NotiSur, 06/29/01-Argentina, Brazil, Peru Via NY Transfer News * All the News That Doesn't Fit [this is a private reading copy for your reference only. It is not for distribution. Thanks.--NY Transfer] ------------------------------------------------------------ L A T I N A M E R I C A D A T A B A S E NotiSur - South American Political & Economic Affairs ISSN 1060-4189 Volume 11, Number 24 June 29, 2001 ------------------------------------------------------------ Copyright 2001, Latin America Data Base (LADB), Latin American Institute, University of New Mexico Director: Rebecca Reynolds Bannister Editor: Patricia Hynds Staff writers: Carlos Navarro, Robert Sandels LADB ARCHIVES: Back issues are referenced to provide historical background relevant to the articles in this newsletter. These can be accessed with a subscription to the LADB searchable on-line archives at http://ladb.unm.edu/ by clicking on Search Archive. 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In This Issue: ARGENTINA: ECONOMY MINISTER DOMINGO CAVALLO MODIFIES CURRENCY PEG * Changes aimed at boosting exports * Tax breaks also announced * Previous measures brought mixed results * Cavallo's reputation is on the line BRAZIL: ENERGY CRISIS THROWS COUNTRY INTO BLACK HOLE * Government took harsh measures as voluntary efforts failed * Homeowners and judges enraged with government measures * Prospects for economic growth go down the drain * Blame falls on Cardoso and his economic team * The future looks blacker than ever * Cardoso's popularity weakens PERU: LORI BERENSON SENTENCED TO 20 YEARS IN RETRIAL * Berenson accused of helping in plot to take over Congress * Convicted rebels give conflicting testimony * Lawyer says judge is biased * Verdict will be appealed ____________________________________________________________ ********************* ARGENTINA ********************* ARGENTINA: ECONOMY MINISTER DOMINGO CAVALLO MODIFIES CURRENCY PEG On June 21, the Argentine Senate, controlled by the opposition Partido Justicialista-peronista (PJ), approved Economy Minister Domingo Cavallo's bill to include the euro in the nation's convertibility plan. The approval came a week after Cavallo implemented a complicated dual exchange rate to help exporters, which some investors interpreted as a precursor to a devaluation. The bill, which was previously passed in the lower house, allows Argentina's dollar-peso currency peg to be expanded to float at a 50-50 intraday average of the dollar and the European common currency, the euro. But the change would not take effect until the dollar and the euro reach parity, which could take months or even years. Changes aimed at boosting exports While insisting that this was "not a devaluation," on June 15, President Fernando de la Rua and Economy Minister Cavallo unexpectedly announced the modifications to the currency system aimed at helping exporters. The special new exchange rate, which some analysts have called a subsidy, will give exporters more pesos for each dollar's worth of goods they sell abroad. They will use a special differential exchange rate, which the government calls a convergence factor, based on an average of the dollar and the euro. The new rules, which went into effect June 19, include a matching charge against importers, making their goods more expensive. On June 19, an exporter received 1.08 pesos for every dollar in goods sold abroad, rather than 1.00 peso under the old system. The government calls this an "adjustable reimbursement." The reimbursements and the added payments from importers will be handled by the tax-collection agency and the state-run Banco de la Nacion. Whether it was really a devaluation or an export subsidy, it ended, for the foreign-trade sector, the ten-year system that pegged the peso to the US dollar. Cavallo began the convertibility plan in 1991, during his previous stint as economy minister in the first administration of former President Carlos Saul Menem (1989-1999). Cavallo claims the steps will "strengthen fiscal solvency, improve competitiveness and investment incentives, and incorporate elements for enhancing internal demand." He said they will "improve the exchange rate [for exports] up to 20%," the amount he estimates Argentina's peso is overvalued. The plan is intended to stimulate exports and the internal market without increasing the fiscal deficit or public debt. The preferential exchange rate for exports does not apply to the petroleum sector, since high oil prices on the world markets ensure the sector's positive performance. While most local economists and industry leaders welcomed the measures, some analysts saw them as preparing Argentines for a wholesale devaluation. Tax breaks also announced President de la Rua also announced a series of tax breaks on June 15, another piece of the effort to pull the country out of the three-year recession. The economic slump has been marked by high unemployment, now standing at 14.7%. "This plan is a response to the understandable demands of the unemployed and those in extreme poverty," de la Rua said. "It will allow us to achieve growth with fairness." The measures increase the number of people who will be exempted from income tax and give tax breaks to middle-income families for home purchases. Gasoline taxes will be reduced, while taxes on diesel fuel will be raised. In addition, employers will be able to augment workers' salaries with US$150 in nontaxable coupons, which can be redeemed in supermarkets or restaurants. Cavallo said the government would reduce the value-added tax (impuesto al valor agregado, IVA) from the current 21% to 16% in two years and reduce tolls on rural highways to bring down transportation costs in the coming weeks. Previous measures brought mixed results As soon as he joined the de la Rua administration, Cavallo began implementing new fiscal initiatives, including a tax on financial transactions and a lowering of tariffs on capital goods. Results so far have been mixed. Retail sales and real estate transactions have been dropping, and the deficit rose to US$1.11 billion in May. The deficit for the first five months of the year is already US$200 million more than the half-year target agreed to with the International Monetary Fund (IMF). But government officials say increased tax receipts in the coming months will enable them to meet the deficit target for the full year. However, federal tax evasion is officially estimated at US$30 billion a year, or 60% of the annual tax collected. And economists estimate that, when social security and provincial taxes are included, it could total twice that amount. The high IVA, which Cavallo raised a decade ago, is seen as a major reason for tax evasion, and Cavallo does not plan to lower it for two years. Cavallo's reputation is on the line The new exchange-rate rules came just weeks after a successful swap of nearly US$30 billion in debt. The swap deferred around US$16 billion in debt-servicing payments through the end of 2005. But critics point out that it added US$2 billion to the US$150 billion in total debt, cost more than US$100 million in fees to investment bankers, and pushed up rates on new debt for years to come. Some economists said the debt swap reduced the threat of either a default or a devaluation of the peso this year. But others saw it and the currency measures as just more tactics to postpone dealing with financial problems. And they warned that the confusion surrounding the new export-exchange rate may erode any benefits from the debt swap. On June 19, The Financial Times of London wrote that, after three months, some question whether Cavallo "really has the magic touch or is just a talented illusionist--frantically distracting attention from Argentina's problems with a stream of clever measures." It said the new measures have "prompted the question expressed by one market participant: does he have a grand plan to rescue Argentina or is he making it up as he goes along?" Analysts say the exchange-rate plan has two serious problems. The first is that any system using a differential rate encourages distortions and corruption. Exporters will inflate the value of their goods, while importers will try to avoid paying the tariff. The second problem is that the financial markets have responded negatively to the plan. "The market was looking for additional spending cuts, a reform of the pension system, downsizing of the public sector, and a new round of labor reform," said Walter Molano with Connecticut-based BCP Securities. "Instead, the government introduced a set of distortions that will provide political relief with few economic improvements." If Cavallo fails to sell this latest policy to the markets--and the signs are not good--the damage caused by higher interest rates will outweigh any benefits from improved trade conditions. [Sources: Associated Press, CNN, 06/15/01; The New York Times, 06/12/01, 06/18/01; The Financial Times (London), 06/19/01; 06/20/01; Reuters, 06/19/01, 06/21/01; Notimex, 06/21/01; Inter Press Service, 06/18/01, 06/22/01] ********************* BRAZIL ********************* BRAZIL: ENERGY CRISIS THROWS COUNTRY INTO BLACK HOLE By Matthew Flynn [The author writes for the International Weekly Edition of the Gazeta Mercantil, a Sao Paulo-based financial newspaper.] At the start of the year, it looked as if Brazil would have another year of strong economic growth. Scandals in the Senate, as well as Argentina's economic crisis, did cause a few hiccups. But while these two threats appear to have subsided, an even bigger problem has come to the fore--a massive shortage of electric power. Underlying the crisis is the fact that 95% of the country's energy comes from hydroelectric power. And recurring dry spells in recent years have reduced water levels at the country's dams to critical levels. The government has been forced to take emergency measures to avoid blackouts and a full-scale social and economic catastrophe. Government-imposed rationing in the Southeast and Northeast, which began the first week of June, has consumers and businesses scrambling to reduce consumption. The impact on the economy and on President Fernando Cardoso's popularity has been devastating as projections for growth have been revised downward and unemployment is expected to increase. Government took harsh measures as voluntary efforts failed In early April, the government began encouraging Brazilians to save energy. Officials said if consumption could be reduced by 20%, rationing would not be necessary. The targets were not reached and the rains did not come. As the water level in the reservoirs fell to less than a third of capacity, the government was forced to take drastic measures. Pedro Perante was put in charge of the newly created Energy Crisis Coordinating Committee--nicknamed the Ministerio do Apagao, or Ministry of the Big Blackout--which is responsible for setting consumption targets and penalizing those who do not comply. In the big cities, public lighting was cut drastically. The numerous lights that illuminate Rio de Janeiro's picturesque landscape were turned off and only the landmark statue of Christ in Corcovado was left shining over the city. Residential consumers were told to cut their consumption to 200 kw a month or face stiff penalties. Not only were fines of up to 500% of the bill imposed on consumers who failed to reduce their energy use, but they also faced having their electricity turned off. To avoid legal problems, the Cardoso administration issued a provisional measure (Medida Provisoria) suspending the Consumer Defense Code. Homeowners and judges enraged with government measures "Downright underhanded" is what Naldo Navajas, an artist who works out of his home, called the government's handling of the energy crisis. "The government knew about the lack of energy for years, and now they are going to force us to pay for their mistakes." Federal prosecutor Jefferson Aparecida Dias obtained an injunction against the fines and mandatory turnoff from a federal judge in Sao Paulo state. "We even turned off our freezer at home, and for some time now have only used energy-saving light bulbs," Dias said. "What is incomprehensible and what caused me to file the action was that I do not believe the crisis justifies totally unconstitutional measures." Responding to the public backlash against the measures, the government backtracked. On June 3, Cardoso announced that consumers, except those who use less than 100 kw a month, would only need to cut their consumption by 20%. Those who fail to comply would first receive a warning and, if consumption was still not reduced, their electric power would be cut. On the positive side, consumers who cut their use by more than 20% would get cash bonuses. Prospects for economic growth go down the drain Economists are forecasting that rationing will cause slower economic growth. Government officials are already working on the assumption that growth will be 2% this year, rather than the 4.5% predicted at the beginning of the year. "There are already companies refusing to invest in Brazil. The national outlook is a recession," said Paulo Feldman, a partner at the Ernst and Young consulting group. People are being laid off in Manaus, Amazonas state, an electronics-manufacturing center, as demand for energy-intensive devices plummets. "The energy crisis is one more disaster in the life of all Brazilians that could have easily been avoided if there were a more serious and honest government," said Antonio Ermirio de Morais, president of the country's largest industrial group Votorantim. Blame falls on Cardoso and his economic team While in the past, President Cardoso was able to blame economic problems on external factors such as Argentina's insistence on pegging its currency to the dollar or the economic recession in the US, the energy crisis is entirely home-grown and occurred on his watch. "I was caught by surprise at the magnitude of the problem," said Cardoso. Experts in the field and official studies, however, have warned of a potential power shortage for more than a decade. "The Brazilian energy sector, like California, has not received any investment in recent years because of deregulation," said Luis Pinguelli Rosa, assistant director of postgraduate programs in engineering at the Universidade Federal do Rio de Janeiro and a long-time critic of the government's energy policies. In 1995, he warned the government that its privatization plan for the sector did not consider the expansion of the country's generating capacity. To date, the federal and state governments have sold off 60% of the country's distribution network and 25% of its stake in power generation. Finance Minister Pedro Malan and his economic team have also been blamed for the energy crisis. They have slashed public investments in state-owned companies to continue racking up ever greater primary surpluses in the country's fiscal account--to the joy of foreign creditors and the International Monetary Fund (IMF). The federal government did attempt an emergency energy program targeting construction of 45 gas-powered plants financed primarily by the private sector. The predicted investments never materialized, however, because of a lack of definitive regulations governing the sector and investors' demands that output be quoted in dollars and not in the local currency--which goes against the country's economic- stabilization program. Some headway has been made, nonetheless, as state oil giant Petrobras--a partner in 13 of the plants--has offered to bear the brunt of any major devaluation and pass on the difference to consumers over the course of time. The government is also negotiating with the IMF a revision in its loan agreement to allow federal and state-owned companies to make investments. The future looks blacker than ever While government ministers promise that the energy crisis will be solved by next year, inaction by the rain gods and shortages of machinery suggest otherwise. Mario Santos, president of the country's electric power grid (Operador Nacional do Sistema Eletrico, ONS), said, "There is a good chance of rationing in 2002 and in 2003" if the government does not make necessary investments in the energy sector's infrastructure. A study by engineer Jose Rosenblatt said the government's target of cutting consumption by 20% might not be sufficient to boost water levels at the country's dams. Instead of forecasting that rainfall will be at 75% of the yearly average in June, Rosenblatt suggested that the government should assume that precipitation will only reach 70% of its average. A 30% reduction should therefore be imposed. The ONS is now predicting that water levels in reservoirs in the Northeast will close the month at 23% of capacity. Even at the original forecast of 24.4%, the ideal is that water levels end the month at 25.1%. Lack of rain is not the only obstacle to overcome; power generators are on back order. "Machines are scarce in the market because of orders in the United States," said Laurence Alan Rodriguez, manager of Siemans thermoelectric outlet in Brazil. While he says some orders could arrive in Brazil by the end of this year or early next, Rodriguez believes the market will only stabilize in 2004. The government is also considering declaring Mondays public holidays if current rationing measures do not have the desired effect. "Everything will depend on the level of the reservoirs at the hydroelectric plants, which we will evaluate at the end of June," said Perante. Cardoso's popularity weakens Even if Brazil overcomes its energy crisis in the short term, the damage done to Cardoso's image and to his governing coalition is beyond repair. A survey published in the newsmagazine Veja reported that 55% of respondents blame the government, and not the lack of rain, for the current crisis. Bear Sterns investment bank is predicting that opposition candidates have a good chance in next year's presidential elections. The opposition is more likely to halt further privatization of the energy sector and encourage federal companies Eletrobras and Petrobras to increase investments. But even if the opposition takes power, it might have to govern a country in a blackout if the population does not reduce consumption and the countrywide drought persists. ********************* PERU ********************* PERU: LORI BERENSON SENTENCED TO 20 YEARS IN RETRIAL Lori Berenson, the US citizen who was sentenced to life in prison for treason by a Peruvian military court in January 1996, was found guilty of "terrorist collaboration" at her retrial in a civilian court and given a 20-year sentence. Although they absolved her of the charge that she was a militant member of the Movimiento Revolucionario Tupac Amaru (MRTA) guerrilla organization, the judges found that Berenson was more than a "mere spectator" in the group's plans to take over the Peruvian Congress. In her statement to the Court before the verdict, Berenson said, "I am not a terrorist and I condemn what terrorism is." She said she had been tried for her political ideas and her support of the poor in Peru. "I consider that neither the military nor civilian courts have proved my participation in criminal acts," she said. "I am not a terrorist and if there has been political violence in Peru, then it is essential to identify those responsible for a social situation that generates violence, because it is related to the institutionalized violence of hunger and misery. I didn't come to Peru to harm anyone. My actions were public and honest, and it is not a crime to worry about poverty and injustice in the world." Berenson accused of helping in plot to take over Congress Berenson, a former Massachusetts Institute of Technology student, was arrested Nov. 30, 1995, on a bus in Lima. She was accused of participating in the thwarted MRTA plan to take over the Congress and to take hostages and exchange them for guerrilla prisoners. In her first trial only six weeks after her arrest, a secret military court found Berenson guilty of being a rebel leader and sentenced her to life in prison (see NotiSur, 1996-01-19). For the first two years, she was held at the Yanamayo prison in Puno, 3,900 meters above sea level. The cold and harsh conditions caused her various health problems, including poor eyesight, swollen joints, and stomach problems. She was moved to Socabaya prison near the southern city of Arequipa in October 1998 and to Lima last year. In August 2000, Peru's top military court announced that "new evidence revealed she did not hold a leadership position and, as such, said sentence [life imprisonment] was not correct." That paved the way for the new trial on the lesser charge of terrorist collaboration (see NotiSur, 2000-09-22). Most Peruvians have little sympathy for Berenson and assume she was involved with the guerrillas. One basis for that assumption was her angry pretrial declaration to the media in 1996. When brought before the press, she shouted, "There are no criminal terrorists in the MRTA. It is a revolutionary movement." "Nobody believes this government or the next will free Lori Berenson," said political analyst Mirko Lauer in April. "Everyone sees this as a case of raw US pressure and people have paid little attention to whether due process has taken place. Most people hate the MRTA and also feel the woman is sufficiently involved with the MRTA that the case is clear enough--she is guilty." Convicted rebels give conflicting testimony The new trial began March 20. In the retrial, as in the first trial, prosecutors alleged Berenson rented a house in 1995 as a hideout for the rebels and posed as a journalist with the wife of the group's top commander to enter the Congress to collect information. Jose Luis Sandoval, Berenson's lawyer, said the police violated his client's rights by covertly videotaping her conversations with a previous lawyer before the 1996 conviction, and he argued that most of the evidence introduced in the earlier trial should have been thrown out as tainted. One of the witnesses against Berenson was Panamanian Pacifico Castrellon, who was convicted of terrorism and is awaiting a new trial that he hopes will reduce his sentence. Castrellon said he met Berenson and they decided to travel together while she was a tourist in Panama. He said they first went to Quito, Ecuador, where Berenson introduced him to a man who called himself Carlos but was Nestor Cerpa Cartolini, a top MRTA commander. He described Berenson as the go-between for Cerpa. Once in Lima, Castrellon said, he and Berenson rented a house for the MRTA, and he said she knew about the plot to take over Congress. However, another MRTA leader, Miguel Rincon, testified that Berenson was unaware of the plot. Several other MRTA rebels testified that Castrellon was a longtime collaborator and that Berenson did not know either of the plot to take over the Congress or their true identities. Some testimony contradicted what they said six years ago, but they say they were under duress during the initial interrogations. The prosecution's evidence centered on three points: Berenson rented the safe house where the police arrested Rincon, then number three in the MRTA, in 1995; the photographer she worked with was Nancy Gilvonio, wife of MRTA leader Nestor Cerpa who was killed during the 1997 hostage crisis (see NotiSur, 1997-04-25); and her handwriting was said to match documents relating to the congressional takeover and other MRTA actions. Berenson said she had sublet the house with no knowledge that the MRTA was involved, she did not know Gilvonio belonged to the MRTA, and the handwriting was not hers. One piece of circumstantial evidence linking Berenson to the MRTA was that when the group, led by Cerpa, took hundreds of hostages at the Japanese ambassador's residence in December 1996, Berenson's name was on a list of prisoners whose freedom they demanded in return for the hostages. Lawyer says judge is biased In early May, Sandoval asked presiding Judge Marcos Ibazeta to remove himself from the case, charging that he was biased and linked to Peru's ex-spy chief Vladimiro Montesinos. Sandoval submitted the transcript of a secretly filmed videotape showing Montesinos referring to Ibazeta as a member of "the team." Sandoval also argued that two 1999 newspaper reports quote the judge calling possible appeals for retrials of Berenson and several guerrilla leaders "irrational." On May 5, the judges refused to remove Ibazeta. They said Sandoval should have made his motion within the first three days of the trial. Ibazeta did not address the allegation of bias. Coletta Youngers of the human rights organization Washington Office on Latin America (WOLA) said that, while Berenson's second trial was fairer than the first, Peru's anti-terrorist laws do little to protect defendants' rights. Conviction requires "very little proof," Youngers said, and Berenson "is not getting what most Americans would consider a free and fair trial." Verdict will be appealed In his closing statement, Sandoval argued that Berenson deserved acquittal because her case was manipulated by Montesinos. He referred to videos in which Montesinos said Berenson's retrial in a civilian court could improve relations with the US administration. But the state called for a guilty verdict. "She came here with a specific mission...as a collaborator with the MRTA," said state attorney Mario Cavagnaro in his concluding arguments. The judges agreed. Besides the 20-year sentence, the court fined Berenson US$28,400 and ruled that she should be expelled from Peru once she served her time. After hearing the verdict, Berenson called the sentence unjust and her lawyer said they would appeal to the Corte Suprema. She is also pursuing her case with the Inter-American Court of Human Rights (IACHR). If the high court upholds the sentence, Berenson could request a transfer to a US prison, although she has said she would not do this. The appeal is expected to take three to four months and the court can confirm the sentence, reduce it, or acquit her but not increase her sentence. "Personally I think the verdict will be confirmed," said Eduardo Dargent of the Comision Andina de Juristas (CAJ). "It would be difficult for the court to modify the sentence." Javier Valle Riesta, a constitutional expert and former prime minister, said Berenson's chances of being freed after the high court deliberation were slim. "I think the sentence will be confirmed," he said. Peru's Justice Minister Diego Garcia Sayan said the interim government of Valentin Paniagua would uphold the court's decision, making a presidential pardon unlikely. President-elect Alejandro Toledo also said he would respect the verdict. But US representatives asked him to consider clemency for Berenson during his meeting with the House International Relations Committee on his recent trip to the US. After that meeting, Toledo told reporters, "We will consider that." But he added that he would not interfere in a case that is still before the courts. Both the White House and the State Department told Toledo that the Berenson case will remain a "permanent" issue in ties with the US. "There's going to be strong US pressure to get the sentence reduced and pressure from public opinion here to maintain it," Dargent said. "We'll see who wins out." [Sources: The Chicago Tribune, 04/24/01; La Opinion (Los Angeles), 06/06/01; Associated Press, 03/29/01, 04/03/01, 04/25/01, 04/27/01, 06/08/01, 06/11/01; Spanish news service EFE, 04/05/01, 06/20/01; Notimex, 06/20/01; The New York Times, 03/21/01, 04/04/01, 04/13/01, 06/21/01; Inter Press Service, 06/21/01; The Miami Herald, 04/12/01, 05/30/01, 06/19/01, 06/21/02, 06/23/01; Reuters, 04/11/01, 05/07/01, 06/21/01, 06/25/01, 06/27/01] ================================================================= NY Transfer News Collective * A Service of Blythe Systems Since 1985 - Information for the Rest of Us 339 Lafayette St., New York, NY 10012 http://www.blythe.org e-mail: nyt@blythe.org ================================================================= pvtsa-07.01.01-22:42:51-12195