. A 10-year strategic alliance was proposed, as well as joint plans for the construction of a oil refinery in Syria with an expected capacity of processing 150,000 barrels of oil a day.

Venezuela has also agreed to sell Iran 20,000 barrels of gasoline a day beginning in October 2009, but Chavez declined to disclose the duration of the US$800 million agreement. To further support Iran’s energy needs, PDVSA has also agreed to establish operations at Iran’s South Pars 12 gas field, with estimated reserves of some 12.6 billion cubic meters of natural gas

Iran has reciprocated with the announcement that its government will validate educational qualifications and academic titles awarded in 47 Venezuelan universities.

The September meeting comes only five months after Chavez’s last visit to Tehran in the first week of April, when he travelled with a selected group of Venezuelan businessmen. They were on hand to witness the inauguration of a joint Venezuelan-Iranian development bank, reportedly capitalized with US$200 million, with half to be provided by each government. Iranian Kourahs Parvizian will become the president of the bank, while Venezuelan Nelson Ortega will become the vice president.

While in Tehran, Chavez also called into a Venezuela Television show, Contragolpe, to describe plans for a joint Venezuelan-Iranian mining company to formalize five years of mining operations shared with Iran in Venezuela. Chavez noted that the new mining company would focus on six minerals and some precious stones, including diamonds.

Later in April, the Iranian Defense Minister Mostafa Mohammad Majjar landed in Caracas for a short trip to sign a series of “unspecified agreements.” Presumably, these agreements facilitated the 29 April signature of a memorandum of understanding between the Venezuelan and Iranian armed forces.

Within the remaining months of 2009, Venezuela and Iran are likely to expand on their peaceful nuclear initiative, one that France has already flagged as a violation of UN Security Council resolution 1737.

Is Venezuela's economy stronger than Mexico's?

Most of us who follow Venezuela would agree that this country's economy is in the tank, and largely reliant on oil, the one export that manages to pay the bills.

Mexico, however, is in a very similar situation. Pemex suffers, and Mexico is heavily reliant on the national oil company to maintain a robust revenue stream.

Then the so-called "global recession" hit. And somehow, Venezuela has faired better than Mexico. Here are the latest numbers:

Bloomberg reported on 20 August that Venezuela's economy shrank 2.4% during the second quarter of 2009, compared to 2Q08. This is the first time Venezuela's economy has contracted since 2003...

Mexico's National Statistics Institute reported on 20 August that the country's economy shrank 10.3% during the second quarter of 2009, compared to 2Q08.

Shifting security realities in Brazil

The Brazilian military announced on 18 August that it will increase troop presence on the country's border with Colombia.

This is a conversation that has been going back and forth between the president's office and the military generals for years. Slowly but surely, the Brazilian military has begun to make a shift from its traditional focus in the southern part of the country, where the assumption is that Argentina is considered the most likely to invade and the Amazon provides the best defense from potential enemies to the north.

Closer ties with Colombia, such as the hot-pursuit fly over agreement, and generally closer cooperation on security matters, has prompted the Brazilians to think more about that border. Exactly where the troops will be concentrated remains a vague detail, but I suspect that Leticia is one destination, as well as certain areas of the infamous "Dog's Head" area.

The Dog's Head refers to the shape of a specific section of the Brazilian-Colombia border, traditionally a haven for illegal gem miners, FARC soldiers, and all sorts of ne'er-do-wells.

Overtly, the military is worried about "spillover" from Colombia's internal conflict, but I wonder to what extent that worry about Venezuela has primed the generals for spillover from that country, in the event of a political meltdown in Caracas.

Brazil would be very careful not to tip off Chavez, so where troops are placed will be very interesting. How close to the Brazilian-Venezuelan border will they go?

More here on the Brazilian-Colombian aspects of this decision. Boz explores today the "post-conflict" scenario in Colombia with the so-called emerging-groups capturing some attention as the newest threat to security in Colombia.

DEA scores extradition victory

The DEA successfully extradited the first Colombian drug trafficker from Sierra Leon, a country considered to be at the top of the list of West African countries where Colombians, Venezuelans, and others are deeply involved in moving drugs from South America into Europe.

You don't know who Geraldo Quintana Pérez is because he did a good job keeping a low profile, at least for a while. (picture shows his plane and load of coke.)

He arrived in Sierra Leon about two years ago, but when he made an unauthorized landing in Freetown, Sierra Leon on 13 July, 2008, it was his last.

His plane had left Venezuela, making stops in Trinidad and Tobago, Grenada, Barbados, and Santa Lucia before flying across the Atlantic to Sierra Leon.

He, along with his partner, was busted with 600 kilos of coke (worth about 125 million Euros), and two rifles, an AK-47, and an AK-48

From the DEA press release:

QUINTANA-PEREZ, 51, and PEREZ, 30, were arrested in Freetown, Sierra Leone on July 13, 2008 on Sierra Leonean charges, following the seizure of approximately 600 kilograms of cocaine. Upon their arrest in Sierra Leone, the defendants were tried there on drug trafficking charges, of which they were convicted on April 20, 2009. Thereafter, the Government of Sierra Leone transferred the defendants to American custody.

More details here, in Spanish.

Congratulations.

Now, will we see any extraditions from Guinea-Bissau?

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.

PDVSA: Ongoing problems with contractors

Some 3,000 oil workers in the Venezuelan state of Zulia suspended their strike only once PDVSA agreed to pay their salaries. These are not PDVSA employees. They work for companies PDVSA has contracted out to perform a variety of tasks.

The fact that PDVSA will pay the workers directly, rather than settle its debts with the companies, suggests that due to cash flow problems, PDVSA can't pay off its debts with contractors.

Southern Pulse has reported - twice now - that US companies working in the region have shut down individual wells due to PDVSA's inability to make payments.

This seems to be a trend that will see PDVSA struggle as it tries to keep operations going amid a weakening oil price climate and increasing domestic turmoil over the Venezuelan economy in general.

Border Surge and Unintended Consequences in Spain

A colleague of mine who writes for Latin American Thought recently sent over an interesting article from El Espectador, a Colombian print weekly.

The article outlines how Colombian organized crime has installed itself inside Spain.

Citing the recent murder of a Sr. Leonidas Vargas, killed while resting in a hospital bed in Madrid, the author pointed out that in the past the assassin would have been sent from Colombia - most certainly on his way home before the Spanish authorities could respond to the crime. Today, however, the assassin probably didn't even leave Madrid, asserts the author. I completely agree.

For years now, Spanish police have done away with the idea that Colombian assassins travel from Colombia to do their work in Spain. Today, these men live and work in Madrid, perfectly blending in with Madrid's business class.

The are called "debt collectors," and are sent to force their targets to pay a drug trafficking debt - often marked in dollars - with their own life.

"You pay or you die."

There is very little about this scenario that we haven't seen in Latin America. There is even little novelty of this occurrence in Spain, especially for those of us who follow the trends of Latin American drug trafficking.

But what I find interesting is how Spain may become over time a new battle ground for rival trafficking groups who seek to use the Iberian peninsula as a spring board into the rest of Europe.

Until now, we haven't seen blood shed between the Colombian and Mexican drug trafficking organizations (DTOs). There is a business agreement in place, one forged many years ago. But this agreement considers only the movement of product into the United States. When the EU is under consideration, all bets are off.

Spain becomes a more important transit country when we consider Venezuela's role in moving bulk quantities of cocaine from Colombia to Europe, as much of it flows through Spain.

Spain is a stopping point on the drug route from Western Africa into the EU, and places such as Guinea-Bissau and Senagal, which have become reception points for drugs flowing out of Brazil and Argentina.

Finally, if all the talk of a "border surge" turns into reality, then we will see Spain, again, become a hot transit zone.

The Colombians are already in place. And I recently read that street gangs such as the Mara Salvatrucha are heavily networked throughout Spanish cities. What, then, will happen once the Mexicans come into town?

A spike of violence in Spain on the heels of any border surge, I think, would be the text book definition of unintended consequences.

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.

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

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.

Tons of money, Org. Crime victory, and a blow to Chavez

At the end of last week, Mexican authorities seized the largest cocaine shipment in the country’s history – 21.3 metric tons (23.5 tons) according to the Attorney General’s office. The cocaine has an estimated street value of USD 2.7 billion, based on calculations that use the US government’s average price of USD 118.70 for a gram of cocaine sold inside the United States. I’ve seen more conservative figures, closer to USD 1.4 billion, but with a little quick math it’s easy to see how much Mexican drug trafficking organizations stand to earn a year.

(picture from Mexico's office of the Attorney General)

If 21.3 metric tons of cocaine is worth USD 2.7 billion inside the United States, then the 290 metric tons the US Government Accountability Office (GAO) estimates as the annual flow of cocaine from Mexico to the United States would be worth near USD 35 billion.

Now compare those earnings to the USD 1.4 billion that the US government wants to spend to help Mexico combat drug trafficking organizations that at the end of October were brazen enough to try and import 21 metric tons of cocaine into Mexico. Something doesn’t add up.

While Mexican authorities were counting sacks of cocaine, Guatemalan authorities were counting votes. Left of center candidate Alvaro Colom won the presidential run-off election, defeating his opponent and former military intelligence office Otto Perez. Two facts emerged from these results: a relatively low number of Guatemalans voted in the run-off elections and by choosing Colom, those that voted indicated they do not support the mano dura or “iron fist” policies promoted by Perez.

In Honduras and El Salvador, these policies have lead to increased levels of violence. Cops arrest individuals with tattoos because they assume they’re pandilleros, or street gang members. The police crackdown creates a response from the pandilleros, who in turn convince cops that death squads are the best way to exterminate the street gangs. The net result is extrajudicial killings and bold, gang-style murders. Neither are pretty.

So Guatemalans chose to avoid that trap and go with a man who is more focused on economics and reform, but who many believe has made deals with organized crime. That’s bad news, especially in Guatemala. According to the GAO, some 70 percent of the cocaine that enters Mexico passes through Guatemala. But it gets worse. Reports say Colom has "vowed" to use the Guatemalan army to combat drug trafficking organizations. We'll see if he comes through on that promise.

Part of the USD 1.4 billion counter-narcotics package will go to Central America. But if US authorities think they’ll get real help from the Colom administration, they may run into some serious challenges. Time will tell.

Meanwhile, former Venezuelan Defense Minister and General Raul Baudel broke camp with long-time friend and Venezuelan president Hugo Chavez this week when he told the nation to vote against Chavez’s proposed constitutional reforms, passed by the National Assembly on 2 November.

Baudel is now on a nation-wide campaign to give Venezuelan’s an insider’s argument for why the nation should not hand over authoritarian control to Hugo Chavez, who, by the way, is quite upset. Apart from Baudel’s significant defection, Chavez must deal with thousands of students who for over a year now have continued to build an increasingly vocal segment of the opposition.

The students remain a thorn in Chavez’s side, but Buadel’s participation in the opposition could turn into something altogether more interesting and significant as we march closer to the 2 December nation-wide referendum to approve or reject Chavez’s reforms package. Approval would be tantamount to the last nail in the coffin for Venezuelan democracy. Rejection would be a major blow to Chavez’s political position. Again, time will tell…