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Thursday, March 28, 2013

Argentina’s Post-Crisis Economic Reform: Challenges for U.S. Policy

J. F. Hornbeck
Specialist in International Trade and Finance

U.S.-Argentine economic relations have long been mutually beneficial. In recent years, however, they have been strained at times, in part because of Argentina’s struggle to maintain macroeconomic stability, and also because of specific policy choices that have made the business environment difficult to navigate since the country’s 2001 financial crisis. Following a steep currency devaluation and the largest sovereign default in history, Argentina entered a deep recession with high unemployment and social upheaval. It brought to power a new government, and with it a shift in economic policy away from market-oriented policies toward greater government management of the economy in pursuit of the stated Argentine goal of “social equity.” The initial policy responses intended to restore order and address the most pressing social problems evolved into permanent social programs. Government policies introduced many distortions into the economy, including high inflation, which have required regular adjustments in the international accounts to maintain economic stability. These include managed trade, capital controls, and limited currency conversion, among other policies that have earned the ire of international stakeholders.

Argentina’s economic policies reflect priority for financial independence, social equity, and what may be considered a commitment to “populist” macroeconomic solutions. Even in recognizing that countries can govern themselves well under alternative policy frameworks, what stands out for many is the sense that Argentina’s policy choices with attendant economic distortions increase the risk of a potential financial crisis. The resulting spillovers into international economic policy are unavoidable. Trade protection, managed exchange rates, and capital controls, for example, are policy adjustments required to address problems that materialize in a constrained economic system (e.g., subsidy-driven fiscal expansion, price controls, inability to borrow internationally) that cannot easily accommodate current account deficits, a market exchange rate, or standard macroeconomic responses to high inflation.

Congress and private U.S. stakeholders have opposed many of Argentina’s policies that include a sovereign default on debt owed to both private investors and countries, including the United States; refusal to pay awards ordered by the International Centre for the Settlement of Investment Disputes; nationalization of foreign assets; trade protectionism; capital and currency controls; and refusal to abide by International Monetary Fund (IMF) reporting requirements. U.S. investors are suing the government of Argentina in U.S. federal courts; the Obama Administration has invoked financial restrictions, revoked trade preferences, voted against loans for Argentina in the development banks, and filed cases before the World Trade Organization (WTO). Some Members of Congress have expressed its dissatisfaction in hearings, resolutions, and proposed legislation.

International stakeholders, both public and private, find themselves challenged by this system, along with some Argentines. One indication of the breadth of international dissatisfaction over Argentina’s policies is the call for effectively removing Argentina from the G-20, despite the lack of precedent and formal procedure for doing this. Irrespective of these initiatives, Argentina has not been moved to change course, and the 113
th Congress may decide to consider once again U.S. options for addressing bilateral concerns with Argentina.

For details on the sovereign debt issue, see CRS Report R41029, Argentina’s Defaulted Sovereign Debt: Dealing with the “Holdouts,” by J. F. Hornbeck.

Date of Report: March 26, 2013
Number of Pages: 22
Order Number: R43022
Price: $29.95

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Tuesday, March 26, 2013

Supporting Criminal Justice System Reform in Mexico: The U.S. Role

Clare Ribando Seelke
Specialist in Latin American Affairs

Fostering security, stability, and democracy in neighboring Mexico is seen by analysts to be in the U.S. national security and economic interest. Reforming Mexico’s often corrupt and inefficient criminal justice system is widely regarded as crucial for combating criminality, strengthening the rule of law, and better protecting citizen security and human rights in the country. Congress has provided significant support to help Mexico reform its justice system in order to make current anticrime efforts more effective and to strengthen the system over the long term.

U.S. and Mexican officials assert that fully implementing judicial reforms enacted through constitutional changes in June 2008 is a key goal. Under the reforms, Mexico has until 2016 to replace its trial procedures at the federal and state level, moving from a closed-door process based on written arguments presented to a judge to an adversarial public trial system with oral arguments and the presumption of innocence until proven guilty. These changes are expected to help make the system less prone to corruption and more transparent and impartial. In addition to oral trials, judicial systems are expected to adopt means of alternative dispute resolution, which should help them be more flexible and efficient, thereby ensuring that cases that go to trial involve serious crimes.

More than halfway into the reform process, judicial reform efforts in Mexico are at a critical juncture. As of December 2012, 22 of Mexico’s 32 states had enacted new criminal procedure codes (67%), but only 12 states (36%) had begun operating at least partially under the new system. Reform states have seen positive initial results as compared to non-reform states: faster case resolution times, less pre-trial detention, and tougher sentences for cases that go to trial. Daunting challenges remain, however, including counter-reform efforts and opposition from some key justice sector operators (including judges). Although reform efforts have lagged at the federal level, President Enrique Peña Nieto, inaugurated in December 2012 to a six-year term, has said that advancing judicial reform will be a top priority. U.S. policymakers are likely to follow how the Peña Nieto government moves to enact a unified penal code and code of criminal procedure to hasten reform at the federal level and to increase support to states transitioning to the new system.

The United States has been supporting judicial reform efforts in Mexico since the late 1990s, with assistance accelerating since the implementation of the Mérida Initiative in FY2008, an anticrime assistance program for which Congress has provided $1.9 billion. While the Mérida Initiative initially focused on training and equipping Mexican security forces, it now emphasizes providing training and technical assistance to help reform Mexico’s justice sector institutions. Funding for “Institutionalizing the Rule of Law” now dwarfs other types of U.S. assistance to Mexico.

This report provides an overview of Mexico’s historic 2008 judicial reforms and an assessment of how those reforms have been implemented thus far. It then analyzes U.S. support for judicial reform efforts in Mexico and raises issues for Congress to consider as it oversees current U.S. justice sector programs and considers future support to Mexico. Also see CRS Report R41349, U.S.-Mexican Security Cooperation: The Mérida Initiative and Beyond, by Clare Ribando Seelke and Kristin M. Finklea.

Date of Report: March 18, 2013
Number of Pages: 20
Order Number: R43001
Price: $29.95

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Wednesday, March 20, 2013

Latin America and the Caribbean: Fact Sheet on Leaders and Elections

Barbara Salazar Torreon
Information Research Specialist

This fact sheet tracks the current heads of government in Central and South America, Mexico, and the Caribbean. It provides the dates of the last and next elections for the head of government and the national independence date for each country.

Date of Report: March 12, 2013
Number of Pages: 4
Order Number: 98-684
Price: $19.95

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Tuesday, March 19, 2013

Hugo Chávez’s Death: Implications for Venezuela and U.S. Relations

Mark P. Sullivan
Specialist in Latin American Affairs

The death of Venezuelan President Hugo Chávez on March 5, 2013, after 14 years of populist rule, has implications not only for Venezuela’s political future, but potentially for the future of U.S.-Venezuelan relations. This report provides a brief discussion of those implications. For additional background on President Chávez’s rule and U.S. policy, see CRS Report R40938, Venezuela: Issues for Congress, by Mark P. Sullivan.

Congress has had a strong interest in Venezuela and U.S. relations with Venezuela under the Chávez government. Among the concerns of U.S. policymakers has been the deterioration of human rights and democratic conditions, Venezuela’s significant military arms purchases, lack of cooperation on anti-terrorism efforts, limited bilateral anti-drug cooperation, and Venezuela’s relations with Cuba and Iran.

The United States traditionally enjoyed close relations with Venezuela, but there has been considerable friction in relations under the Chávez government. U.S. policymakers have expressed hope for a new era in U.S.-Venezuelan relations in the post-Chávez era. While this might not be possible while Venezuela soon gears up for a presidential campaign, there may be an opportunity in the aftermath of the election.

The Venezuelan Constitution calls for elections within 30 days, although no date has yet been set. It is likely that Vice President Nicolás Maduro, who is serving as acting President, will be the presidential candidate for the ruling United Socialist Party of Venezuela (PSUV), while Henrique Capriles, governor of Miranda state, who ran in the October 2012 presidential election, will likely be the candidate for the unified opposition. Many observers expect that the outpouring of sympathy for President Chávez, as well as the fact that Chávez himself called on his supporters to elect Maduro if anything were to happen to him, bode well for Maduro’s election prospects. Whoever wins the election will face enormous economic and political challenges.

Date of Report: March 8, 2013
Number of Pages: 9
Order Number: R42989
Price: $19.95

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Tuesday, March 12, 2013

Brazil-U.S. Relations

Peter J. Meyer
Analyst in Latin American Affairs

As its economy has grown to be the seventh largest in the world, Brazil has utilized its newfound economic power to consolidate its influence in South America and play a larger role in international affairs. The Obama Administration’s National Security Strategy recognizes Brazil as an emerging center of influence, and welcomes the country’s leadership on bilateral, hemispheric, and global issues. U.S.-Brazil relations generally have been positive in recent years, though Brazil has prioritized strengthening relations with neighboring countries and expanding ties with nontraditional partners in the “developing South.” While some foreign policy disagreements have emerged, the United States and Brazil continue to engage on issues such as security, energy, trade, human rights, and the environment. 

Political Situation 

Dilma Rousseff of the center-left Workers’ Party was inaugurated to a four-year presidential term on January 1, 2011. She inherited a country that had benefited from 16 years of stable and capable governance under Presidents Fernando Henrique Cardoso (1995-2002) and Luis Inácio Lula da Silva (2003-2010). Rousseff’s multiparty coalition holds significant majorities in both houses of Brazil’s legislature; however, keeping the unwieldy coalition together has proven challenging. She has won approval for portions of her policy agenda, but several important initiatives— including a new oil royalty framework—have yet to advance. The Rousseff Administration is currently concentrating its efforts on accelerating economic growth, which has slowed considerably over the past two years. With an approval rating of 62%, President Rousseff enters the second half of her term with more popular support than Cardoso or Lula had at the same point in their administrations. 

Economic Conditions 

Brazil is the largest economy in Latin America with a gross domestic product (GDP) of $2.4 trillion. Over the past decade, the country has enjoyed average annual growth of about 3.7%. This growth has been driven by a boom in international demand for its commodity exports and the increased purchasing power of Brazil’s fast-growing middle class. The country has also benefitted from a series of policy reforms that have reduced inflation and enabled Brazil to better absorb international shocks like the recent global financial crisis. After contracting by 0.3% in 2009, the Brazilian economy quickly bounced back with 7.5% growth in 2010. The economy has since slowed, however, growing by 2.7% in 2011 and an estimated 1.5% in 2012. Although the Rousseff Administration’s economic policies have yet to boost growth significantly, they have helped bring unemployment to its lowest level on record. 

Congressional Action 

Members of Congress have expressed considerable interest in U.S.-Brazil relations in recent years, and bilateral ties are likely to remain on the agenda of the 113
th Congress. Trade issues may receive particular attention. The Generalized System of Preferences (GSP), which provides dutyfree tariff treatment to certain imports from Brazil and other developing countries, is scheduled to expire in July, and its renewal is one of Brazil’s top priorities. Likewise, potential reauthorization of the farm bill, which is scheduled to expire in September, has implications for a long-running trade dispute over U.S. cotton subsidies. Two bills designed to pressure Brazil to amend its constitution and allow the extradition of Brazilian nationals have been introduced in the new session; H.R. 571 would suspend foreign assistance to Brazil and H.R. 572 would suspend the issuance of visas to Brazilian nationals until the country changes its extradition policy.

This report analyzes Brazil’s political, economic, and social conditions, and how those conditions affect its role in the world and its relationship with the United States.

Date of Report: February 27, 2013
Number of Pages: 35
Order Number: RL33456
Price: $29.95

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