Monthly Archives: December 2012

AS/COA – The Emerging Atlantic Community

Eric Farnsworth / PODER

 

December 03, 2012

 

Opportunities exist for an alliance similar to that enjoyed by Pacific Rim countries, but the initial approach to Latin America and Africa is crucial.

With wars in the Middle East winding down and Europe in the economic doldrums, Washington has become fixated on Asia. In November 2011 the Obama administration announced a “pivot” to Asia, with a resulting shift in strategic focus including military assets to the region.

Trade policy in the administration centers on the Asia Pacific and negotiations to conclude the Trans-Pacific Partnership. On the campaign trail, Gov. Mitt Romney said repeatedly that he would designate China as a currency manipulator on “day one,” and China was a recurring theme this election cycle.

This is acknowledgement at the highest political levels that the weight of global economic and political influence is shifting toward Asia, away from the traditional North Atlantic relationships that have dominated global affairs since the end of World War II. This gives pause to some in the foreign policy community because the existing Atlantic alliance has been the bulwark for establishing and maintaining the postwar global order. As a result, questions are increasingly being asked whether it’s time to re-energize the Atlantic community as a means to match the dynamism of the Pacific community.

Nonetheless, something is different this time from the usual US-Canada-Europe approach: there is a growing recognition that a true Atlantic community must also include Latin America and Africa, two continents generally shut out of previous discussions. To make this work, a favorable nod from Brazil—Latin America’s largest economy by far, the world’s sixth largest, and geographically a nation positioned in the heart of the Atlantic—is critically important. Beginning under President Lula and continuing with Dilma Rousseff, Brazil has been focused on developing cross-Atlantic ties, particularly with Africa where Brazil has prioritized development and commercial issues. To this point, however, Brasilia has expressed little interest in participating in any full-blown pan-Atlantic arrangement that includes Europe and the United States, particularly given the likelihood that such vision would include, if not center on, formal military or trade frameworks. Brazilian reluctance to commit to a new pan-Atlantic vision, despite a well-known effort to play a larger role in global affairs, is not as surprising as it may sound. Brazil is forging an independent path, and leadership on South-South issues is a priority. This shows itself in a hemispheric trade policy that emphasizes the expansion of MERCOSUL over the moribund Free Trade Area of the Americas; a foreign policy that positions Brazil first and foremost as one of the BRICs; and a development policy that promotes assistance to and cooperation with Africa.

By entering into an Atlantic relationship that includes North America and Europe, Brazil’s interests could be constrained by the traditional North Atlantic partners. Symbolism matters, too: the colonial histories of Latin America and Africa cannot be ignored.

What, then, of the idea of a greater Atlantic community? Like most things, it’s best to begin with a concrete project and build out. This is particularly true given the vast differentials in development, size, and influence among nations in North America, Europe, Latin America, and Africa. The EU began with the coal and steel community of France and Germany; APEC began with the idea of greater economic integration but no explicit final goal; the Trans-Pacific Partnership began as a small “P4” trade negotiation including Brunei, Chile, New Zealand, and Singapore. A similar approach would be appropriate in building a greater Atlantic community, starting with areas of concrete mutual interest, including energy and agriculture.

Confidence-building measures must precede broader agreements to engage Latin America and Africa. Initial progress can be made among willing nations, for example North America with Europe and Mexico, Colombia, and Uruguay, holding the door open for others such as Argentina, Brazil, and Venezuela as well as African nations to see the benefits of joining a moving train.

Meanwhile, the United States and the EU are discussing the possibility of launching negotiations for a trade agreement at some point in 2013, to meet the vibrancy of the trans-Pacific efforts but on an even greater economic scale. To make such an effort fully consistent with U.S. interests in Asia and the Western Hemisphere, Canada and Mexico should also be included at the very beginning of any trade negotiations that kick-off with Europe.

The key is to develop a vision in the greater Atlantic—or the Pacific region or Latin America, for that matter—that is compelling enough for nations such as Brazil to see it and want to join, offering greater advantages for participation than for non-participation. It’s easy to just say “no” to an international grouping that offers little reward. That’s something for Atlanticists to keep in mind as they look for ways to build yet another cross-cutting regional bloc.

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AS/COA – Interview: BRICLab Co-Director Marcos Troyjo on the 2013 Outlook for the BRICs

December 13, 2012

 

After a decade of copying and adapting, [the BRICs] have to move on to a new decade of designing, formulating, and innovating.

Marcos TroyjoMarcos Troyjo serves as an adjunct professor of international affairs and as co-director of Columbia University’s BRICLab, a forum dedicated to the rise of the BRIC countries (Brazil, Russia, India, and China). AS/COA Online’s Rachel Glickhouse spoke to Troyjo about how the BRICs will fare next year in terms of technology and innovation, energy, and economic policies.

AS/COA Online: You’ve mentioned before that the BRICs need to change their DNA in terms of policies. What do you mean by that? 

Marcos Troyjo: One of the reasons the BRICs were considered rising countries back in 2001 is because they were capable of adapting creatively to the global economy. That is, their rise has more to do with adapting and copying practices and benchmarks from other economies instead of coming up with something of their own. So I think that the main way to explain the rise of BRICs from 2001 to 2011 was creative adaptation.

Creative adaption meant different things for Brazil, Russia, India, and China. For China, creative adaptation meant reorganizing their productive capacities to become an export-led country. So China received Most Favored Nation status in its trade with the United States. China devised a very intelligent program of public-private partnerships that allowed for the necessary capital to expand infrastructure. It capped wages and other factors of production, including the exchange rate, to provide for this competitive image.

Brazil’s creative adaption meant a policy of import substitution 2.0. Brazil was using the surpluses it acquired from commodities, particularly agriculture and mineral commodities trade with China. Brazil discovered rich deepwater offshore oil reserves, and was also able to devise one of the most advanced biofuels programs in the world. So these three characteristics created the necessary resources to allow for import substitution.

India adapted creatively in the past 25 years by providing cheaper alternatives in areas such as information technology, pharmaceuticals, and textiles. It also developed services such as call centers that could be outsourced from other countries.

Now, the traditional markets of the United States and Europe are stalled. Therefore, BRIC countries have to change their DNA in the sense that they have to grow not because of creative adaptation, but because of creative destruction. BRIC countries have to direct resources towards innovation. After a decade of copying and adapting, they have to move on to a new decade of designing, formulating, and innovating. If the BRICs are able to perform that DNA change, I think that they will continue to be some of the most dynamic growth markets in the world. If they’re not able to change their DNA, then they face a bumpy road ahead.

AS/COA Online: Local content policies require companies to purchase or produce a certain percentage of goods or services domestically in order to operate in a given country. In your opinion, how do local content policies impact the BRIC economies and trade strategies? Do you foresee any changes to these policies in the coming year?    

Troyjo: Local content is essential for the BRIC countries, although each of the BRIC countries approaches local content in different ways.

China, for example, is now implementing a number of countercyclical measures that have local content at the core. If you are an aircraft manufacturer and you want to sell your product to the most important client in China, which today is the Chinese government, you have to produce essentially 70 percent of those aircraft in China—therefore generating local taxes and local jobs. China has foreign exchange reserves at around $3.7 trillion as a countercyclical measure in order for companies to divert their production capacities to China and to have China as the final destination for their products. So China is operating a DNA change from export-led growth to growth that will also be fostered by domestic consumption.

Brazil’s local content policies are important in the sense that it has an industry to protect. Brazil has been deindustrializing very rapidly due to global competition, particularly Asia. One of the ways the Brazilian government came up with to reindustrialize is local content policies, especially by the so-called Brazilian champions: the large multinational corporations in which the Brazilian government owns the golden share. That is the case of Petrobras, Embraer, and Vale. Many of these companies play the role of the leading local content implementers.

Petrobras, for example, has to buy approximately 20 big oil tankers a year. If Petrobras were to buy these tankers in South Korea, China, or Singapore, the average price tag would be $65 million. Petrobras is prepared to pay $125 million for each of those ships if 65 percent of the ships are produced in Brazil. What’s the logic behind paying a $50 million premium on each ship? It’s that Brazil believes that there is a learning curve for the entire production chain in this particular sector—engineers, welders, technicians—that will allow for a 50 percent reduction in production costs over a period of 10 years. The remainder of the premium has to do with labor and fiscal regulation reforms to make the country’s companies more competitive.

Do I see any changes in how these countries will approach local content in the next few years? I don’t think so, because when it comes to international trade and investment, I think we’re about to see a much more de-globalized set of agreements and institutions in the next couple of years. That’s because countries are very much turned inward with insular policies.

AS/COA Online: You’ve discussed innovation and technology as key areas for the BRICs to invest in. How does Brazil compare to the other BRICs in terms of innovation and technology?

Troyjo: I think innovation is the result of the interplay of four factors: a stock of knowledge, a stock of capital, a stock of entrepreneurship, and the atmosphere that you have to create in order for these three to operate efficiently.

In this sense, Brazil did very well, as in the case of biofuels or aircraft. Look at Embraer, for example; it’s one of the top three air manufacturers in the world. In biofuels, when research was applied to industrial ends, Brazil fared very well. Today, eight out of 10 Brazilian automobiles run on flex fuel, which uses biofuel. Look at the case of agriculture. Brazil has a great research and development company called Embapra, which is responsible for raising the competitive advantages of seeds and of shortening the maturation process of some crops.

But when it comes to overall science and technology investments directed toward innovation, I am less optimistic. Brazil is only investing 1 percent of its GDP in research and development, whereas a country like South Korea—which many acknowledge as one of the top examples of growth through innovation—is investing in excess of 3 percent of its GDP in R&D. Ten years ago, China directed only 0.6 percent of its GDP to R&D. Now, it invests 1.5 percent, and by the time China overtakes the United States as the world’s largest economy between 2022 and 2025, China will be investing 2.5 percent of its GDP in research and development.

In India, we have a very uneven situation. When it comes to IT, biotechnology, and pharmaceuticals, it is very advanced, with a great deal of investment from the private sector. Multinational corporations do their research in India because of the relatively low cost of production and high level of intellectual human capital there. But throughout society, you will not find the same enthusiasm for R&D investment, and this is one of the reasons why you find such disparities. Today in India, there are more cell phones than toilets. There are more billionaires than in the UK and France put together. But it’s also a country where there are more poor people than on the entire African continent. I think that’s all a result of the many disparities that you have in research, development, and innovation investments.

Russia is one of the classic examples of the distance between pure research and research applied to markets. In the late 1970s, four out of 10 scientists in the world were working in the Soviet Union. This country was able to perform things that were really remarkable, like sending a man to outer space, but it couldn’t produce an alarm clock that would ring on time. So Russia’s problem is transforming its great level of science that it has into a market. Many of the market mechanisms that are so common in the United States—start-up capital, projects financed by companies, individual entrepreneurship—are not present in Russia. These are the bottlenecks that keep Russia from playing an even more important role in terms of innovation. Some of the more democracy-oriented characteristics of society that are so important for technological entrepreneurship are still missing in Russia.

AS/COA Online: President Dilma Rousseff is making efforts to reduce the so-called “Brazil cost,” a combination of insufficient infrastructure, high taxes, and bureaucracy that hinder businesses in Brazil. What legislation or reforms under consideration could have an impact on the Brazil cost next year? 

Troyjo: To be very honest, I see tactical movements by the Brazilian authorities, but I do not see anything that is either essential or structural. But I think that’s understandable.

Let me give the example of fiscal reform. In Brazil, the overall tax burden on society is about 37 percent of GDP, whereas in South Korea, for example, it’s only 26 percent. Why is Brazil’s tax burden so high? The Brazilian government is too big and this is a choice by society. Brazil keeps saying that it has achieved near full employment with one of the lowest unemployment rates in the Western Hemisphere. But if you analyze the organic composition of employment, you realize too many people are employed either by the city, state, or federal branches of government or in state companies and activities.

Not only is the government too big, but it’s too inefficient and too expensive. One structural reform to be enacted would be to reorganize Brazilian administration to allow for a decrease in the fiscal burden. It could happen, but it takes a lot of political will. The Brazilian government would have to sacrifice in the short term for the benefit of the long run. Because we have an electoral cycle every four years in a democracy, that’s a difficult bet to make. That’s true especially in Dilma’s case, where in terms of economic growth, the first two years of her administration have been nearly lost. Brazil only grew 2.7 percent last year and this year it’s only going to grow around 1 percent.

Labor reform would also be important. Labor costs are enormous in Brazil right now. The minimum wage is three times the minimum wage base in countries like Indonesia or Vietnam. If you’re a company establishing yourself in Brazil, you’re probably going to hire someone and pay one salary to the employee and the equivalent of another salary to government due to the absurd medieval requirements when it comes to labor protection and pensions. Once again, the government could enact reform in that area. It would have to pick a fight with the labor unions. Does it want to do so in the long term? I don’t think so.

But I do not see these two reforms on the radar in any way, shape or form in the next couple of years.  Whatever the government comes up with in terms of reforms is only tactical and short-term.

AS/COA Online: One of the Brazilian industries to watch in coming year is in oil and gas, as the first round of concessions in five years is due to take place in 2013. What are some of the opportunities and challenges in Brazil’s energy sector that will be important next year?

Troyjo: Well, I think there are three dimensions. One is the challenge related to the deepwater, pre-salt oil, so immense in scope that Petrobras will probably leave some of the onshore exploration opportunities to foreign companies or companies that could partner with other Brazilian players. So I see a lot of things coming from onshore, which is really not the tradition in Brazil and is really not where most of the attention is. But because Petrobras’ challenges in pre-salt oil are so huge, something is going to be left behind as far as onshore oil.

When it comes to pre-salt oil, it’s obvious that the technological challenge is huge. Think about the kind of remote robotics you have to have, the chemicals used in taking oil and gas out of a depth of about 7,000 meters (22,965 feet). Technological partnerships are key. The companies that are able to understand the workings of Petrobras, the requirements of local content, and mapping the area of technological demands can be very successful.

The third area of opportunity is biofuels. More and more countries are interested in the Brazilian model of flex fuel engines. Countries in Scandinavia are very interested; Sweden, for example, is already the top destination for Brazilian ethanol in Europe. The companies that want to partner in Brazil with biofuels will be able to join the Brazilian locomotive that may be destined to make ethanol a global commodity. If that happens, all of those companies that partnered with Brazilian companies in extending the global outreach of biofuels—particularly sugar cane-based biofuels—will have a lot to profit from.

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AS/COA – Central America: A Job Instead of a Gun

Jason Marczak / The Miami Herald

 

December 13, 2012

 

Nine months after a gang truce more than halved the daily homicide rate in El Salvador, a new agreement between the maras and the facilitators of the peace process promises to pave the way for a long-term solution to the criminal violence that has gripped the country since the end of the civil war. The Dec. 4 pact will create 10 nationwide peace zones in which gangs will commit to end all homicides, extortions, thefts, and kidnapping.

The plan is intended to provide a first step in which gang members (mareros) will begin to reinsert themselves into society.

But where do they go? Former gang members — often tattooed and with little or no formal education or work experience — are at an inherent disadvantage in competing for jobs. In a country with high youth unemployment and underemployment, businesses are understandably either reluctant to take their chances in hiring former gang members or do not have the right employment opportunities.

A new Americas Society policy brief, Security in Central America’s Northern Triangle: Violence Reduction and the Role of the Private Sector in El Salvador, finds that despite these challenges some courageous businesses are adopting policies to integrate former gang leaders into the labor market, in ways that both improve productivity and provide the best hope for peace and stability in El Salvador.


Download the policy brief here.


Citizen security and violence prevention are responsibilities of the state, but the private sector, especially at a local level, can be an effective partner in improving community safety. This is true in El Salvador as well as in its violence-prone Northern Triangle neighbors of Guatemala and Honduras.

Grupo Calvo (tuna), League Collegiate Wear (apparel) and Rio Grande Foods (food distribution) are at the forefront of private-sector gang member reinsertion efforts in El Salvador. Each company works with faith-based institutions, local community groups and either directly or indirectly with the government to reintegrate youth into communities and into the labor force.

It is a big gamble — but one that has paid off.

These companies have discovered that former gang members possess unique personal traits, such as respect for authority and efficiency in carrying out tasks, which can be applied in the workplace.

Grupo Calvo employs 90 rehabilitated former gang members in its El Salvador plant — about 5 percent of its staff — and has opened the door for an additional 100 former gang members to get jobs with their suppliers. These workers are some of their strongest and most productive employees.

The same is true at League Collegiate Wear, where 15 percent (40 employees) of its Salvadoran workforce have joined the company through its reinsertion program. Work teams comprised of ex- mareros are 15 percent more efficient than those of other employees, according to Rodrigo Bolaños, League’s general manager in El Salvador.

Reinsertion programs also benefit local plants or factories by helping to create a safer community.

Still, one of the greatest challenges for reinsertion efforts — as well as for programs directed toward high-risk youth — is for private industry to coordinate with the public sector. Working with the Ministry of Justice and Public Security to build on comparative advantages and to avoid overlapping efforts is critical in El Salvador and throughout the Northern Triangle.

Collaboration is especially necessary as El Salvador prepares for the potential of peace zones, which gang leaders say could improve security for up to 900,000 Salvadorans (15 percent of the population). Still, nationally-driven efforts should not take the place of local strategies, which can quickly adapt to on-the-ground developments.

The truce, although not a long-term solution to permanently ending violence, offers an historic opportunity to show that alternatives to the gangs exist in society. Despite unemployment and underemployment, the private and public sectors can build on the reduction in violence to help provide these youth with the skills to enter the labor market. That will not only bring greater security but it will help to generate greater investment as well.

Jason Marczak is director of policy at the Americas Society and Council of the Americas and senior editor of Americas Quarterly.

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AQ – Maduro is No Chávez, For Now

DECEMBER 10, 2012

BY JAVIER CORRALES

After much speculation President Hugo Chávez announced on December 8 that his cancer was back (for the second time in a year), and that he now had a person in mind to succeed him—Nicolás Maduro, the minister of foreign affairs who was elevated to vice president in October 2012.

Designating Maduro as the official successor was, as political scientist María Teresa Romero said, both expected and surprising. Anointing Maduro was expected since he had become Chávez’ closest political figure, frequently seen right next to the president, especially when traveling to Cuba for treatment.  The constitution also says that Maduro, as vice-president by special designation of Chávez himself, takes charge if the president is ever permanently absent from office.

If Chávez is unable to complete his new six-year term within the first four years, the constitution stipulates that a new election must be called within 30 days. In this case, it is now clear that Maduro would be the preferred candidate for Chávez’ Partido Socialista Unido de Venezuela (PSUV).

The Venezuelan political system, which is a mixture of democracy and autocracy, has now officially entered the moment of succession—a process that varies significantly between the two political systems. In democracies, successions are determined by constitutions, while in autocracies, successions are always indeterminate and fraught with uncertainty and the potential for crisis.

 

Still, if the constitution is clear about this process, and Chávez was already frank about whom he wanted for vice-president, why bother to interrupt his “urgent” treatment in Cuba, postpone surgery for a few days, and return to Venezuela to make the announcement that Maduro was his preferred successor? To be finally so public and emphatic about his choice was a shock.  Why not tweet the news from Cuba, or better yet, remain quiet, as he had been doing thus far?

With his dramatic announcement about Maduro, Chávez indirectly admitted that Venezuela is an autocracy by implicitly recognizing that the country is suffering from a succession crisis.  Chávez had seen the signs of the crisis before.  Each time he traveled to Cuba for treatment, vicious internal speculation about succession would metastasize within the PSUV.

Chávez must have been told in this last trip to Cuba that this type of political competition within chavismo, like Chávez’s cancer, is lethal.  Cuban doctors would try to take care of the recurring cancer, but only Chávez could take care of the recurring succession crisis. Chávez then knew that he needed to appear on national television to appoint Maduro, and thus contain this crisis.

In the end, Chávez gave Venezuela the gift of clarity by seeking to prevent a succession crisis. He also gave Maduro the gift of a lifetime, saving him from what would have been his first potential crisis as presidential candidate, namely internal sabotage.  Chávez was clear: all Venezuelans (meaning all chavistas) must vote for Maduro.

The day after the announcement (on December 9), the PSUV held a special meeting in Caracas.  Attendees included Maduro, the president of the National Assembly and the PSUV’s first vice-president Diosdado Cabello, and the candidates for governorships in the December 16 elections. They signed on to a document expressing unidad, but the question is whether their pledge of unity will stand the test of time.

It is likely that that the PSUV will grant Chávez his wish, and if the time comes, vote for Maduro for no other reason than to pay their last respects.  But it is less certain whether this loyalty will be automatically extended to Maduro if he assumes office.

So who is Maduro, and will he ever command the loyalty of chavistas?

In many ways Maduro is everything that Chávez represents, as well as its opposite. He is the Revolution’s most two-faced character.  On the one hand, he is one of the most leftist and anti-imperialist figures in the PSUV—the architect of some of Venezuela’s most radical foreign decisions such as close ties to Libya, Syria and Iran.  On the other hand, he can be soft-spoken and conciliatory.  He is the architect of the remarkable turnaround of relations with Colombia in the last two years and is the third longest-serving foreign relations minister in the Americas.  He has acquired experience, and might have even learned, on the job, the importance of pragmatism.   He also has a good relationship with the military, but unlike Chávez, he is not one of them.

The multiple sides of Maduro are worth remembering in trying to predict how he would deal with two inescapable political problems as president.  The first is what to do with the opposition, which is stronger than ever.  Here, Maduro is more likely than Chávez to understand the need to talk with his opponents, which is good news and bad news for them.  More government-opposition talk could help bring some moderation to public policy, but greater discussion may also split the opposition.

The second challenge is how to deal with the multiple factions within chavismo.  One faction is the military, whose institutional presence has never been higher and whose patience with the politiquería of Venezuela and the PSUV has never been lower.  A day after Chávez spoke about Maduro, the armed forces publicly reiterated their loyalty to Chávez the “person,” to the “Revolution,” and to the “people” (without mention of loyalty to the vice-president or even to Chávez’ wishes). Another faction is the very corrupt business tycoons who have amassed uncountable profits making deals with the state and have the influence to cause trouble.  The third faction is the radical ideologues who want a more extreme revolution than Chávez ever delivered. They have passion and impatience, and thus, capacity to also cause trouble.

These factions won’t disappear if Chávez disappears from politics, and it’s unclear how Maduro as president would manage them.  Chávez dealt with internal factions by blaming others for any setback, offering huge rewards to those who laughed at his jokes, and suppressing dissent from within.  As Teodoro Petkoff, editor of Tal Cual, once famously remarked, nowhere is freedom of expression more lacking in Venezuela than within the ranks of chavismo.

In dealing with these factions, Maduro will face two epochal choices: either introduce political competitiveness within the PSUV to allow the internal currents to fight among themselves, or impose order from above.  If he chooses the former, he may end up being a one-term president.  If he chooses the latter, he may survive in office longer, but he will have no choice than to imitate some of the hardline practices that his protégé deployed to unify his band of followers.

No two political leaders are ever identical, and Maduro will never be another Chávez.  But if the Venezuelan regime remains unchanged, the forces pressuring for convergence in rulership, and especially in dealing with dissent, will also remain the same.

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AS/COA – Six Points to Watch after Chávez’s Cancer Announcement

Christopher Sabatini

 

December 12, 2012

 

Amid questions surrounding his health, Venezuelan President Hugo Chávez named Vice President Nicolás Maduro as his successor. The December 8 announcement came a week before gubernatorial elections and a month ahead of Chávez’s next presidential inauguration, raising questions about what a leadership transition could mean for Venezuela. AS/COA Senior Director of Policy Christopher Sabatini outlines six major things to watch in the next few months.

Leadership Transition within Chavismo: Through his charisma and the patronage provided by Venezuela’s oil, President Hugo Chávez has assembled a broad, heterogeneous movement, nominally under the PSUV party. Whatever may happen in the next months, Chávez’s announcement has set in motion the internal discussion and positioning to lead the movement. The question now is how Chávez and his newly tapped potential successor will hold together the fractious, inchoate coalition that includes the military, business, and unions, as well as fringe, splinter parties of the left as these groups look to jockey and position themselves for the future.

The effect on foreign relations: Since coming to power, Chávez’s vision and oil-fueled largesse has given him a profile as an alternative leader in the hemisphere, building an alliance of like-minded populist leaders in ALBA; propping up Cuba’s decrepit Castro regime with oil shipments; buying the political support of Caribbean and Central American nations through donated oil; and openly courting Chinese, Russian, Iranian, and Syrian governments. Without Chávez at full force, this alternative vision in the Americas—openly opposed to U.S. interests—may begin to sputter, even with the ongoing shipment of oil.

Chávez’s legacy: There’s no doubt that Chávez will leave an indelible mark on Venezuelan history. But unlike leaders such as Argentina’s Juan Perón, Chávez’s legacy will not be an institutional one. What the Bolivarian leader has excelled at is tearing down and debasing institutions, not building them up, including his own 2000 Bolivarian Constitution.

January 10 Inauguration: Will Chávez even be able to stand to take the oath of office on January 10? If he cannot, it will raise the question of whether he is legitimately sworn in as president.

New Elections: If for reasons of illness or death, Chávez is forced to step down in the next four years, the Constitution requires the government to call a new presidential election in 30 days. The question is how quickly would those elections be convened since the Constitution only stipulates within 30 days. Convening them earlier would leave the opposition at a disadvantage, but still comply with the letter of the law.

Currency Devaluation: There is a potential collision point that could coincide with a leadership transition. Venezuela could soon need to devalue its national currency, the bolivar, to clamp down on the raging inflation rate (at more than 20 percent annually, it’s one of the highest in the world) and its whopping 15 percent fiscal deficit. This would lead to an economic slowdown at the same time as the very delicate potential succession that the government may need to orchestrate should Maduro have to slide into the driver’s seat and call for elections.

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AS/COA – The United States and Mexico: The Path Forward

Michael Werz and Eric Farnsworth / Center for American Progress

 

November 30, 2012

 

Mexico inaugurates a new president on Saturday—Enrique Peña Nieto of the Institutional Revolutionary Party. Given the early lead he enjoyed during the campaign and the public fatigue with the ruling National Action Party, Peña Nieto, the former governor of the state of Mexico, ran on generalities and never clearly defined his political philosophy or presidential agenda. Much of what he campaigned on could be boiled down to two statements: “I’m not the National Action Party, and I’m not the old Institutional Revolutionary Party.”

Good enough, as far as the election result goes: Peña Nieto was elected with close to 40 percent of the vote, a plurality but not a majority—in part because many voters retain a strong distrust of the Institutional Revolutionary Party and its autocratic past. It is now up to the president-elect to fill in the blanks as to what kind of president he will be. If all goes well, he could be transformational. But obstacles loom and initial expectations must be held in check.

The country has solid standing. Economic growth is strong and projections show continued expansion, surpassing even Latin American darling Brazil. The middle class is growing, with greater access to goods and services and the ability to purchase them. Manufacturing is moving back to Mexico from China, with Mexico becoming a platform both for production in North America and also in Latin America. The country has also become a leading voice in global trade, as well as economic and environmental initiatives. Mexico is becoming economically what it has always been geographically: the crucial link between North and South America.

The outgoing government has effectively used its final days in office to promote a reform agenda consistent with Peña Nieto’s stated views. Mexico has one of the longest transition periods of any democracy—five months. While outgoing governments have traditionally done little during this period, this particular transition period has proven different, particularly with regard to the charged issue of strong protections for labor that have been loosened through new legislation in recent weeks.

Working together, the National Action Party executive and the Institutional Revolutionary Party-controlled legislature have joined to give the incoming Peña Nieto government a strong tailwind toward economic opening and greater competition, without having to pay the political cost that labor reform might otherwise have entailed. At the same time, north of the border, President Barack Obama has spoken clearly of his desire for meaningful immigration reform this year, which would provide another significant political and economic boost to the new Mexican president.

With labor reform out of the way, attention turns to the three policy fields that Peña Nieto has promised to address, perhaps all at once: energy reform, tax reform, and Social Security reform. Should he succeed in addressing these issues effectively, he will have restructured a significant part of Mexico’s economy, preparing Mexico for an economic takeoff that could rival Asian economies.

This effort brings risk as well as promise, since failing with these fundamental reforms could throw Peña Nieto’s presidency into turmoil at its inception. Each of these reforms individually would be enough to occupy the Presidential Palace Los Pinos for months and to soak up the political capital of any president. Doing all of them together would be a political project more involved than any other since the Institutional Revolutionary Party first restructured Mexico’s economy in the 1930s. Clearly, the political stakes are huge.

A major obstacle to reform could be the Institutional Revolutionary Party itself. Party discipline will largely ensure a supportive if not compliant congressional delegation, but party bosses, governors, and individual congressional representatives, among others, will likely seek to ensure that their political equities are protected in any reform process. Peña Nieto’s challenge will be to keep them in line, using traditional tools of political coalition building without stepping over the line into corruption. A number of younger, newly elected members of the Mexican Congress in the leftist Party of the Democratic Revolution have indicated that the deepening of democratic reform is their main priority and that there might be room for cooperation with President-Elect Peña Nieto should he push this agenda.

The fate of the reform agenda will arguably be the new president’s greatest and most immediate test. He faces a Mexican public that no longer tolerates the old ways of doing politics in Mexico and is skeptical that the Institutional Revolutionary Party has truly changed. But equally importantly, the party has been out of power for 12 years and its leaders now want and expect to receive the rewards that national power bestows. It will be a delicate balancing act for Peña Nieto. But his inauguration also has implications for U.S.-Mexico relations, which will play out on both sides of the border.

The Path Forward

Given this backdrop, the new Mexican president needs major political and policy successes in 2013 to consolidate power within his own party and secure congressional majorities for an ongoing economic reform process. Here, the United States has an important role to play: The two countries are intertwined in a unique way and thus the political success of Enrique Peña Nieto will, at least in part, be impacted by what happens north of the border. And the to-do list for the United States is extensive, but it is largely focused on economic policy and immigration reform.

Immigration reform is increasingly likely to dominate the domestic debate once the fiscal cliff is resolved. President-Elect Peña Nieto made a strong endorsement of immigration reform at his Washington press conference with President Obama this week, stating that he fully supportsPresident Obama’s proposal. Even though a strong majority of Americans support a pathway to citizenship for the 11 million undocumented immigrants living in the country, it will remain a difficult legislative battle. And while aligning with a popular U.S. president who will be viewed as fighting to legalize Mexican nationals makes obvious sense, there is some risk that a failed legislative effort will trigger collateral damage to Peña Nieto’s image in Mexico.

On the economic front, the success of the new Mexican administration’s economic reform and growth agenda is a core interest of the United States. A number of policy fields will be crucial to create a successful North American growth model and will elevate the transactional partnership with Mexico to a strategic relationship much like the United States enjoys with Canada. To achieve this goal, both countries must address a number of issues simultaneously.

  • The creation of jobs will play a central role in domestic politics in both countries. U.S-Mexican trade needs to be encouraged in the border region and beyond. To achieve this, the U.S.-Mexican border needs to be more permeable and allow more crossings at lower cost.
  • To secure energy independence, both countries need to prioritize research and development investments to ensure that technologies that facilitate access to shale gas—such as horizontal drilling combined with hydraulic fracking—do not adversely affect the environment. This is a necessary step to move forward with the development of massive North American shale gas resources—a potential strategic game-changer.
  • Mexican states along the U.S. border are official observers in the Western Climate Initiative, joining California and four Canadian provinces. The federal governments in both the United States and Mexico should take aggressive steps to make it more feasible for these Mexican states to become full partners in the initiative to achieve meaningful reductions in carbon pollution and move toward greater U.S.-Mexican cooperation on future North American pollution cuts.
  • Both countries need to expand their economic relations with Asia and Europe. President-Elect Peña Nieto sees China as an important future partner for economic growth. Both Mexico andCanada were invited in June to join the negotiations toward the Trans-Pacific Partnership—an important if belated step. Both should also be included at the very beginning of discussions with Europe—should they occur as has been rumored—toward the creation of a free trade zone in the Atlantic. Such trade negotiations would provide an added means for the three North American economies to build cooperation.
  • The war against cartels and gangs involved in the illegal drugs trade continues to rage on both sides of the border, although indications of progress include a reduction in violence, cleaned-up cities, and increasing professionalization of the Mexican security forces. Achieving a reduction of violence will be a key challenge for President-Elect Peña Nieto, with street protests demanding as much. Judicial reform is moving forward, albeit slowly, but Mexican authorities still rely too greatly on confession by apprehended suspects and have deficits in the acquisition and use of intelligence. This fight needs to be framed as a joint challenge, emphasizing the co-responsibility of the United States, as Secretary of State Hillary Clinton has expressed several times.
  • The re-launch of a U.S.-Mexican bilateral commission would be an important vehicle to institutionalize cabinet-level discussions across the broad range of issues that affect our countries and maybe trilateralize along with Canada from time to time. Tone and perception count a lot in the bilateral relationship. In addition, both sides should establish permanent working groups to help change the image and perception of Mexico in the United States and vice versa. Such an engagement in public diplomacy could include messaging and outreach to counter the often-distorted perception of Mexican society in the United States.

The election of Enrique Peña Nieto and the re-election of President Obama mean that the U.S.-Mexican relationship has a unique opportunity to grow closer and bring numerous benefits to both sides of the border. To fully appreciate this unique opportunity, both sides must invest political capital and be prepared to engage domestic public opinion when it comes to explaining why our countries are united by much more than a fence.

Eric Farnsworth is vice president of the Council of the Americas and Americas Society, heading their Washington, D.C., office since 2003. His areas of expertise include the role of Asia in the Americas, trade, energy, U.S. policy in the region, and national security affairs.

Michael Werz is a Senior Fellow at the Center for American Progress, where his work as a member of the National Security team focuses on the nexus of climate change, migration, and security, as well as on emerging democratic powers in Turkey, Mexico, Brazil, and India.

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AS/COA – Viewpoints: What Should the Top Priority Be for U.S.-Mexican Relations?

ecember 03, 2012

 

With Enrique Peña Nieto taking the reins in Mexico and Barack Obama’s reelection the United States, what should the two leaders focus on in terms of bilateral ties? Many observers say the time is ripe to strengthen relations: Last year, U.S.-Mexican trade ties broke new records, hitting $500 billion in bilateral trade in goods and services; news outlets offer glowing praise for Mexico’s economic outlook; and strong support from the Latino electorate for Obama’s candidacy could help boost prospects for U.S. immigration reform early in his second term.

As new administrations take shape in both countries, 9 prominent Mexican and U.S. experts share what they believe the top goals should be for U.S.-Mexican relations. From opportunities presented by the Trans-Pacific Partnership to a reconsideration of outdated perceptions on both sides of the border, from infrastructure projects that could boost cross-border trade to a renewed focus on North American integration, these high-level officials and analysts provide their perpectives on how the two governments can deepen ties.

View expert contributions:


Rafael Fernández de Castro, Chair, Department of International Studies, ITAM

 

It is Peña Nieto’s task to help Obama create the foundation for immigration reform, not with demands but through actions.”

 

Brand new President Enrique Peña Nieto has three priorities in Mexico’s bilateral relations with the United States.

The first priority is to take advantage of the opportunity that was created by the weight of the Hispanic vote in favor of Barack Obama’s reelection to achieve immigration reform. It is Peña Nieto’s task to help Obama create the foundation for immigration reform, not with demands but through actions. He must therefore align Mexico’s objectives with those of the United States: they must consistently seek legal, safe and orderly migration. Furthermore, he must do some serious housekeeping, preventing abuses against Central American migrants from Guatemala, Honduras and El Salvador. And, he must develop a stable southern border, one that counts with a state presence and adequate infrastructure. The spirit of the transformation of the southern border must preserve the positive aspects of border integration processes while achieving efficiency in formal operations that will allow it to triumph over illegality.

The second priority is to take advantage of more favorable economic winds in both Mexico and the United States. Peña Nieto must prioritize an agenda of economic integration and greater regional competitiveness. The Mexican and Canadian entry into the Trans Pacific Partnership negotiations signify an opportunity to harmonize stances between the three members of NAFTA to amplify markets in Asia. Mexico will be hosting the 2013 North American Leaders Summit, and Peña Nieto should thus be able to push a new regional strategic agenda that includes safer and efficient borders and the standardization of production.

The third priority is to maintain the aid flows that help combat organized crime and drug trafficking in the face of a U.S. fiscal crisis that can threaten these resources. Here Peña Nieto must emphasize three elements: agree with Washington’s priority that it help strengthen Mexico’s law enforcement institutions (police, judges, and prisons); develop a regional vision that includes Central America; and insist on an open debate that finally puts the decriminalization of drugs on the table.

Rafael Fernández de Castro is chair of the international studies department at the Instituto Tecnológico Autónomo de México (Autonomous Technological University of Mexico—ITAM).


Antonio Garza, Former U.S. Ambassador to Mexico

A first step is to get rid of outdated perceptions—on both sides.”

Tony GarzaThe United States and Mexico have enjoyed a very healthy and respectful relationship. On issues of shared interest—primarily trade and security—we’ve cooperated, though mostly out of necessity. Yet neither country has ever truly leveraged the bilateral relationship strategically.

What will it take to bring about this kind of fundamental shift? A first step is to get rid of outdated perceptions—on both sides. You simply can’t expect to have a strategic relationship that functions in real time if perceptions lag present realities. There’s been new research and insightful commentaryrecently highlighting the gap between Americans’ perceptions of Mexico and the country’s current reality.

President Enrique Peña Nieto faces the daunting task of moving Main Street U.S. perceptions of Mexico closer to where the views of economists, investors, and discerning travelers are on the country. He will help this along by conveying his administration’s absolute commitment to carrying through promised economic reforms, implementing anti-corruption and transparency initiatives, and reinforcing cooperation on security.

For President Obama, it’s important to signal that his new team is completely schooled in the reality of today’s Mexico and that they are prepared to take advantage of the moment to recast the relationship to the benefit of both countries. Delivering on immigration reform and the Trans-Pacific Partnership trade agreement are rare opportunities for a U.S. administration to fundamentally alter Mexicans’ perceptions of their northern partner.

As Mexico’s place in the world rises and the U.S. continues to recalibrate its foreign alliances, there’s a unique opportunity to move the bilateral relationship to a more strategic level—but it will take some work.

Antonio Garza is former U.S. ambassador to Mexico (2002-2009). He is counsel in the Mexico City Office of White & Case and is chairman of Vianovo Ventures, a cross-border consultancy.  Ambassador Garza is online at www.tonygarza.com.


James Jones, Former U.S. Ambassador to Mexico

 

North America sits near the pinnacle of its greatest economic strength in history.”

 

James JonesThe overarching goal of our bilateral relationship should be to thoroughly integrate the economies of North America. Democracy and security are strengthened when commerce flows and grows. This creates wealth, opens new jobs, and establishes better personal relationships in both countries. To achieve this, we can work together to reduce the regulatory barriers to efficient trade by harmonizing cross-border regulations and modernizing border infrastructure.

The U.S. must pass comprehensive immigration reform that recognizes reality in our labor needs and legal protections for immigrants who are here helping build our economy. The U. S. must implement a debt reduction program combining serious spending cuts and revenue increases to give certainty and new impetus to growing our economy. Mexico must implement judicial and law enforcement reforms that will give confidence to businesses and citizens that a rule of law prevails there. Energy reforms are needed to attract private capital to fully realize Mexico’s abundant opportunities. Mexico needs tax reform that increases revenue, reduces the informal economy, and provides the framework to close the deep wealth divide among its citizens. To accomplish this and to further reduce the 40 million living in poverty, Mexico needs to make massive investments in infrastructure and quality education. Mexico’s growing middle class is impressive but to expand that even more will create market and economic power that will be the envy of the hemisphere.

North America sits near the pinnacle of its greatest economic strength in history. Together we can take it to the top.

James R. Jones is the chairman and CEO of ManattJones Global Strategies and the former U.S. ambassador to Mexico (1993-1997).


Beatriz Leycegui, Senior Fellow, International Centre for Trade and Sustainable Development:

 

Mexico and the United States cannot fight geography.”

 

Beatriz LeyceguiOne of their top priorities should be to address with a greater sense of urgency the bilateral and North American competitiveness agenda. The Mexican and U.S. economies are highly integrated and interdependent. If their economies do well, the impact on job creation is immediate. The U.S. is Mexico’s most important export market; Mexico is the U.S.’s second most important export market. Of every dollar the U.S. imports of Mexican goods,40 percent have American content, in comparison to China’s (4 percent), Brazil’s (3 percent), or India’s (2 percent).

Due to the reduction in the differential in labor costs between Mexico and China (in 2003, it stood at 237 percent; in 2010, at 13.8 percent) and increases in energy and transport costs, investment and production are returning to North America.

The most important elements of the North American competitiveness agenda should include: expediting the work to create a twenty-first-century border (infrastructure, risk management, pre-clearance, customs cooperation); strengthen regulatory cooperation (mutual recognition of regulations); liberalization of strategic services (e.g. telecommunications, air, land and sea transportation), and the improvement in the enforcement of intellectual property laws. The Trans-Pacific Partnership negotiations can be an opportunity to advance some of these issues.

Mexico and the United States cannot fight geography. Why would Mexico forego the benefit of being next to the most important economy of the world? Why would the United States ignore the possibility of further integrating with a country that has proven to be a partner in production more than a competitor?

Beatriz Leycegui is a Senior Fellow at the International Centre for Trade and Sustainable Development in Geneva. She served as Mexico’s undersecretary for foreign trade at Mexico’s Ministry of Economy for five years (2006-2011).


Diana Negroponte, Senior Fellow, Brookings Institution:

[F]acilitate the anticipated tripling of cross-border trade.”

Diana NegroponteDeepening the trade relationship and facilitating the shipment of component parts between Mexico and the United States requires the creation of access roads some eight miles ahead of the principal border crossings. With electronic submission of customs/immigration documentation and with electronic seals on transnational containers, trucks filled with bilaterally manufactured products can more rapidly pass across the border. Currently, the trucks are delayed principally for lack of access roads leading up to the border, especially on the Mexican side.

In order to construct these roads, private-public partnerships are needed.  The NADBANK, established 20 years ago to support environmental projects, is the best placed to mobilize these partnerships. The bank’s bylaws permit this. However, the environmental impact needs to be interpreted broadly. The Environmental Protection Agency (EPA) could recognize that new roads relieve the congestion and high levels of air pollutants at the border crossing itself. Use of access roads may spread pollution further inland, but the levels of pollutants will be significantly lower than those currently suffered each side of the Rio Grande.

NADBANK’s initiative and the White House leadership to facilitate EPA approval could lead to the development of access roads and decongestion at the actual border. Mexican presidential encouragement to NADBANK’s directors to seek PPPs and U.S. presidential urging to the EPA for a broad interpretation of its mandate could result in a decade’s work of new infrastructure projects. This will facilitate the anticipated tripling of cross-border trade as both countries negotiate a Trans-Pacific Partnership and Mexico negotiates a Pacific Trade Alliance with its South American partners.

Presidential decisions to advance on instructing NADBANK to move forward with PPPs for these infrastructure projects are relatively easy. Their consequences will enhance the trade and prosperity of both nations.

Formerly a trade lawyer and professor of history, Diana Negroponte is a nonresident senior fellow with the Latin America Initiative under Foreign Policy at the Brookings Institution.


Shannon O’Neil, Senior Fellow, Council on Foreign Relations

 

“[Expanding production links will] enable companies to become more globally competitive, benefiting businesses, workers, and ultimately the economies of both nations.”

 

Shannon O'NeilMexico and the United States should focus on deepening economic ties. Commercial interdependence is already substantial, with nearly a half trillion dollars’ worth of goods crossing the border each year. Some 80 percent of Mexico’s exports go north, and for nearly half of U.S. states, Mexico is the number one or two destination for exports— supporting an estimated 6 million American jobs today.

These exports are more often than not pieces and parts—not finished goods—evidence of the regional supply chains developing in North America. In fact, 40 percent (on average) of every product imported from Mexico is really “made in America.” This compares to just 4 percent in goods from China.

Facilitating and expanding these production links will require making cross-border trade more efficient through investments in border infrastructure, standardized regulations (so that countries do not need fulfill similar requirements in both countries), and common customs forms, among other efforts. But they will also enable companies to become more globally competitive, benefiting businesses, workers, and ultimately the economies of both nations.

Shannon O’Neil is the Douglas Dillon Fellow for Latin American Studies at the Council on Foreign Relations and publishes the blog www.latintelligence.com.


Ambassador Arturo SarukhanMexican Ambassador to the U.S.

 

[W]e need to continue strengthening the participation and commitment of civil society and the private sector across our common border, as they are true co-stakeholders in our bilateral efforts toward economic progress.

 

Arturo SarukhanOver the past two decades, NAFTA has dramatically altered the way Mexico and the United States engage with one another. However, much more can and should be done to bring North American competitiveness back to a starring role on the global stage. This is why the participation of all three North American countries in the Trans-Pacific Partnership (TPP) will be so important. The TPP will enable us to discuss measures that meet the needs and challenges of twenty-first-century free and fair trade, such as compatibility of regulatory systems, new environmental provisions, strong protection for intellectual property rights, and emerging areas such as digital technologies and e-commerce. The TPP will further deepen and strengthen the integrated supply and production chains between our two countries. And as a true coalition of the free-trade willing in the Americas and across the Pacific Rim, the TPP therefore represents the next step in a North American Grand Strategy. In addition to the TPP, we need to continue strengthening the participation and commitment of civil society and the private sector across our common border, as they are true co-stakeholders in our bilateral efforts toward economic progress.

I am convinced that Mexico and the United States are very well-positioned to make progress on the economic agenda. During the past six years, we have developed a solid bilateral relationship, based on the principle of shared responsibility, and with unprecedented levels of cooperation. This spirit of collaboration, together with NAFTA and soon TPP, leave Mexico and the United States on a strong footing to profit from the economic opportunities before us, and to and tackle our common challenges together.

Arturo Sarukhan has served as Mexico’s ambassador to the United States since February 2007. He previously served as chief of policy planning at the Foreign Ministry and as Mexican consul general to New York.


Charles Shapiro, President, Institute of the Americas

 

“It is time for [President Barack] Obama and President Enrique Peña Nieto to transform U.S.-Mexican bilateral relations into a true partnership.”

Charles ShapiroAt the 2009 Summit of the Americas, President Barack Obama stressed that he wanted a relationship of equals. It is time for Obama and President Enrique Peña Nieto to transform U.S.-Mexican bilateral relations into a true partnership.

The headlines always go to energy, drugs, and immigration. And yes, Mexican leaders must figure out how to produce more oil and natural gas. Yes, the United States must reduce our appetite for drugs and control the illicit export of weapons and drug money. U.S. politicians will reform our immigration policy when they understand that we need Mexican workers and that anti-Latino sentiments will cost them elections.

What is vital, if less sexy, is to realize that Canada, Mexico, and the United States are one economic entity. The focus must be on North American competitiveness. While respecting national sovereignty, we need to recognize that supply chains straddle borders. The manufactured exports of each contain components from all three. NAFTA was the cutting edge laptop of 1992. It’s time for the North American equivalent of the iPhone 5. We must accelerate the movement of sub-components and finished products (and tourists) across our borders. We need to make it easier for technicians to work temporarily in each other’s countries. We need to harmonize our regulations and standards. Together the three nations need to develop markets with the Trans-Pacific Partnership, the European Union, APEC, and the Pacific Alliance. That’s how to generate growth in all three North American nations.

Charles Shapiro is president of the Institute of the Americas, a public policy think tank at the University of California San Diego. He is a retired U.S. diplomat and served as U.S. ambassador to Venezuela (2002-2004).


Eric Farnsworth, Vice President, AS/COA

 

“A joint economic agenda is now more achievable than before.”

Eric Farnsworth“Should be” and “will be” have frequently been two very different things in the U.S.-Mexico bilateral relationship. The coming year offers the opportunity for a new approach.

For their own domestic purposes and in the wake of their respective elections, the United States should quickly tackle immigration reform while Mexico should liberalize its energy sector.

In terms of the bilateral relationship, however, both governments (including their legislatures) should recognize the nature of economic integration that has occurred since NAFTA, making our two economies virtually inseparable, along with Canada, as a joint production platform. This new reality should both be celebrated and also enhanced. Joint approaches within the Trans-Pacific Partnership negotiations can be a means to achieve NAFTA 2.0. If coupled with a North American approach to potential trade negotiations with the EU, North American economic integration can advance to a point unthinkable even a few short years ago. With continued economic and commercial pressure from China, India, and elsewhere, this approach will support the long-term economic well-being of the United States and North America more broadly.

A joint economic agenda is now more achievable than before. The Hispanic community in the United States has found its voice politically, manufacturing is returning to the United States due to lower prices for natural gas, and, despite ongoing concerns about violence and the drugs trade, Mexico is doing well enough economically to entice investors back from China. Now is perhaps the best opportunity in recent memory to intensify economic collaboration. It should be the top bilateral priority.

Eric Farnsworth is vice president of Americas Society/Council of the Americas in Washington DC. From 1995 to 1998, he was senior adviser to the White House special envoy for the Americas.

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