Edited by Richard Lapper, Latin America editor
Published: January 29 2007 02:51 | Last updated: January 29 2007 02:51
By pushing to ease travel restrictions home for Cuban Americans, William
Delahunt, a Democratic congressman for Massachusetts, could be pulling
on the string that starts to unravel US policy towards the communist state.
This is because right-wing lobbyists, who have fought to defend the US
trade and travel embargo for decades, will find it particularly hard to
oppose a reform widely supported in the Cuban-American community,
especially those younger generations of migrants who arrived in the
exodus of 1980 and 1994.
Defeat for the administration on a bill, such as Mr Delahunt's or on a
broader travel liberalisation favoured by Republican congressman Jeff
Flake, would reverse recent tightening in policy.
With the mood in Congress increasingly sympathetic to change on Cuban
policy since the Democrats won control of both houses, one or more of
the bills could be approved. And although President George W. Bush would
almost certainly veto a broader reform it may prove impossible to stop
this kind of incremental change.
Eventually, argue proponents of change, this should pave the way for a
more fundamental overhaul. The process is certain to be long drawn-out
but a new US policy towards Cuba is long overdue. For decades the trade
embargo has played into the hands of communist hardliners, justifying
tight state control over all areas of Cuban society. Now, as Cuba adapts
to the prospect of life after Fidel Castro, it is especially
counter-productive.
That is because for the first time in nearly a decade economic reform is
on the agenda. Raúl Castro, who took over the reins of power after his
brother's stomach surgery during the summer, has encouraged real debate
over Cuba's day-to-day economic problems. "Raúl (Castro) has provided
decisive and nuanced leadership since he took over at the end of July.
He is cautiously but unmistakably elevating popular expectations for
liberalising change," says Brian Latell, the influential US-based Cuba
analyst..
This is an environment in which dialogue and engagement could be
particularly fruitful. As Julia Sweig, analyst at the Council on Foreign
Relations, last week told the Financial Times, Washington must "finally
wake up to the reality of how and why the Castro regime has proved so
durable, and recognise that, as a result of its wilful ignorance, it has
few tools with which to effectively influence Cuba after Fidel has gone."
The costs of default
The budget proposals that the Ecuadorian government will present to
Congress next week, may well make provision for payment of debt interest
payments in 2007. But do not take any reassurance from the fact. Credit
derivative prices assume an 80 per cent possibility of "a credit event",
while any investment bank analyst you care to mention is concluding that
default is a foregone conclusion, with speculation focusing on the kind
of deal that Ecuador will impose on creditors. Barclays Capital
concludes that a 60 per cent "haircut" is likely simply because this
will bring the cumulative debt reduction including Ecuador's last
restructuring seven years ago to 76 per cent, the same as the benchmark
achieved by Argentina's President Néstor Kirchner two years ago.
This is as a good a bet as any. Noone really knows, since contact
between Rafael Correa's financial team and the banks has been almost
non-existent. The real interest now focuses on the cost to Ecuador's
economy. Citigroup's Thomas Glaessner says there could be an impact
through increased cost (or complete cuts) of credit lines, rising
interest rates and capital flight, as big depositors move resources to
safer investments, not to mention the impact of lower growth and
declining investment inflows. He also raises the intriguing possibility
that bondholders may be able to "attach" the assets of Petroecuador, the
state-owned oil company. If it turns out that these assets include the
receivables from oil exports, Mr Correa may need to do some very quick
rethinking.
Squabbling over Corus
A bidding war for control of Corus, the Anglo-Dutch steelmaker, between
Companhia Siderúrgica Nacional of Brazil and Tata Steel of India will
come to a head at an auction on Tuesday night to be overseen by the UK's
Takeover Panel. As the contest entered its final stages last week, a
squabble erupted between CSN and CVRD, the Brazilian mining giant that
is the world's biggest producer of iron ore, over CSN's right to supply
Corus, if it wins it, with iron ore from its own mine, Casa de Pedra.
Directors at CSN told the FT that CVRD's occasional exercising of its
rights to ore from Casa de Pedra was "pure troublemaking", and CVRD's
questioning of CSN's ability to supply Corus if it buys it, "pure
malevolence". Directors at CVRD respond in similar vein. It is clear
that something more than business rivalry is operating between the two
groups, fuelled by what observers say is an abiding personal animosity
between the top men, Benjamin Steinbruch at CSN and Roger Agnelli at CVRD.
"It would be a shame if family squabbles prevented CSN from behaving as
it otherwise would," James Moss, partner at First River, a US steel
consultancy, said about the latest spat. A shame indeed. As both
companies advance on the world stage in their respective (and
overlapping) industries, they may find it better to behave with a little
more decorum.
Brazil's action plan
Among the slew of legislation launched as part of Brazil's new economic
growth programme, or PAC [Programa de Aceleração do Crescimento], is a
bill expected to be signed into law this week by president Luiz Inácio
Lula da Silva. It will set up a forum to discuss changes to Brazil's
bankrupt public pensions system, widely regarded by economists as the
country's single biggest impediment to growth.
Agreeing to talk about the problem might be a good start for an incoming
government. But Mr Lula da Silva – whose second mandate began on January
1 – is now in his fifth year in power. The forum is likely to take at
least six months to produce proposals which, if they have any teeth,
will require approval by three fifths of the members of Brazil's
fractious Congress. This is not a "concrete step", as Mr Lula da Silva
described it when he introduced the plan on January 22. It suggests that
pensions reform is unlikely to get much further than labour reform,
another big problem identified by most economists, which is not on the
government's agenda. The PAC is a modest programme of public works which
may stimulate some extra growth in the economy. It is not a programme of
government and should not have taken the place of one.
Mexico's tortilla economics
Felipe Calderón, Mexico's rookie president, has just been hit by his
first crisis: the rapidly rising cost of tortillas, the corn-based
pancakes that feature large in the diets of many Mexicans – particularly
the poorest.
How has he faired? If you buy into the arguments of the country's
liberal economists, the answer is badly. Mr Calderón, argue the
economists, should have met the shortage simply by importing more corn
from the US and letting the market work unhindered by government
intervention. Instead, the Harvard-trained technocrat abandoned
free-market principles and forced the country's main tortilla producers
to freeze prices at 8.50 pesos a kilo. Such a strategy has clear
problems. Not least, by setting a limit to the prices producers can
charge, Mr Calderón runs the risk of dampening investment in the sector
and causing even more inflationary pressure down the line.
But such arguments ignore two pressing realities. The first is that even
if Mr Calderón had let in cheaper US corn there would have been no
guarantee of lower tortilla prices. The Mexican market is dominated by
just one or two companies who could have hoarded the new imports to keep
prices artificially high. The second reality concerns politics. Andrés
Manuel López Obrador, the populist leftwing leader, has announced a
march at the end of this month to protest rising prices. If Mr Calderón
had acted otherwise his adversaries would happily have capitalised on
the issue.
The final outcome may not have been the best solution in a
well-functioning market. But Mexico's tortilla market is not competitive
and, given the still-difficult political conditions facing the new
administration, Mr Calderón did the right thing.
Notes by Richard Lapper, Jonathan Wheatley and Adam Thomson
Copyright The Financial Times Limited 2007
http://www.ft.com/cms/s/27fe081e-af3b-11db-a446-0000779e2340.html
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