Severe Drought in Brasil and its Effect on Global Market

Brasil has recently faced one of the closest elections in years reflecting on a divided nation, with Dilma Rousseff coming out on top. It has been experiencing an economic flat-lining and high inflation rates, and now the worst drought Brasil has seen in 80 years in Sao Paulo according to Reuters.

A man standing on cracked ground takes a picture of the Atibainha dam as it dries up due to a prolonged drought in Nazare Paulista, Sao Paulo state, October 17, 2014. REUTERS-Nacho Doce
A man standing on cracked ground takes a picture of the Atibainha dam as it dries up due to a prolonged drought in Nazare Paulista, Sao Paulo state, October 17, 2014. REUTERS/Nacho Doce

Sao Paulo is South America’s biggest metropolitan city and the drought now threatens the water supply of the city and its people.

The drought however is also effecting the global economy, as the biggest coffee producer in the world has had to cut down its exports, causing prices to rise.

“Money managers cut their net-long position in arabica coffee for the first time in four weeks. Futures in New Yorktumbled 9.1 percent last week, the most since May,” reported Bloomberg’s Hedge Fund Report.

Fortunately, within the past week showers have returned back to Sao Paulo. The continued rains will help replenish nutrients to the soil and will help Brasil to catch up.

On the otherhand, with the depletion of coffee exports from Brasil, it has led the global market to invest elsewhere. Elsewhere being Colombia, the second largest arabica coffee exporter. Since 2013, exports of this specific type of coffee have grown by 23%, reported Bloomberg.

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A step away from dictatorship, but how far?

“Here we put a stop to this dictatorship,” Peruvian President Ollanta Humala said to a city in Peru called Moquegua. Reported by El Comercio, Humala, reminisced on him and his brother working along side in the armed forces to over throw the dictatorship lead by Alberto Fujimori from 1990-2000.

“To his supporters, Alberto Fujimori was the president who saved Peru from the twin evils of terrorism and economic collapse,” reported BBC News.

However to all the rest, he was a power hungry dictator who perpetuated his own rule and presidency with a disregard for basic democratic principles, further noted BBC.

Humala en Moquegua: "Aquí le hicimos el pare a esa dictadura"
Peruvian President Ollanta Humala traveled to Moquegua, Peru to discuss the positive move away from Peru’s dictatorship past. Photo: El Comercio Archive

In incumbent President Humala’s speech, he speaks against those who were selling out the country by using money for self interests. Those who controlled everything with money, by buying media, authorities, and powers of the state.

“Together we stood up against the corruption of the 90’s, against the dictatorship that had confiscated our rights and against spurious reelections where he [Fujimori] was taking the turn away from the people, for them to vote for their national interests and support minor subordinate interests,” said Humala remembering the stance him and his country took against the Fujimori dictatorship.

Humala, has become a more moderate president and played down his former leftist ties and past relations with Venezuelan Hugo Chavez, has wanted to adopt a system like that of Brazil. A system lead by former President Luiz Inacio Lula da Silva which promotes a Workers Party, or rather reduces the economic disparities within the country. BBC noted,

“His critics worry he will move Peru in a more populist, authoritarian direction and damage the economy. Mr Humala has insisted he will respect the constitution and the rule of law, swearing on the Bible in May to uphold democracy and press freedom.”

Humala has been and plans to continue extracting Peru’s mineral resources, which account for more than half of Peru’s total exports, and use that money to implement projects to reduce poverty.

Conflict of Development: Nicaragua

A grave problem that has yet to be directly faced in this blog is the cost of human rights and natural resources at the hand of development and competing interests that come with increased foreign investment. As Latin America develops and becomes further intertwined into the global market, each government has to make a choice; whether to protect its people and environmental resources, or develop economically regardless of opportunity cost.

The Chinese $50 billion investment in the construction of a Nicaraguan canal, will not only create thousands of jobs, but bring in a higher overall income for one of the poorest countries in Latin America. However, this development project will also simultaneously destroy the country and its people.

Concepcion Volcano, reflected on the peaceful waters of Lake Nicaragua, the biggest lake in all of Central America. Photo: Telegraph

The route of the new canal will pass directly through Lake Nicaragua, a lake expanding about 3,191 square miles, making it the largest freshwater lake in all of Central America (19th largest in the world).

As the Nicaraguan government pops nice bottles of champagne in celebration of the monumental decision to build the Nicaragua Canal with Chinese aid, the rest of the population has begun to protest out of discontent. Once popular with citizens, President Daniel Ortega has now been labeled, “vende patria,” or “traitor of the homeland,” according to La Opinion.

Residents participate in a rally against the approval of the construction of an interoceanic canal, in front of the Nacional Assambly, in Managua, Nicaragua. (Xinhua/John Bustos)

The protests have been incited by two main reasons, the people are fed up with government secrecy and dis-communication between government and the people. The second reason is that the people are frustrated with the governments disregard of the societal and environmental effects the canal construction will have on Nicaraguans, According to La Opinion,

“Managua [Nicaraguan Capital] argues that the country’s economy will grow by 15% annually from the second year of construction onwards and it will generate between five to 50 thousand jobs. Nevertheless the government has not provided specific details about the project, such as construction timelines and potential environmental impacts.

…Nicaraguans that live in the Canal’s proposed path will have to move. Case in point, there have been reports that HKND representatives, with Nicaraguan police officers and soldiers acting as guards, have appeared in various homes, taking measures and informing homeowners that their households will be purchased by the company.”

The development of the inter-oceanic canal would dis-join the countries largest fresh water source and displace about 100,000 natives from their homes, said Telegraph. The fantastical land, where cattle roam around the lake, families live off the land, while children play in trees would become a passage way for modern day trade and industrialization.

“This is one of the most fertile regions in Nicaragua, and the government has sold it behind our backs to the Chinese, they’ve sold our heritage, our sovereignty,” says Arnulfo Sequeira, 51, a father of four with 200 acres of land and 100 cattle. There is going to be a massacre because we are not leaving our land, our lives, and we’ll fight for it until death.”

Telegraph reported that in the pueblito of Cruz Verde, 20 men and women gathered on the banks of Lake Nicaragua with machetes. Although the machetes are normally used as harvesting tools, in this instance they were used as  a shear representation of angst and the willingness to fight in order to protect their land. These men and women stood on guard denying access to Chinese census from entering into their community where their families have lived for more than 80 years.

A sign with an anti-Chinese message is seen in the village of Obrajuelo (OSWALDO RIVAS/REUTERS)

The clouded minds of the Nicaraguan government officials and the utter disregard of the country and its people from the Asian giant might lead to one of the greatest tragedies and atrocities of this time. According to a study done by Centro Humbolt, an internationally renowned environmentalist group, they concluded that the canal was,

“…unviable and posed extraordinary environmental risks, especially to the lake. It says there will be insufficient water to maintain the canal by 2039.

Dredging the shallow lake to create a 30metre deep canal will disturb huge amounts of potentially toxic sediment. The canal also risks contaminating the lake, home to fresh water sharks, sawfish, and turtles, with salty sea water, and any oil spill could inflict irreparable damage.”

Unfortunately President Ortega, a former guerrilla leader from the 1979 revolutionary victory in Nicaragua, foolishly believes that the building of the canal is the second phase of the Revolution. The has president, adamantly said that the project will lift Nicaragua out of poverty.

Ortega, originally a leftist president has switched in recent years and first made contact with Wang Jing (Chinese billionaire and investor in the Nicaragua Canal), three years ago. The two came in contact when Ortega’s son  and likely successor,  Laureano, was at a Communist Party meeting. Jing, who was also at the meeting, asked to speak with him privately, later bring up the canal plan.

Nicaragua’s President Daniel Ortega (L) and Wang Jing celebrate signing a concession agreement for the construction of an inter-oceanic canal in Nicaragua at the Casa de los Pueblos in Managua (Reuters)

Laureano, Oretega’s son and the one who had first contact with Jing is said to have also been in contact with Russian President Vladimir Putin. Unsurprisingly enough, the Russians have a stake in the building of the canal as well, they have also greatly increased warm relations with Nicaragua as Putin went and personally visited the country this past summer in July.

If everything goes smoothly, geopolitically speaking, the construction of the canal would create a larger foothold in Latin America for China.

Increased Government Control Wins More Votes

It is true when BBC analyst, Wyre Davies, says that Brasil is now a split nation. Elections, which were originally held on October 15th of this month were continued as the process went into a run-off between leftist incumbent Dilma Rousseff and business friendly Aecio Neves.

Today, Rousseff took the election with 51% of the votes, favored by the poor by the implementation of welfare programs lifting many Brasilians out of poverty, but her competitor took 48% of the votes. By these numbers, the country is split almost entirely in half by different regions. Depending on who won the presidency economic out-looks and fiscal planning would have been dealt with in completely different ways.

Dilma Rousseff reacts during news conference after the disclosure of the election results in Brasilia, October 26, 2014.
Ms Rousseff said she wanted to be “a much better president” and promised political reform. Photo: Reuters

Although Rousseff can celebrate the victory, there will be no break for her anytime soon. As Brasil has been in an economic flat-lining, with a faltering economy and high inflation rate, the global market is anxious for what will happen.

Brasil like a few other countries has switched to high government involvement within the communities, services, and businesses. However, the increased government intervention within the economy has opened up better education opportunities and a more accessible healthcare system. Rousseff’s administration did create these opportunities for some, but with a weak infrastructure there are still many problems with the development and services according to Reuters.

Rousseff also faces problems from environmentalists, scholars, and indigenous communities. The opportunity cost for Rousseff’s chosen way of development has lead to the displacement and loss of land for many of Brasil’s most diverse indigenous groups of people. According to Global Voices Online,

This land-hungry economic push under Brazilian President Dilma Rousseff, including road construction, mining, hydroelectric plants, and the exploitation of natural resources, has led to violent clashes between activists and police throughout Brazil. Rousseff’s indigenous policy has been the target of criticism from experts and activists who point out that such development is costing tribes their territory.”

Regardless of these factors and a slight plummet in the market due to a force-able reelection of Rousseff, Brasil’s gross domestic product is at about $2 trillion and is therefore still the largest in all of Latin America. Now Rousseff will have to face further corruption claims and figure out how to please the other 48% of voters that did not support her.

Dwarfing the Panama Canal

The Panama Canal extends about 48 miles long, but the Chinese government has partnered with a Chinese billionaire to invest in the construction of a 173 mile long canal in Nicaragua.

A little over 100 years ago the first ship passed through the Panama Canal. Not only was it a monumental passage, but it forever changed trade routes, was a leap for American commerce and an engineering miracle. The building of the Panama Canal was not only an American triumph, but was a growth in the “American Empire.” As presumably thought, it was such a great imperialistic move and foreshadowing in the importance and prominence of U.S. power in the area, that it is hard to ignore when other growing “imperialistic” nations emerge and move into the same area.

Although we are past the colonial times of imperialism due to free trade and a global village (however not denying that coerced imperialism still exists), the dominance of U.S. influence in Latin America is slowly slipping away. Nations have developed and are becoming more sovereign, while others are creating new partnerships. Territories no longer belong to certain countries, Latin America is not the United States’ region.

Map pointing out the Nicaragua and Panama canals
Credit: Alyson Hurt/NPR

The proposed canal in Nicaragua will cost about $50 billion, but the question is if the proposed plan to dwarf the Panama Canal can really be pulled off. Wang Jing, the shady Chinese billionaire has never run a project anywhere close to this enormity.

“It’s just too strategically important for the Chinese government for it to be the work of a rogue entrepreneur acting alone,” she said. “If he were selling soft drinks, that’d be one thing. But not a canal.”

This reported to the International Business Times by June Teufel Dryer, an expert on China’s international relations at the University of Miami, continued that it is something too big to fail.

Jing, the founder and CEO of HKND will take the lead on the project with government endorsement. HKND, a a privately-held international infrastructure development firm headquartered in Hong Kong and with offices in Managua, the capital of Nicaragua. HKND works specifically in construction management and infrastructure development. HKND will be leading the project, the project that is at a marked price that is roughly 5 times greater than Nicaragua’s GDP, plans to do more than just develop the canal.

Francisco Telemaco Talavera gives a two-hour presentation to Nicaraguan farmers on the benefits of the canal. Telemaco is the rector of a major Nicaraguan University and head of the Gran Canal Commission. He says the canal will create up to 200,000 jobs and lift the country, the second poorest in the hemisphere, out of poverty.
Francisco Telemaco Talavera gives a two-hour presentation to Nicaraguan farmers on the benefits of the canal. Telemaco is the director of a major Nicaraguan University and head of the Gran Canal Commission. He says the canal will create up to 200,000 jobs and lift the country, the second poorest in the hemisphere, out of poverty. Credit: Carrie Kahn, NPR

With the proposed $50 billion, HKND plans to construct a railroad, roads, an oil pipeline, a free trade zone, two ports, and the canal. According to the International Business Times, once the projects are started they are projected to provide tens of thousands of jobs and double the per capita income of Nicaragua. Of course this seems like an ideal situation for the Nicaraguan government, Nicaragua being the second poorest country in the Western Hemisphere behind Haiti.

Poverty reality in Nicaragua. Credit: The Costa Rica News.

Anti-Capitalism, Anti- U.S.–Switching to Alternate Partners

Photo: Telegraph
“Fuera Los Gringos,” out with the white guys, signifying and obscured demonic version of Uncle Sam. Photo: Telegraph (Venezuela)
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“Los Pueblos de Latino America no aceptamos la imposicion del ALCA.” Photo: RebelsandThugs
fuera imperialistas
“…Olas de pueblo, montanas de pueblo, haciendo la historia de un continente NUEVO.” “Fuera Imperialistas de America Latina!” Waves of people, mountains of people, making the story of a new continent. Imperialists out of Latin America! Photo: Mike’s Bogota Blog (Colombia)
Photo: Paul Street
“Fuera El Imperialismo,” a command meaning out with imperialism. Photo: Paul Street (Venezuela)
"Fuera USA de Bolivia." Photo: TheWe
“Fuera USA de Bolivia.” Photo: TheWe

Colombia: Bond Sales to meet 2015 Budget

business week
Colombia’s Finance Minister, Mauricio Cardenas. Photo: Business Week

According to Bloomberg, Colombia sold $1 billion of bonds overseas to fund their quota needed for the 2015 budget. After revising their fiscal accounts and financing in 2013 has lead Finance Minister Cardenas to layout a new fiscal plan for this coming year. Cardenas had said to Reuters,

This financing plan is a pathway to a reduction in deficit levels and public indebtedness that ratifies the Colombian government’s commitment to responsible management of its public finances,” Cardenas said of the changes to this year’s financing plan. He did not provide details on the increase in debt in 2014.

As from the previous post, it is apparent that Colombia has relentlessly been putting itself on the market despite the fact that many investors have been pessimistic towards the weak global market. With the help of Citigroup Inc. and Goldman Sachs Group Inc. has already sold the first $1 billion out of a goal of $3 billion of overseas bonds to meet overseas debt for its 2015 funds needed.