Thursday, September 11, 2014

Ambush of President Dilma's reelection bid by Amazon activist Marina Silva


President Dilma Rouseff's four year work for reelection has been ambushed in just two weeks by  the Amazon activist Marina Silva who is now predicted to win in the October elections. If elected, Marina is likely to continue the pro-poor policies of the current government. But she will be more proactive in foreign policy than Dilma. PM Modi will find Marina less stiffer and more enthusiastic than Dilma in bilateral partnership and cooperation in global issues.


Ambush of President Dilma's reelection bid by Amazon activist Marina Silva

President Dilma Rouseff was comfortably ensconced in her Planalto palace in Brasilia waiting to get reelected in the October elections. Even after the massive street protests and the shocking defeat of the Brazilian team in the World Cup, she was leading in the opinion polls to win against Aecio Neves, the candidate of the centre-right Social Democratic Party and Eduardo Campos of the Socialist Party. This was until 20 August, when the Socialist Party had put up Marina Silva as Presidential candidate in place of Campos who died in a plane crash the week before. Two opinion polls, released in the first week of September, have predicted that Marina would win with a 7% lead over Dilma in the second round of the elections.The Dilma camp which had been systematically preparing for reelection with confidence for the last four years has been shocked by this ambush from the Amazon-born activist.

The prospect of Marina's win has come as a boon to the middle class which had protested in the last two years against poor public services, rise in prices and the corruption scandals involving the Workers' Party (PT) of Dilma. Marina is perceived as a principled anti-establishment outsider by the protestors. Marina's clean image contrasts her from Dilma's PT whose top leaders have been convicted on corruption charges. Marina's humble origin resonates with the poor people.The business community, which resented the I-know-everything attitude and inaccessibility of Dilma, has quickly latched on to the winning camp of Marina. They believe in her transformation from an idealist activist to a pragmatic political leader. Marina has declared that she will be a one-time President and will not seek reelection. This is a clever message to the supporters of Lula who has announced his own candidature for 2018. Marina has thus gained the support of the poor, the middle-class and the business dipping into the vote banks of Dilma and Neves

Marina's personal life story is compelling and similar to Lula's spectacular rise from poverty to presidency. She was born in a poor rubber tapping community in a village in the Amazonian state of Acre. She was one of the eleven children born to her parents who died leaving her as orphan at the age of 16. She learnt to read as a teenager when she was raised by nuns. She survived malaria, hepatitis and other diseases. She joined the rubber tappers' union and worked with the famous Chico Mendes whose movement worked for the protection of the Amazon from the deforestation interests.  She joined PT in 1986 and was elected as deputy in the State Assembly in 1990 and as Federal Senator in 1994. She became the Minister of Environment in President Lula's cabinet in the period 2003-8. But she resigned from the cabinet when her passionate environmentalism collided with vested interests and she lost the support of Lula.

Marina fought the 2010 elections as candidate of Green Party and came in the third place with an impressive 19.3 % of votes. Later she tried to create a party of her own called as the Sustainability Network but it did not work out. In 2013, she joined the Socialist Party and agreed to be the vice-presidential candidate with Campos. 

If elected, Marina is likely to  continue the Inclusive social policies of the current government, since she is also a leftist like Lula and Dilma. But she might give more space to the private sector business which felt stifled by the Dilma administration. The Brazilian stock and bond markets have already started bullish run anticipating Marina's win.

Brazilian foreign policy remained passive in the last four years since Dilma took very little interest in external affairs. But Marina is committed  to raise the profile of Brazil. She gives importance to regional integration, South-South cooperation, improvement of relations with US, signing of trade agreement with Europe and innovative Brazilian leadership initiatives in global climate change policies. She is likely to be less vocal in supporting Iran, Cuba and Venezuela. 

Prime Minister Modi might find Marina a bit less stiffer and more enthusiastic than Dilma in strengthening the bilateral strategic partnership and cooperation in IBSA, BRICS as well as in multilateral fora. 

Thursday, September 04, 2014

Poverty reduction and politics in Latin America


The credit for significant poverty reduction achieved in the last decade in Latin America goes to the pro-poor policies of the leftist governments who have been elected and reelected in recent years. In keeping with this trend, the Left is expected to be voted back to power in the October elections to be held in Brazil, Uruguay and Bolivia.The emancipation of millions of people from poverty is good news for the Indian companies exporting goods affordable to the new middle class in the region.

Poverty reduction and politics in Latin America 

More than 56 million people have been lifted out of poverty in Latin America in the period 2000-2012, according to a 26 August report* of the United Nations Development Programme (UNDP) based on data for 18 countries (Cuba and Haiti have not been covered) of the region accounting for 90% of the total population. The poverty level (under 4 $ a day) fell from 42 % to 25 % and the number of poor reduced to 134 million in 2012. The middle class ( 10-50 $ per day) which rose from 21 % to 34% reached 181 million. Between the middle class and the poor there were 200 million who earned  4 to 10 $ a day. 
Boliviahas achieved the greatest poverty reduction by 32.2%, followed by Peru with 26.3%, Venezuela -22.7%, Ecuador 21.9%, Brazil 18.6%, Panama-18.2%, Argentina-14.2%, Chile -13.1%, Costa Rica- 11.8% and Colombia- 10.6%.  In three countries, poverty levels have gone up. These are Guatemala 6.8%, Dominican Republic-0.7% and Honduras-0.5%. 
The credit for poverty reduction should be given primarily to the pro-poor policies of the left-of-centre governments in the region. This is evident from the fact that the top five countries with the highest poverty reduction have leftist governments. It is highlighted strikingly even more clearly in the contrast between Bolivia and Guatemala; the former has achieved the highest poverty reduction with a leftist government while Guatemala has seen increase in poverty with its rightist governments.The Bolivian success should be attributed entirely to Evo Morales, the first native Indian elected as President of the country in the 200 -year history of the country. The Indians, who form sixty percent of the Bolivian population and the bulk of the poor, never got the attention of the conservative European descendant rulers. It was Evo Morales who focussed on the poor Indians as a priority for his government. But the Guatemalan Indians who also form 60% of the population continue to be marginalized by the conservative governments of European descent. When a leftist President Arbanz tried to protect the poor with some progressive policies in 1954, the United Fruit company and CIA engineered a coup and installed right wing dictatorship. The current democratically elected President is Otto Perez Molina, a retired army General. It is no surprise that Guatemala has the highest proportion (63.1%) of poor in the whole region.
Uruguay has the highest proportion ( 60.2%) of middle class but its population is just 3.4 million. In the top four biggest markets, the middle class constitute 34.8% in Brazil, 26.4% in Mexico, 54.4% in Argentina and 26.8% in Colombia.
The success of poverty alleviation is the reason why Leftists have been elected and reelected in many countries of the region. At present, ten countries of Latin America have Leftist governments. These are: Chile, Brazil, Bolivia, Uruguay, Peru, Ecuador, Venezuela, Nicaragua, El Salvador and Cuba ( unelected).
The Conservatives were defeated in the last elections in Chile and Mexico. In Chile, the conservatives who came to power in 2010 after two decades of centre-left governments lost to the Left in the December 2013 elections. In Mexico, the left-of-centre Instituitional Revolutionary Party (PRI) defeated the conservative PAN party which was in power for two terms till 2012.
At present only four countries have conservative governments: Colombia, Honduras, Paraguay and Guatemala. In Colombia, the Left has been given a bad name by the FARC guerrillas who have misused their original Marxist-Leninist ideology and got into drug trafficking, kidnappings and terrorism. In Honduras and Paraguay the conservatives came to power through questionable routes. In Honduras, the Leftist President Manuel Zelaya was overthrown in a coup in 2009 with indirect US support. The coupsters ensured the conservative victory in the elections in 2010 and 2013. In Paraguay, there was a Congressional coup by the conservatives in 2012 who forced the Leftist President Fernando Lugo out of office. The oligarchs of the country conspired together and have reestablished centre-right governments since then.
Given the link between poverty alleviation and politics, it is no surprise that the Left is expected to retain power in the elections to be held in Brazil, Bolivia and Uruguay in October this year .
The emancipation of people from poverty and the enlargement of middle class in Latin America is an encouraging news for Indian companies which export medicines, two and three wheelers, cell phones, clothes, and other goods affordable for the low income groups. 

Friday, August 22, 2014

Washington, New York and the Argentine default

The Argentines blame the ' Washington Consensus' for the real default in 2001 and the New York judiciary and vulture funds for the artificial default on 31 July. The arbitrary court order and the unethical extreme greed of the vulture funds are challenges not just to Argentina; they endanger the global debt restructuring system and contradict the domestic laws of United States. The US President and the Congress  can save Argentina from the pain and put an end to the extortionary tactics of vulture funds as a redemption for the original sins of the 'Washington Consensus'


Washington, New York and the Argentine default 

'Argentina has defaulted', screamed the headlines in financial newspapers on 31 July. But it was not an accurate report. Argentina did not default. It was forced into default by a New York southern district court judge Thomas Griesa. The Argentine government had deposited the payment of 539 million dollars on 26 June ahead of the due date, in a bank in New York to be transferred to the 92.4% bond holders. But Judge Griesa had blocked the transfer of the money. He would not allow this payment to the 92.4 % of the bond holders until and unless Argentina paid the outrageous amount demanded by the vulture funds who hold just 1.6% of the bonds.  So it is an artificial default situation created by Judge Griesa. Joseph Stiglitz, the Nobel Laureate and Martin Guzman from Columbia University call it* as " Griesafault ".  Standard and Poor labels it as 'selective default' while Fitch has categorized it as 'restricted default'. 

The Argentines blame the "Washington Consensus" for having caused the socioeconomic problems of Argentina in the eighties and nineties which eventually lead to Argentina's first default in this century in December 2001. Some even go further and say that the support of Washington DC to the Argentine military dictatorship (whose crimes include incurring unnecessary and irresponsible external debt) was the root of the problem of default. Now they accuse the New York judge for the second default.

Facts of the case


After the December 2001 default on its debt of  82 billion dollars, the Argentine government restructured the debt through agreements in 2005 and 2010 with 92.4 % of the bond holders under which the latter received 'exchange bonds' giving them about 30 cents for a dollar of the old bond. These exchange bond holders have been receiving their interest payments punctually and seen the value of their bonds rise. The remaining 7% of the bond (value 4 bn dollars) holders did not agree to the debt swap. Among this holdouts, the vulture funds hold 1.6% of the bonds worth 1.3 billion dollars. NML Capital, the lead vulture fund sued the Argentine government demanding full payment. Judge Griesa ruled in their favor in November 2012. Argentine appeal in a higher court was rejected and later the US Supreme Court refused even to hear the Argentine appeal. Judge Griesa then forced the Argentine government to negotiate with the vulture funds under Daniel Pollack, a New York lawyer appointed by him as mediator. The negotiations failed since the Argentine  government could not agree to the outlandish demand of the vulture funds and the latter rejected the Argentine offer of payment on the same terms as paid to 92.4% of the bond holders. The deadline of 30 July passed without the payment, resulting in a default situation, although the Argentina has the money and willingness to pay. Judge Griesa has simply put a gun on the head of Argentina saying, 'pay the predators or go bust'


Argentina has now taken the matter to the International Court of Justice, complaining** that the decision of the US judiciary is arbitrary, abusive and beyond its jurisdiction besides ignoring the sovereign immunity of Argentina and hindering the sovereign debt restructuring process. But this would not help if the United States does not consent to the jurisdiction of ICJ on this matter. 


Five fundamental questions


While the wise old ( 83 years) judge and the greedy vulture funds have some sound technical and legal arguments, the case defies logic, common sense and natural justice. It threatens the sovereignty of Argentina and the global system and practice of debt restructuring besides contradicting the basic principles of free markets. It needs to be seen in a larger context with all the facts behind the case. To start with, let us ask five fundamental questions.

1 Did the Argentine government actually borrow money from the vulture funds which have sued Argentina?  No. Neither the vulture funds lent any money nor did the Argentine government borrow from them. The vulture funds bought the bonds cheaply in the secondary market after the default in 2001. They paid 49 million dollars for bonds worth 832 million dollars. NML did not ask the Argentine government nor did it go through American judiciary before it purchased the bonds, knowing fully well the risk. Why should any judiciary be involved now to arrange profit on the commercial purchase? The judiciary should simply let the market forces play freely . They should ask the vulture funds to sell their bonds in the market from where they bought. This would be perfect justice in the land of free market.

2 Did Argentina refuse to pay the vulture funds? No. The Argentine government offered to pay them on the same terms as they paid the 92.4 % of the bond holders. This would give a handsome profit to the vulture funds on their investment. But they want an unreasonable and different treatment. They want an outrageous 1.63 billion dollars which means a return of 1608 %. Some might consider this demand as immoral and unethical but it is business as usual for Paul Singer, the chief of NML and his other fellow vulture friends. They specialize in buying distress debt at rock-bottom prices and then try to collect ransom by litigation and blackmailing.  Argentina is not their first victim. They have already exploited some African and Latin American countries and their last victim was Greece. Jerome Roos of the ROAR magazine calls*** the vulture funds as the 'Taliban of global finance'

3 Have the 92.4 % of bond holders lost out terribly after having accepted 30 cents to a dollar swap? No not at all. They are happy with the value of their exchange bonds which is around 89 cents to a dollar. Since these are GDP-indexed bonds, they have received good returns with the high growth of Argentina since 2003. The interest which they get is high since Argentina is only one of the three countries in the world offering bond yields above ten percent. More importantly Argentina makes interest payments punctually.

4 Will the vulture funds suffer loss due to the Argentine default? No. In fact they might even gain since they own a large quantity of  credit default swaps (CDS) against Argentine bonds, creating a further incentive to not only trigger a default against Argentina; but also to undermine the value of the bonds themselves, as the CDS would pay out at a higher rate if the defaulted bonds decline to extremely low values.

5 Can the Argentine government pay the vulture funds the amount demanded by them? No self-respecting government can give in to such blatant blackmail. Moreover such payment will open a Pandora's Box and the 92.4 % bond holders would also want a similar full payment pushing Argentina into another real default causing avoidable suffering for the Argentine people. Martin Wolf of Financial Times ( 24 June 2014 ) says, ' if Argentina is forced to pay the holdouts in full, the price will be borne by Argentines. This is extortion backed by the US judiciary'. Asking Argentina to make full payment to the 1.6% bondholders while 92.4% have been paid one third of the full value is mockery of justice and undemocratic. Blocking the payment to 92.4% unless and until payment is made to 1.6% is punishment of the majority for appeasing a small minority?

Vulture funds harass Argentina

The vulture funds have been harassing the Argentine government for the last several years by threatening to seize Argentine assets and Central Bank reserves abroad. In October 2012, the vulture funds got a historic Argentine naval sailing vessel seized in Ghana through a local court order. Argentina took the case to the international tribunal for the law of the sea which asked Ghana to release the ship on the ground that the impounding of the ship was "a source of conflict that may endanger friendly relations among states". The incident was a terrible embarrassment for Argentina.

The vulture funds tried to confiscate Argentine assets including those of diplomatic missions  in US, UK, Belgium, Germany, France and Switzerland. Argentina was forced to fight in the courts of these countries to protect its assets.

Even now the Argentine President does not travel in the official plane to US or some other countries where there are risks of seizure of the aircraft by the vulture funds. The President charters planes for such trips.  

The vulture funds are now trying to unearth dirt against the Argentine leaders in order to use them to blackmail as they did in the case of Congo. They have warned, ' the worst is yet to come'.


Argentina has done well on its own after the 2001 default



It should be highlighted here that Argentina had done the successful restructuring of its debt in 2005 and 2010 on its own without the involvement of IMF or any other external rescuer, demonstrating to the world that restructuring could be done without the painful and humiliating austerity conditions of IMF.


It is even more commendable that Argentina recovered from the debt crisis very quickly, resumed economic growth and paid off a significant amount of debt. It repaid its 9.5 billion dollars debt in full to the IMF in January 2006 at one go and has also settled many other external debts. It has brought down its public debt from 166% of GDP in 2002 to 44% in 2013. In May 2014 it signed an agreement with the Paris Club to settle the debt of 9.7 billion dollars. It has been servicing the restructured debt scrupulously paying interest to the exchange bond holders punctually. This has generated a confidence in the market because of which the price of Argentine bonds are holding at 89 cents to a dollar even after the default on 31 July.

Argentina achieved an impressive growth rate of 8.8 % in 2003, a year after the debt crisis and economic collapse. It grew over 8.5% annually from 2004 to 2007. Even after the global financial crisis, the economy grew by 9.2% in 2010. No doubt, Argentina's recovery and growth were helped by the high commodity prices. Despite being cut off from the global credit market for over a decade, Argentina has done not so badly. In contrast, Greece which was bailed out with 110 billion Euros by Eurozone countries and IMF in 2010 is still in negative economic growth with high unemployment and continued suffering by the population due to the severe austerity conditions.

New York verdict contradicts US domestic law

The American court verdict against Argentina contradicts the domestic law of US which allows individuals and companies as well as cities and counties to declare bankruptcy under Chapter 11 and 9 to ensure orderly survival when debts cannot be repaid in full. The reasoning behind this American law is that no credit system can function or has ever functioned with zero default. This possibility of default is embedded into credit contracts through the interest rate, with spreads operating as the market estimate of the probability of a default. So those who are seen as less likely to be able to repay are forced to pay higher interest rates, in both formal and informal credit transactions. A creditor who has been demanding and receiving a higher interest rate based on this probability cannot then demand full repayment as a right, since the contract reflected that very likelihood. So the ruling actually negates the basic principles upon which all credit markets function##. According to Stiglitz and Guzman*" Griesa’s ruling encourages usurious behavior, threatens the functioning of international financial markets, and defies a basic tenet of modern capitalism: insolvent debtors need a fresh start".


Implications for the world


Judge Griesa's decision favoring the vuture funds has provided a potentially dangerous precedent for future debt restructuring of other countries. It is because of this reason that even IMF and the World Bank have expressed concerns that the NML case could endanger the debt restructuring they oversee around the world. Brazil, France and Mexico filed amicus briefs with the US supreme court in March this year arguing that the ruling against Argentina would endanger the sovereign debt markets. Argentina's position in the case has also been supported by Latin American regional groups such as Mercosur, UNASUR, CELAC and OAS besides G-77 and China.


Some US bankers and economists have also cautioned about the adverse implications of Judge Griesa's decision for the global financial system. In a letter# addressed to the US Congress on 31 July, over 100 economists have expressed concern that the court judgement against Argentina could cause unnecessary damage to the international financial system. The letter has called for a legislative solution pointing out the examples of UK and Belgium which have passed legislations preventing such litigations by holdouts. 


Argentina needs alternative credit sources

Judge Griesa's decision has come at a wrong time for Argentina. The Argentine economy has deteriorated since 2007 with high inflation, currency devaluation and shortage of forex reserves among other problems. Judge Griesa and the vulture funds have compounded the economic problems of the country by creating more uncertainties and challenges. The artificial default situation means that Argentina will continue to be locked out of the global financial markets although the country badly needs external funds to finance its development projects. 


Argentina has to look out for non-western financial sources. They have been offered thirteen billion dollars of credit as well as currency swap facility by the Chinese President during his visit in July this year. May be Argentina could become the first customer for the New Development Bank created by BRICS last month. 


The larger issues

The vulture funds vs Argentina case is not just a legal issue about a few billion dollars. It is about the sovereignty of a country, the economic situation of 42 million people and the future of debt structuring for other countries. It is also about the credibility of United States financial and judiciary system.  Stiglitz and Guzman have a warning*, 'The US financial system, already practiced at exploiting poor Americans, has extended its efforts globally. Sovereign borrowers will not – and should not – trust the fairness and competence of the US judiciary'. 


Let us not forget that the extreme and reckless greed of a few had caused the financial crisis for US and the world in 2009. The people and the government of US have paid a high price as a consequence. Such tragedy could be avoided for Argentina and other countries.


Back to Washington DC


The second default of Argentina in this century caused by the New York courts and vulture funds could still be rolled back in Washington DC with Presidential discretion. Greg Palast, who has done investigative reports for BBC, Guardian and Al jazeera, says### President Obama could intervene in the Argentine case in the same way as President Bush prevented the seizure of the US property of Democratic Republic of Congo by the same Paul Singer. But a long term solution lies in the hands of the US Congress which could enact legislation as done in UK and Belgium to prevent the predatory and unethical litigations by vulture funds. It will be a redemption for the sins of ' Washington Consensus'. 










Thursday, August 14, 2014

Federalism – the experience of Brazil


Brazil follows a more decentralised federalism and gives special importance to the municipalities. Port Alegre city's pioneering and successful  'participatory budgeting' is a role model for the world. India could learn from the positive and negative aspects of the Brazilian system.

Federalism – the experience of Brazil


Brazil is one of the largest federal states in the world and one of the oldest, dating from 1889. The country started off with  a unitary central authority as a colony and later as a monarchy when it became independent from Portugal in 1824. It was turned into a federation as it became a republic in 1889 . Since then, it has oscillated between centralizing military dictators and authoritarian regimes and decentralizing liberal governments. When democracy was restored in 1985 after two decades of the last military dictatorship, Brazil became a federal republic under the constitution of 1988, the seventh since independence.

Empowerment of municipalities

The Brazilian federalism is unique since it has recognized and included municipalities as integral entities of the federal structure. The municipalities are invested with some of the traditional powers usually granted to states in federalism. The Brazilian municipalities enjoy independent and coequal status unlike in other federal countries where the states control the local bodies.

Brazil is a federation of 26 states and the 5564 municipalities plus the federal district of Brasilia. The states have their own constitution while the Municipalities have 'organic laws' .

The municipalities, whose populations range from a few thousand to many millions, have considerable autonomous powers and resources.The World Bank in its 1990 report ' The new fiscal federalism in Brazil" has commented that the municipalities have more money than they need while the federal government's revenues fall short of its spending needs. The municipalities are empowered to take decisions in many important areas, such as territorial management, land development, environment, local taxation and industrialization.

How federalism works

Brazil is an example of a more 'robust federalism' in comparison to other federal countries of the world in the extent of decentralization. Few federal countries give such a large share of the total tax revenue to the states and municipalities. The state governors have lot of power and clout  vis-a vis the federal government in certain tax and expenditure functions. After having suffered from the centralized military dictatorship in the past, those who drafted the 1988 constitution seems to have opted for decentralization which creates more powerful local leaders to balance any strong and ambitious president. Governors and mayors of wealthy states and cities compete with the federal president for power and resources. In fact, one of the federal presidents Itamar Franco, who was President of Brazil in 1992-95 later became the governor of the state of Minas Gerais in 1999-2003 and kept challenging his successor in Brasilia.

It should also be noted that another larger objective of such greater decentralization is to bring the government closer to the people. This has served well the young democracy of Brazil.

The Brazilian structure is also described as Cooperative Federalism since the management of the distribution of powers and responsibilities of the federal system is based on the assumption of cooperation between the three federal entities. 

The bicameral national legislature also reflects the federal spirit of the constitution. Each state, big or small, is represented equally by  3 senators elected directly from the states. The number of seats in the Chamber of Deputies is distributed according to the population in each state. In order to balance the larger and smaller states there is a stipulation that the states should have a minimum of 8 Deputies and maximum of 70.

Brazil could afford to be decentralized so much since its population of 200 million speak just one language and follow one religion and the country does not face any centrifugal forces.

Challenges

Although the Brazilian federal system has served the country well so far, it is still a work in progress and is far from mature since it is just thirty years old. There are many challenges and flaws some of which are highlighted below. 

The excessive emphasis on decentralization in the model of cooperative federalism without defined distribution of responsibilities is a source of tensions. When states or municipalities do not carry out their responsibilities, there is no adequate mechanism for the federal authorities to remedy the situation. 

The structure of the revenue-sharing system is unbalanced and is being challenged frequently and in any case it has not helped adequately to deal with regional and income disparities.

Because of the large clout given to states and municipalities, the political parties have got fragmented and the national parties have become like a federation of state parties and the Congress 'an assembly of states'. The federal legislators give more importance to local interests than national concerns, hobbling and complicating the federal government's functioning and priorities. 

Relevance of Brazilian experience for India

India cannot afford to be as decentralized as Brazil's federation given the  vast Indian diversity of languages, religions, ethnic groups and more importantly separatist history and tendencies. Prime Minister Modi, who advocates a 'cooperative federalism' can learn from the downside of Brazil's excessive decentralization. 

India could study the empowerment of Brazilian municipalities and especially the "participatory budgeting" system successfully pioneered by the Municipality of Port Alegre, which had captured the imagination of Aam Admi party's Arvind Kejriwal. About 50, 000 citizens out of the total population of 1.5 million inhabitants of the city participate in the budget allocation of the 200 million dollar annual fund for construction and services. 

The Indian Ministry of External affairs could learn from the Brazilian foreign ministry's interaction with regional authorities. They have six offices in the major cities and regions of Brazil as two way communication points with state and municipal authorities as well as with civil society. These are headed mostly by ambassador-level officers. The foreign ministry takes the views of the local leaders on board on issues of regional integration such as Mercosur and external trade. MEA has recently opened offices in some cities of India but these are headed by junior level officers and are not able to serve a larger bridging role like the Brazilian diplomats do. 

Tuesday, August 05, 2014

Latin America takes a stand, principled and distinctive, in support of the people of Gaza


Brazil, Chile, Peru, El Salvador and Ecuador have recalled their ambassadors from Tel Aviv denouncing  the disproportionate use of Israeli military force in which innocent civilians including women and children have been killed.  Chile has suspended its trade talks with Israel. During the Mercosur summit on 29 July, the Presidents of Brazil, Argentina, Uruguay and Venezuela issued a joint statement condemning Israel and calling for lifting the siege in Gaza. Venezuela had issued a stronger statement on behalf of the 9-member ALBA (Bolivarian alternative) group. The Bolivian President Evo Morales called Israel as a " terrorist state" and has appealed to the UNHCR (UN Human Rights Commission) to consider " crimes against humanity" and " genocide" by Israel. Most other Latin American governments have also issued strong statements, revolted by the bombings of schools and hospitals. 

Venezuela and Bolivia had cut off diplomatic relations with Israel in 2009 and Nicaragua in 2010 after the last Israeli offensives. Cuba had done it in 1973 as part of its ideological support to the Palestine cause.

The Latin American media has joined the condemnation by taking their own stand refusing to buy the distorted stories and opinions of the biased US media. Latin American Nobel Prize winners Pérez Esquivel of Argentina and Rigoberta Menchú of Guatemala have called for a military embargo against Israel as done against South Africa during apartheid.

Latin America is home to over 500,000 Jews of which 200,000 live in Argentina, 100,000 in Brazil and 50,000 in Mexico. The Jews in Latin America have significant financial clout and control a lot of business. But the Latin American governments have not let the local jewish communities to hijack their foreign policy unlike in US where the Jewish lobby has taken over the middle east policy from the State Department. More importantly, the Jews in Latin America have assimilated themselves fully in the local societies and do not blindly support whatever Israel does. In fact, the Jewish community of Brazil apologized to the Brazilian government over the 'dwarf' statement by the Israeli foreign office spokesman. When Israel tried to interfere in the Argentine investigation of the 1994 Buenos Aires Jewish Centre bombing, Argentine Foreign Minister Hector Timerman (He is a Jew and his father had lived in Israel after he was exiled by the Argentine military in the early 1980s) told the Israeli ambassador on 31 January 2013 ( Times of Israel report on 6 february 2013) that “Israel does not speak for the Jewish people and isn’t their agent. Jews who wanted to live in Israel moved there and became citizens, and those who live in Argentina are Argentine citizens.” 

Chile has the largest Palestine community of around 400,000, followed by Honduras with 200,000, Mexico- 100,000 and other countries have smaller numbers. But most of these are Christians and they have not stood up in any significant way for the Palestine cause. 

Israel owes a original debt to Latin America. Out of the 33 votes for the 1949 UN resolution partitioning Palestine into Jewish and Arab states, 13 were from Latin America. These 13 included Brazil, Peru, Ecuador, Bolivia and Venezuela which have now taken diplomatic action against Israel.  Mexico and Colombia, who  have reacted mildly to the Gaza offensive now as part of their pro-US policy, had abstained in that crucial voting. In the years after the creation of Israel, many Latin American countries had taken Pro-Israeli positions in global fora because of the US influence with the rightist authoritarian regimes in Latin America, with whom Israel had cozy relations. But most Latin American countries changed their stance after the Israeli occupation of Palestine territories and after the restoration of democracies in their own countries. Many Latin American countries have recognized Palestine as an independent state and were sponsors of the UN resolution declaring 2014 as the International Year of Solidarity with the Palestine People.

The vocal criticism and strong language used by Latin America stands out as the loudest in comparison to the subdued response of the Asian and African countries who used to voice their concerns aloud in the past. The Latin American condemnation contrasts with the condoning of Israeli actions by US. The impunity with which Israel has killed over 1400 civilians and the solid  support it receives from US remind many Latin Americans of the atrocities committed by right wing Latin American military dictatorships with similar US backing. Chilean President Michelle Bachelet, a pragmatic and respected Latin American leader, has likened her political exile in Europe during the Pinochet dictatorship to the plight of Palestinian refugees denied the right to return home. This memory has triggered the Latin American governments to react strongly and go beyond the response of many countries around the world. 

Earlier in the year, Brazil was criticized by the US congressmen and media for not taking a strong stand against Venezuelan government after the death of 40 people during the anti-government protests. The Brazilians ask what  has US done when 1400 people have been massacred by the targeted bombing of hospitals and schools in Gaza?  Disgusted by the hypocrisy and double standard of US and Europe, the people of Latin America have come to appreciate the  conscientious and responsible position taken by their governments on issues such as the Gaza tragedy.

There is a larger political message to the world. The vocal and principled stand taken by Latin Americans is yet another clear sign of their growing independence and assertiveness in the global stage. 

Tuesday, July 29, 2014

India and Latin America - a new paradigm of perception and partnership


This article was published by Elcano Royal Institute of Madrid in July 2014. link below


Theme

This paper brings out the new paradigm of perception and growth in relations between India and Latin America leading towards a long term partnership.

Summary

In the last two decades, both India and Latin America have undergone fundamental transformations and are moving forward in a stable and predictable trajectory of growth and prosperity. There is a positive change in the perception between the  New India and the New Latin America who are discovering complementarities and synergies between their markets and mindsets. The Indian IT ( Information Technology) and pharmaceutical entry in Latin America as well as their investment model have inspired confidence among Latin Americans who have some apprehensions about the flooding of Chinese goods and immigrants. India perceives Latin America as a long term contributor to its energy and food security. India offers a large and growing market for Latin American business, which needs to exploit the potential more seriously. India and Latin America, with many similar developmental problems, could learn from each other's success stories. The governments of the two sides have intensified engagement and cooperation in recent years. The positive mutual perceptions of the youth, business and governments on both sides augur well for a long term Indo-Latin American partnership. Spain, with its special links to Latin America, has the potential to play a role and make a win-win-win trilateral partnership.

Paradigm shift

Till a decade back, Indians had considered distance, language and culture as barriers for business with Latin America. But now these three have been converted as advantages by the two dozen Indian IT companies which operate in Latin America with about 25,000 local staff. They do 12 hours of work from Latin America and the next 12 hours from India to provide 24/7 service to their clients in US and Europe in this new 12/12 business model which makes use of the time difference between India and Latin America. The Indian IT companies also provide services in Spanish and Portuguese to local and European clients as well as to the hispanic market of US using their Latin American staff. The Indian firms also leverage the European cultural roots of most of their Latino staff who bond with the European and US clients more naturally and spontaneously.

Welcome to the new paradigm of partnership between India and Latin America ! 

There are two more new trends which confirm the paradigm shift in the Indo- Latin American relations

While the Indian IT companies are recruiting more young Latin American techies, Bollywood has started attracting Latin American stars.  Mexican actress Barbara Mori was the heroine  in the Bollywood film ¨Kites¨released in 2010. Six Brazilian actresses ( Bruna Abdullah, Izabelle Leite, Giselli Monteiro,Gabriela Bertante,Nathalia Pinheiro and Mariah Gomes) have acted in Indian films.The success of these stars have given rise to a new category of Latin American visa applicants at the Indian embassies aspiring to Bollywood roles and modelling in India. The Argentine musician, Gustavo Santaolalla composed music for the Amir Khan film ¨Dhobi Ghat¨, released in 2011. Rajnikant, the Tamil superstar shot a scene of dancing with Aishwarya Rai in Machu Pichu for his last film " Robot". Toonz Animation Ltd of Trivandrum, in collaboration with Illusion Studios of Buenos Aires coproduced a cartoon film ¨Gaturro¨, based on a character created by Argentine Cartoonist Nik. The film released in 2010 was a box-office hit. Globo TV of Brazil telecast a soap opera ¨Camino das Indias ( Passage to India)¨ in 2009. It was a typical Indian love story acted out by Brazilians in Indian costumes. It got the highest ratings during the eight months of its run and has been dubbed in Spanish and telecast in other Latin American countries.

A trendy night club  "Groove" in Buenos Aires has an unusual event. The " So What " band of Rodrigo Bustos (age-29) and Nicolas Pucci (age-32), the Argentine singers rock the bodies and stir the souls of an audience of about 800 teenagers with their Sanskrit songs  " Jai Krishna Hare" "  and   " Govinda Govinda" in pop, rock and hiphop styles. In these Yoga Rave events, the club does not  serve alcohol and prohibits smoking and drugs. The club serves only pure vegetarian food. In between the songs, a Guru leads the audience with exercises in yoga and meditation.The band has performed in other countries of the region attracting a lot of Latin American followers to this alternative fun. The Indians are amazed that Sanskrit and spiritualism has been taken to a contemporary new level especially to the Latin American youth.

Change in perception

In the past, the Indians had the stereotyped image of Latin America as a politically unstable and economically volatile region.  But now they see the emergence of a New Latin America with vibrant  democracies with strong macroeconomic fundamentals. There are a few exceptions, of course. They are impressed by the fact the Latin American economies had withstood the global financial crisis without serious impact and have become more immune to external shocks. The Indian business is attracted by the large new market of Latin America, which is on a more stable and predictable course of growth and prosperity.

On the other hand, there is a positive change of image of India among the Latin Americans. They are fascinated by India's  IT power, the high economic growth, the large foreign acquisitions including Jaguar and Ritz Carlton by Indian companies and ascendance of Indians to the top echelons of American and European firms. The Latin American governments are now sending delegations to attract Indian investment and to learn from the Bangalore model.

From India, the pharmaceutical companies were the first ( much before the entry of IT and other firms ) to enter Latin America with export and local manufacture of generic medicines which are  available in every country in the region. India is a major supplier of pharma raw materials ( bulk drugs) to Latin American manufacturers of finished products helping  them to lower their cost of production. The Indian entry put pressure on local and multinational companies to reduce the cost of their medicines and also to increase their own production of generic medicines. This is the reason why Brazilian and Chilean Health Ministries had taken enthusiastic initiatives inviting the entry of Indian pharma companies. The Latin American consumers and governments are happy that the Indian generic medicines have helped them to reduce the cost of healthcare. This opened the eyes of the Latin Americans and raised the image of Indian companies.

India- Latin America mutual learning

Both India and Latin America share many common developmental challenges. While India has been successful in some areas, the Latin Americans have excelled in others. The two sides can learn from each other's success stories and policies.

India could learn from Latin America in the following : Fuel ethanol and Bolsa Familia programmes as well as Brasilia Consensus/Lulaism ( balanced and pragmatic mix of pro-poor and pro-market policies) of Brazil, agribusiness best practices such as No-Till cultivation, silo-bag storage and Agricultural Process Outsourcing model from Argentina, Urban transportation from Bogota and Curitiba, Mexico Pact under which major political parties have a consensus on vital national reforms and policies, eco-tourism from Costa Rica, dramatic transformation of Medellin as a peaceful and vibrant Silicon Valley from its past notoriety as a murderous narcotraffic capital of the world, Medellin's outreach to slums by providing metro cable connectivity to the slum dwellers, and of course football from Brazil and Argentina.

The Latin Americans can learn from India's success in areas such as IT, generic medicines, dairy cooperatives, affordable railways for the masses, inexpensive and competitive mobile phone system, affirmative policies for disadvantaged, rural development, banking facilities to agricultural and rural sectors and best practices in holding of elections including electronic voting. The concerted export promotion programmes by the Indian export promotion councils, chambers of commerce and the government could be a model for Latin Americans who are still in the process of evolving an export culture.

The Latin American youth admire their Indian counterpart for educational excellence, IT skills, hard work, humility and hunger for success. And the Indian youth want to learn from the Latino spirit and work-life balance. They have started learning salsa and Spanish while the Latin American youth have taken to Bollywood music and dance and are keen to get internships in Indian IT companies.This complementarity and mutual admiration make the young Indians and Latin Americans to bond with each other and become friends easily.  

Difference with China

China has overwhelmed Latin America with huge investment, imports and credit. However, many Latin Americans are apprehensive with the dumping of Chinese goods hurting local manufacturing and the flooding of large number of Chinese immigrants who live isolated in their own " China Towns " with mafias. The Argentines are agitated that the Chinese have taken over about 10,000 convenience shops and supermarkets in Greater Buenos Aires area. This is brought out in the Argentine film " Un Cuento Chino" released in 2011. The aggressive proposals of Chinese companies to acquire large areas of agricultural land in South America has triggered imposition of government restrictions on foreign ownership of agricultural land in Brazil, Argentina and Uruguay. There have been unrest in Chinese mining ventures in Peru against treatment of local workers and environment.

In contrast, the Latin Americans welcome the Indian business, who employ mostly local staff and bring in very few Indians or in some cases none at all. For example, Aegis, the Indian IT company in Argentina has 5000 staff, all of whom are Argentines and there is not a single Indian. UPL, the Indian agrochemical and seed company has 300 Argentine employees in their manufacturing and research units but no Indian at all. In most cases, the Indian companies in the region are headed by local managers. The Indian IT, BPO and KPO companies are employing 25,000 young Latin Americans to whom they provide training, skill upgradation and multicultural exposure.  The Latin American governments consider this as Indian contribution to the region's human resource development. Uruguay is thankful to TCS which has put the country in the global IT map by establishment of its first Latin America centre there in 2002.  

The Latin Americans  consider India as a land of yoga, meditation, philosophy, wisdom, culture and spiritualism. Yoga schools can be found all over the region. Yoga and meditation are taught in some Latin American jails to calm the nerves of prisoners. Deepak Chopra's lectures are well attended and his books are popular in the region. There are several thousand Latin American followers of Indian spiritual gurus and organizations such as Sai Baba, Hare Krishna and Art of Living. There are some NGOs in Sao Paulo and Medellin which disseminate the message of non-violence of Gandhi in schools, prisons and even among the police.

The vibrant and pluralistic democracy of India is a role model for the young democracies of Latin America, many of whom have suffered from dictatorships. The growth with democracy India Story resonates with the Latin Americans who see the Chinese political and economic model as undesirable for them. Therefore, the Latin Americans consider China only as a commercial partner while they cherish the moral and cultural value addition of India which appeal to their heart and soul.

India- Latin America Trade

The trade has increased from 2.6 billion dollars in 2001 to 42 billion in 2013 and could reach 100 billion dollars in the next four years.

India’s trade with Latin America in billion US $.


Year
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
India’s exports
14
12
12.1
9
7.5
8
5
4
3.2
2
1.7
1.7
1.5
India’s imports
28
29
15
14
9.7
11
6
5.2
3.1
2.3
1.9
1.7
1.1
Total
42
41
27
23
17.2
19
11
9.2
6.3
4.3
3.6
3.4
2.6

India’s trade with top seven (above a billion $ ) trade partners of Latin America in 2013  

Country
2013 (in US$ billions)
Venezuela
14.2
Brazil
9.48
Mexico
6.67
Colombia
4.18
Chile
2.8
Argentina
1.7
Peru
1.3

Top seven destinations ( above half a billion $) for India’s exports in 2013

Country
2013 (in US$ billions)
Brazil
6.35
Mexico
2.86
Colombia
1.19
Peru
0.723
Argentina
0.695
Chile
0.692
Ecuador
0.516

Diesel, chemicals, pharmaceuticals, vehicles and textiles were the major items of export to Latin America.

Top seven (above half a billion dollars) Latin American sources of India's imports .

Country
2013 (in US$ billions)
Venezuela
14 ( estimate)
Brazil
3.13
Mexico
3.52
Colombia
2.99
Chile
2.18
Argentina
1.1
Peru
0.586

Sources of statistics: Mercosur online, Indian Embassies and Indian Commerce Ministry.

Crude oil is the largest import from the region, totalling $ 22 billion in 2013. Of this, $14 billion came from Venezuela, $3 billion from Mexico, $2.8 billion from Colombia and $1.58 billion from Brazil. Latin American crude exporters are keen to increase supplies to India in view of their declining exports to their principal market U.S. which is reducing imports thanks to increase in domestic production after the shale revolution. Latin America is projected to account for two-thirds of the growth in the world’s oil supply over the next two decades and they need new markets.

The second biggest import is minerals in which Latin America is rich with large reserves. Copper is the main mineral which is imported mostly from Chile. The third largest import is  vegetable oil (soya and sunflower oil) mostly from Argentina.

India is expected to increase the imports of these three items in the future, given its growth of population and consumption and the widening gap between demand and local production.India considers Latin America as a long term contributor to its energy and food security. While India faces serious issues of water and loss of agricultural land due to urbanization, South America has large surplus land which could be brought under cultivation and has abundant resources of fresh water.

Some observers have commented that the trade is unbalanced with Latin America exporting raw materials and India exporting finished products. While it is partly true, it should be clarified here that over fifty percent of India's exports to Latin America are also raw materials and intermediates such as bulk drugs, chemicals, dyestuff, fabrics, yarn and cotton. The inexpensive imports of these from India help the Latin American manufacturing more competitive. For example, a Brazilian company Surya Brasil imports Henna ( used for hair dyeing and tattoos)  ingredients from India and exports Henna products to about 20 countries including India.

India signed a PTA (Preferential Trade Agreement) with Chile in 2006 and another PTA with Mercosur in 2009. Negotiations are going on, albeit slowly, both with Chile and Mercosur to widen and deepen the PTAs.

Investment and joint ventures

There are over one hundred Indian companies which have invested about 12 billion dollars in Latin America in sectors such as energy, IT, pharmaceuticals, sugar, agrochemicals, electrical products, mining, metals, vehicles, auto parts, cosmetics and plastics.

Twenty Latin American companies have invested  a total of slightly less than one billion dollars in India in steel, multiplexes, bus assembly, auto parts and electrical motors.

There are also a number of joint ventures such as the Tata-Marco Polo bus manufacture in India and the Kidzania edutainment centre in Mumbai formed between Bollywood actor Shahrukh Khan and a Mexican entrepreneur Xavier Lopez Ancona.

Political relations

The Governments of India and Latin America have taken a number of initiatives in recent years to intensify relations and cooperation. The number of Presidential, Ministerial and official visits and the cooperation agreements signed between the two sides in the last decade is more than the total number in the previous fifty years.

The Indian Ministry of External Affairs provides over hundred annual scholarships to Latin Americans to attend courses in areas such as IT and management. The Ministry has set up IT training centers in Central American countries and has provided concessional credits and grants for some countries of the region.

India and most Latin American countries work together in global fora such as UN, WTO with their shared belief in multipolar world and multilateralism.

Strategic partnership with Brazil

The Governments of India and Brazil have committed to develop a "strategic Partnership" and have also been working together on many global issues. They had taken initiatives for UNSC reforms and presented their candidatures to permanent membership along with Germany and Japan. But the bilateral relations were dormant in recent years because of the lack of interest in foreign policy by President Dilma Rouseff and the passive approach of Prime Minister Manmohan Singh. The new Prime Minister Narnedra Modi is expected to inspire the Brazilian side and reactivate the pursuit of the common global agenda of the two countries.

The two countries have joined with South Africa to form IBSA, a unique tricontinental partnership of democracies with common aspirations. India and Brazil are also active members of BRICS. However IBSA has been diluted after the Chinese had got South Africa included in BRICS.

Regional Groups

India has reached out to regional and subregional groups of Latin America. In August 2012 India invited the CELAC Troika of foreign ministers for the first dialogue in Delhi. It was agreed in the meeting to institutionalize dialogue and cooperation. India became an observer in the Pacific Alliance in February 2014. India signed a Framework Agreement for cooperation with SICA  ( Central American integration group) in February 2004 and has held three rounds of Ministerial dialogues since then.

Challenges

One of the main challenges for India-Latin America relations is lack of direct air connectivity. Neither the airlines of India nor those of Latin America have the planes or plans for direct connection. Shipping between India and Latin America is costly and take at least 45 days.

There is still a large information gap. In Latin America there are many books in spanish and portuguese on Indian philosophy and spiritualism but very few on contemporary India written by Latin Americans. Similiarly there is a shortage of books on Latin America by Indian authors. There is need for more direct flow of news and exchange of views between Indian and Latin American media, think tanks and universities.

The Indian business has been exploring Latin American market very proactively but the Latin Americans have not yet paid sufficient attention to India's market.   

A number of Latin American countries have signed many FTAs and have formed regional trade groups. However no Latin American country has an FTA with India. This needs to be remedied.

More attention to Latin America from the Modi government

The Indian foreign policy, which was passive in the last decade, is going to be assertive under the new Prime Minister Narendra Modi. The visionary Modi is expected  to raise the global profile of India with his robust and proactive approach. He had meetings with the Latin American ambassadors twice in 2012-13 and showed keen interest in the region and asked the ambassadors for their suggestions to strengthen relations. Modi's home state Gujarat accounts for over sixty percent of of India's trade with Latin America. In 2013, the refineries of Reliance and Essar in Gujarat imported 22 billion dollars of Latin American crude oil and exported 3.3 billion dollars of diesel to Brazil. The companies from Gujarat also import edible oil and minerals, the other two major items sourced from Latin America.  Gujarat also has a significant share in the exports of chemicals and pharmaceuticals, the largest segment of India's exports to Latin America. Given this background, Modi is expected to give more attention to Latin America.

In the last two decades, Latin America has started pursuing a more autonomous and assertive foreign policy with firm belief in a multipolar world and multilaterism. In this context, the Latin American leaders will welcome Modi's proactive role in global affairs and will look forward to working with India on many issues of common interest. The Latin American business would also pay more attention to the Indian market which is expected to revive high growth and open more business opportunities under the pro-business Modi administration.

Role of Spain

Spain, with its historic, linguistic, cultural and commercial connection to Latin America, can play a role in the growing Indo- Latin American partnership. In recent years, the Cervantes Institute in Delhi has started promoting Latin American cultures with literary soirees, seminars, film shows, music and dance performances and exhibitions in collaboration with the Latin American embassies.  Spanish has become the second most popular foreign language in India, overtaking French. Most of the academics and  interpreters who work with Latin America are those who have learnt the European Spanish and exposed to Spain.

Latin American media has no correspondents in India. EFE, the Spanish news agency which has an office in India, sends out news of India in Spanish to their subscribers in Latin America.

The Spanish oil company Repsol has partnered with OVL of India in an oil exploration consortium in Cuba. There is more scope for such collaborations between Indian and Spanish companies in  Latin America.

The Spanish banks and especially BBVA and Banco Santander have a substantial presence in Latin America. On the other hand there are no Indian banks in Latin America and vice versa. This provides an opportunity for these Spanish banks to play a financial role in the growing Indo-Latin American trade and investment.