Latam Analytical Guidance

LATAM ANALYTICAL GUIDANCE: THEMES AND ISSUES TO MONITOR

BRAZIL Security  Pay attention to crime trends. There is a high normal level of violence in Brazil in part due to the overpopulation of urban areas. Changes in how this progresses will be critical to Brazil’s development prospects, so we need to watch carefully.  Labor and indigenous unrest should be flagged.  Unusual or dramatic tactics used by crime ring should be noted -- for instance using helicopters and infantry to stage full-scale assaults on prisons to free leaders is not unheard of. Much of Brazil’s criminal organizations are run out of prisons.  Evidence of transnational organizations (incl: FARC, Mexican cartels, Hezbollah & Al Qaeda) operating in Brazil should be flagged. Politics:  Brazil will hold presidential elections in 2010, and the choice will likely be between the incumbant party (the Workers' Party (PT-center-left)) and the party of the previous president (Brazilian Social Democratic Party (PSDB-center-left)).  The most important thing in Brazilian politics is government policy towards the economy. A close second are corruption issues, followed by the relationship between the central government and the states, which operate fairly independently from one another, and compete for resources.  Brazil has about 15 years of responsible fiscal management under its belt, and is starting to break out of its cycle of underdeveloped nightmare. As long as they can maintain credibility and fiscal conservatism they may go far. We need to look for anything that indicates a shift in this trend, whether to strengthen or weaken it.  MILITARY - Brazil will be building up its military capacity over the next decade or so. ANYTHING to do with Brazil’s military doctrinal development and military industrial development is of interest. This is a top priority, long-term item. Specifically, watch for relationships with more advanced military powers to be established (e.g. France) where technology transfers may be formalized. International relations:  Brazil’s relationships with South American states must be watched very carefully. For the most part Brazil takes a ‘hands off’ approach to regional leadership, and many would contend that Brazil doesn’t lead at all. However, there are a number of arenas in which Brazilian leadership is growing.  Brazilian companies in Latin America are a very strong political force. They operate with the full weight of the Brazilian government behind them, and they are at the same time an way of extending a positive influence for Brazil. Brazil will often use investment projects for Brazilian firms as a double tool of both supporting the firm and providing financing for the country to receive the FDI. This cultivates a debt in the other country, and gives Brazilian companies a chance to expand their operations.  Mercosur is an essentially dead trade pact -- in function if not in name. Originally designed to be a common market with a common external tariff, Mercosur instead turned out to be an amalgamation of ad hoc tariff rules negotiated by industry leaders in Argentina and Brazil (Paraguay and Uruguay are also partners; Venezuela’s partnership is pending). It is in the process of being renegotiated with Argentina as a result of the economic crisis’s impact on Argentina’s economy. Developments in this relationship should be monitored carefully.  Brazil’s security relationships with neighboring countries need to be monitored carefully. Brazil has signed a hot pursuit agreement with Colombia, and has raised the possibility of a Mercosur police force. Any and all moves to secure Brazil’s borders should be carefully marked.  Brazil has an ongoing dispute with Paraguay over the Itaipu dam. For background, please read: http://www.stratfor.com/analysis/paraguay_regional_geopolitics _and_new_president Economy:  Watch and flag moves in government fiscal or monetary policy.  Watch for major fluctuations in economic data. Most of this is easily found, as traders are also quite interested in Brazil’s economic profile.  Watch for trade flow fluctuations, balance of payments, and rising/falling relationships with individual countries.  ENERGY - This is a profoundly interesting sector for Brazil. Not only is Brazil developing massive offshore oil and natural gas fields that will make it a net exporter and make state-owned energy company Petrobras (Petroleos Brasileiros) into a south American king, but Brazil also has a lively ethanol sector.

COLOMBIA Security  The ongoing security issues in Colombia primarily center around the FARC, the ELN, and overarching issues of drug trafficking  This should include updates on any kinds of negotiations with the government, as well as major attacks or altercations between militants and the government forces.  Outside of the major militant organizations, there are numerous smaller drug trafficking organizations (DTOs). Evidence that allows us to identify and track new actors is critical. Politics:  Watch for rising influence of organized, politically active indigenous communities  Watch for serious challenges to President Uribe’s legitimacy -- scandal is endemic to Colombian politicians, but major scandals that could undermine the presidency should be followed carefully.  Watch for confirmation that Uribe will have a chance to run for reelection. If not, watch for emerging popularity among other candidates. International relations  Track tensions with neighbors, namely Ecuador and Venezuela  Watch for growing relations with like-minded countries in the region, particularly Peru and Brazil  Keep an eye on Colombia’s relationship with the United States, particularly in regards to security cooperation and basing rights Economy  Anything related to foreign investment, particularly the energy industry  Watch for major economic swings, up or down

VENEZUELA Security  Main security issues in Venezuela center on political unrest. Watch for planned demonstrations. Look particularly for details on who participates in the demonstrations (students and labor being the main options, and labor can be either pro or anti Chavez), in what configurations and where the demonstrations will be held.  Political murders are an issue. Watch for opposition leader assassination, violence against identified oppositionists or pro-chavista actors. Watch for evidence that supporters of Chavez are using violence to make a political point, and identify perpetrators as quickly as possible.  Crime rates. Venezuelan crime is intense and on the rise. The country’s corrupt law enforcement and lack of judicial processes exacerbates the issue greatly.  Watch for financing details and delays in the financing of the billions of dollars worth of arms Chavez has committed to buying from Russia. Note delivery of specific hardware, and any details about training provided with the hardware. Political issues  Venezuelan politics are highly polarized. Everything is loosely aligned in a pro or anti-Chavez direction. Chavez’s party is the United Socialist Party of Venezuela (PSUV), and the PSUV controls the entire government (due to the ill-advised decision by the opposition to boycott the last election).  The opposition is made up of numerous actors, some of which don’t really have common ground. The opposition political parties are only loosely aligned with one another and have a hard time getting their act together. The Venezuelan student movement is much more potent (read this for an overview: http://www.stratfor.com/geopolitical_diary/20081203_geopolitic al_diary_venezuelas_student_movement_revs_its_engine)  The most important political trend is Chavez’s consolidation over the country’s economy and politics. Watch for any and all moves that weaken or strengthen him in this endeavor. International Relations  Watch for Venezuelan energy relations to the rest of the region -- this includes through Petrocaribe, which is Venezuela’s oil charity program for Central American and Caribbean states.  Major moves by Chavez in the international system should be tracked, particularly relations with Russia, China and the United States.  Carefully watch Venezuela’s relationship with Cuba. This is a relationship that is worth a very close eye on the personal relationships between the leaders. There is a lot of room for cooperation/friction in a number of arenas here, and the interpersonal politics here may prove key to understanding the situation. Economics  ENERGY - Oil is the lifeline of Venezuela, so any and everything to do with the energy industry is useful.  Nationalization, nationalization, nationalization. It’s the name of the game, and we need to stay on top of what’s being nationalized, and how well it goes. Just because a nationalization is announced doesn’t mean it happens immediately. The negotiations after the announcements usually last at least a year, and what happens to the workers is critical to the question of political stability.  Watch the inflation rate. Watch for the trade balance -- the government has been increasingly relying on imports that it finances itself. This (among other things) will bankrupt the government if it continues, so watch for signs that this is changing

ARGENTINA Security  Watch for evidence of transnational actors -- including Mexican drug cartels and middle eastern terrorist networks -- operating out of Argentina. Signs of this could include major drug busts -- particularly in relation to methamphetamine production -- or arrests of foreign nationals.  Protests are a major issue. Argentines protest like its their job, so keep an eye out for details of traffic disruptions and potential violence.  A note on Argentine protests: they are extremely common. Notable protests are multiple thousands of people and issues usually take time to build up. Any protest with reported violence is critical to note, as that IS uncommon. Politics  Argentine politics are dominated by President Cristina Fernandez de Kirchner and her husband and ex president Nestor Kirchner. Their populist policies and high levels of spending have put the government in a difficult position where it may not be able to maintain its own spending.  The Argentine farmers are a rising force in the country, as one of the country’s driving economic sectors. They have no compunctions about pressuring the government on a variety of issues, and have become the focal point of opposition to the government’s growing domination of the domestic economy. International Relations  The relationships that matter for Argentina are with Brazil, Paraguay, Uruguay, Chile and Bolivia. Other than that, Argentina is mostly inward-looking. Economy  Watch for signs of struggling growth, growing government domination of every sector.  Shortages of capital and credit should be closely watched.  Any government moves to consolidate control over any sector need to be flagged.

MEXICO Security  Mexico sports a number of drug cartels including: the Gulf cartel, Los Zetas, the Sinaloa cartel, the Beltran-Leyva Organization, Juarez cartel, Arellano-Felix Organization, and La Familia. Mexican violence is a product of DTOs battling each other for plazas and points of entry, and the Mexican military has been in the fight since 2006.  Watch for assassinations or evidence of corruption in of local and federal law enforcement officials and politicians. Note any executions with typical cartel tactics (decapitations, hand and/or feet tied, blindfolded, dissolved in acid or lye, burned, bodies with notes, coup de grace, excessive amounts of force used for single murder).  Watch for and flag narcotics seizures (over 100 kilos of cocaine, over 500 kilograms of marijuana, methamphetamine lab seizures, semisubmersibles seized),  Watch VERY carefully for commentary on changes in DTO heirarchy, structure, geography, alignments and feuds.  Keep an eye out for any news regarding the EZLN or EPR or any indigenous violence.  Death (related to OC/DTOs), weapons and narcotics seizures statistics are always of interest and are constantly changing.  Details on military operations, military deployments and also follow-on operations and attempts to re-assert law enforcement-based normalcy are also all worthy of note. Politics  The country’s political system is divided among three parties: the conservative (and currently in power) National Action Party (PAN), the leftist (and not in a whole lot of favor) Revolutionary Democratic Party (PRD) and the Institutional Revolutionary Party (PRI) (which is currently gaining favor, and ruled the country for 70 years).  The main political issue of the moment is the war against the drug cartels. The population appears to support President Calderon, but the high levels of crime and violence are generating a great deal of outcry, sometimes directed at the military and police establishments. Watch for signs that the military population is turning away from Calderon and that support for the fight against the cartels is flagging.  The government has a number of issues that it will have to deal with, institutionally. The government budget is overly reliant on oil revenues, and may seek to increase its tax collection, placing a higher burden of government funding on the population.  Look out for corruption scandals of politicians (especially with the legislative elections coming up July 5), Federal law enforcement officials and senior military leaders and look for their replacements. Keep an eye out for legislation passed regarding judicial reform or anything that would affect the way LE and Mil would operate in the war against the DTOs. International relations:  For the most part Mexico’s relations are restricted to its immediate neighbors, although Mexico would certainly like ot see itself as a global player. In the international scene Mexico tends to peddle its influence with the United States as a way of gaining its own influence.  Mexico’s relationship with the United States is a very close one. Regardless of any high level spats, there are institutional linkages that bind the two together closer than most countries. Nevertheless, we need to track the relationship, particularly in regards to anything that has to do with NAFTA or the drug wars.  Watch to see if Mexico extends security help, aggression or influence into Central America, where a lot of the drug violence is spreading, and through which a lot of the drugs come.  Watch for any indication of Mexico receiving outside aid from US (Merida $$ or training) or any other country. Economy  Mexico is tightly linked to the United States, so when the U.S. economy shrinks, the Mexican economy plummets.  Issues to watch include migration trends, employment issues, remittance trends, growth, trade (particularly with the United States and various import partners) and oil prices.

BOLIVIA Security:  The main security issues to look for in Bolivia surround political unrest. The opposition movement in Bolivia has been known to heat things up in confrontations with the government. Watch for major demonstrations.  That said, demonstrations are fairly normal in the highlands, so small marches aren’t a huge deal. Definitely worth noting, but not worth repping unless they’re super political, or getting violent.  Watch for signs that international drug trafficking organizations are increasing their activities in Bolivia. Politics:  Bolivia is highly polarized along ethnolinguistic and geographic lines. The primarily European and wealthier lowlands of the East have been supplanted in the central government for the first time in quite a long time by Evo Morales, an indigenous leader with a penchant for nationalizations.  Watch for signs that the newly implemented constitution is being incorporated smoothly or not so smoothly, and look for impacts of this process on the political environment.  Watch for the central government taking action to sideline, arrest or excoriate opposition leaders.  Watch for signs that the central government is seeking increased control over the autonomous departments (states/provinces) -- this includes major land redistribution pushes, and attempts to secure more control over profits. International Relations:  Bolivia has tight relations with Venezuela’s Chavez, who has promised everything from oil investment to garrison building. Most of that is smoke and mirrors, but Venezuela DOES provide some military equipment, has nominally set up a natural gas well, and has soldiers flying Morales everywhere he goes.  Watch for spats with neighboring countries. The indigenous issue is one that transcends borders in the Andes, and collaboration among groups in different countries is something to be on the lookout for.  Brazil’s relationship with Bolivia is very important. Watch for fluctuations there. For the most part it will not move, as Brazil pretty much calls the shots, but any indications that they are getting more/less chummy should be flagged. Economics:  Watch for any energy deals, and watch for demand for natural gas in Brazil. Bolivia’s only real advantage to date is its natural gas reserves, which are consumed by Brazil, Argentina and Chile.  Lithium is an up and coming issue. Bolivia has about half of the world’s known lithium reserves, and is being courted by everyone under the sun -- most notably the Japanese and Chinese. Watch for any deals in this area.

CUBA Security:  Cuba doesn’t really have many security issues. It is something of a hub for drug transport, and the country itself is a fiefdom of creative economic practices designed to secure cash in the face of the US embargo. Any signs of organized criminal activity in Cuba should be carefully noted. Politics:  Cuba’s political situation is obviously dominated by the decline of the communist regime. After the fall of the Soviet Union, the country was plunged into chaos as it struggled to make ends meet. At the moment the country’s economy is largely tourism-dominated, but Cuba is actively seeking some kinds of international investment -- including in hydrocarbon refining.  There may or may not be a split in the Cuban elite. Watch for signs that Raul Castro and Fidel Castro aren’t getting along or that there is a friction there. International Relations:  Cuba is currently in the process of reorienting itself in the face of a gradual loosening of previously cranky US attitudes. The Obama administration has made a number of overtures to the Cuban administration, which have yet to be welcomed wholeheartedly. Watch for and flag signs that the Cuban administration is warming to the idea of US relations.  In the meantime, Cuba will be playing hard to get by having close relations with Russia and Venezuela. A soviet-like relationship with Russia is not possible at the moment, as it does not fit Russian aims (which are much closer to home, and don’t include sacrificing resources on a bid to counterbalance the US offshore of Florida). Watch for comings and goings with either Russia or Venezuela -- they will be important as Cuba goes forward. Economics:  Cuba doesn’t really have a real economy outside of tourism. Watch for signs that the government is taking steps to liberalize the way the economy is managed, including merit-based pay, and increasing individualization of ownership. Watch for signs that announcements are being followed up with actual action.