Inclement weather brings a juicy Christmas gift to Hugo Chávez

Venezuela’s National Assembly will decide today whether to grant full legislative powers to President Hugo Chávez for a year starting in January 2011. The bill is almost certain to be approved by the Chavista-majority Assembly, curbing any possibility for new legislators to be inaugurated in January 2011 to effectively influence Venezuelan policy decisions. Legislative elections held last September granted over two thirds of seats and 52 percent of the popular vote to opposition candidates summoned in the umbrella political organization Mesa de Unidad Nacional. If approved as introduced earlier in the week, the Enabling Law would allow Chávez to enable an “adequate legal framework” to finishdismantling the country’s economy. Moreover, the law would effectively strip incoming opposition legislators of any decision-making power.

Weather conditions provided an excuse to call for the special powers. Torrential rains and mudslides throughout the country have left thousands of people homeless and hundreds dead. Over 130,000 people have been affected by inclement weather. The rains have caused extensive infrastructure damage: 250 roads are intransitable, dams have broken, and several bridges have been closed. This inclement weather prompted the current Assembly and Chavéz’s government itself to usher the Enabling Law in a lame duck session. Of course, inclement weather was caused by“capitalism’s irrationality” requiring Bolivarian-inspired legislation penned by the executive office to solve these problems. Chávez will have legislative power over a broad number of issues if the Enabling Law is approved today. The president will have power to legislate on the following subjects:

  1. Any policy issues related to human needs and poverty derived from inclement weather conditions, as well as those derived from social conditions caused by the country’s environmental challenges
  2. Infrastructure, transportation, and public services
  3. Housing
  4. Use of rural and urban land as well as organization of Venezuela’s territory. In other words, stripping mayors and governors (particularly those in the opposition) of their limited powers and more property expropriations
  5. Public and private finance and taxation
  6. Public security and judicial security
  7. Security and defense
  8. International cooperation
  9. And if the previous eight categories don’t give Chavez enough power to legislate over almost all policy areas, he would also have the power to legislate over Venezuela’s socioeconomic framework.

Although many were dispossessed by inclement weather, including the opposition, Chavez will receive a juicy gift from the outgoing Assembly.

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Royalties reform in Colombia

Increasing opposition to a constitutional reform that would change the regional distribution of oil and mining royalties is emerging in Colombia’s Congress as the bill makes its way through the legislature. Senator Juan Lozano, the president of Juan Manuel Santos’ Partido de la U, argued in a debate last night in the Senate that there should be a discussion on current tax benefits granted to extractive companies. Lozano’s statement echoed that of Senator Jorge Robledo from opposition party PDA. Robledo also argued that the bill seeks to centralize management of royalties in the hands of the national government  to cover its deficit.

Finance Minister Juan Carlos Echeverry highlighted that Colombia’s government does not plan to modify royalty rates and that the bill in discussion would contribute to a more equitable distribution of royalties among sub-national governments, both for producers and for non-producers. Echeverry clarified that the national budget will not benefit from any changes in the royalties regime. This is the second of eight debates. The debate was postponed late last night and will resume today. The government will continue to face strong opposition, in particular once the bill reaches the lower Chamber’s floor in the third and fourth debates and legislators are preparing to support candidates for local elections in 2011. Royalties are a significant component of the income of sub-national government. Colombia’s government expects to receive COP 8 trillion in oil and mining royalties this year.

Ecopetrol and PDVSA’s Orinoco joint exploration

Carlos Rodado, Colombian Mining and Energy Minister, announced possible joint exploration of the Orinoco basin by Colombia’s Ecopetrol and Venezuela’s PDVSA. According to Colombia’s leading think tank Fedesarrollo, in 2009 Colombia extracted 66.45 percent (425 thousand b/a) of its oil from the fields in its side of the basin, which accounts for 30 percent of the basin’s area with the remainder on Venezuelan territory. Rodado’s statement comes after high-level bilateral meetings that resumed diplomatic and trade relations between the two neighboring countries, stalled after political rifts grounded on evidence of Venezuela’s support and protection of Colombia’s FARC, a left-wing terrorist organization.

Will the joint exploration come to reality? Both companies are state-owned, however their management motivations are radically different. While Ecopetrol acts independently, PDVSA operates driven by political motivations fitting clearly into state-capitalismwhere businesses’ drivers are “maximizing the state’s power and the leadership’s chances of survival”, as oppose to profit/growth maximization. Ecopetrol, a majority state-owned company, is a solid and well-governed company. Ecopetrol’s management independently decides about its investments based on project assessment without affecting Colombia’s fiscal position. The company is listed on the NYSE (EC) and, most recently, on the Toronto’s Stock Exchange. Ecopetrol’s share has performed positively, increasing value both in USD and COP, which has not been the case of other players such as Brazil’s Petrobras whose share has declined since January, according to Brooking’s Mauricio Cárdenas Santamaria.

PDVSA… well, is the opposite of Ecopetrol. The highly in-depth state owned company is crucial in Venezuela’s Hugo Chávez regime. Not surprisingly, the company’s CEO is also the head of the Ministry of Energy and Oil and one of PDV’s vice-presidents is Chavez’s brother. The company’s funds most of Venezuela’s “social” programs, which guarantee people’s support for Hugo Chávez.  PDVSA, more over, has unsuccessfully taken over several other nationalized companies in the sector.

Whether or not the joint exploration crystallizes, Ecopetrol should be wary of its business partner.

A bitter welcome to President Juan Manuel Santos

Recently inaugurated Juan Manuel Santos received a “warm” welcome with a bombing in Bogotá. The purpose and perpetrators of the attack are still unknown. Some argued that the Revolutionary Armed Forces of Colombia (FARC), a terrorist movement, are behind the bombing. Others affirmed that right wing forces ordered the bomb, which exploded in front of one of Colombia’s main radio stations.

The bombing signals that illegal actors still pose a challenge to Colombia’s legitimate government. Most importantly, this terrorist act evidences that either in the extreme left or the extreme right, illegal actors are able to penetrate and take advantage of vulnerable security gaps in Colombia’s main urban hub, Bogota.

The end of a two year lapse: Colombia’s Constitutional Court rules against a third reelection

Today Colombia’s Constitutional Court concluded a two-year debate on a proposal for a referendum to decide whether President Álvaro Uribe could run for a third term. The discussion started in 2007 when Uribe’s supporters decided to collect signatures to modify the Constitution instead of modifying it through legislation, as was the case of the mechanism used for the President’s first re-election in 2006. The argument presented by Judge Humberto Sierra Porto and discussed by the Court challenged the procedures and constitutionality of the law. Seven judges backed Porto’s argument while two rejected it. As La Silla Vacia highlithed yesterday, it was likely that the Court would rule against it. There will be no referendum to decide whether a President (Álvaro Uribe) can be reelected for a consequitive third term for the 2010 election year.

The relection debate has eclipsed Colombian legislative and national agenda, to the expense of many pressing issues including the status of the country’s economy and the division of powers in that country. Colombia’s leading think tank Fedesarrollo has affirmed through its Legislative Advisory papers, Op-Eds, rountables, and interviews throughout these two years that key economic discussions have been put aside. For example, Fedesarrollo has advocated for reducing non-wage labor taxes known as parafiscales because of its effects on increased costs of labor, informality, underemployment, and unemployment. One reason for Uribe’s reluctance to deal with this or other urgent economic issues according to Guillermo Perry Fedesarrollo’s former Executive-Director is that dealing with urgent matters affects the chances to reelect an incumbent. In fact, Uribe’s Social Protection Minister Diego Palacio affirmed that reforming parafiscales was highly unlikely because dealing with them will be unpopular vis-à-vis upcoming elections.

Despite successful, incremental yet highly controversial security policies Uribe’s government is leaving Colombia with high rates of unemployment (12%), informality (58% urban, 75% rural), and worrisome levels of underemployment as economic magazine Dinero suggests. Moreover, under the rubric of improving investor’s confidence in the country where Democratic Security = Confidence = Investment = Growth, Colombia’s current government has granted generous tax breaks and subsidies creating long-term fiscal problems. The government’s generosity created a distorted playing field for competitors in the market and eventual new entrants as those tax breaks and subsidies are only benefiting few companies. Coincidentally, many of those companies have contributed financially to Uribe’s two presidential campaigns and are linked to members of his Cabinet or allies in Congress.

In face of upcoming elections, this situation creates an opportunity for political parties running for Congress and the Presidency. Yet it is unclear what will Uribe do in the upcoming weeks as he and his supporters will still influence the electoral process. There are significant bright-minds running for seats in Congress, and supporting campaign efforts and platform development behind the scenes. Moreover, after years of political party weakness, political parties are more relevant now than in the recent past – a situation determined by some electoral law reforms and the Uribe presidency itself. The Liberal Party is attempting to reinvent itself after judiciously leading the opposition. The Conservative Party finally decided that its destiny may not be at Uribe’s mercy. The Alternative Democratic Pole (PDA) will contest its third national election, and most likely will continue to play a relevant role. And even Bogotá’s former mayors Antanas Mockus, Enrique Peñalosa, and Luis Garzón joined efforts in a Green Party although it remains to be seen whether this is just a temporary front or a long-term effort.

Colombia’s Constitutional Court decision ended a two-year decision-making lapse in the country. The economy and the country’s institutions have been severely weakened as a result of a highly personalized presidency. Upcoming elections represent an opportunity to get the country back on its course and effectively achieve growth and investment through genuine democratic governance and a truly market-oriented economy.

Ecuador’s National Assembly short term challenges

On July 31, 2009 Ecuador inaugurated its National Assembly, the first under the country’s newest Constitution. After a Constitutional Assembly approved a draft version in July 2008, Ecuadorians voted in favor of the document the following September. The Constitution is the third in twelve years. Ten days after the Assembly’s first session, on August 10, 2009, President Rafael Correa was sworn in for a second term, which will be his first under the new Constitution. He will be eligible to run for immediate reelection after he finishes his current four-year term. Under Correa, Ecuador has seen some degree of stability, as he has been the only president in a decade to finish his term. His three elected predecessors were ousted Continue reading