NotiSur - Latin American Political Affairs
March 7, 1997
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L A T I N A M E R I C A D A T A B A S E
NotiSur - Latin American Affairs
ISSN 1060-4189 Volume 7, Number 9 March 7, 1997
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Copyright 1996, Latin America Data Base (LADB), Latin
American Institute, University of New Mexico
Director: Rebecca Reynolds Bannister
Managing editor: Kevin Robinson
Staff writers:
Patricia Hynds, Carlos Navarro, Robert Sandels
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In This Issue:
U.S. SINGLES OUT COLOMBIA FOR DECERTIFICATION ON DRUGS
* Mexico's certification a bitter pill for Colombia
* Huge Colombian public relations campaign fails to
convince US
* Samper is the real cause for decertification
* Other Latin American countries receive US approval
BRAZIL: NEWS IN BRIEF
* Congress moves closer to approving presidential
re-election
* Bond scandal forces closure of financial institutions
* Unemployment increases
VENEZUELA: FUGITIVE BANKERS SENTENCED IN NEW YORK
* Defense questions jurisdiction of New York courts
* Castro family tied to questionable political
contributions
* Chief Prosecutor resigns, charging lack of support
____________________________________________________________
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GENERAL
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U.S. SINGLES OUT COLOMBIA FOR DECERTIFICATION ON DRUGS
For the second consecutive year, US President Bill
Clinton has recommended that Congress decertify Colombia as an
ally in efforts to curb illegal drug trafficking, although
administration officials said they would not impose economic
sanctions. While other South American countries expressed
satisfaction at being spared decertification, Clinton's
recommendations were criticized in the US and abroad.
Each March 1, the US president must send his
recommendations to Congress regarding 32 drug-producing
countries (see NotiSur, 03/08/96). This year, Clinton
certified that 23 of those countries were fully cooperating
with the US or had taken adequate steps to meet international
counternarcotics performance standards.
The Latin American countries receiving US certification
are Bolivia, Brazil, the Dominican Republic, Ecuador,
Guatemala, Haiti, Mexico, Panama, Paraguay, Peru, and
Venezuela. At the same time, Clinton said that "vital
national interests" require three countries--Belize, Lebanon,
and Pakistan--to be certified despite serious problems in
their anti-narcotics efforts. And, in addition to Colombia,
the President denied certification to Afghanistan, Burma,
Iran, Nigeria, and Syria.
Mexico's certification a bitter pill for Colombia
In contrast to Colombia, President Clinton certified that
Mexico--despite a flurry of recent corruption charges--is
cooperating fully with US anti-narcotics programs (see
SourceMex - Economic News & Analysis on Mexico, 02/26/97 and
03/05/97). Many Colombian officials expressed anger that
Mexico received certification while Colombia was denied. And,
Mexican officials joined Colombians in criticizing the yearly
certification, saying Washington should concentrate on
reducing the demand for illegal drugs within its own borders.
Colombian Interior Minister Horacio Cerpa said the
evaluation process is based on "an imperialist attitude,"
while Mexican Foreign Minister Jose Gurria said it "disrupts
the relations" between countries.
Certification "is an arrogant process" that "perpetuates
the myth that supply, rather than demand, is the essence of
the alarming consumption by people in the US," said Jorge
Montano, a former Mexican ambassador to the UN. "That is an
obvious fallacy."
Meanwhile, in the US, John Sweeney, a researcher with the
conservative Heritage Foundation, called the certification
process "absolutely hypocritical and lacking moral substance"
because it has been politicized.
The question, "Who certifies the US?" was asked both in
the US and in Latin America.
"Washington wouldn't necessarily emerge with flying
colors," said the Council on Hemispheric Affairs, a liberal
institute in Washington (see NotiSur, 03/10/95 and 02/09/96).
The 1996 report by the UN's International Narcotics
Control Board bears that out. The report underlines that the
biggest illicit drug market in the world is in the US and that
recently "the incidence of abuse of cocaine, cannabis, and
hallucinogens among youth" has been increasing. The report
also cited the increase in marijuana cultivation and the
manufacture of methamphetamines in the US and said drug abuse
in the US is responsible for much of the trafficking in
Mexico.
Huge Colombian public relations campaign fails to convince US
The Samper administration and Colombian business
organizations invested more than US$2 million in a public-
relations campaign to convince the US to reverse last year's
decertification. In addition, the country has engaged in
intensive legislative and diplomatic efforts to appease US
officials (see NotiSur, 02/17/95 and 01/31/97).
In recent weeks, the Colombian Congress approved a law
increasing sentences for convicted drug traffickers, and the
government signed a maritime interdiction accord with the US
allowing US agents to board suspicious vessels in Colombian
waters to search for drug shipments. During the past few
months, Colombia also passed a new law making it easier to
seize drug bosses' assets (see NotiSur, 12/20/96).
Nevertheless, one of the main US demands--the restoration
of extradition, which was abolished by the 1991 Constitution--
was not met. On Feb. 27, in a 6-3 decision, Colombia's
Constitutional Court ruled a 1979 extradition treaty with the
US was unconstitutional and said that no political authority
can "offer, grant, or solicit the extradition" of Colombians
as long as the 1991 Constitution remains in effect.
The only option left to the government is to push
Congress to amend Article 35 of the Constitution during the
regular session of Congress, which convenes later this month.
Colombia's refusal to hand over its citizens who are
accused by the courts of other countries and the alleged
corruption in the Samper administration were among the reasons
cited by the US for decertifying Colombia. In addition, US
officials said coca production in Colombia rose 30% last year,
heroin production is on the rise, and jailed drug bosses
continue to run their businesses from their cells.
Samper is the real cause for decertification
The primary reason, however, is Samper, said Marc
Chernick, head of Andean and Amazonian studies at Georgetown
University.
"It was clear that whatever Colombia did, it would not be
enough," Chernick said. "The US has made it clear. It
rejects President Samper."
In explaining the decision, Clinton administration
officials emphasized Samper's links to the drug cartels (see
NotiSur, 07/19/96, 12/06/96, 01/31/97).
"Corruption remains rampant at the highest levels of the
Colombian government and senior officials are failing to
cooperate with us in the fight against drugs," said Secretary
of State Madeleine Albright.
The Samper administration responded angrily to the US
decertification. In a speech in Santa Fe de Bogota, Samper
said the decision was "fundamentally unjust," adding that
certification has become "an unacceptable instrument of
political discrimination."
"Entire decades of friendship, alliance and cooperation
have been erased by a procedure devoid of any objectivity,"
Vice President Carlos Lemos Simmonds said from London, where
he serves as Colombia's ambassador. Lemos said Washington is
in no position to judge Colombia because drug use in the US
"has increased in an alarming way, generating a voracious
demand that promotes production of narcotics."
What most worried Colombia and those who trade with it
was the possibility that discretionary economic sanctions
could be imposed following a second decertification. Among
the sanctions the US could impose are: an increase in import
duties, elimination of preferential trade standards, the
disruption of air cargo service between the two countries, the
confiscation of assets and property in the US, the freezing of
bank accounts, and the repeal of US visas held by Colombians.
However, the US ambassador to Bogota, Myles Frechette,
said on March 1 that Washington would not impose additional
economic sanctions despite decertification, and he indicated
that aid could even increase. Frechette also said the Clinton
administration would be willing to grant financial support to
Colombia's private sector for investments in the country.
Other Latin American countries receive US approval
Although Bolivia was certified, the State Department's
report--submitted to Clinton before his decision--said the
country's coca production was only surpassed by that of Peru
and Colombia. Despite aggressive eradication efforts, new
plantings have essentially wiped out any reduction in the
number of hectares under cultivation (see NotiSur, 11/22/96).
Although the government eradicated 7,500 ha in the Chapare,
the area where most illegal coca is grown, 7,000 new ha were
planted during the same period.
Nevertheless, Bolivia was praised for introducing bills
in the legislature to reform the judicial system and curb
money laundering, even though the legislation has not yet been
passed. And, most important for the US, the administration of
President Gonzalo Sanchez de Lozada signed a new extradition
treaty (see NotiSur, 11/22/96).
Another country breathing a sigh of relief is Paraguay,
which in 1994 and 1995 received a "national security" waiver
to decertification. This year, the State Department report
praised the country's "serious commitment" to fight drug
trafficking, including firing corrupt officials at all levels
of government.
Robert Gelbard, US assistant secretary of state for
international narcotics and law enforcement, also praised
President Juan Carlos Wasmosy for increasing bilateral anti-
drug efforts with the US and for signing agreements with
Argentina, Brazil, and Bolivia.
In its report on Peru, the State Department said that the
level of coca cultivation was the lowest since 1986, thanks in
large part to the anti-drug policies of President Alberto
Fujimori.
Venezuela was certified despite the State Department's
assessment that it "failed to demonstrate sufficient will to
take a strong stance against drug trafficking." The report
also said Venezuela failed to encourage the military and
police to cooperate. Nevertheless, the report said that the
US "will assist Venezuela in reforming its judicial system and
strengthening national institutions that direct the
counternarcotics effort."
In February, Venezuela launched a massive new campaign to
combat drug production, trafficking, consumption, and
money-laundering activities. Carlos Tablante, president of
the National Anti-drug Commission (CNA), said that among the
immediate objectives of the plan is the total eradication of
coca and poppy plantations in the Sierra de Perija, on the
northeastern border with Colombia. (Sources: Inter Press
Service, 02/03/97, 02/25/97; Associate Press, Reuter,
02/28/97; The New York Times, 02/15/97, 03/01/97; Agence
France-Presse, The Miami Herald, Notimex, Spanish news
service EFE, United Press International, 03/01/97; Reuter,
03/03/97)
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BRAZIL
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BRAZIL: NEWS IN BRIEF
Congress moves closer to approving presidential re-election
In a major political victory for President Fernando
Henrique Cardoso, on Feb. 25, the Brazilian Chamber of
Deputies gave final lower-house approval to a bill allowing
for direct re-election of the president, state governors, and
mayors.
The 368-111 vote in favor of amending the Constitution
followed a heated debate, although the margin in favor of
re-election was 60 more than the three-fifths needed and 32
votes more than the measure received in the preliminary vote
earlier this year (see NotiSur, 09/27/96, 10/25/96, 01/24/97).
The bill is now under consideration by the Senate
Constitutional Commission, before it goes to the full Senate.
Senate president Antonio Carlos Magalhaes said he expected the
first vote in the Senate sometime in March and the final vote
in April.
Since the president enjoys a solid majority in the 81-
member Senate, the bill is not expected to encounter stiff
opposition, and Cardoso now considers his run for a second
term all but guaranteed.
Despite administration confidence, however, some
obstacles could arise before final approval. One group of
senators has talked of introducing an amendment to the bill to
force governors and mayors to resign during their re-election
campaign. If any change is made to the bill in the Senate, it
would have to go back to the Chamber of Deputies, something
the administration is anxious to avoid.
Another potential problem in the Senate could come from
the controversial reform to the pension system. If that bill
comes up for debate in the Senate during the next two months,
which is likely, it could sidetrack attention from the re-
election measure.
Bond scandal forces closure of financial institutions
In mid-February, Central Bank president Gustavo Loyola
shut down 15 banks and brokerage firms because of "grave
irregularities" in operations involving government bonds.
More closures are expected, and the scandal could force
various officials, including the governor of Santa Catarina
state, Paulo Afonso, to resign.
The Senate investigating commission (Comissao Parlamentar
de Inquerito, CPI) has uncovered a scheme of tax evasion and
suspected money laundering involving the banks and brokerage
houses. The investigation focuses on the illegal issuance of
more than US$3 billion in special bonds by state and municipal
governments in 1995 and 1996. Losses could amount to between
US$400 million and US$500 million, according to the Central
Bank.
The investigation was initiated in mid-1996 by the
Central Bank, and the CPI began looking into the matter last
Dec. 3. The CPI discovered the losses when it examined 12
bond sales that took place during 1995 and 1996 in the states
of Santa Catarina, Alagoas, Pernambuco, and Sao Paulo, as well
as the municipality of Sao Paulo.
Following the paper trail, investigators found that banks
and brokerages would buy the bonds at a large discount, resell
them among themselves at a markup, and finally sell them back
to the government or to pension funds of state-owned companies
at near face value.
In one deal, the Sao Paulo city government sold US$51.7
million worth of bonds, then bought them back the same day for
US$53.5 million. The Senate plans to call Sao Paulo mayor
Celso Pitta to testify. Pitta was the city's finance
secretary when the deal went through.
The scheme netted millions of dollars in kickbacks and
commissions, according to investigators. To avoid leaving
evidence of illegally obtained money, those who benefitted
from the scheme changed the money into dollars, frequently in
Paraguay. The dealings with dollar traders on the Brazil-
Paraguay border has raised suspicions of money laundering.
The breakthrough in the investigation came in mid-
February with the testimony of Ibrahim Borges Filho, president
of the Sao Paulo-based brokerage firm IBF Factoring. Although
the company had only one employee and paid no utility bills,
Borges testified that he earned close to US$100 million last
year, on which he paid no taxes. Borges later said his
company was a front for a ring of financial institutions,
which the Central Bank then closed.
Investigators are now calling for an examination of
Brazil's entire financial system, the Central Bank, and the
Senate. The head of the CPI, Sen. Roberto Requiao, said
investigators are also looking into complicity from Central
Bank officers, saying it is impossible that no one at the bank
knew what was going on.
Brazilian laws permit state or city governments to issue
government bonds to pay indemnizations or legal judgements
resulting from lawsuits. The state and municipal governments
are responsible for much of Brazil's public debt, considered
by many economists to be the most serious threat to economic
stability in the country. The recently discovered fraud has
significantly increased that debt.
Unemployment increases
During 1996, unemployment averaged 5.42% of the
economically active population (EAP), the highest level of
open unemployment since 1992, when the rate was 5.76% of the
EAP, according to the Instituto Brasileiro de Geografia y
Estatisticas (IBGE). In 1995, the unemployment rate stood at
4.64%.
Although the number of jobs also increased last year, the
growing number of people entering the work force outpaced new
job openings.
According to the Ministry of Labor, Brazil lost 2.06
million jobs in the formal sector between January 1990 and
January 1996. The Ministry of Labor categorizes "formal" jobs
as those registered with the Ministry, which qualifies the
jobholders for social security benefits.
In addition, although wages of Brazilian workers
increased by 8% between 1995 and 1996, the inflation rate in
1996 alone was 9.12%. [Sources: United Press International,
02/25/97; Associated Press, Reuter, 02/26/97, 02/29/97;
Spanish news service EFE, 02/28/96; Inter Press Service,
01/21/97, 02/13/97, 02/21/97; Gazeta Mercantil (Brazil)
02/24/97]
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VENEZUELA
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VENEZUELA: FUGITIVE BANKERS SENTENCED IN NEW YORK
On Feb. 19, a Manhattan Supreme Court found Cuban-
Venezuelan banker Orlando Castro Llanes, along with his son
Orlando Castro Castro and grandson Jorge Castro Barredo,
guilty of defrauding hundreds of depositors in the Banco
Progreso Internacional of Puerto Rico (BPIPR), one of the many
offshore holdings of the Castro family. In addition, US
federal prosecutors are investigating possible illegal
contributions by the Castro family to the Democratic Party
during 1992.
The jury found the three men guilty of embezzling
Venezuelan depositors out of US$55 million. In addition to
the charges of fraud, Castro Castro and Castro Barrero were
convicted on various counts of larceny. Judge Edward
McLaughlin set March 20 for sentencing. The elder Castro
could receive a maximum four-year sentence, his son up to 25
years, and his grandson 40 years.
Prosecutors presented evidence that the men had enticed
Venezuelans to deposit their money in the Puerto Rican bank,
convincing them it was safe and a protection against
Venezuela's high inflation. However, the money really went to
prop up other financial institutions the family controlled, as
well as for risky options trading, according to the district
attorney's office. The BPIPR folded in 1995.
Defense questions jurisdiction of New York courts
Richard Sharpstein, attorney for Castro Llanes, said he
was "dismayed" by the verdict, adding that his client was
"shocked, he's disappointed, he's upset." Sharpstein said he
would appeal.
Lawyers for the bankers had argued that their clients
should not be tried in New York because none of them lives in
the state, nor does anyone who lost money in the BPIPR
scandal. New York District Attorney Robert Morgenthau, on the
other hand, argued that New York has jurisdiction because
transfers of funds between Venezuela and Puerto Rico were made
through New York banks.
Defense lawyers also argued that Castro Llanes is being
persecuted by the Venezuelan government. The 71-year-old
banker is considered by Venezuelan authorities to be one of
the principal culprits in the 1994 banking crisis.
The banking scandal, the most serious in Venezuela's
history, exploded just as President Rafael Caldera was taking
office in February 1994. Between 1994 and 1995, more than
half the banks in the country failed. Those responsible--
including the Castros--not only fled to avoid prosecution but
took millions of dollars with them (see NotiSur, 02/04/94,
07/15/94, 07/29/94).
Castro family tied to questionable political contributions
Meanwhile, US federal prosecutors are now investigating
allegations that the Castro family made possibly illegal
contributions of approximately US$92,000 to the Democratic
Party in 1992.
Morgenthau said that, during his investigation, "we came
across contributions to the Democratic National Committee,
which may have been made illegally by offshore entities."
Sharpstein said there was no basis for the accusations,
nor was there any evidence to suggest that the Castros had
received any favors from the US government. He said his
client is the only Venezuelan banker, among many involved in
the 1994 scandal, who has been prosecuted in the US.
Chief Prosecutor resigns, charging lack of support
In a related matter, after criticizing the "slowness"
with which the Caldera administration attempted to bring the
"fugitive bankers" to justice, chief prosecutor Jesus Petit da
Costa submitted his resignation on Feb. 14. Petit da Costa
complained that the administration did not support his efforts
to weed out corruption and blamed the problem on several
cabinet ministers, the Supreme Court, and the attorney general
for not pursuing extradition proceedings against the bankers
who fled the country in 1994 and 1995.
On Feb. 12, Petit accused Minister of the Presidency
Asdrubal Aguiar of trying to derail the US case against the
Castros. Petit said both Aguiar and Attorney General Ivan
Badell set up roadblocks in the process.
"I am not saying that they were fronts for Castro," said
Petit. "But they did create obstacles in the work that the
Procuraduria was carrying out with the New York attorney
general's office to put the Castros in prison."
Petit warned that "many others in high positions in the
government are, in one way or another, tied to Castro and
collaborate with him, working against the prosecutor's
office."
Following Petit's resignation, the Venezuelan Congress
approved an investigation into his accusations.
Petit was replaced by former Labor Minister Juan
Nepomuceno Garrido. Garrido's nomination was supported by all
political parties except the Causa Radical (Causa R) and
independent Sen. Freddy Munoz.
A spokesperson for Causa R said it would not support
Garrido "because he will not defend the interests of the
republic, but rather the interests of President Caldera."
(Sources: Dow Jones News, 02/19/97; Spanish news service EFE,
02/19/97, 02/20/97; Reuter 02/20/97, 02/21/97; The New York
Times, 02/25/97)
