This is a source for analysis, interviews, and commentary on security in Latin America. Herein you will find rumors, the results of off the record interviews, and information you'll not find in international or United States news media.
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…
The world's largest container-terminal operator, Hutchinson-Whampoa, will drop its concession to modernize and operate Ecuador's deep water port at Manta, according to a 6 February Bloomberg report.
This news comes after a 3 January speech by President Correa, who said Hutchinson would have to leave the country if it did not develop Manta according to the government's wished.
It is an "unacceptable" position, according to Hutchinson.
This is an interesting turn of events. On one hand, I believe Correa was speaking to a domestic audience, eager for him to make nationalistic statements.
On the other, Hutchinson doesn't need Manta. It is the closes port to China across the pacific, but apparently ports in Peru, Chile, Panama, and Mexico are just as if not more attractive.
I suspect Correa may be lobbying to win back his Chinese investors. We'll see if he does or not.
Word has come through that Peru is talking about swapping out its local currency for dollars amidst negotiations for a major loan. But the most interesting aspect of this economic news is that the Peruvian government is talking to the United States and China.
The Peruvian Finance Minister, Luis Valdivieso, said Peru is looking for some US$ 9 billion in loans to help finance some $35 billion in development projects.
Considering the change of the Presidential guard next week and other issues around the world, the US might stall - or prolong - the negotiations in the face of increasingly drastic Peruvian need. It will be interesting to see if China bails out Peru, with a long-term strategic look at what Peru has to offer in return, apart from repaying the loan and what Garcia has already given China by way of mining concessions...
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.
