Protests in Latin America.

This week saw three major developments in Latin America; in alphabetical order, Argentina finally produced a meaningful inflation index, Brazil officially slipped into a recession, and at least two people were killed in student protests against the Government in Venezuela.

There is a tragic inevitability about the protests in Venezuela; as the Government has radicalized and demonized any who don’t support it, they have left those who have genuine grievances nowhere to express their views in a peaceful manner. At the same time, the continued and extensive shortages of basic goods, from foodstuffs like flour to necessities like toilet paper are leaving people increasingly frustrated and disenchanted.

Toyota recently joined the long list of those cutting back on their Venezuelan operation when they announced that they would no longer be assembling vehicles in the country. The lack of dollars means that their just-in-time inventory management simply does not work, and even old-fashioned stock management is problematic because there is no way to plan stocks since there is no way of knowing when dollars will be available. In the unlikely event dollars do become available, there is no way of knowing at what exchange rate they can be bought, and at what exchange rate the finished product can be sold. Meanwhile, official waiting lists at car dealerships are apparently years long.

Unfortunately Maduro’s position is too weak for him to compromise. There are many within his own party, such as Diosdado Cabello, who are waiting for the right time to push him aside His weakness is forcing him to be “more Chavez than Chavez”. When faced with the withdrawal of firms like Toyota or the increasing shortages of basic goods, President Maduro has fallen back on increasingly bellicose rhetoric, but without the humility shown by the late President; when 20 000 tons of food rotted in Government run warehouses during the early days of the food shortages, Chavez was at least able recognized this as a Government problem and to promised to do better. As power cuts have spread into Caracas, Maduro has increasingly railed against “sabotage” by “Fascists” and “Antigovernment interests”.

The events of this week were truly tragic, and probably only the beginning. Please may I be wrong.

Brazil’s recession was equally inevitable. I believe I have nagged you enough about the failure of the current Government to enact any meaningful reforms, whilst they remain transfixed by next October’s presidential elections. There is so much that Finance Minister Mantega could have done to avoid the slowdown, but instead he fell back on the usual tried and failed policies of the past.

The ongoing protest against the World Cup are also directly linked to the weakness in the economy; many of the protestors have made it clear they want to see an improvement in Government services, from education to healthcare, whilst Inflation, although low by historic standards, is seen as a problem.

I believe, and I hope I am not being naïve in this, that the protests in Brazil are about as bad they are going to get. All sides recognized the tragic death of TV cameraman Santiago Andrade as unacceptable, whilst the Government has enlisted Pele to be their PR spokesman for why the World Cup should still take place. The fact that they are even launching such a PR campaign shows that they realize how big their problems really are. Once the games start, Brazil’s love of the beautiful game will replace any resentment over Government policies. It will then be up to the Government to build on that peace rather than squander it like they have squandered so much in recent years.

Argentina has not, as far as I am aware, suffered from the same level of street protests in recent weeks as either Brazil or Venezuela, but I think they are coming.

As I mentioned in the introduction, the Argentine Government has stopped lying about inflation. They have just announced a new index that more accurately tracks price changes, and it even appears to give a higher reading than previous private estimates. The January reading was 3.7% that annualizes out at 50%. Other private estimates were in the range of 25-30%, whilst official numbers were only 10.9% for 2013. They did not, however, rework previous numbers.

The recent devaluation of the peso will cause inflation to accelerate farther just as the Government tries to bring public spending under control. This in turn is likely to lead to conflict between the Government and unions as the Government is forced to backtrack on its “Social Justice” commitments; they have run out of their own money, and their inability to tap international capital markets means they do not have access to other people’s.

There are early signs that the economy is going into recession, if it is not already there – shorter work hours, holidays being brought forwards, possible rising unemployment.

Taking these together, and Argentina’s history of protests, it is highly likely that the erosion of purchasing power and the Government’s inability to fund its programs will bring Argentines out onto the streets in a rerun of the Cacarolazos protests that followed the 2001 financial crisis.

2014 is shaping up to be a noisy year in Latin America.