Venezuela

[This post was co-authored with John Polga-Hecimovich*] The increasingly dangerous crisis in Venezuela (described in the first post of this series), has been complicated by the political economy of the Chavista regime. Three aspects of the regime as it has evolved under the Nicolás Maduro government are particularly important to understanding where things stand: the policy centrality of the country’s impending debt default; the absence of an adequate exit strategy for many members of the regime; and the central role of the military as a likely guarantor of any solution to the crisis. Venezuela’s sovereign debt is reaching a critical juncture: the country has payments of US$15 billion due by the end of 2017, against foreign reserves of only US$12 billion. Maduro faces an unenviable dilemma: continue to make debt payments and possibly run out of money to finance imports, or default, which could also deepen the government’s cash squeeze by triggering legal action (i.e. bondholder lawsuits) from creditors, limiting even further the foreign exchange inflows the government desperately needs to finance imports of key staples. The regime has so far opted for the first scenario, managing to kick the can down the road by lengthening PDVSA bond maturities through the recent partial swap. If the government defaults, it would be left with three options for financing: reserves (less than US$12 billion), borrowing in bolívares (whose issuance is already creating hyperinflation), or running arrears. None of these options are good. A second major consideration is the degree to which senior government officials and members of the armed forces benefit from their access to power, and would face consequences with a change in the status quo. Many influential members of the regime are suspected of having made small fortunes through arbitrage (raspao) on top of government policies aimed at altering public prices: selling dollars obtained preferentially on the black market; smuggling foodstuffs and other price-controlled goods; and even profiting from high-yield government debt. Government figures themselves have also spoken of more than $20 billion laundered out of the government through outright corruption. Several leading regime figures, including leading military officials (known as the Cartel de los Soles, for the sun-like emblem that decorates general’s uniforms), are known to have profited handsomely from command of drug transit routes from Colombia in the west. Given that these actors face legal prosecution and even international penalties if Chavismo loses power, they are understandably reluctant to see any kind of pacted solution with the opposition—or even engage any meaningful political dialogue. Irregular armed groups, such as the paramilitary colectivos that have played a major role in repressing public protest, would be similarly disinclined to any kind of compromise that might place them in legal jeopardy. Third, and perhaps least recognized by international observers, the military has become an increasingly influential actor within the Maduro regime, and is in many ways a “de facto branch of Chavismo.” Indeed, after his appointment in July 2016 as head of national food distribution and a coordinating chief of staff, Minister of Defense General Vladimir Padrino López has become a co-president of sorts to Maduro. But the military’s role has been building for a long time. Article 328 of Chávez’s 1999 Constitution established that the national armed forces would play a role of “active participation in national development,” and Chávez relied on the force beginning with the national emergency relief and development project, Plan Bolívar 2000, from 1999 to 2001. Chávez politicized the organization beginning with a series of purges and new patterns of regular reassignment after the failed 2002 coup, and he named close senior military officials—both active and retired—to government positions. A large number of cabinet positions, state governorships, and appointments within the state bureaucracy now go to senior officers. Maduro recognizes the enormous power the armed forces wield, as well as their vested interest in maintaining the status quo: he has named officials to cabinet positions, defended and even promoted those hit by foreign indictments, and surrounded himself by senior officers, tying his own destiny to theirs. Given their power and presence in the government, it follows that the armed forces will be the ultimate arbiters of change in the country. Taken together, these three factors mean that a pacted transition in which Chavismo leaves office voluntarily is possible, but increasingly unlikely. Maduro could plausibly reverse policies, and seek to unwind the current mess through significant reforms agreed to with international actors like the International Monetary Fund (IMF), or perhaps China, which holds a third of Venezuela’s outstanding debt. But he seems ideologically unwilling to do so. More importantly, he cannot disavow Chávez’s policies without risking a backlash from Chavistas eager to preserve the ex-president’s legacy, as well as from hardliners like Diosdado Cabello who would stand to lose a great deal from the end of Chavismo. Similarly, a solution in which Maduro steps down in favor of a moderate, like Vice President Aristóbulo Istúriz, seems likely to face internal opposition from the hardliners who have the most to lose. At this point, the options for a constitutional exit are limited. Article 233 of the Constitution stipulates that the president can prematurely leave office or be constitutionally removed via death, resignation, impeachment by the Supreme Court (TSJ), physical or medical incapacity certified by a medical board designated by the TSJ and approved by the National Assembly, abandonment of office as declared by the National Assembly, as well as by recall referendum—but it does not provide for the figure of impeachment by the legislative branch. The opposition’s goal of putting Maduro on trial in the legislative branch is unlikely to be upheld by the courts or respected by the regime. With a defanged National Assembly, packed courts, and a frustrated referendum, Maduro’s resignation may be the opposition’s best, and perhaps only, option. Members of the opposition seem to be calculating that massive street protests will force the government to open up and hold the recall referendum, or prod the military to either take part in negotiations or replace Maduro. A crucial element of this calculus is the hope that the armed forces would balk at violently repressing massive protests, given its role in the 1989 Caracazo (during which as many as 2,000 Venezuelans were killed). This is a brave gamble, not least because the armed forces are not the only armed actors who could be brought in by Maduro or hardliners in his coalition to repress protesters: the National Guard and the colectivos have been very effective in cowing opposition in the past, and as the 2014 protests made clear, the government is not shy about using these actors to violently repress dissent. To summarize, a recall referendum has all but disappeared as an option. Maduro shows no signs of resigning freely. Yet the critical economic situation also suggests that it will be increasingly difficult for Maduro to hold onto power against a restive opposition without resorting to increasingly arbitrary legal maneuvers such as those employed by regime-controlled courts last week, or violent repression of the opposition. The consequence is that the military is now the central player, whether it is as the muscle for an increasingly authoritarian Maduro presidency or as the ultimate arbiter of his removal. With these factors in mind, the next post in this series evaluates the role of the U.S. and the international community in seeking solutions to the crisis. *John Polga-Hecimovich is an Assistant Professor of Political Science at the U.S. Naval Academy. His research interests include comparative institutions of Latin America, especially the executive and the bureaucracy, as well as presidential instability. He has published peer-reviewed articles in The Journal of Politics, Political Research Quarterly, Electoral Studies, Party Politics, Latin American Politics and Society, and others, and conducted fieldwork in Venezuela, Ecuador, and Brazil. His Twitter handle is @jpolga. Disclaimer: The views expressed in this blog post are solely those of the authors and do not represent the views of or endorsement by the United States Naval Academy, the Department of the Navy, the Department of Defense, or the United States government.

[This post was co-authored with John Polga-Hecimovich*] By the end of 2017, the Venezuelan economy will likely be less than three-quarters of its 2013 size. Inflation is set to increase from 700 percent in 2016 to a hyperinflationary 1,500 percent next year. Despite the government’s best efforts to continue payments, a crippling debt default seems increasingly inevitable. The human costs of the crisis are readily apparent, with food and medicine shortages, rising infant mortality, and increasing violence. Fully three-quarters of Venezuelans polled claim to want President Nicolás Maduro out. But last week, a series of judicial decisions appear to have quashed one of the most promising routes out of the political crisis, the presidential recall referendum. This string of suspect decisions confirms the Maduro administration’s descent into blatant authoritarianism and cuts off one of the last avenues for the peaceful restoration of a democratic system. Incongruously, all of this is in a country with the richest reserves of oil in the world, where the government has long proclaimed a commitment to social progress, inequality reductions, and popular legitimation. How did Venezuela reach this crisis point, and what could turn it around? The short answer to the first question is a combination of the resource curse, populist spending, and bad policymaking. We briefly unpack these elements in this post. As for the second question of what might be done to overcome the crisis, we discuss what domestic and foreign actors could do to help the country to find a way out from the current debacle in subsequent posts here and here. An Anatomy of Chavista Power The ascendance, popularity, and consolidation of power of the late President Hugo Chávez (1999-2013) was premised on twenty-first century socialism, anti-elite mobilization, and the gradual accumulation of the levers of state power by electoral means. Helped by oil prices, which surged from $10 a barrel in the late 1990s to a peak of $140 in 2008, Chávez was able to build a series of social programs, the so-called misiones sociales, to provide unprecedented services to the popular sectors. Simultaneously, Chávez moved to slowly accumulate power and eliminate checks on his socialist project: he packed the courts, gradually filled the ranks of the military with loyalists (and the ranks of political underlings with these military officials), staffed the state oil company PDVSA with supporters, and systematically dismantled independent media. By the time of his death in 2013, the Chavista state was a hybrid regime—neither a liberal democracy nor an outright dictatorship. As one of its leading critics noted, “if the ’physiology’ of the regime is doubtfully democratic, its ’anatomy’ is formally democratic.” This formal adherence to democracy provided symbolic cover that permitted other Latin American nations sympathetic to the Chavista project to work with Venezuela, despite creeping authoritarian practices such as the imprisonment of opposition leaders, and troubling economic policies such as expropriation. The “Bolivarian” project—founded on Chávez’s devotion to South American liberator Simón Bolívar—gained adherents among other left-of-center governments in the region, and institutional presence through the Bolivarian Alliance for the Americas (ALBA), the Union of South American Nations (UNASUR), and even the transnational media company TeleSur. Left-leaning governments in Argentina, Uruguay, and Brazil worked closely with Chávez, bringing Venezuela into the Mercosur trade bloc out of a mix of ideological affinity and realist calculation that this might enable them to temper his grander plans for the region. And Chávez was masterful in using Venezuelan oil to buy enduring influence with Cuba and the seventeen Caribbean members of PetroCaribe, which enjoy preferential terms on oil purchases from PDVSA. Chávez also benefitted from a ham-handed and internally divided political opposition. The opposition has engaged in bold actions, but often at a net loss to its objective of curbing Chavismo. The short-lived coup of 2002, in particular, backfired spectacularly by providing Chávez an opportunity to question the democratic values of the opposition, while simultaneously allowing him to restructure the armed forces and remake it into a far more ideological and regime-loyal institution. Revelations that the Bush administration had prior knowledge of the coup plans also helped feed Chávez’s anti-Americanism. The oil strike of 2002-2003 likewise provided a justification to remove opponents from strategic sectors, while subsequent boycotts and demonstrations have frequently served to strengthen the regime and demonstrate its superior force. It is also vital to recognize that whatever his faults as a democrat, Chávez had electoral support that frequently exceeded half of the electorate and allowed him to repeatedly outpoll the opposition, which was tarred as excessively elitist. Beginning in 2011, Chávez’s health deteriorated, leading him to tap long-time foreign minister and (later) vice president Nicolás Maduro as his successor. After Chávez’s death from cancer, Maduro narrowly defeated Henrique Capriles of the opposition Democratic Unity Roundtable (MUD) coalition in the April 2013 presidential election. From Bad to Worse Maduro’s time in office has been marked by declining economic and political fortunes. The economy has been devastated by a combination of bad policies, especially currency and price controls; a monoproduct export economy dependent on an especially volatile product whose price has plummeted; and populist spending. Chávez and Maduro share the blame for the country’s bad macroeconomic policy. To deal with loss of revenue from the PDVSA strike in 2003, Chávez fixed the exchange rate between the local bolívar and the U.S. dollar, and gave the government the authority to approve or reject any purchase or sale of dollars. While this was a short-term fix, the measure also became a ticking time bomb. With a decline in dollars under government control after the fall in oil prices in 2009, black market demand skyrocketed (causing some Venezuelans to engage in the so-called raspao and other forms of arbitrage). Instead of lifting currency controls and normalizing the exchange rate, the Maduro government continues to print more money, further raising inflation. Price controls on basic goods, a constant in Venezuela since World War II, have also disincentivized domestic production. What is more, far from heeding Arturo Uslar Pietri’s famous advice that Venezuela should “sow the oil” (sembrar el petróleo), Fifth Republic governments have depended on oil proceeds more than ever to fuel their spending. This has had disastrous consequences as crude prices and production have simultaneously dropped. Oil, which expanded from 80 percent of all exports in 1999 to 95 percent today, is at just over $50 a barrel today. As a consequence of low oil prices and declining PDVSA production, the country is facing a critical shortage of foreign currency, even after a devaluation in February. A ballooning set of payments on the country’s $138 billion debt is approaching, and the government’s efforts at a bond swap have been only partially successful. The government quietly loosened price controls last week in six states, which is allowing stores in those places to import food and sell it at whatever price they please. This is a major development, insofar as queuing for food may decrease in those states, removing a key source of public discontent. However, inflation will still make most products unobtainable to the average citizen, so long-term, the political impact may not be very significant. Meanwhile, despite having borrowed some $65 billion from China since 2005, the country is reportedly running out of the ability to import goods. On the political front, the picture is no better. Clashes with protesters in 2014 left at least 40 dead, and more than 870 wounded. These tumultuous events resurrected fears that the military might once again be dragged into the type of repression against the public that scarred it deeply in the Caracazo protests of 1989. But the government also used the protests as an excuse to arrest opposition leader Leopoldo López, who was sentenced to fourteen years in prison for allegedly inciting the protests. In December 2015, the MUD won a supermajority in the National Assembly for the first time under Chavismo, and by April 2016 it had approved a recall referendum against Maduro (the Venezuelan Constitution of 1999 does not provide for presidential impeachment). Over the past two weeks, a number of developments have deepened the political crisis. The National Electoral Council (CNE) postponed December’s elections for governors and mayors, in which the PSUV seemed certain to suffer. Maduro stripped powers away from National Assembly, most notably by giving the Supreme Court (TSJ) power to approve the budget law. Most recently, as noted above, several criminal courts ruled on 20 October 2016 that signers committed fraud during the first signature collection in June, in what is clearly an unusual act. This last news is particularly disheartening for the MUD and for anyone else holding out hope for a recall referendum in 2016. It all but ensures that any referendum will only take place after 10 January 2017, which would ensure the continuity of Chavismo in office until the 2018 presidential elections, even if it removes Maduro. Pending a final decision from the TSJ, furthermore, it is likely that the referendum will be cancelled altogether, blocking a constitutional path out of crisis. In sum, Venezuela’s descent into an unprecedented political and economic crisis has accelerated. The potential impact could be significant: the continued worsening of humanitarian conditions, increasing political violence, and the likelihood of rising emigration (more than 1.8 million have fled Venezuela since 1999) are all potential consequences. In our next post, we look at the political economy of support for Maduro, and what it means for the possibility of change from within the regime. The third and final post will look at how external actors might alter the conditions that sustain the Chavista regime. *John Polga-Hecimovich is an Assistant Professor of Political Science at the U.S. Naval Academy. His research interests include comparative institutions of Latin America, especially the executive and the bureaucracy, as well as presidential instability. He has published peer-reviewed articles in The Journal of Politics, Political Research Quarterly, Electoral Studies, Party Politics, Latin American Politics and Society, and others, and conducted fieldwork in Venezuela, Ecuador, and Brazil. His Twitter handle is @jpolga. Disclaimer: The views expressed in this blog post are solely those of the authors and do not represent the views of or endorsement by the United States Naval Academy, the Department of the Navy, the Department of Defense, or the United States government.

In my piece published in the November/December 2016 issue of Foreign Affairs, I lay out the economic and political characteristics of populism, analyze why it is receding in Latin America today, and describe what a next wave might look like. I also argue that Latin America’s historical experience with populism provides some bracing warnings to other countries now flirting with such politics. You can read the first three paragraphs of the article below: On the morning of October 17, 1945, thousands of protesters in Buenos Aires marched on Argentina’s main executive building, the Casa Rosada, to demand the return of Vice President Juan Perón, who had been forced to resign a week earlier. The day was hot, and many of the men took off their jackets and even their shirts. This earned them the mocking title of los descamisados—“the shirtless.” Perón’s supporters promptly reclaimed the insult and turned it into a badge of honor. When Perón ran for president in the 1946 election as an unabashed populist, he toured the country in a train he named El Descamisado after his followers. The descamisados, and those like them, were integral to the populism that dominated Latin American politics from the 1930s until recently. Starting with Brazilian President Getúlio Vargas, who first assumed power in 1930, and leading all the way up to Bolivian President Evo Morales, who entered office in 2006, Latin American leaders have repeatedly harnessed the power of the once excluded masses by railing against the establishment and promising a more prosperous future for their followers. Today, however, even as populists are surging throughout the rest of the world, such voices have fallen conspicuously silent in Latin America. The region’s grandiose strongmen, with their cults of personality, have largely faded away. Recent elections have ushered in middle-of-the-road leaders, including one former investment banker, promising fiscal conservatism, free trade, and legal due process. In a striking role reversal, it is now Latin America that is watching, aghast, as populists elsewhere threaten to disrupt the world’s more mature economies. You can read the entire piece here.

Last month, I had the pleasure of joining Jim Zirin on “Conversations in the Digital Age” to discuss the U.S.-Mexico relationship, the presidential impeachment in Brazil, Colombia’s peace deal, Argentina’s return to global markets, and the turmoil in Venezuela. You can watch the interview here.

Mexico’s New Anticorruption Tools President Enrique Peña Nieto signed into law long-awaited rules to step up Mexico’s fight against corruption. He had to veto an earlier version that would have forced private firms that receive government money to reveal their income and assets. The new measures mandate that all public servants disclose their assets, income, and tax returns. They also set up an independent prosecutor’s office and up the punishments for bribery, embezzlement, and influence peddling. While some civil society groups had hoped for more, the new anticorruption system provides new and stronger tools for those eager to take on bad behavior. South Africa Shows Anticorruption Tools Aren’t Enough While laws against corruption are important, they’re not enough—as South Africa shows. The nation’s anticorruption efforts, enshrined in its 1995 Constitution, have foundered under Jacob Zuma’s government. The National Prosecuting Authority (NPA), created to fight wrongdoing, dropped 783 charges of corruption, fraud, and racketeering against Zuma for his ties to a multi-billion dollar arms deal. In April, Pretoria’s High Court unanimously condemned the dismissals, calling for the charges to be revived. Now the NPA says it will appeal to South Africa’s supreme judicial body to overturn the High Court’s verdict. Though that outcome is unlikely—the Constitutional Court has been democratic South Africa’s strongest anticorruption tool—the process illuminates the limits of laws without political will. Venezuela’s Slow-Motion Coup While Turkey’s failed coup dominates headlines, Venezuela’s military furthered its political control to little international condemnation. Active and retired military officers already governed nearly half of Venezuela’s twenty-three states, one-third of its ministries, and ten state-owned companies in sectors ranging from transportation to agriculture. They set up a new oil and mining company that could absorb state-owned Petróleos de Venezuela S.A. (PDVSA) assets, giving the Ministry of Defense power over the country’s vast natural resources. In the face of a deepening humanitarian crisis, President Nicolás Maduro expanded Defense Minister Vladimir Padrino López’s responsibilities—putting him in charge of all ministries and institutions. The question now is whether Maduro is much more than a figurehead.                                                            

Mercosur is under considerable internal strain. As at other times in the trade bloc’s history, shifting political winds and changing trade priorities have placed the member countries at loggerheads. The five-member organization is in the midst of what is perhaps the most severe of its periodic identity crises, exacerbated by the Left’s waning power in the region, the rise of the Pacific Alliance, and renewed member interest in external trade agreements. The most immediate cause of the current tension is the possibility that Venezuela might be given the next six-month term as rotating chair of the organization as early as next week. Foremost among the concerns this raises is the possibility that Venezuela might get in the way of ongoing talks with the European Union (EU). But also lurking in the background is the possibility that with Venezuela in the chair, it will be harder to invoke Mercosur’s “democratic clause” against the Maduro government, which has descended into seemingly intractable crisis and appears intent on sidelining its opposition in a variety of increasingly autocratic ways, including threats to dissolve the National Assembly. Paraguay has called for barring Venezuela from the chair outright. Uruguay seems intent on upholding the pre-established timetable for rotating the chair, noting that Maduro has not yet acted on his threat against the Assembly. In an emergency mission to Montevideo, a delegation led by Brazilian foreign minister José Serra pushed an intermediary solution, noting that Venezuela has not yet met the terms of Mercosur accession, which it must complete by August. Until it has met the terms of membership, Venezuela would not be eligible for the chair. Argentina has said that it will happily take the chair in the interim. Brazil’s criticism of the Venezuelan regime’s human rights record and calls for a referendum on Maduro were met earlier this week by the full twittering firepower of the Venezuelan foreign minister. Delcy Rodríguez let loose a barrage of criticism of the “insolent” and “amoral” statements of her “de facto” colleague, Brazilian foreign minister José Serrá.  For good measure, she alleged that Brazil has joined the “international right” in its efforts against Venezuela, and called attention to the ongoing “golpe” in Brazil. Caught up in her twitter tantrum, Rodríguez did not make the stronger argument in Venezuela’s favor: namely, that Brazil’s justifications for temporarily suspending Venezuela seem contrived, given that Venezuela has been permitted to chair the organization once before, and Mercosur has been famously tolerant of member violations of its rules. Ultimately, the tension within Mercosur is an expression of deeper political changes, including most especially, the shift away from leftist governments with the arrival of the Cartes administration in Paraguay, Macri in Argentina, and Temer in Brazil. The Cartes government harbors deep resentment of the Maduro administration, not least because Paraguay was suspended from the trade bloc under the democratic clause from 2012 to 2013 after the (admittedly questionable) impeachment of Fernando Lugo. Particularly galling to the Paraguayans is the fact that they have staked a great deal on Mercosur—more than 40 percent of imports and 20 percent of exports are to Paraguay’s non-Venezuelan Mercosur partners—even as the Venezuelan Johnny-come-lately seems intent on using the bloc largely as a platform for its regional political pretensions. Lost in the political scrum is trade. From this perspective, Mercosur continues to be an ambivalent accomplishment. The trade bloc has increased trade among the member countries, but also imposes opportunity costs in terms of foregone trade agreements elsewhere. Meanwhile, although trade today is higher than it was at Mercosur’s inception, it is lower as a percentage of total trade than it was at the peak of intra-Mercosur commerce in the late 1990s. Recognizing this, Argentina and Brazil had already exchanged a number of high-level visits this year before Rousseff’s impeachment, and more recently, Foreign Ministers Serra and Malcorra have reiterated their interest in improving bilateral exchanges and reviving Mercosur. Mercosur, though, has had enormous difficulty in moving forward on outward oriented trade agreements, including a deal with the EU. Prospects for such a deal might be more positive than in years past, given the rise of the pro-trade agenda in Brazil and Argentina. But the fact is that the EU is—to put it mildly—distracted at the moment. Closer to home, too, the Pacific Alliance is exerting an enormous pull on some Mercosur members. Argentina’s Macri will be a guest at the Pacific Alliance’s presidential summit later this month, and Chile in particular seems eager to build bridges to members of Mercosur. The foreign ministers of the four original members of Mercosur will meet on Monday, July 11, to discuss the situation in Venezuela. Pushed by Uruguayan foreign minister Rodolfo Nin Novoa, they seem unlikely to invoke the democratic clause against Maduro until or unless there is a more concrete violation of democratic norms. Whatever happens Monday, however, the newly proactive Mercosur is likely to be back in force by early 2017, when Argentina is scheduled to take the helm, beginning a succession of chairs from the center-right governments of Argentina, Brazil and Paraguay. This has the potential to kickstart the most active eighteen-month window of change in Mercosur since the bloc’s formation in the early 1990s. If it succeeds, Mercosur’s potential may be resurrected.  If it fails, the bloc’s long-term prospects will be increasingly in doubt.

Fast Fashion Still Exploits Workers While multinational retailers such as H&M, Gap, and Walmart can get a swimsuit or sundress from the factory floor to customers’ closets within weeks, new reports show they still do not protect the workers that make this possible. Three years after Bangladesh’s Rana Plaza building collapse, which killed over a thousand workers and injured another 2,500, Walmart refuses to disclose details on factory safety inspections. Documents from a more forthcoming H&M show nearly 80,000 Bangladeshi workers make their clothes in workrooms without basic safety measures such as fire exits. And Gap has balked at Cambodian worker demands for a living wage—they now earn as little as $5 a day. At this week’s International Labor Conference in Geneva, unions and other groups will try to force measures to improve workers’ rights by holding multinationals more accountable. Corruption Brings Down Ten Percent of Brazil’s Two-Week-Old Cabinet Just two weeks into his interim term, Brazilian President Michel Temer has already lost two ministers—or 10 percent of his cabinet—to corruption. His planning minister, Romero Juca, stepped down after a recording emerged of him plotting to obstruct the Lava Jato corruption investigations. Temer’s transparency minister, Fabiano Silveira, resigned after a second recording caught him advising Senate President Renan Calheiros on how to evade prosecution. And Brazilian authorities are actively investigating another six ministers. These scandals weaken Temer’s already limited legitimacy, leading some to postulate Dilma Rousseff could return. Politicians Try to Silence the International Press Already having cowed or repressed local reporters, angry leaders in Malaysia and Venezuela are going after the Wall Street Journal for exposing their (alleged) crimes. In Malaysia, Prime Minister Najib Razak ordered police to investigate the paper for illegally publishing classified documents. This comes after the Journal uncovered the transfer of up to $1 billion dollars from the state investment fund 1MBD to Najib’s personal bank accounts, and then reported on government whitewashing of the subsequent official investigation. In Venezuela, the former head of the national assembly, Diosdado Cabello, filed a libel suit over a 2015 Wall Street Journal story reporting he was under U.S. investigation for running an extensive money laundering and drug trafficking ring. In harassing a free press, Cabello may give them an even juicier story—opening up sealed U.S. government evidence in the case.    

By all accounts, Mauricio Macri has had a remarkable honeymoon since he was inaugurated December 10, quickly moving to revise Argentina’s economic policies, restructure its relations with the world, and tackle a variety of rule of law challenges, ranging from corruption to the drug trade. President Obama’s trip to Argentina last week was in many ways the capstone to Macri’s dynamic first hundred days in office. The visit signaled a generational shift in U.S. policy toward Latin America, seeking to repair some of the worst damage done by U.S. support of the military dictatorship that took office when Obama was a teenager, but Obama and his entourage of more than four hundred business representatives were even more convincing in their strong praise for the Macri administration’s new openness to foreign investors. Indeed, Macri’s presidency has moved very quickly to change the climate. It has freed the foreign exchange market, cut government spending, fired public sector workers, raised repressed energy prices, reduced export taxes, and opened up trade. Early today, the government scored a major victory as the Senate approved legislation needed to end a fifteen-year debt dispute with creditors, paving the way for a return to international markets and demonstrating the government’s ability to corral the opposition toward pragmatic policies. The government’s rhetoric has been overhauled, shifting quickly away from the dirigiste and southern-focused language of Cristina Kirchner and her economics minister Axel Kicillof, and turning instead toward the global north and potential OECD membership. Hoping to change the tone, Macri has met the United Kingdom’s David Cameron to reassure him of his desire to improve ties between the two countries, flown to Brazil to reassure Rousseff of his desire to restart trade and revamp Mercosur, and moved toward isolating the chavista regime in Venezuela, including by withdrawing support for the Bolivarian-inspired broadcast company Telesur. For all these successes, however, the challenges Macri will face in coming months are formidable. Argentines are twice shy about economic liberalization after the deep trauma that accompanied the collapse of Domingo Cavallo’s convertibility plan and the subsequent debt default of 2002. Meanwhile, the economic situation Macri inherited is dire: high inflation, exchange rate depreciation, low foreign reserves, a primary fiscal deficit nearing 6 percent of GDP, and projections of negative real GDP growth in the coming year. Correcting the excesses of the past decade will be painful: utility and food prices are rising in response to Macri’s reforms, even as unemployment threatens, commodity prices remain low, and neighboring trading partners stagnate. Politically, Macri is governing with a bureaucracy populated by Kirchneristas and faces a court system stacked with the previous administration’s appointees. His Cambiemos coalition lacks a majority in either house of Congress, with only 15 of 72 seats in the Senate. Macri has managed to prevail in the crucial votes on debt repayment, but moving forward on deeper reforms will require him to continue to seek out common ground with portions of the opposition, such as the Frente Renovador faction of the Peronists, whose enthusiasm for radical reform is limited and self-interested. These conditions mean that while Macri represents a shift in Latin America, away from the “pink tide” of leftists who have governed the region since the turn of the century, his will not be a hard right turn. The positive upshot, as Andres Oppenheimer notes, is that Macri may be the leading edge of a “pragmatic cycle” in Latin America. But even accomplishing this pragmatic turn may be difficult until the economy and jobs creation perk up. In the interim, Macri may need to rely on symbolic and outward-looking moves that attract investment and build popular support, such as reforming Mercosur, driving forward EU-Mercosur negotiations (initial proposals are due on April 8), and perhaps even pushing a deal between Mercosur and the United States or signing on to the Trans-Pacific Partnership. Don’t be surprised if there are further surprises from Buenos Aires.

The past year has altered Latin America’s diplomatic panorama. Among the most significant changes were a U.S. policy turnaround that included U.S. rapprochement with Cuba, a reset in U.S.-Brazil relations cemented during President Dilma Rousseff’s June state visit to Washington, DC, and greater U.S. participation in the Colombian peace talks. In addition to these carefully strategized advances, a variety of far more contingent factors is converging in ways that are likely to shake up established regional alignments within South America. As the region prepares for the fourth Community of Latin American and Caribbean States (CELAC) summit at the end of January, the rightward shift of domestic politics in the region, the woeful state of Brazil’s Rousseff government, and the Pacific turn in trade negotiations are combining in ways that may create a new set of opportunities for regional relations, and will certainly jumble the status quo. The Chinese slowdown, the end of the commodities boom, the decline in oil prices, and the failure to undertake deep reforms that would improve long-term economic and political prospects have triggered a shift in domestic politics across the region. As various sharp analyses have noted recently, this probably spells the end of a long period of extraordinary political stability that has endured for fifteen years in countries as varied as Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Uruguay and Venezuela. In two of these countries, Argentina and Venezuela, noisy change came at the end of last year. The replacement of the Kirchner dynasty by President Mauricio Macri has already led to a substantial shift in economic policy rhetoric. This may be the leading edge of a regional move away from profligacy; as Marta Lagos cleverly noted, there is no populism without money. But the continued popularity of the Kirchner policy mix and the minority status of Macri’s coalition suggests that some of his more ambitious domestic reforms will have limited legislative support. Macri’s limited scope of action at home, combined with a Rousseff government desperate to escape its domestic troubles, might provide an opportunity for a long-overdue reckoning on Mercosur’s political and economic objectives. The symbolic importance of Mauro Vieira’s visit to Buenos Aires in mid-January was hard to miss: the Brazilian became the first foreign minister to meet with his counterpart Susana Malcorra and discuss the two countries’ shared “bilateral, regional, and multilateral” agenda. Simultaneously, there has been a subtle shift in the regional attitude toward the reddest of the so-called “pink tide countries” that had governed much of South America since the turn of the century. The legislative victory of the opposition coalition Democratic Unity Roundtable (MUD) in Venezuela’s December elections triggered the first regional crisis of 2015, and the showdown between the opposition-led National Assembly and the Chavista-friendly supreme court has been the central focus of foreign ministries across the region for much of the past month. Predictably, both the Organization of American States (OAS) and the United States expressed concern about the Venezuelan supreme court’s decision voiding elections in the state of Amazonas and declaring National Assembly legislation null until the contested legislators were removed from office. More surprising, perhaps, was the Brazilian government’s decision to express its confidence that “the constitutional prerogatives of the new National Assembly” would be preserved, a signal to President Maduro’s government that there were limits to Brazilian tolerance for extra-constitutional meddling. Brazil’s rotten prospects for the year ahead—Brazilians joked that when they said “Happy New Year!” on January 1, they were actually referring to 2017—contributes to the regional window of opportunity. Rousseff’s first five years in office were foreign policy averse: she eschewed the globetrotting of the Lula years, even as the country’s BRICS partners stumbled. Gone are the days of a Brazilian quest for a UN Security Council seat, or a comprehensive Doha Round negotiation led by a Brazilian World Trade Organization (WTO) president. In their place is a petty spat with Israel that has sputtered on since mid-2014, now focused on what is, to many Brazilians who follow global affairs, the indigestible nomination of a prominent settler in the occupied territories as Israel’s ambassador to Brasília. Meanwhile, the current corruption scandals and the related crisis of state capitalism in Brazil have undermined the country’s regionalized foreign policy, founded on Mercosur and Unasur as counterweights to U.S. influence in the hemisphere. And there is precious little clarity in Brasília these days about where the country should focus its foreign policy. But desperation might be a source of invention. Already, the scramble to find new sources of investment that might make up for the credit-strapped public banks, like the National Economic and Social Development Bank (BNDES) and Banco do Brasil, or to restore the capacity for public infrastructure spending, has led Brazil to new ventures, such as the $20 billion Brazil-China Fund. The crisis seems likely to prize open foreign investment opportunities as well, as state owned enterprises are forced to abandon their prior emphasis on national preferences in a desperate search for partners. Finally, the regional realignment is being driven by the shock imposed by the Trans-Pacific Partnership (TPP). While TPP seems very unlikely to move to ratification during President Obama’s final year in office, the shock of the “Pacific” countries’ turn to Asia—via TPP or the Pacific Alliance—has led to cries of desperation in many “Atlantic” countries who see themselves being left behind. In sum, although declining oil prices, lower commodity prices, and negative growth have diminished the ambitions expressed at the turn of the century, they have refocused South American foreign policy discourse in a realistic and potentially productive new direction.