Background Notes on Selected American Countries from the Department
of StateBackground Notes on Selected American Countries from the Department
of StatePEOPLE
Argentines are a fusion of diverse national and ethnic groups. Descendants of Italian and Spanish immigrants predominate. Waves of immigrants from many European countries arrived in the late 19th and early 20th centuries. Syrian, Lebanese, and other Middle Eastern immigrants number about 500,000, mainly in urban areas. Argentina has the largest Jewish population in Latin America, about 250,000 strong. In recent years, there has been a substantial influx of immigrants from neighboring Latin American countries. The native Indian population, now estimated at 50,000, is concentrated in the peripheral provinces of the north, northwest, and south. The Argentine population has one of Latin America's lowest growth rates. Eighty percent of the population resides in urban areas of more than 2,000 and more than one-third of the population lives in the greater Buenos Aires area. This sprawling metropolis, with about 12 million inhabitants, serves as the focus for national life. Argentines enjoy comparatively high standards of living; half the population considers itself middle class.
HISTORICAL HIGHLIGHTS
Europeans arrived in the region with the 1502 voyage of Amerigo Vespucci. Spanish navigator Juan Diaz de Solias visited what is now Argentina in 1516. Spain established a permanent colony on the site of Buenos Aires in 1580. They further integrated Argentina into their empire following the establishment of the Vice-Royalty of Rio de la Plata in 1776, and Buenos Aires became a flourishing port.
Buenos Aires formally declared independence from Spain on July 9, 1816. Argentines revere General Jose de San Martin, who campaigned in Argentina, Chile, and Peru, as the hero of their national independence. Following the defeat of the Spanish, centralist and federalist groups waged a lengthy conflict between themselves to determine the future of the nation. National unity was established and the constitution promulgated in 1853.
Two forces combined to create the modern Argentine nation in the late 19th century: the introduction of modern agricultural techniques and the integration of Argentina into the world economy. Foreign investment and immigration from Europe aided this economic revolution. The investment, primarily British, came in such fields as railroads and ports. The migrants who worked to develop Argentina's resources came from throughout Europe, but mostly from Italy and Spain.
Conservative forces dominated Argentine politics until 1916, when their traditional rivals, the Radicals, won control of the government through a democratic election. The Radicals, with their emphasis on fair elections and democratic institutions, opened their doors to Argentina's expanding middle class as well as to elites previously excluded from power for various reasons. The Argentine military forced aged Radical President Hipolito Yrigoyen from power in 1930 and ushered in another decade of Conservative rule.
Using fraud and force when necessary, the governments of the 1930s attempted to contain forces for economic and political change that eventually helped produce the governments of Juan Domingo Peron (b. 1897). New social and political forces were seeking political power. These included the modern military and the labor movement that emerged from the growing urban working class.
The military ousted Argentina's constitutional government in 1943. Peron, then an army colonel, was one of the coup's leaders, and he soon became the government's dominant figure as minister of labor. Elections carried him to the presidency in 1946. He aggressively pursued policies aimed at giving an economic and political voice to the working class and greatly expanded the number of unionized workers. In 1947, Peron announced the first five-year plan based on nationalization and industrialization. He presented himself as a friend of labor and assisted in establishing the powerful General Confederation of Labor (CGT). Peron's dynamic wife, Eva Duarte de Peron, known as Evita (1919-1952), helped her husband develop his appeals to labor and women's groups. Women obtained the right to vote in 1947.
Peron won reelection in 1952, but the military deposed him in 1955. He went into exile, eventually settling in Spain. In the 1950s and 1960s, military and civilian administrations traded power. They tried, with limited success, to deal with diminished economic growth and continued social and labor demands. When military governments failed to revive the economy and suppress escalating terrorism in the late 1960s and early 1970s, the way was open for Peron's return.
On March 11, 1973, Argentina held general elections for the first time in 10 years. Peron was prevented from running, but voters elected his stand-in, Dr. Hector J. Campora, to the presidency. Peron's followers also commanded strong majorities in both houses of the National Congress, which assumed office on May 25, 1973. Campora resigned in July 1973, paving the way for new elections. Peron won a decisive victory and returned as President in October 1973 with his third wife, Maria Estela Isabel Martinez de Peron, as Vice President.
During this period, extremists on the left and right carried out terrorist acts with a frequency that threatened public order. The government resorted to a number of emergency decrees, including the implementation of special executive authority to deal with violence. This allowed the government to imprison persons indefinitely without charge.
Peron died on July 1, 1974. His wife succeeded him in office, but her administration was undermined by economic problems, Peronist intraparty struggles, and growing terrorism from both left and right. A military coup removed her from office on March 24, 1976. Until December 10, 1983, the armed forces formally exercised power through a junta composed of the three service commanders.
The armed forces applied harsh measures against terrorists and their sympathizers. They silenced armed opposition and restored basic order. The costs of what became known as the "Dirty War" were high in terms of lives lost and basic human rights violated.
Serious economic problems, defeat by the U.K. in 1982 after an unsuccessful Argentine attempt to forcibly take control of the Falklands/Malvinas Islands, public revulsion in the face of severe human rights abuses, and mounting charges of corruption combined to discredit and discourage the military regime. This prompted a period of gradual transition and led the country toward democratic rule. Acting under public pressure, the junta lifted bans on political parties and restored other basic political liberties. Argentina experienced a generally successful and peaceful return to democracy.
On October 30, 1983, Argentines went to the polls to choose a president, vice president, and national, provincial, and local officials in elections international observers found to be fair, open, and honest. The country returned to constitutional rule after Raul Alfonsin, candidate of the Radial Civic Union (UCR), received 52% of the popular vote for president. He began a six-year term of office on December 10, 1983.
In 1985 and 1987, large turnouts for mid-term elections demonstrated continued public support for a strong and vigorous democratic system. The UCR-led government took steps to resolve some of the nation's most pressing problems, including accounting for those who disappeared during military rule, establishing civilian control of the armed forces, and consolidating democratic institutions. However, constant friction with the military, failure to resolve endemic economic problems, and an inability to maintain public confidence undermined the Alfonsin Government's effectiveness, which left office six months early after Peronist candidate Carlos Saul Menem won the 1989 presidential elections.
As President, Menem launched a major overhaul of Argentine domestic policy. Large-scale structural reforms have dramatically reversed the role of the state in Argentine economic life. A decisive leader pressing a controversial agenda, Menem has not been reluctant to use the presidency's extensive powers to issue decrees advancing modernization when the congress was unable to reach consensus on his proposed reforms. Those powers were curtailed somewhat when the constitution was reformed in 1994 as a result of the so-called Olivos Pact with the opposition Radical Party. That arrangement opened the way for Menem to seek and win reelection with 50% of the vote in the three-way 1995 presidential race.
The 1995 election saw the emergence of the moderate left FREPASO political alliance. This alternative to the traditional two main political parties in Argentina is particularly strong in Buenos Aires, but as yet lacks the national infrastructure of the Peronist and Radical parties. In an important development in Argentina's political life, all three major contestants in the 1995 race espouse free market economic policies.
Argentina held mid-term congressional elections in October 1997. The opposition UCR-FREPASO alliance made major gains in the number of seats it held and deprived the Peronists of an absolute majority. The elections are widely seen as setting the stage for the 1999 presidential race. The government's pro-market policies remain unchallenged, but continued high unemployment and growing public concern over perceived corruption have hurt the government's standing in public opinion polls.
GOVERNMENT AND POLITICAL CONDITIONS
After years of instability, Argentina is today a fully functioning democracy. During President Carlos Menem's first term (1989-1995), he dramatically reordered Argentina's foreign and domestic policies. His overwhelming reelection in May 1995--in the face of hardships caused by economic restructuring and exacerbated by the Mexico peso crisis--provided a mandate for his free market economic strategy and pro-U.S. foreign policy. Menem's second term ends in July 1999; the constitution does not currently provide for a sitting president to succeed himself more than once.
The constitution of 1853, as revised in 1994, mandates a separation of powers into executive, legislative, and judicial branches at the national and provincial level. Each province also has its own constitution which roughly mirrors the structure of the national constitution.
The president and vice president were traditionally elected indirectly by an electoral college to a single six-year term. They were not allowed immediately to seek reelection. Constitutional reforms adopted in August 1994 reduced the presidential term to four years, abolished the electoral college in favor of direct election, and allowed a sitting president to stand for reelection after his or her first term. Cabinet ministers are appointed by the president. The constitution grants the president considerable power, including a line-item veto.
Provinces traditionally sent two senators, elected by provincial legislatures, to the upper house of Congress. Voters in the federal capital of Buenos Aires elected an electoral college which elected the city's senators. The constitution now mandates a transition to direct election for all senators, and the addition of a third senator from each province and the capital. The third senator will represent the electoral district's largest minority party. The revised constitution reduces senatorial terms from nine to six years in office. One third of the Senate stands for reelection every three years.
Members of the Chamber of Deputies are directly elected to four-year terms. Voters elect half the members of the lower house every two years through a system of proportional representation.
Other important changes to the constitutional system included the creation of a senior coordinating minister to serve under the president and the popular election of the mayor of the city of Buenos Aires. The constitution establishes the judiciary as a separate and independent entity of government. The president appoints members of the Supreme Court with the consent of the Senate. Other federal judges are appointed by a special judicial commission. The Supreme Court has the power, first asserted in 1854, to declare legislative acts unconstitutional.
Political Parties
The two largest political parties are the Partido Justicialista or Peronist Party (PJ), which evolved out of Juan Peron's efforts to expand the role of labor in the political process in the 1940s, and the Union Civica Radical, or Radical Civic Union (UCR), founded in 1890. Traditionally, the UCR has had more urban middle-class support and the PJ has received more labor support. Support for both parties is broadly based. A grouping of mostly left parties and former Peronists--the Front for a Country of Solidarity (FREPASO)--has emerged in the 1990s as a serious political contender especially in the Federal Capital. Smaller parties occupy various positions on the political spectrum and some are active only in certain provinces.
Historically, organized labor (largely tied to Menem's Peronist Party) and the armed forces have also played significant roles in national life. Labor is only just emerging from disarray; its political power has been significantly weakened by Menem's free market reforms. The armed forces are firmly under civilian control. Repudiated by the public after a period of military rule (1976-83), marked by human rights violations, economic decline, and military defeat in the 1982 Falkland/Malvinas Islands war, the Argentine military is now a slimmed-down, all volunteer force focused largely on international peacekeeping.
Government Policy
The Menem Administration has pursued wide-ranging economic reforms designed to open the Argentine economy and enhance its international competitiveness. Privatization, deregulation, fewer import barriers, and a fixed exchange rate have been cornerstones of this effort. All these changes have dramatically reduced the role of the Argentine state in regulating the domestic market. The reform agenda, however, remains incomplete, including improvements in the judicial system and provincial administration.
National Security
The president and a civilian minister of defense control the Argentine armed forces. The paramilitary forces under the control of the Ministry of Interior are the Gendarmeria (border police) and the Prefectura Naval (coast guard). The Argentine armed forces maintain close defense cooperation and military supply relationships with the United States. Other countries also have military relationships with the Argentine forces, principally Israel, Germany, France, Spain, and Italy. The lack of budgetary resources is the most serious problem facing the Argentine military. Current economic conditions and the government's commitment to reduce public sector spending have slowed modernization and restructuring efforts. Under President Menem, Argentina's traditionally difficult relations with its neighbors have improved dramatically and Argentine officials publicly deny seeing a potential threat from any neighboring country.
ECONOMY
In 1989, after decades of economic decline and chronic bouts of inflation, Argentina under President Menem began an unprecedented, profound, and remarkably successful economic restructuring based on trade liberalization, privatization, public administrative reform, and macroeconomics stabilization.
The 1991 Convertibility Law established a quasi-currency board which has provided the pillar of price stability but constrains monetary policy severely. The government privatized most state-controlled companies, opened the economy to foreign trade and investment, improved tax collection, and created private pension and workers compensation systems.
As a result of these measures, Argentina is experiencing a boom in economic growth, which started in the early 1990s. Following a year-and-a-half-long local recession, Argentina's real GDP growth reached 8% in 1997--higher than the average of 6% for the 1991-1997 period. Industry, agriculture, construction, energy and mining all expanded considerably during the year. Real GDP growth will likely slow to approximately 4% in 1998 (the Argentine Government projects over 5% growth). One of Argentina's challenges is to generate growth with more equitable distribution of income.
The structural reforms undertaken this decade--coupled with monetary stability--fostered major new investments in industrial sectors producing goods for exports. This was most notable in the food products, oil and gas, automotive, and mining and metals sectors. As a result, Argentina's exports doubled in five years--from about $12 billion in 1992 to about $25 billion in 1997. Similarly, imports almost doubled during the same period--rising from $15 billion to about $27.5 billion. Foreign direct investment flow--which averaged $3.5 billion annually from 1990 to 1995--exceeded $6 billion in 1997, according to reliable estimates.
The October 1997 unemployment rate was 13.7%--down from 18.4% in mid-1995. However, larger and more significant declines will come slowly over the longer term. This is likely because the government intends to implement several more privatization programs, labor productivity will rise as major private investments are implemented, and future growth will be strongest in the capital intensive sectors.
Argentina is vulnerable to abrupt changes in capital flows. However, strong leadership and earlier structural reforms helped the country weather the 1995-96 financial storm. Argentine authorities, supported by the U.S., Japan, Europe, and international financial institutions, reacted decisively to bolster the peso. The government has continued to demonstrate credibility through further economic adjustment and conclusion of a new Extended Fund Facility arrangement with the International Monetary Fund at the end of 1997.
Argentina's principal economic policy challenges in 1998 are:
Banking
Argentina's banking system began 1998 further consolidated and strengthened by recent large foreign investments. Peso and dollar deposits in the banking system grew strongly and reached nearly $70 billion at the end of 1997--close to twice the level in June 1995, when bank deposits hit a low of $37 billion. Foreign-controlled banks now hold about 35% of total Argentine bank deposits.
In late 1997, shortly after the Asian financial crisis began, the Government of Argentina reassured investors that the country's banking system and reserves were strong enough to withstand the storm. Rapid growth in bank deposits indicates growing confidence in the financial system and in Argentina's reforms. Bank financing and lending costs are still high by industrialized country standards. Credit is very expensive for certain sectors. Easier lending for small and medium sized firms and improved credit risk management are essential to foster job creation.
In late 1997, the Menem Administration announced its intention to privatize Banco de la Nacion, Argentina's largest commercial bank. Strong political opposition, however, makes the timing of this privatization uncertain. During 1998, the government also intends to privatize the National Mortgage Bank.
Foreign Trade
A key development in helping Argentina meet its external payments is the dramatic growth in Argentina's foreign trade since 1990. Foreign trade plays an increasingly important role in Argentina's economic development. Exports currently represent less than 10% of Argentina's GDP. This percentage will rise steadily as Argentine export competitiveness improves--as a result of increased productivity generated by new investments, diversification of export products and markets, and very low domestic inflation.
Grain output is expected to reach a record 60 million tons before the end of the decade. Fresh Argentine beef was exported to the U.S. market in August 1997 for the first time in over 50 years, and other export prospects improved tremendously.
However, export growth decelerated modestly in 1997 due to lower than expected shipments of some primary products, notably oilseeds, cotton, petroleum, and derivatives. Meanwhile, GDP growth led to a surge in imports. Capital goods imports in 1997 (which account for 44% of Argentina's total) grew nearly 40% from 1996 levels--more than double the rate of other import categories.
MERCOSUR, a regional customs union and emerging trade bloc (which includes Argentina, Brazil, Paraguay, and Uruguay, and has associations with Chile and Bolivia), is one of the largest and most dynamic integrated markets in the developing world. Close cooperation between Brazil and Argentina--historic competitors--is key to MERCOSUR's impressive growth. Argentina's trade with the other members of MERCOSUR has grown fivefold since 1991. (During that period, its total foreign trade doubled). As a result, Argentina will focus more attention on deepening MERCOSUR relations. MERCOSUR needs closer coordination of macroeconomic policies and better dispute resolution mechanisms.
Ties to MERCOSUR will take on added importance in coming years. Argentina's trade and investment have tremendous potential to grow along with hemispheric economic integration. The 1997 financial turbulence triggered by the East Asian financial crisis underscored that macroeconomic conditions in Brazil--Argentina's most important trading partner--are important variables for Argentina's foreign trade in 1998 and beyond. On an upbeat note, Chile's association with MERCOSUR has improved access for Argentine exports to East Asia via Chilean ports.
The U.S. registered trade surpluses with Argentina every year from 1993 to 1997 totaling nearly $13 billion. The annual surplus reached $3 billion in 1997--due in large part to Argentina's continued demand for capital goods, as well as the recovery of the local economy. The U.S. surplus with Argentina could climb to a record $3.6 billion in 1998. This trend reflects the Argentine Government's policy of encouraging modernization and improved competitiveness for Argentine industry.
Argentina adheres to most treaties and international agreements on intellectual property. It is a member of the World Intellectual Property Organization and signed the Uruguay Round agreements in December 1993--including measures related to intellectual property. However, extension of adequate patent protection to pharmaceuticals has been a highly contentious bilateral issue. In May 1997, the U.S. suspended 50% of Argentina's GSP benefits because of its unsatisfactory pharmaceutical patent law.
Investment
U.S. direct investment in Argentina, an estimated $12 billion in mid-1997, is concentrated in telecommunications, banking, electric energy generation, gas and petroleum production, food processing, and motor vehicle manufacturing. Additional direct U.S. investment of $3 billion is expected in 1998.
The U.S. and Argentina have an Overseas Private Investment Corporation (OPIC) agreement and an active U.S. Export-Import Bank (EXIMBANK) program. Total EXIMBANK exposure in Argentina approaches $2.5 billion, and the OPIC portfolio is approaching the country limit.
Under the 1994 U.S.-Argentine bilateral investment treaty, U.S. investors enjoy national treatment in all sectors except shipbuilding, fishing, nuclear power generation, and uranium production. The treaty allows for international arbitration of investment disputes.
FOREIGN POLICY
In foreign policy, Menem has dramatically made partnership with the United States the centerpiece of his approach. Argentina was the only Latin American country to participate in the Gulf war and all phases of the Haiti operation. It has contributed to UN peacekeeping operations worldwide, and has offered to send peacekeepers to Eastern Slavonia and police to the international Police Task force in Bosnia. It has recently offered to send a military medical unit to the Gulf in support of the effort to secure Iraqi compliance with United Nations resolutions. In recognition of Argentina's contributions to international security and peacekeeping, the U.S. Government designated it as a major non-NATO ally in January 1998. Menem was an enthusiastic supporter of the December 1994 Summit of the Americas. At the UN, Argentina is one of the U.S.'s closest collaborators. In regional fora, such as the OAS and Rio Group, Argentina has repeatedly advanced U.S. goals. The Menem Administration supports the U.S. campaign to improve human rights in Cuba and joins with the U.S. in international disarmament efforts from nuclear supply to control of missile technology.
Eager for closer ties to developed nations, Argentina has pursued relationships with the OECD and has left the Non-Aligned Movement. It has become a leading advocate of nonproliferation efforts worldwide. A strong proponent of enhanced regional stability in South America, Argentina has revitalized its relationship with Brazil; settled lingering border disputes with Chile; served with the U.S., Brazil, and Chile as one of the four guarantors of the Ecurador-Peru peace process; and restored diplomatic relations with the United Kingdom. In September 1995, Argentina and the UK signed an agreement to promote oil and gas exploration in the Southwest Atlantic, defusing a potentially difficult issue and opening the way to further cooperation between the two nations.
U.S.-ARGENTINE RELATIONS
The United States and Argentina currently enjoy a close bilateral relationship, which was highlighted by President Clinton's visit to Argentina in October 1997. The efforts of the Menem Administration to open Argentina's economy and realign its foreign policy have contributed to the improvement in these relations, and the interests and policies of the two countries coincide on many issues. Argentina and the United States often vote together in the United Nations and other multilateral fora. Argentina has participated in many multilateral force deployments mandated by the United Nations Security Council, including recent missions to Haiti and the former Yugoslavia. Reflecting the growing partnership that marks ties between the two countries, on October 16, 1997, Secretary of State Albright and Argentine Foreign Minister Di Tella held the first meeting of the Special Consultative Process to address important issues in the bilateral relationship.
PEOPLE
Bolivia's ethnic distribution is estimated to be 56% indigenous people, and 42% European and mixed. The largest of the approximately three dozen indigenous groups are the Aymara, Quechua, and Guarani. There are small German, former Yugoslav, Asian, Middle Eastern, and other minorities, many of whose members descend from families that have lived in Bolivia for several generations.
Bolivia is one of the least-developed countries in South America. About two-thirds of its people, many of whom are subsistence farmers, live in poverty. Population density ranges from less than one person per square kilometer (km) in the southeastern plains to about 10 per square km. (25 per sq. mi.) in the central highlands. Bolivia's high mortality rate restricts the annual population growth rate to around 2%.
La Paz is at the highest elevation of the world's capital cities--3,600 meters (11,800 ft.) above sea level. The adjacent city of El Alto, at 4,200 meters above sea level, is one of the fastest-growing in the hemisphere. Santa Cruz, the commercial and industrial hub of the eastern lowlands, also is experiencing rapid population and economic growth.
The great majority of Bolivians are Roman Catholic (the official religion), although Protestant denominations are expanding strongly. Many indigenous communities interweave pre-Columbian and Christian symbols in their religious practices. About half of the people speak Spanish as their first language. Approximately 90% of the children attend primary school, but often for a year or less. The literacy rate is low in many rural areas.
The cultural development of what is present-day Bolivia is divided into three distinct periods: pre-Columbian, colonial, and republican. Important archaeological ruins, gold and silver ornaments, stone monuments, ceramics, and weavings remain from several important pre-Columbian cultures. Major ruins include Tiwanaku, Samaipata, Incallajta, and Iskanwaya. The country abounds in other sites that are difficult to reach and hardly explored by archaeologists.
The Spanish brought their own tradition of religious art which, in the hands of local indigenous and mestizo builders and artisans, developed into a rich and distinctive style of architecture, painting, and sculpture known as "Mestizo Baroque." The colonial period produced not only the paintings of Perez de Holguin, Flores, Bitti, and others but also the works of skilled, but unknown, stonecutters, wood carvers, goldsmiths, and silversmiths. An important body of native baroque religious music of the colonial period was recovered in recent years and has been performed internationally to wide acclaim since 1994.
Bolivian artists of stature in the 20th century include, among others, Guzman de Rojas, Arturo Borda, Maria Luisa Pacheco, and Marina Nunez del Prado.
Bolivia has rich folklore. Its regional folk music is distinctive and varied. The devil dances at the annual carnival of Oruro are one of the great folkloric events of South America, as is the lesser known carnival at Tarabuco.
HISTORY
The Andean region probably has been inhabited for some 20,000 years. Beginning about the 2nd century B.C., the Tiwanakan culture developed at the southern end of Lake Titicaca. This culture, centered around and named for the great city of Tiwanaku, developed advanced architectural and agricultural techniques before it disappeared around 1200 A.D., probably because of extended drought. Roughly contemporaneous with the Tiwanakan culture, the Moxos in the eastern lowlands and the Mollos north of present-day La Paz also developed advanced agricultural societies that had dissipated by the 13th century of our era. In about 1450, the Quechua-speaking Incas entered the area of modern highland Bolivia and added it to their empire. They controlled the area until the Spanish conquest in 1525.
During most of the Spanish colonial period, this territory was called "Upper Peru" or "Charcas" and was under the authority of the Viceroy of Lima. Local government came from the Audiencia de Charcas located in Chuquisaca (La Plata--modern Sucre). Bolivian silver mines produced much of the Spanish empire's wealth, and Potosi, site of the famed Cerro Rico--"Rich Mountain"-was, for many years, the largest city in the Western Hemisphere. As Spanish royal authority weakened during the Napoleonic wars, sentiment against colonial rule grew. Independence was proclaimed in 1809, but 16 years of struggle followed before the establishment of the republic, named for Simon Bolivar, on August 6, 1825.
Independence did not bring stability. For nearly 60 years, coups and short-lived constitutions dominated Bolivian politics. Bolivia's weakness was demonstrated during the War of the Pacific (1879-83), when it lost its seacoast and the adjoining rich nitrate fields to Chile.
An increase in the world price of silver brought Bolivia a measure of relative prosperity and political stability in the late 1800s. During the early part of the 20th century, tin replaced silver as the country's most important source of wealth. A succession of governments controlled by the economic and social elites followed laissez-faire capitalist policies through the first third of the century.
Living conditions of the indigenous peoples, who constituted most of the population, remained deplorable. Forced to work under primitive conditions in the mines and in nearly feudal status on large estates, they were denied access to education, economic opportunity, or political participation.
Bolivia's defeat by Paraguay in the Chaco War (1932-35) marked a turning point. Great loss of life and territory discredited the traditional ruling classes, while service in the army produced stirrings of political awareness among the indigenous people. From the end of the Chaco War until the 1952 revolution, the emergence of contending ideologies and the demands of new groups convulsed Bolivian politics.
The Nationalist Revolutionary Movement (MNR) emerged as a broadly based party. Denied its victory in the 1951 presidential elections, the MNR lead the successful 1952 revolution. Under President Victor Paz Estenssoro, the MNR introduced universal adult suffrage, carried out a sweeping land reform, promoted rural education, and nationalized the country's largest tin mines. It also committed many serious violations of human rights.
Twelve years of tumultuous rule left the MNR divided. In 1964, a military junta overthrew President Paz Estenssoro at the outset of his third term. The 1969 death of President Rene Barrientos, a former member of the junta elected President in 1966, led to a succession of weak governments. Alarmed by public disorder, the military, the MNR, and others installed Col. (later Gen.) Hugo Banzer Suarez as President in 1971. Banzer ruled with MNR support from 1971 to 1974. Then, impatient with schisms in the coalition, he replaced civilians with members of the armed forces and suspended political activities. The economy grew impressively during Banzer's presidency, but demands for greater political freedom undercut his support. His call for elections in 1978 plunged Bolivia into turmoil once again.
Elections in 1978, 1979, and 1980 were inconclusive and marked by fraud. There were coups, counter-coups, and caretaker governments. In 1980, Gen. Luis Garcia Meza carried out a ruthless and violent coup. His government was notorious for human rights abuses, narcotics trafficking, and economic mismanagement. Later convicted in absentia for crimes including murder, Garcia Meza was extradited from Brazil and began serving a 30-year sentence in 1995.
After a military rebellion forced out Garcia Meza in 1981, three other military governments in 14 months struggled with Bolivia's growing problems. Unrest forced the military to convoke the Congress elected in 1980 and allow it to choose a new chief executive. In October 1982--22 years after the end of his first term of office (1956-60)--Hernan Siles Zuazo again became President. Severe social tension, exacerbated by economic mismanagement and weak leadership, forced him to call early elections and relinquish power a year before the end of his constitutional term.
In the 1985 elections, the Nationalist Democratic Action Party (ADN) of Gen. Banzer won a plurality of the popular vote, followed by former President Paz Estenssoro's MNR and former Vice President Jaime Paz Zamora's Movement of the Revolutionary Left (MIR). But in the congressional run-off, the MIR sided with MNR, and Paz Estenssoro was chosen for a fourth term as president. When he took office in 1985, he faced a staggering economic crisis. Economic output and exports had been declining for several years. Hyperinflation had reached an annual rate of 24,000%. Social unrest, chronic strikes, and unchecked drug trafficking were widespread.
In four years, Paz Estenssoro's Administration achieved economic and social stability. The military stayed out of politics, and all major political parties publicly and institutionally committed themselves to democracy. Human rights violations, which badly tainted some governments earlier in the decade, were not a problem. However, his remarkable accomplishments were not won without sacrifice. The collapse of tin prices in October 1985, coming just as the government was moving to reassert its control of the mismanaged state mining enterprise, forced the government to lay off over 20,000 miners. The highly successful shock treatment that restored Bolivia's financial system also led to some unrest and temporary social dislocation.
Although the MNR list headed by Gonzalo Sanchez de Lozada finished first in the 1989 elections, no candidate received a majority of popular votes and so in accordance with the constitution, a congressional vote determined who would be president. The Patriotic Accord (AP) coalition between Gen. Banzer's ADN and Jaime Paz Zamora's MIR, the second- and third-place finishers, respectively, won out. Paz Zamora assumed the presidency and the MIR took half the ministries. Banzer's center-right ADN took control of the National Political Council (CONAP) and the other ministries.
Paz Zamora was a moderate, center-left president whose political pragmatism in office outweighed his Marxist origins. Having seen the destructive hyperinflation of the Siles Zuazo Administration, he continued the neo-liberal economic reforms begun by Paz Estenssoro, codifying some of them. Paz Zamora took a fairly hard line against domestic terrorism, personally ordering the December 1990 attack on terrorists of the Nestor Paz Zamora Committee (CNPZ--named after his brother who died in the 1970 Teoponte insurgency) and authorizing the early 1992 crackdown against the Tupac Katari Guerrilla Army (EGTK).
Paz Zamora's regime was less decisive against narcotics trafficking. The government broke up a number of trafficking networks but issued a 1991 surrender decree giving lenient sentences to the biggest narcotics kingpins. Also, his administration was extremely reluctant to pursue net eradication of illegal coca. It did not agree to an updated extradition treaty with the U.S., although two traffickers have been extradited to the U.S. since 1992. Beginning in early 1994, the Bolivian Congress investigated Paz Zamora's personal ties to accused major trafficker Isaac Chavarria, who subsequently died in prison while awaiting trial. MIR deputy chief Oscar Eid was jailed in connection with similar ties in 1994; he was found guilty and sentenced to four years in prison in November 1996. Technically still under investigation, Paz Zamora became an active presidential candidate in 1996.
The 1993 elections continued the tradition of open, honest elections and peaceful democratic transitions of power. The MNR defeated the ADN/MIR coalition by a 34% to 20% margin, and the MNR's Gonzalo "Goni" Sanchez de Lozada was selected as president by an MNR/MBL/UCS coalition in the Congress.
Sanchez de Lozada pursued an aggressive economic and social reform agenda. He relied heavily on successful entrepreneurs-turned-politicians like himself and on fellow veterans of the Paz Estenssoro Administration (during which Sanchez de Lozada was planning minister). The most dramatic change undertaken by the Sanchez de Lozada Government was the Capitalization program, under which investors acquired 50% ownership and management control of public enterprises, such as the state oil corporation, telecommunications system, electric utilities, and others. The reforms and economic restructuring were strongly opposed by certain segments of society, which instigated frequent social disturbances, particularly in La Paz and the Chapare coca-growing region, from 1994 through 1996.
In the 1997 elections, Gen. Hugo Banzer, leader of the ADN, won 22% of the vote, while the MNR candidate won 18%. Gen. Banzer formed a coalition of the ADN, MIR, UCS, and CONDEPA parties which hold a majority of seats in the Bolivian Congress. The Congress selected him as president and he was inaugurated on August 6, 1997.
GOVERNMENT AND POLITICAL CONDITIONS
The Banzer Government has committed itself to shutting down illegal coca cultivation and narcotrafficking during its five-year term. President Banzer has called for action against government and judicial corruption and has encouraged foreign investment as a means to stimulate economic growth and reduce poverty.
The 1967 constitution, revised in 1994, provides for balanced executive, legislative, and judicial powers. The traditionally strong executive, however, tends to overshadow the Congress, whose role is generally limited to debating and approving legislation initiated by the executive. The judiciary, consisting of the Supreme Court and departmental and lower courts, has long been riddled with corruption and inefficiency. Through revisions to the constitution in 1994, and subsequent laws, the government has initiated potentially far-reaching reforms in the judicial system and processes.
Bolivia's nine departments received greater autonomy under the Administrative Decentralization law of 1995, although principal departmental officials are still appointed by the central government. Bolivian cities and towns are governed by elected mayors and councils. The most recent municipal elections took place in December 1995. The Popular Participation Law of April 1994, which distributes a significant portion of national revenues to municipalities for discretionary use, has enabled previously neglected communities to make striking improvements in their facilities and services.
ECONOMY
Bolivia's 1997 gross domestic product (GDP) totaled $8.0 billion. Economic growth has remained steady at about 4% a year (1.5% a year in per capita terms) over the 1988-97 period and real GDP grew by 4.1% in 1997. Inflation declined from 8% in 1996 to 6.7% in 1997. The government's 1998 economic program has targeted GDP growth of 5% and an inflation rate below 6%.
Since 1985, the Government of Bolivia has been implementing a far-reaching program of macroeconomic stabilization and structural reform aimed at restoring price stability, creating conditions for sustained growth, and alleviating poverty. Important components of these structural reform measures include the capitalization of state enterprises and strengthening of the country's financial system.
The most important recent structural changes in the Bolivian economy have involved the capitalization of numerous public sector enterprises. (Capitalization in the Bolivian context is a form of privatization where investors acquire a 50% stake and management control of public enterprises in return for a commitment to undertake capital expenditures equivalent to the enterprise's net worth). Parallel legislative reforms have locked into place market-oriented policies, especially in the hydrocarbon and mining sectors, that have encouraged private investment. Foreign investors are accorded national treatment, and foreign ownership of companies enjoys virtually no restrictions in Bolivia. As a consequence of these measures, 1996 private investment surged by 25% to an estimated $225 million and the privatization program has generated commitments of $1.7 billion in foreign direct investment over the period 1996-2002.
In 1996, three units of the Bolivian state oil corporation (YPFB) involved in hydrocarbon exploration, production, and transportation were capitalized. The capitalization of YPFB allowed agreement to be reached on the construction of a gas pipeline to Brazil. A priority in the development strategy for the sector is the expansion of export markets for natural gas. The government intends to maintain its current contract for gas exports to Argentina through 1999. The contract to construct a pipeline to Brazil projects natural gas exports of 8 million cubic meters per day (cmd) by 1999, increasing to 16 million cmd by the eighth year of operation. The Bolivian Government has signed a financing contract for the Bolivian side of the gas pipeline with Petrobras and the capitalization of YPFB's transportation company will facilitate the finance, construction, and operation of the pipeline. The government plans to position Bolivia as a regional hub for exporting hydrocarbons.
Six smaller public enterprises were sold during 1996, and the Government of Bolivia has taken steps to improve the efficiency of some public services through concession contracts with private sector managers. All three major airports were transferred to private managers in March 1997, and a water supply company was transferred to a private operator in June 1997. Also, by the end of 1996, almost all customs posts were under private management.
By May 1996, three of the four Bolivian banks that had experienced difficulties in 1995 were recapitalized and restructured under new ownership with support from the Bolivian Government's Special Fund for Strengthening the Financial System (FONDESIF), which helped restore confidence in the banking system. In November 1996, the Bolivian Congress approved a comprehensive pension reform that replaces the old pay-as-you-go system by a system of privately managed, individually funded retirement accounts, and the new system began operations in May 1997. The reform represents a major step toward lasting fiscal consolidation in Bolivia.
Bolivian exports were $1.19 billion in 1997, from a low of $652 million in 1991. Imports grew in 1997 to a level of $1.74 billion, with import growth facilitated by the gradual reduction of Bolivian tariffs to a flat 10% (except for capital equipment, which has a 5% rate). Bolivia's trade deficit rose from $419 million in 1996 to $620 million in 1997.
Bolivia's trade with neighboring countries is growing, in part because of several regional preferential trade agreements it has negotiated. Bolivia is a member of the Andean Community and has free trade with other member countries (Peru, Ecuador, Colombia, and Venezuela). Bolivia began to implement an association agreement with MERCOSUR (Southern Cone Common Market) in March 1997. The agreement provides for the gradual creation of a free-trade area covering at least 80% of the trade between the parties over a 10-year period. The U.S. Andean Trade Preference Act (ATPA) allows numerous Bolivian products to enter the United States free of duty on a unilateral basis. Tariffs have to be paid on clothing and leather products only.
The U.S. remains Bolivia's largest trading partner. In 1997, the U.S. exported $295 million of merchandise to Bolivia and imported $223 million, according to the World Trade Atlas of the Global Trade Information Service. Bolivia's major exports to the U.S. are tin, gold, jewelry, and wood products. Its major imports from the United States are computers, vehicles, wheat, and machinery. A Bilateral Investment Treaty is under negotiation.
Agriculture accounts for roughly 15% of Bolivia's GDP. The amount of land cultivated by modern farming techniques is increasing rapidly in the Santa Cruz area, where weather allows for two crops a year and soybeans are the major cash crop. The extraction of minerals and hydrocarbons accounts for another 10% of GDP. Bolivia is self-sufficient in oil and exports natural gas to Argentina. Manufacturing represents less than 17% of GDP.
The Government of Bolivia remains heavily dependent on foreign assistance to finance development projects. At the end of 1997, the government owed $4.23 billion to its foreign creditors, with $1.6 billion of this amount owed to other governments and most of the balance owed to multilateral development banks. Most payments to other governments have been rescheduled on several occasions since 1987 through the Paris Club mechanism. External creditors have been willing to do this because the Bolivian Government has generally achieved the monetary and fiscal targets set by IMF programs since 1987. The current IMF program, which consists of soft balance-of-payments loans from the enhanced structural adjustment facility as the government achieves certain targets, is a multi-year agreement ending in 1998.
Rescheduling agreements granted by the Paris Club have allowed the individual creditor countries to apply very soft terms to the rescheduled debt. As a result, some countries have forgiven substantial amounts of Bolivia's bilateral debt. The U.S. Government reached an agreement at the Paris Club meeting in December 1995 which reduced by 67% Bolivia's existing debt stock. The Bolivian Government continues to pay its debts to the multilateral development banks on time and to receive soft loans. Bolivia has qualified for the Highly Indebted Poor Countries (HIPC) debt relief program.
FOREIGN RELATIONS
Bolivia traditionally has maintained normal diplomatic relations with all hemispheric states except Chile. Relations with Chile, strained since Bolivia's defeat in the War of the Pacific (1879-83) and its loss of the coastal province of Atacama, were severed from 1962 to 1975 in a dispute over the use of the waters of the Lauca River. Relations were resumed in 1975 but broken again in 1978 over the inability of the two countries to reach an agreement that might have granted Bolivia a sovereign access to the sea. In the 1960s, relations with Cuba were broken following Castro's rise to power, but resumed under the Paz Estenssoro Administration in 1985.
Bolivia pursues a foreign policy with a heavy economic component. Bolivia has become more active in the OAS, the Rio Group, and in MERCOSUR, with which it signed an association agreement in 1996. Bolivia promotes its policies on sustainable development and the empowerment of indigenous people.
Bolivia is a member of the UN and some specialized agencies and related programs; Organization of American States (OAS); Andean Pact; INTELSAT; Non-Aligned Movement; International Parliamentary Union; Latin American Integration Association (ALADI); World Trade Organization; Rio Treaty; Rio Group; MERCOSUR; and Uruguay, Paraguay, Bolivia (URUPABOL, re-started in 1993). As an outgrowth of the 1994 Summit of the Americas, Bolivia hosted a hemispheric summit conference on sustainable development in December 1996. A First Ladies' hemispheric summit was also hosted by Bolivia that same month.
U.S.-BOLIVIAN RELATIONS
Relations between the United States and Bolivia are cordial and cooperative. The major issue in the bilateral relationship is control of illegal narcotics. Roughly one-third of the world's cocaine is made from coca grown in Bolivia: Bolivia's coca crop is second only to Peru's in the production of the cocaine alkaloid, and the country is second only to Colombia in the production of refined cocaine hydrochloride. For centuries, Bolivian coca leaf has been chewed and used in traditional rituals, but in the past few decades the emergence of the drug trade has led to a rapid expansion of coca cultivation, particularly in the tropical Chapare region. In 1988, a new law explicitly recognized that coca grown in the Chapare was not required to meet traditional demand for chewing or for tea, and the law called for the eradication, over time, of all "excess" coca. To accomplish that goal, the Bolivian Government instituted a program offering cash compensation to peasants who eradicated voluntarily and the government began developing and promoting suitable alternative crops for the peasants to grow. The Bolivian Government is now phasing out direct payments in favor of community-based incentives to eradicate coca cultivation. Parallel efforts were undertaken by the police to interdict the smuggling of coca leaves, cocaine, and precursor chemicals. The U.S. Government has, in large measure, financed the alternative development program and the police effort.
Bolivian President Hugo Banzer has pledged to wipe out illicit coca production and drug trafficking in Bolivia by the end of his term in 2002. His administration unveiled its five-year counternarcotics strategy in December 1997. The plan calls for significant funding from international donors.
President Clinton certified to the Congress in 1998 that Bolivia is cooperating fully with the U.S. on counternarcotics matters or has taken steps on its own to achieve full compliance with the 1988 UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. The U.S. Government is seeking Bolivia's cooperation in achieving a net reduction in the amount of coca under cultivation and in enacting legislation to criminalize money laundering. In 1996, the United States and Bolivia ratified a new extradition treaty which makes it easier for both nations to more effectively prosecute drug traffickers and other criminals. It replaces the previous extradition treaty, which came into force in 1990. The new treaty is significant because, unlike its predecessor, it requires both countries to extradite their own nationals for serious criminal offenses.
In 1991, the U.S. Government forgave all of the debt owed by Bolivia to the U.S. Agency for International Development ($341 million) as well as 80% (or $31 million) of the amount owed to the Department of Agriculture for food assistance. Increased U.S. assistance since the late 1980s has been designed to reinforce democracy, to ensure sustainable economic development, and to make Bolivia less dependent on the cocaine industry. U.S. economic and development assistance totaled $64.5 million in FY 1996, in addition to military and counternarcotics assistance.
PEOPLE AND HISTORY
With an estimated 156 million inhabitants, Brazil has the largest population in Latin America and ranks sixth in the world. The majority live in the south-central area, which includes the industrial cities of Sao Paulo, Rio de Janeiro, and Belo Horizonte. Urban growth has been rapid: by 1991, 75% of the total population were living in urban areas. Rapid growth has aided economic development but has also created serious social, environmental, and political problems for major cities.
Four major groups make up the Brazilian population: the Portuguese, who colonized in the 16th century; Africans brought to Brazil as slaves; various other European, Middle Eastern, and Asian immigrant groups who have settled in Brazil since the mid-19th century; and indigenous people of Tupi and Guarani language stock. Intermarriage between the Portuguese and indigenous people or slaves was common. Although the major European ethnic stock of Brazil was once Portuguese, subsequent waves of immigration have contributed to a diverse ethnic and cultural heritage.
From 1875 until 1960, about 5 million Europeans emigrated to Brazil, settling mainly in the four southern states of Sao Paulo, Parana, Santa Catarina, and Rio Grande do Sul. Immigrants have come mainly from Italy, Germany, Spain, Japan, Poland, and the Middle East. The largest Japanese community outside Japan is in Sao Paulo. Despite class distinctions, national identity is strong, and racial friction is a relatively new phenomenon.
Indigenous full-blooded Indians, located mainly in the northern and western border regions and in the upper Amazon Basin, constitute less than 1% of the population. Their numbers are declining as contact with the outside world and commercial expansion into the interior increase. Brazilian Government programs to establish reservations and to provide other forms of assistance have existed for years, but are controversial and often ineffective.
Brazil is the only Portuguese-speaking nation in the Americas. Approximately 80% of all Brazilians belong to the Roman Catholic Church; most others are Protestant or follow practices derived from African religions.
Brazil was claimed for Portugal in 1500 by Pedro Alvares Cabral. It was ruled from Lisbon as a colony until 1808, when the royal family, having fled from Napoleon's army, established the seat of Portuguese Government in Rio de Janeiro. Brazil became a kingdom under Dom Joao VI, who returned to Portugal in 1821. His son declared Brazil's independence on September 7, 1822, and became emperor with the title of Dom Pedro I. His son, Dom Pedro II, ruled from 1831 to 1889, when a federal republic was established in a coup by Deodoro da Fonseca, marshal of the army. Slavery had been abolished a year earlier by the Regent Princess Isabel while Dom Pedro II was in Europe.
From 1889 to 1930, the government was a constitutional democracy, with the presidency alternating between the dominant states of Sao Paulo and Minas Gerais. This period ended with a military coup that placed Getulio Vargas, a civilian, in the presidency; Vargas remained as dictator until 1945. From 1945 to 1961, Eurico Dutra, Vargas, Juscelino Kubitschek, and Janio Quadros were elected presidents. When Quadros resigned in 1961, he was succeeded by Vice President Joao Goulart.
Goulart's years in office were marked by high inflation, economic stagnation, and the increasing influence of radical political elements. The armed forces, alarmed by these developments, staged a coup on March 31, 1964. The coup leaders chose as president Humberto Castello Branco, followed by Arthur da Costa e Silva (1967-69), Emilio Garrastazu Medici (1968-74), and Ernesto Geisel (1974-79) all of whom were senior army officers. Geisel began a liberalization which was carried further by his successor, Gen. Joao Baptista de Oliveira Figueiredo (1979-85). Figueiredo not only permitted the return of politicians exiled or banned from political activity during the 1960s and 1970s, but also allowed them to run for state and federal offices in 1982.
At the same time, an electoral college consisting of all members of congress and six delegates chosen from each state, continued to choose the president. In January 1985, the electoral college voted Tancredo Neves from the opposition Brazilian Democratic Movement Party (PMDB) into office as President. However, Tancredo Neves became ill in March and died a month later. His Vice President, former Senator Jose Sarney, became President upon Neves' death.
Brazil completed its transition to a popularly elected government in 1989, when Fernando Collor de Mello won 53% of the vote in the first direct presidential election in 29 years. In 1992, a major corruption scandal led to the impeachment and ultimate resignation of President Collor. Vice President Itamar Franco took his place and governed for the remainder of Collor's term culminating in the October 3, 1994 presidential elections, when Fernando Henrique Cardoso was elected President with 54% of the vote. He took office January 1, 1995.
President Cardoso has sought to establish the basis for long-term stability and growth and to reduce Brazil's extreme socioeconomic imbalances. His proposals to Congress include constitutional amendments to open the Brazilian economy to greater foreign participation and to implement sweeping reforms--including social security, government administration, and taxation--to reduce excessive public sector spending and improve government efficiency.
GOVERNMENT AND POLITICS
Brazil is a federal republic with 26 states and a federal district. The 1988 constitution grants broad powers to the federal government, made up of executive, legislative, and judicial branches. The president holds office for four years, with the right to re-election for an additional four-year term, and appoints his own cabinet. There are 81 senators, three for each state and the Federal District, and 513 deputies. Senate terms are for eight years, with election staggered so that two-thirds of the upper house is up for election at one time and one-third four years later. Chamber terms are for four years, with elections based on a complex system of proportional representation by states. Each state is eligible for a minimum of 8 seats; the largest state delegation (Sao Paulo's) is capped at 70 seats. The result is a system weighted in favor of geographically large but sparsely populated states.
Fifteen political parties are represented in Congress. Since it is common for politicians to switch parties, the proportion of congressional seats held by particular parties changes regularly. The following are the major ones, in order of the size of their congressional delegations:
PFL--Liberal Front Party (center-right)
PMDB--Brazilian Democratic Movement Party (center)
PSDB--Brazilian Social Democratic Party (center-left)
PPB--Brazilian Progressive Party (center-right)
PT--Workers Party (left)
PDT--Democratic Labor Party (left)
PTB--Brazilian Labor Party (center-right)
PSB--Brazilian Socialist Party (left)
PCdoB--Communist Party of Brazil (left)
PL--Liberal Party (center-right)
President Cardoso was elected with the support of a heterodox alliance of his own center-left Social Democratic Party, the PSDB, and two center-right parties, the Liberal Front Party (PFL) and the Brazilian Labor Party (PTB). Brazil's largest party, the centrist Brazilian Democratic Movement Party (PMDB), joined Cardoso's governing coalition after the election, as did the center-right PPB, the Brazilian Progressive Party, in 1996, after its formation from three conservative parties the previous year. Federal deputies and senators who belong to the parties comprising the government coalition do not always vote with the government. As a result, President Cardoso has had difficulty, at times, gaining sufficient support for some of his legislative priorities, despite the fact that his coalition parties hold an overwhelming majority of congressional seats. Nevertheless, as the Cardoso Administration ends its fourth year, it has accomplished many of its legislative and reform objectives.
States are organized like the federal government, with three government branches. Because of the mandatory revenue allocation to states and municipalities provided for in the 1988 Constitution, Brazilian governors and mayors have exercised considerable power since 1989.
Presidential, congressional, and gubernatorial elections last took place in October 1994. Fernando Henrique Cardoso won the presidential election with approximately 54% of the vote, while his closest challenger, Luiz Inacio Lula da Silva (PT), had about 27%. Elections for the nation's mayors were held in October and November 1996. The next national elections will be held October 4, 1998.
ECONOMY
Brazil is the eighth-largest economy in the world, with 1997 GDP over $800 billion. It is a highly diversified economy with wide variations in levels of development. Most large industry is concentrated in the south and southeast. Although traditionally the poorest part of Brazil, the northeast is beginning to attract new investment.
Brazil embarked on its most successful economic stabilization program, the Plano Real (named for the new currency, the real; plural: reais) in July 1994.
Inflation--which had reached an annual level of nearly 5000% at the end of 1993--has since dropped to its lowest level in over 40 years and is expected to be less than 5% in 1998. Brazil has accomplished this through a combination of a strong exchange rate, tight monetary policies, trade liberalization, and privatization.
In addition, the Cardoso Administration has introduced to Congress a series of constitutional reform proposals to replace a state-dominated economy with a market-oriented one and to restructure all levels of government on a financially sound basis. Congress has approved amendments to open the economy to greater private sector participation, including foreign investors. Reforms to bring order to government fiscal accounts have made less progress--because of their greater political sensitivity--but remain under consideration by the Congress. The Administration places great importance on these fiscal reforms for sustainable long-term growth. The Plano Real has raised the income of poor Brazilians, but Brazil continues to have one of the world's most inequitable distributions of income. The administration has acknowledged the need to invest more in education and health to redress this inequity.
Market liberalization and economic stabilization have significantly enhanced Brazil's growth prospects. Brazil's trade has almost doubled since 1990, from $50 billion to an estimated $114 billion in 1997. The United States represents about 20% of that trade, and ran trade surpluses in 1995, 1996, and 1997 after many years of deficits with Brazil. Foreign direct investment has increased from less than $1 billion in 1993 to an estimated $17 billion in 1997. The United States is the largest foreign investor in Brazil, accounting for almost $20 billion, or 34% of total foreign investment. Ongoing and upcoming privatization in the telecommunication, energy, and mining sectors of Brazil planned for 1998 and 1999 is of major interest to U.S. companies.
Brazil responded quickly and decisively to the Asian financial crisis in October 1997, which brought strong pressure to bear on the domestic currency. These actions included a near doubling of interest rates, maintenance of an exchange rate policy in the face of large capital outflows, and Congressional approval of a fiscal package aimed at saving $18 billion in 1998, 2.5% of GDP. Financial markets responded positively to these measures and capital inflows, including direct investment, increased strongly. By March 1998, international reserves recovered to their pre-crisis level of $62 billion.
Brazil is endowed with vast agricultural resources. There are basically two distinct agricultural areas. The first, comprised of the southern one-half to two-thirds of the country, has a semi-temperate climate and higher rainfall, the better soils, higher technology and input use, reasonable infrastructure, and more experienced farmers. It produces most of Brazil's grains and oilseeds and export crops. The other, located in the drought-ridden northeast region and in the Amazon basin, lacks well-distributed rainfall, good soil, adequate infrastructure, or sufficient development capital. Although producing mostly for self-sufficiency, the latter regions are becoming increasingly important in exports of forest products, cocoa, and tropical fruits. Central Brazil contains substantial areas of grassland with only scattered trees. The Brazilian grasslands are less fertile than those of North America and are generally more suited for grazing.
Brazilian agriculture is well diversified, and the country is largely self-sufficient in food. Agriculture accounts for 13% of the country's GDP, and employs about one-quarter of the labor force in more than six million agricultural enterprises. Brazil is the world's largest producer of sugarcane and coffee, and a net exporter of cocoa, soybeans, orange juice, tobacco, forest products, and other tropical fruits and nuts. Livestock production is very important in many sections of the country, with a large increase in the poultry, pork, and milk industries due mainly to demand changes. On a value basis, production is 60% field crop and 40% livestock.
Brazil is a net exporter of agricultural and food products, which account for about 35% of the country's exports. In 1996, farm and food exports totaled $17 billion. Record levels of imports amounted to nearly $8 billion. In 1994 and 1995, agricultural exports were hurt by the sharp appreciation of the Brazilian real, lack of export financing, and high taxes and port costs. On the other hand, agricultural and food imports grew substantially during this period as a result of production shortfalls, lower prices due to import liberalization and a strong currency, and increased consumer demand. In the long run, however, the annual growth of agricultural imports is expected to be more moderate in the future.
Half of Brazil is covered by forests, with the largest rain forest in the world located in the Amazon Basin. Recent migrations into the Amazon and large-scale burning of forest areas have placed the international spotlight on Brazil. The government has reduced incentives for such activity and is beginning to implement an ambitious environmental plan, and has just adopted an Environmental Crimes Law that requires serious penalties for infractions.
Brazil has one of the most advanced industrial sectors in Latin America. Accounting for one-third of GDP, Brazil's diverse industries range from automobiles, steel, and petrochemicals, to computers, aircraft, and consumer durables. With the increased economic stability provided by the Plano Real, Brazilian firms and multinationals have invested hundreds of millions of dollars in new equipment and technology, a large share of which has been purchased from U.S. firms. However, the country's power, transportation, and communications systems--particularly outside the more developed southern states--suffer from lack of investment and poor maintenance. The privatizations of the telecommunication, energy, and transportation sectors are expected to ameliorate these infrastructure problems.
Brazil has a diverse and sophisticated services industry as well. During the early 1990s, the banking sector accounted for as much as 16% of GDP. Although undergoing a major overhaul, Brazil's financial services industry provides local firms a wide range of products and is attracting numerous new entrants, including U.S. financial firms. The Sao Paulo and Rio de Janeiro stock exchanges have been among the fastest growing in the world in the last two years.
The Brazilian Government has undertaken an ambitious program to reduce dependence on imported oil. Imports previously accounted for more than 70% of the country's oil needs but now account for less than 50%. Brazil is one of the world's leading producers of hydroelectric power, with a potential of 106,500 megawatts.
Existing hydroelectric power provides 90% of the nation's electricity. Two large hydroelectrical projects, the 12,600 megawatt Itaipu Dam on the Parana River--the world's largest dam--and the Tucurui Dam in Para in northern Brazil, are in operation.
Brazil's first commercial nuclear reactor, Angra I, located near Rio de Janeiro, has been in operation for more than 10 years. Angra II is under construction, and Angra III is planned. The three reactors would have combined capacity of 3,000 megawatts when completed.
Proven mineral resources are extensive. Large iron and manganese reserves are important sources of industrial raw materials and export earnings. Deposits of nickel, tin, chromite, bauxite, beryllium, copper, lead, tungsten, zinc, gold, and other minerals are exploited. High-quality coking-grade coal required in the steel industry is in short supply.
FOREIGN RELATIONS
Traditionally, Brazil has been a leader in the inter-American community and has played an important role in collective security efforts as well as in economic cooperation in the Western Hemisphere. Brazil aligned with the allies in both World Wars. During World War II, its expeditionary force in Italy played a key role in the allied victory at Monte Castello. It is a party to the Inter-American Treaty of Reciprocal Assistance (Rio Treaty) and a member of the Organization of American States (OAS). Recently, Brazil has given high priority to expanding relations with its South American neighbors and is a founding member of the Amazon Pact, the Latin American Integration Association (ALADI), and Mercosul (Mercosur in Spanish), uniting Argentina, Uruguay, Paraguay, and Brazil. Along with Argentina, Chile, and the United States, Brazil is one of the guarantors of the Peru-Ecuador peace process.
Brazil is a charter member of the United Nations and participates in many of its specialized agencies. It has contributed troops to UN peacekeeping efforts in the Middle East, the former Belgian Congo, Cyprus, Mozambique, and most significantly, Angola. Brazil began serving a two-year term as a non-permanent member of the UN Security Council on January 1, 1998.
As Brazil's domestic economy has grown and diversified, the country has become increasingly involved in international politics and economics. The United States, Western Europe, and Japan are primary markets for Brazilian exports and sources of foreign lending and investment. As an indication of Brazil's broader international role, trade with other developing countries increased from 9% of the total in the 1970s to nearly 30% in 1993. Brazil has also bolstered its commitment to nonproliferation through the signing of a full-scale nuclear safeguard agreement with the International Atomic Energy Agency (IAEA), accession to the Treaty of Tlatelolco, and membership in the Missile Technology Control Regime and the Nuclear Suppliers Group.
U.S.-BRAZILIAN RELATIONS
The United States was the first country to recognize Brazil's independence in 1822. The two countries have traditionally enjoyed friendly, active relations encompassing a broad political and economic agenda.
With the inauguration of Brazil's internationally oriented, reformist President Fernando Henrique Cardoso on January 1, 1995, U.S.-Brazil engagement and cooperation have intensified. This is reflected in the unprecedented number of high-level contacts between the two governments, including President Cardoso's state visit to Washington in April 1995, visits to Brazil by President Clinton and First Lady Hillary Clinton, Secretaries of State Madeleine Albright and Warren Christopher, the late Secretary of Commerce Ronald Brown, current Secretary of Commerce William Daley, and many other exchanges between U.S. and Brazilian cabinet and sub-cabinet officials. Important topics of discussion and cooperation have included trade and finance, hemispheric economic integration, United Nations reform and peacekeeping efforts, nonproliferation and arms control, follow-up to the 1994 Miami Summit of the Americas, common efforts to help resolve the Peru-Ecuador border conflict, support for Paraguay's democratic development, human rights, counternarcotics, and environmental issues.
During President Clinton's October 1997 visit to Brazil, several agreements were signed, including: an Education Partnership Agreement, which enhances and expands cooperative initiatives in such areas as standards-based education reform, use of technology, and professional development of teachers; a Mutual Legal Assistance treaty; as well as agreements on cooperation in energy, the international space station, national parks, and government reform. There have been other recent agreements with Brazil: a new agreement for cooperation in counternarcotics signed in March 1995; an agreement signed in March 1998 to end Brazil's automotive investment incentive program earlier than scheduled; and a national drug control plan drafted. During a visit of former Under Secretary of State Timothy Wirth to Brazil in October 1995, the two countries signed a Common Agenda on the Environment, laying the foundation for cooperative efforts in environmental protection.
Former U.S. Trade Representative Mickey Kantor and Brazilian Foreign Minister Lampreia submitted a joint report to Presidents Clinton and Cardoso on the U.S.-Brazil Bilateral Trade Review, completed October 25, 1995. The Bilateral Trade Review lays the groundwork for closer cooperation in resolving bilateral trade issues as well as in joint efforts to advance progress toward a Free Trade Area of the Americas (FTAA) and to develop closer ties between NAFTA and Mercosul, the Common Market of the South. Brazil is a key player in hemispheric efforts to negotiate an FTAA by 2005, and hosted the May 1997 FTAA Trade Ministerial in Belo Horizonte.
President Cardoso is the first Brazilian president to discuss race relations frankly. He instituted an Inter-Ministerial Task Force on Race in 1995 and strengthened the mandate of the government-funded Palmares Foundation, dedicated to the promotion of Afro-Brazilian heritage. U.S. Embassy public diplomacy programs seek to support these efforts, which mirror President Clinton's National Dialogue on Race.
Relations are advancing well in various aspects of scientific and technical work as well. During his 1996 visit, former Secretary of State Christopher signed a Space Cooperation agreement and initialed an agreement on Peaceful Uses of Nuclear Energy.
PEOPLE
About 85% of Chile's population live in urban centers with 40% living in greater Santiago. Most have Spanish ancestry. A small, yet influential, number of Irish and English immigrants came to Chile during the colonial period. German immigration began in 1848 and lasted for 90 years; the southern provinces of Valdivia, Llanquihue, and Osorno show a strong German influence. Other significant immigrant groups are Italian, Croatian, French, and Middle Eastern. About 400,000 Native Americans, mostly of the Mapuche tribe, reside in the south-central area.
The northern Chilean desert contains great mineral wealth, primarily copper and nitrates. The relatively small central area dominates the country in terms of population and agricultural resources. This area is also the historical center from which Chile expanded until the late 19th century, when it incorporated its northern and southern regions. Southern Chile is rich in forests and grazing lands and features a string of volcanoes and lakes. The southern coast is a labyrinth of fjords, inlets, canals, twisting peninsulas, and islands. It also has small, rapidly declining petroleum reserves, which supplied about 8% of Chile's domestic requirements during 1996.
HISTORICAL HIGHLIGHTS
About 10,000 years ago, migrating Indians settled in fertile valleys and along the coast of what is now Chile. The Incas briefly extended their empire into what is now northern Chile, but the area's remoteness prevented extensive settlement.
In 1541, the Spanish, under Pedro de Valdivia, encountered hundreds of thousands of Indians from various cultures in the area that modern Chile now occupies. These cultures supported themselves principally through slash-and-burn agriculture and hunting. Although the Spanish did not find the extensive gold and silver they sought, they recognized the agricultural potential of Chile's central valley, and Chile became part of the Viceroyalty of Peru.
The drive for independence from Spain was precipitated by usurpation of the Spanish throne by Napoleon's brother Joseph. A national junta in the name of Ferdinand--heir to the deposed king--was formed on September 18, 1810. Spanish attempts to reimpose arbitrary rule during what was called the Reconquista led to a prolonged struggle under Bernardo O'Higgins, Chile's most renowned patriot. Chilean independence was formally proclaimed on February 12, 1818.
The political revolt brought little social change, however, and 19th century Chilean society preserved the essence of the stratified colonial social structure, family politics, and the influence of the Roman Catholic Church. The system of presidential power eventually predominated, but wealthy landowners continued to control Chile.
Toward the end of the 19th century, government in Santiago consolidated its position in the south by persistently suppressing the Mapuche Indians. In 1881, it signed a treaty with Argentina confirming Chilean sovereignty over the Strait of Magellan. As a result of the War of the Pacific with Peru and Bolivia (1879-83), Chile expanded its territory northward by almost one-third and acquired valuable nitrate deposits, the exploitation of which led to an era of national affluence.
Chile established a parliamentary-style democracy in the late 19th century, which tended to protect the interests of the ruling oligarchy. By the 1920s, the emerging middle and working classes were powerful enough to elect a reformist president, whose program was frustrated by a conservative congress. Continuing political and economic instability resulted in the quasi-dictatorial rule of General Carlos Ibanez (1924-32).
When constitutional rule was restored in 1932, a strong middle-class party, the Radicals, emerged. It became the key force in coalition governments for the next 20 years. In the 1920s, Marxist groups with strong popular support developed. During the period of Radical Party dominance (1932-52), the state increased its role in the economy.
The 1964 presidential election of Christian Democrat Eduardo Frei-Montalva (father of the current president) by an absolute majority initiated a period of major reform. Under the slogan "Revolution in Liberty," the Frei Administration embarked on far-reaching social and economic programs, particularly in education, housing, and agrarian reform, including rural unionization of agricultural workers. By 1967, however, Frei encountered increasing opposition from leftists, who charged that his reforms were inadequate, and from conservatives, who found them excessive.
In 1970, Dr. Salvador Allende, a Marxist and member of Chile's Socialist Party, who headed the "Popular Unity" (UP) coalition of Socialists, Communists, Radicals, and dissident Christian Democrats, was elected by a narrow margin. His program included the nationalization of most remaining private industries and banks, massive land expropriation, and collectivization. Allende's proposal also included the nationalization of U.S. interests in Chile's major copper mines. Elected with only 36% of the vote and by a plurality of only 36,000 votes, Allende never enjoyed majority support in the Chilean Congress or broad popular support. Domestic production declined, severe shortages of consumer goods, food, and manufactured products were widespread and inflation reached 1,000% per annum. Mass demonstrations, recurring strikes, violence by both government supporters and opponents, and widespread rural unrest ensued in response to the general deterioration of the economy. By 1973, Chilean society had split into two hostile camps. A military coup overthrew Allende on September 11, 1973. As the armed forces bombarded the presidential palace, Allende reportedly committed suicide.
GOVERNMENT AND POLITICAL CONDITIONS
Following a coup in 1973, Chile was ruled by a military regime headed by General Augusto Pinochet until 1990. The first years of the regime were marked by serious human rights violations. In its later years, however, the regime gradually permitted greater freedom of assembly, speech, and association, to include trade-union activity.
In contrast to its authoritarian political rule, the military government pursued decidedly laissez faire economic policies. During its 16 years in power, Chile moved away from economic statism toward a largely free-market economy and that fostered an increase in domestic and foreign private investment.
General Pinochet was denied a second 8-year term as President in a national plebiscite in 1988. In December 1989, Christian Democrat Patricio Aylwin, running as the candidate of a multi-party, center-left coalition, was elected president. In the 1993 election, Eduardo Frei Ruiz-Tagle of the Christian Democratic Party was elected president for a 6-year term and took office in March 1994.
Chile's constitution was approved in a September 1980 national plebiscite. It entered into force in March 1981. After Pinochet's defeat in the 1988 plebiscite, the constitution was amended to: ease provisions for future amendments to the constitution; create 9 appointed or "institutional" senators; and diminish the role of the National Security Council by equalizing the number of civilian and military members (4 members each).
Chile's bicameral Congress has a 48-seat Senate (38 elected, 9 appointed, 1 for life) and a 120-member Chamber of Deputies. Deputies are elected every 4 years. Senators serve for 8 years with staggered terms. The current Senate contains 20 members from the center-left governing coalition, 18 from the rightist opposition. In March 1998, 9 newly appointed institutional senators--replacing those appointed under the former military government in 1989--took seats, as did ex-President Pinochet, who became a "senator for life" (Chile's constitution provides that ex-Presidents who have served at least 6 years shall be entitled to a lifetime senate seat.) Both the Aylwin and Frei Administrations have proposed unsuccessfully the abolition of the 9 appointed Senate seats. The last congressional elections were held in December 1997. The current lower house (the Chamber of Deputies) contains 70 members of the governing coalition and 50 from the rightist opposition. The Congress is located in the port city of Valparaiso, about 140 kilometers (84 mi.) west of the capital, Santiago.
Chile's congressional elections are governed by a unique binomial system that rewards coalition slates. Each coalition can run two candidates for the two Senate and two lower chamber seats apportioned to each chamber's electoral districts. Typically, the two largest coalitions split the seats in a district. Only if the leading coalition ticket outpolls the second-place coalition by a margin of more than 2-to-1 does the winning coalition gain both seats.
The political parties with the largest representation in the current Chilean Congress are the centrist Christian Democrat Party and the center-right National Renewal Party. The Communist Party and the small Humanist Party failed to gain any seats in the 1997 elections.
Chile's judiciary is independent and includes a court of appeal, a system of military courts, a constitutional tribunal, and the Supreme Court.
National Security
Chile's armed forces are subject to civilian control exercised by the president through the Minister of Defense. Under the 1980 constitution, the services enjoy considerable autonomy, and the president cannot remove service commanders on his own authority.
Army. The Commander in Chief is Lt. General Ricardo Izurieta. The 55,000-person army is organized into 6 divisions, 1 separate brigade, and an air wing.
Navy. Admiral Jorge Arancibia directs the 29,000-person navy, including 5,200 marines. The fleet of 31 surface vessels and 4 submarines is based in Valparaiso. The navy operates its own aircraft.
Air Force. General Fernando Rojas Vender heads a force of 15,000. Air assets are distributed among 4 air brigades headquartered in Iquique, Santiago, Puerto Montt, and Punta Arenas. The Air Force also operates an airbase on King George Island, Antarctica.
The Chilean police are comprised of a national, uniformed police force (carabineros) and a smaller, plainclothes investigations police force. After the military coup in September 1973, the Chilean national police were incorporated into the Defense Ministry. With the return of democratic government, the police were placed under the operational control of the Interior Ministry, but remain under the nominal control of the Defense Ministry. General Manuel Ugarte, who directs the national police force of 27,000, is responsible for law enforcement, traffic management, narcotics suppression, border control, and counter-terrorism throughout Chile.
ECONOMY
Chile's economy, spurred by free market-oriented policies, has averaged a real growth rate of almost 8% per year over the past decade. A limited government role in the economy, openness to international trade and investment, high domestic savings and investment rates, and budget surpluses have made this performance possible. The economy's rapid growth has led to steady increases in wages and living standards.
In 1997, the economy grew by 7.1% in real terms as the inflation rate fell to 6.0%. With investment continuing at a record pace, the economy is expected to continue growing quite vigorously over the next several years. The late-1997/98 financial crisis in Asia is expected to negatively affect Chilean exports and reduce Chile's substantial trade surplus with the region; the Asian crisis is expected to reduce Chilean GDP expansion significantly, resulting in a growth rate between 4.5-5.0% in 1998. In 1999, observers expect growth to be in the 2.5-3.0% range.
Chile has achieved central government budget surpluses every year since 1988. In 1997, the surplus equaled 1.9% of GDP. The 1973-90 military government sold many state-owned companies, and the two democratic governments since 1990 have continued privatization at a more sporadic pace. Import tariffs are a flat 11% on nearly all products and the GOC plans to reduce the rate gradually over the next 5 years.
Policy measures such as the privatization of the national pension system encourage domestic investment, contributing to an estimated total domestic savings rate of approximately 23% of GDP in 1997. The foreign investment law offers investors basically the same treatment as domestic firms, along with some extra guarantees.
Wages have risen faster than inflation each year since 1990; nearly all of this growth reflects greater productivity. The higher wages have increased living standards and have brought more people into the labor force. The share of Chileans with incomes below the poverty line (roughly $4,000/year for a family of four) fell from 46% of the population in 1987 to 23% in 1997. Unemployment has varied with the business cycle in recent years, with annual rates of between 4.5%-6.0%.
Inflation has declined every year since 1990, when the indicator stood at 27%. In 1996, December-to-December inflation stood at 8.2%, and it fell to 6.1 % in 1997. Because most wage settlements and spending decisions are indexed, either formally or informally, it has been difficult to reduce inflation rapidly while maintaining high growth rates. Still, the independent Central Bank has been willing to raise interest rates when necessary to bring down inflation.
The establishment of a compulsory private sector pension system in 1981 was an important step toward increasing domestic savings and the pool of investment capital. Under this system, all workers must pay 10% of their salaries into privately managed funds. This large capital pool has been supplemented by substantial foreign investment.
Total public and private investment in the Chilean economy is very high; in 1997, investment accounted for 33% of GDP, a historical record. The government recognizes the necessity of steadily increasing private investment to boost worker productivity. The government is also encouraging diversification to non-traditional exports such as fruit, wine, and fish to gradually reduce the relative importance of basic traditional exports such as copper, timber, and other natural resources.
Chile's welcoming attitude toward foreign direct investment is codified in the country's Foreign Investment Law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. However, such capital must be kept in Chile for 1 year before being repatriated.
Foreign direct investment in Chile continued at a record pace in 1997, adding $5.0 billion to the total stock. Total foreign investment flows in 1998 (including portfolio and other indirect forms of investment) were $8.1 billion, or better than 10% of GDP.
Foreign Trade
Chile's economy is highly dependent on international trade. In 1997, exports reached $17.0 billion and imports $18.9 billion. Exports accounted for 22% of GDP. Chile has traditionally been dependent upon copper exports. The state-owned firm CODELCO is the world's largest copper producing company. Foreign private investment has developed many new mines, and the private sector produces more copper than CODELCO. Copper output is expected to increase significantly in the next few years as more private sector projects come on stream.
Non-traditional exports have grown faster than those of copper and other minerals. In 1975, non-mineral exports made up just over 30% of total exports; in 1997, they accounted for 52% of export earnings. The most important non-mineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood, and other manufactured products.
Chile's export markets are geographically diverse. Asia and the European Union are the largest regional markets. The U.S., the largest single market, takes in about 17% of Chile's exports. Latin America has been the fastest-growing export market in recent years. The government actively seeks to promote Chile's exports globally. Since 1991, Chile has signed free trade agreements with Canada, Mexico, Venezuela, Colombia, and Ecuador. An association agreement with MERCOSUR (Argentina, Brazil, Paraguay, and Uruguay) went into effect in October 1996. Chile has joined the Asia-Pacific Economic Cooperation (APEC) organization in an effort to boost commercial ties to Asian markets. Also, Chile and the European Union plan to negotiate a trade agreement in the medium-term. Chile shares the U.S. interest in negotiating a comprehensive trade agreement between the two countries. This is due in large part because the United States is the country's most important single trading partner and source of foreign investment; both countries also recognize that the example it would set for broader hemispheric trade integration would be in each other's interest. Chile's 1996 free trade agreement with Canada was modeled largely on NAFTA in anticipation of an eventual trade pact with the United States; similarly, Chile broadened its bilateral free trade agreement with Mexico in March 1998.
Imports have grown along with the economy in the past few years. The country's high investment rate is reflected in the fact that capital goods make up almost 30% of total imports. The United States is Chile's largest single supplier, supplying 23% of the country's imports in 1997. Import tariffs are currently a flat 11% on nearly all products although higher effective tariffs can be charged on imports of wheat, wheat flour, vegetable oils, and sugar as a result of a system of import price bands.
Finance
Chile's financial sector has grown faster than other areas of the economy over the last few years; a banking law reform approved in 1997 broadened the scope of permissible foreign activity for Chilean banks. Domestically, Chileans have enjoyed the recent introduction of new financial tools such as home equity loans, currency futures and options, factoring, leasing, and debit cards. The introduction of these new products has been accompanied by increased use of traditional instruments such as loans and credit cards. Chile's private pension system, with assets worth over $30 billion at the end of 1997, has provided an important source of investment capital for the stock market. The number of firms with shares traded on the stock market continues to grow.
Chile's credit rating is one of the best in Latin America. In recent years, many Chilean companies have sought to raise capital abroad due to the relatively lower interest rates outside of Chile. There are three main ways Chilean firms raise funds abroad: bank loans, issuance of bonds, and the selling of stock on U.S. markets through American Depository Receipts (ADRs). Nearly all of the funds raised go to finance investment.
The government is rapidly paying down its foreign debt. The combined public and private foreign debt was roughly 35% of GDP at the end of 1997, low by Latin American standards.
FOREIGN POLICY
With its return to democracy in 1990, Chile became an active participant in the international political arena. It is an active member of the Rio Group, and it rejoined the Non-Aligned Movement. Chile was a driving force in the world summit for social development held in Copenhagen in March 1995. Chile is an active member of the United Nations and the UN family of agencies, serving on the UN Security Council 1995-97. Chile participates in UN peacekeeping activities, including UNSCOM in Iraq. The Chilean Government has diplomatic relations with most countries, including Cuba. Chile maintains only consular relations with Bolivia; Chile's acquisition of territory during the War of the Pacific (1879-83) continues to influence adversely its relations with Peru and Bolivia. Chile's association with the MERCOSUR countries in 1996 and its continuing interest in hemispheric free trade, as well as its membership in the Asia-Pacific Economic Cooperation grouping auger well for even closer international economic ties in the future. Politically, Chile has been one of the most active countries in supporting implementation of the 1994 Summit of the Americas, hosting the second Summit of the Americas in Santiago, April 1998.
U.S.-CHILEAN RELATIONS
Relations between the United States and Chile are better now than at any other time in history. The United States Government applauded the rebirth of democratic practices in Chile in the late 1980s and early 1990s and sees the maintenance of a vibrant democracy and a healthy and sustainable economy as among the most important U.S. interests in Chile. President Eduardo Frei's February 1997 state visit to the United States forged close ties with President Clinton, leading to the latter's state visit to Chile in April 1998. The two governments consult frequently on issues of mutual concern, and dialogue takes place in four bilateral commissions (covering defense, global security, agriculture, trade and investment, and bilateral issues).
Many other prominent Americans and senior U.S. officials visited Chile during the period 1995-1998, including Hillary Rodham Clinton, ex-Presidents Carter, Bush, and Ford, former Secretary of State Christopher, Secretary of State Albright, Secretary of Defense Cohen, many other members of the Cabinet and Congress, and senior members of the U.S. military, addressing issues ranging from education to international trade.
The warm relationship enjoyed by the United States and Chile today contrasts with the difficult period of relations during Augusto Pinochet's military regime from 1973-90. A 1976 car bomb attack in Washington, DC, which killed Orlando Letelier, former Chilean ambassador to the United States and a member of President Salvador Allende's cabinet, and U.S. citizen Ronni Moffitt, caused a sharp deterioration in relations, including a ban on security assistance and arms sales to Chile. In response to a commitment by President Aylwin's Government to pursue the Letelier-Moffitt case within the Chilean judicial system, President Bush lifted the sanctions. A Chilean court subsequently convicted two Chilean military officers of having ordered the assassination. The goal of U.S. foreign policy in Chile is to pursue expanded economic relations and to cooperate on a range of bilateral and multilateral issues of interest. Above all, the United States believes that an economically strong and democratically healthy Chile will benefit the entire hemisphere.
PEOPLE
Colombia is the third-most populous country in Latin America, after Brazil and Mexico. Movement from rural to urban areas has been heavy. The urban population increased from 57% of the total population in 1951 to about 74% by 1994. The nine eastern departments, constituting about 54% of Colombia's area, have less than 3% of the population and a density of less than one person per square kilometer (two persons per sq. mi.). Thirty cities have 100,000 or more inhabitants. Residents of the high Andes Mountains must cope with sometimes deadly volcanic activity--more than 20,000 died in the 1985 eruption of the Nevada del Ruiz Volcano near the town of Armero in Tolima Department. The Galeras Volcano near Pasto (Narino Department) is active and under observation by the Colombian Government.
The ethnic diversity in Colombia is a result of the intermingling of indigenous Indians, Spanish colonists, and African slaves. Today, only about 1% of the people can be identified as fully Indian on the basis of language and customs. Few foreigners have immigrated to Colombia, unlike several other South American countries.
HISTORY
During the pre-Columbian period, the area now known as Colombia was inhabited by indigenous people who were primitive hunters or nomadic farmers. The Chibchas, who lived in the Bogota region, dominated the various Indian groups.
Spaniards first sailed along the north coast of Colombia as early as 1500, but their first permanent settlement, at Santa Marta, was not established until 1525. In 1549, the area was established as a Spanish colony with the capital at Santa fe de Bogota. In 1717, Bogota became the capital of the Viceroyalty of New Granada, which included what is now Venezuela, Ecuador, and Panama. The city became one of the principal administrative centers of the Spanish possessions in the New World, along with Lima and Mexico City.
On July 20, 1810, the citizens of Bogota created the first representative council to defy Spanish authority. Total independence was proclaimed in 1813, and in 1819 the Republic of Greater Colombia was formed.
The Republic
After the defeat of the Spanish army, the republic included all the territory of the former viceroyalty. Simon Bolivar was elected its first President and Francisco de Paula Santander, Vice President. Two political parties that grew out of conflicts between the followers of Bolivar and Santander--the Conservatives and the Liberals--have dominated Colombian politics. Bolivar's supporters, who later formed the nucleus of the Conservative Party, advocated a strong centralized government, alliance with the Roman Catholic Church, and a limited franchise. Santander's followers, forerunners of the Liberals, wanted a decentralized government, state rather than church control over education and other civil matters, and a broadened suffrage.
Throughout the 19th and early 20th centuries, each party held the presidency for roughly equal periods of time. Colombia, unlike many Latin American countries, maintained a tradition of civilian government and regular, free elections. The military has seized power three times in Colombia's history: in 1830, when Ecuador and Venezuela withdrew from the republic (Panama did not become independent until 1903); in 1854; and in 1953-57. In the first two instances, civilian rule was restored within 1 year.
Notwithstanding the country's commitment to democratic institutions, Colombia's history has been characterized by periods of widespread, violent conflict. Two civil wars resulted from bitter rivalry between the Conservative and Liberal parties. The War of a Thousand Days (1899-1902) cost an estimated 100,000 lives, and up to 300,000 people perished during "La Violencia" (The Violence) of the late 1940s and 1950s.
A military coup in 1953 brought Gen. Gustavo Rojas Pinilla to power. Initially, Rojas enjoyed considerable popular support, due largely to his success in reducing "La Violencia." When he did not restore democratic rule, however, he was overthrown by the military in 1957 with the backing of both political parties, and a provisional government was installed.
The National Front
In July 1957, former Conservative President Laureano Gomez (1950-53) and former Liberal President Alberto Lleras Camargo (1945-46) issued the "Declaration of Sitges," in which they proposed a "National Front" whereby the Liberal and Conservative parties would govern jointly. Through regular elections, the presidency would alternate between the two parties every 4 years; the parties also would have parity in all other elective and appointive offices.
The National Front ended "La Violencia." National Front administrations instituted far-reaching social and economic reforms in cooperation with the Alliance for Progress, an inter-American program of economic assistance which began in 1961 with major financial backing by the United States. The National Front government made efforts to resolve problems of inflation, unemployment, and inequitable income distribution while cutting government expenses.
Although the parity system established by the Sitges agreement was terminated in 1978, the 1886 Colombian constitution (in effect until 1991) required that the losing political party be given adequate and equitable participation in the government. Although the 1991 constitution does not have that requirement, subsequent administrations have included opposition parties in the government.
Post-National Front Years
Between 1978 and 1982, the government focused on ending the limited, but persistent, Cuban-backed insurgency that sought to undermine Colombia's traditional democratic system. The success of the government's efforts enabled it to lift the state-of-siege decree that had been in effect for most of the previous 30 years.
In 1984, President Belisario Betancur, a Conservative who won 47% of the popular vote, negotiated a cease-fire that included the release of many guerrillas imprisoned during the effort to overpower the insurgents. The cease-fire ended when Democratic Alliance/M-19 (AD/M-19) guerrillas resumed fighting in 1985.
A vicious attack on the Palace of Justice in Bogota by the AD/M-19 on November 6-7, 1985, and its violent suppression by the Army, shocked Colombia and the entire world. Of the 115 people killed, 11 were Supreme Court justices. Although the government and the Revolutionary Armed Forces of Colombia (FARC), the largest guerrilla group, renewed their truce in March 1986, peace with the AD/M-19 and dissident factions of other guerrilla groups seemed remote as Betancur left office.
The next administrations had to contend both with the guerrillas and with the narcotics traffickers, who operated with relative impunity within Colombia. Narco-terrorists assassinated three presidential candidates before Cesar Gaviria Trujillo was elected in 1990. Since the death of Medellin cartel leader Pablo Escobar in a shoot-out in December 1993, indiscriminate acts of violence associated with that organization have abated.
President Ernesto Samper assumed office in August 1994. Samper vowed to continue many of the economic and foreign policy goals of the Gaviria Administration, while also placing greater emphasis on addressing social inequities and eliminating poverty. However, a political crisis relating to contributions from drug traffickers to Samper?s 1994 presidential campaign diverted attention from these social programs, thus slowing, and in some cases, halting progress.
GOVERNMENT
On August 7, 1998, Andres Pastrana was sworn in as the President of Colombia. A member of the Conservative Party, Pastrana defeated Liberal Party candidate Horacio Serpa in a run-off election marked by high voter turn-out and little political unrest. In an August visit with President Clinton, then President-elect Pastrana expressed his hopes for bringing about a peaceful resolution of Colombia?s long-standing civil conflict, and conveyed his commitment to cooperate fully with the United States to combat the traffic in illegal drugs.
While this commitment and early initiatives in the Colombian peace process give reason for optimism, the Pastrana Administration will simultaneously have to deal with combating high unemployment and other economic problems, such as the fiscal deficit and the impact of global financial instability on Colombia. Additionally, the severity of the countrywide guerrilla attacks on August 3-5 by the FARC and ELN--which left at least 135 dead and more than 180 soldiers and police taken prisoner--highlighted the difficulties that President Pastrana will face in the future.
The new constitution, enacted on July 4, 1991, strengthened the administration of justice with the provision for introduction of an accusatorial system which ultimately is to replace entirely the previous Napoleonic Code system. Other significant reforms under the new constitution provide for civil divorce, dual nationality, the election of a vice president, and the election of departmental governors. The constitution expanded citizens' basic rights, including that of "tutela," under which an immediate court action can be requested by an individual if he or she feels that his or her constitutional rights are being violated and if there is no other legal recourse.
The national government has separate executive, legislative, and judicial branches. The President is elected for a 4-year term and cannot be re-elected. The 1991 constitution re-established the position of vice president, who is elected on the same ticket as the president. By law, the vice president will succeed in the event of the president's resignation, illness, or death.
Colombia's bicameral Congress consists of a 102-member Senate and a 161-member House of Representatives. Senators are elected on the basis of a nationwide ballot, while representatives are elected in multi-member districts co-located within the 32 national departments. The country's capital is a separate capital district and elects its own representatives. Members may be re-elected indefinitely, and, in contrast to the previous system, there are no alternate Congressmen. Congress meets twice a year, and the president has the power to call it into special session when needed.
DEFENSE
Colombia's Ministry of Defense, charged with the country's internal and external defense and security, has an army, navy (which includes both marines and a coast guard), air force, and national police under the leadership of a civilian Minister of Defense. Colombia has been plagued by a lengthy civil conflict which continues to take a heavy toll on the Colombian people. The conflict with the guerrilla groups continues to be the top priority for the military.
In 1998, Colombia assigned 3.4% of its GDP to defense. The armed forces number about 250,000 uniformed personnel: 145,000 military and 105,000 police. Many Colombian military personnel have received training in the United States or in U.S. military schools in Panama. The United States has provided equipment to the Colombian military through the military assistance program and foreign military sales.
Narcotics decertification in 1996 forced a temporary halt to U.S. military assistance programs, except for those related to counternarcotics. On August 1, 1997, the U.S. and Colombia signed an End Use Monitoring (EUM) memorandum of understanding which stipulates that U.S. counternarcotics assistance to the Colombian military is conditioned on human rights screening of proposed recipient units.
ECONOMY
Under the leadership of President Cesar Gaviria Trujillo, Colombia undertook a profound economic reform program in 1990-94 (the "apertura," an "opening" to economic liberalization and international trade and investment). The Gaviria Government pursued prudent fiscal, exchange rate, and monetary policies and implemented sweeping changes in the areas of finance, labor, exchange rates, and trade. These measures have been largely responsible for the sustained economic growth enjoyed by Colombia. GDP growth has been more than 4% during 5 of the last 8 years. Starting in 1996, however, growth slowed significantly. While the Samper Administration did not undermine the "apertura," it also did not push it forward. Privatization slowed under the Samper Government.
Allegations that Samper had accepted drug money in his presidential campaign weakened the administration and affected the economy through 1997. Samper made repeated concessions in labor disputes, including inflationary wage increases. This led the private sector in 1997 to abandon the "Social Pact for Productivity, Prices and Wages," a program instituted in 1995 in which the economy's major players (government, private sector, and labor) had agreed to exercise discipline over wages and prices to keep inflation in check. Continued internal security problems stemming from Colombia's civil conflict also affect economic growth.
Andres Pastrana, widely regarded as pro-business, took office on August 7. The new president has expressed his commitment to carrying forward the peace process, reducing the fiscal deficit, and promoting investment, employment, and savings.
The Colombian economy in 1997 produced real official growth of 3.2%, up from the 2.1% recorded in 1996. Economic performance in 1997 owed its strength largely to the 5.1% growth in the transportation and communications sector and the 4.4% growth in the mining and hydrocarbons sector. Exports grew only slightly, from $10.6 billion in 1996 to $11.5 billion in 1997. Unemployment rose to 14.8% by mid- 1998, its highest level in 20 years. The trade deficit of $3.8 billion was offset by capital flows in the form of foreign direct investment and private sector borrowing.
Colombia's foreign exchange reserves at the end of 1997 were approximately $9.88 billion. With these strong net international reserves, Colombia successfully remained in the international capital markets in Europe, Japan, and the United States. The rate of inflation in 1997 was 17.7%, down from 21.6% in 1996. Colombia is the only major Latin American country which did not have to reschedule its external debt during the debt crises of the 1980s. The nation continued to pay both principal and interest to its foreign creditors. Today it is one of the very few countries in the region to hold an investment grade international credit rating. Colombia's total foreign debt at the end of 1997 was $31.5 billion -- $16 billion in public sector debt, $15.5 billion in the private sector -- totaling 33% of GDP.
The new Finance Minister Restrepo and his team are implementing fiscal and monetary policies designed to get Colombia?s finances in order, and in particular, attack the serious fiscal problem. On September 2, 1998, Colombia?s central bank effectively devalued the peso by 9%. The administration plans to reduce the budget deficit substantially via cuts in expenditures and expanding the tax base, reducing tax exemptions, and attacking smuggling and tax evasion.
Mining and Energy
Colombia is well-endowed with minerals and energy resources. It has the largest coal reserves in Latin America and is second to Brazil in hydroelectric potential. Estimates of oil reserves in 1995 were 3.1 billion barrels. It also possesses significant amounts of ferronickel, gold, silver, platinum, and emeralds.
The discovery of 2 billion barrels of high-quality oil at the Cusiana and Cupiagua fields, about 125 miles east of Bogota, has enabled Colombia to become a net oil exporter since 1986. Total crude oil production averages 620,000 b/d; about 184,000 b/d is exported, and production from those fields is projected to reach 1 million barrels per day (b/d) by the year 2000. The Government of Colombia has come under pressure for the stringent requirements of its association contracts for the exploration and production of Colombia's oil. Refining capacity cannot satisfy domestic demand, so some refined products, especially gasoline, must be imported. Plans for the construction of a new refinery are under development.
The oil pipelines are a frequent target of extortion and bombing campaigns by both the ELN and FARC guerrillas. The bombings, which occur on average once every 5 days, have caused substantial environmental damage.
Colombia has 6.6 billion tons of proven coal reserves and its coal production totaled 21.7 million metric tons (mt) in 1995. Production from El Cerrejon -- the world's largest open pit coal mine -- located on Colombia's Guajira Peninsula, accounted for 65% of that amount. Colombia's exports of 18.4 million mt of steam coal in 1994 made it the world's fourth-largest exporter of this commodity. Coal exports were expected to reach 25 million tons in 1996, and private and public investments in Colombia's coal fields and related infrastructure projects are expected to enable the country to export about 35 million mt at the beginning of the next decade.
While Colombia has vast hydroelectric potential, a prolonged drought in 1992 forced severe electricity rationing throughout the country until mid-1993. The consequences of the drought on electricity-generating capacity caused the government to commission the construction or upgrading of 10 thermoelectric power plants. Half will be coal-fired and half will be fired by natural gas. The government has also begun awarding bids for the construction of a natural gas pipeline system that will extend from the country's extensive gas fields to its major population centers. Plans call for this project to make natural gas available to millions of Colombian households by the middle of the next decade.
Trade
Colombia's balance of trade showed a deficit of $3.8 billion in 1997, worse than the $2.2 billion deficit in 1996. Total imports reached $15.3 billion, while exports were $11.5 billion. Colombia's major exports continue to be petroleum, coffee, coal, nickel, gold, and non-traditional exports (e.g., cut flowers, semi-precious stones, sugar, and tropical fruits). Colombia's major trading partner in 1997 continued to be the United States, which took 38% of Colombia's exports and provided 41.5% of its imports. The EU and Japan remain important trading partners, as do Andean Pact partners, especially Venezuela. Diplomatic relations with a number of Pacific nations were established during the Gaviria Administration. Regular diplomatic exchanges with Japan, China, South Korea, and other Asian nations are designed to open these markets to Colombian products.
Foreign Investment
In 1991 and 1992, the government passed laws to stimulate foreign investment in nearly all sectors of the economy. The only activities closed to foreign direct investment are defense and national security, disposal of hazardous wastes, and real estate (the last of these restrictions is intended to hinder money laundering). Colombia established a special entity -- Coinvertir -- to assist foreigners in making investments in the country. Foreign direct investment continued to be strong in 1997, registering flows of $3.8 billion.
Major foreign investment projects underway include the $6 billion development of the Cusiana and Cupiagua oil fields, development of coal fields in the north of the country, and the recently concluded licensing for establishment of cellular telephone service. The United States accounted for 37.8% of the total $11.2 billion stock of non-petroleum foreign direct investment in Colombia at the end of 1997.
On October 21, 1995, under the International Emergency Economic Powers Act (IEEPA), President Clinton signed an Executive Order barring U.S. entities from any commercial or financial transactions with four Colombian drug kingpins and with individuals and companies associated with the traffic in narcotics, as designated by the Secretary of the Treasury in consultation with the Secretary of State and the Attorney General.
Industry and Agriculture
The most industrially diverse member of the five-nation Andean Community, Colombia has four major industrial centers--Bogota, Medellin, Cali, and Barranquilla, each located in a distinct geographical region. Colombia's industries include textiles and clothing, leather products, processed foods and beverages, paper and paper products, chemicals and petrochemicals, cement, construction, iron and steel products, and metalworking.
Agriculture accounted for 18% of Colombia's GDP in 1997. Its diverse climate and topography permit the cultivation of a wide variety of crops. In addition, all regions yield forest products, ranging from tropical hardwoods in the hot country to pine and eucalyptus in the colder areas.
Cacao, sugar cane, coconuts, bananas, plantains, rice, cotton, tobacco, cassava, and most of the nation's beef cattle are produced in the hot regions from sea level to 1,000 meters elevation. The temperate regions -- between 1,000 and 2,000 meters -- are better suited for coffee, certain flowers, corn and other vegetables, and fruits such as citrus, pears, pineapples, and tomatoes. The cooler elevations -- between 2,000 and 3,000 meters -- produce wheat, barley, potatoes, cold-climate vegetables, flowers, dairy cattle, and poultry.
Narcotics Cultivation and Control
Colombia is the world's leading supplier of refined cocaine and a growing supplier of heroin, especially to the United States. Colombia also has the largest area under coca cultivation. Despite the death of Medellin cartel drug lord Pablo Escobar in 1993 and the arrests of major Cali cartel kingpins in 1995 and 1996, the Colombian drug cartels remain among the most sophisticated criminal organizations in the world. They control cocaine processing, international wholesale distribution chains, and markets.
Colombia is engaged in a broad range of narcotics control activities. Through aerial spraying of herbicide and manual eradication, Colombia has attempted to keep coca, opium poppy, and cannabis cultivation from expanding. The government has committed itself to the eradication of all illicit crops, interdiction of drug shipments, and financial controls to prevent money laundering. A new alternative development program is being planned for initiation in 1999.
Corruption and intimidation by traffickers complicate the drug-control efforts of many institutions of government. Colombia passed a revised criminal procedures code in 1993 which permits traffickers to surrender and negotiate lenient sentences in return for cooperating with prosecutors. In December 1996 and February 1997, however, the Colombian Congress passed legislation to toughen sentencing, asset forfeiture, and money laundering penalties. Implementation, however, is still lagging. In November 1997, the Colombian Congress amended the constitution to permit the extradition of Colombian nationals, albeit not retroactively -- which could have the effect of shielding major traffickers from justice in the United States and other countries where they committed their crimes. (The Colombian Government permits extradition of foreigners resident in Colombia). The amendment was under review until October 5, 1998, when the Constitutional Court ruled that a proposed constitutional amendment permitting extradition without retroactivity was valid.
In 1996 and 1997, President Clinton made the decision not to certify Colombia as fully cooperating with the United States or taking adequate steps on its own to meet the objective of the 1988 U.N. convention on drugs. On February 26, 1998, the President determined that the vital national interests of the United States require that U.S. assistance to Colombia be provided to meet the increasing challenges posed to counternarcotics efforts in Colombia. The President granted Colombia a national interests certification, which waives the restrictions of decertification and allows for broader U.S. engagement with Colombia in the fight against illegal narcotics.
Colombia and other drug producing and drug transit countries will be reviewed annually by March 1 for counternarcotics performance.
FOREIGN RELATIONS
Colombia seeks diplomatic and commercial relations with all countries, regardless of their ideologies or political or economic systems. In 1969, it formed what is now the Andean Community along with Bolivia, Chile, Ecuador, and Peru (Venezuela joined in 1973 and Chile left in 1976). In the 1980s, Colombia broadened its bilateral and multilateral relations, joining the Contadora Group, the Group of Eight (now the Rio Group), and the Non-Aligned Movement -- which it chaired from 1994 until September 1998. In addition, it has signed free trade agreements with Chile, Mexico, and Venezuela.
Colombia has traditionally played an active role in the UN, in the Organization of American States, and in their subsidiary agencies. Former President Gaviria became Secretary General of the OAS in September 1994. Colombia was a participant in the December 1994 and April 1998 Summits of the Americas and followed up on initiatives developed at the summit by hosting two post-summit, ministerial-level meetings on trade and science and technology.
Colombia regularly participates in international fora, including CICAD, the Organization of American States' body on money laundering, chemical controls, and drug abuse prevention. Although the Colombian Government ratified the 1988 UN convention on narcotics in 1994 -- the last of the Andean Governments to do so --it took important reservations, notably to the anti-money-laundering measures, asset forfeiture and confiscation provisions, maritime interdiction, and extradition clauses. Colombia subsequently withdrew some of their reservations, most notably its reservation on extradition.
U.S.-COLOMBIAN RELATIONS
In 1822, the United States became one of the first countries to recognize the new republic and to establish a resident diplomatic mission. Today, about 25,000 U.S. citizens live in Colombia, most of them dual nationals. From October 1997 to September 1998, more than 158,000 Americans visited Colombia. Currently 250 private American businesses are registered in Colombia.
Despite the strain which decertification and related issues placed on bilateral relations during the Samper Administration, the U.S. and Colombian Governments continued to cooperate and consult. In 1995 and 1996, the U.S. and Colombia signed important agreements on environmental protection and civil aviation. The two countries have signed agreements on asset sharing and chemical control. In 1997, the U.S. and Colombia signed an important maritime ship-boarding agreement to allow for search of suspected drug-running vessels. During the period 1988-1996, the United States provided approximately $765 million in assistance to Colombia. In 1998, U.S. assistance will exceed $100 million. This funding supports Colombia's counternarcotics efforts, such as arresting drug traffickers, seizing drugs and illegal processing facilities, and eradicating coca and opium poppy.
Trade Development
Colombia is the United States' fifth-largest export market in Latin America (behind Mexico, Brazil, Venezuela, and Argentina) and the 26th-largest market for U.S. products worldwide. In 1997, two-way merchandise trade between the United States and Colombia totaled $9.7 billion, according to United States Government data. The United States is Colombia's principal trading partner. Colombia benefits from duty-free entry (for a 10-year period, through 2001) for certain of its exports to the United States under the Andean Trade Preferences Act. Colombia improved protection of intellectual property rights through the adoption of three Andean Pact decisions in 1993 and 1994, but the U.S. remains concerned over deficiencies in licensing, patent regulations, and copyright protection.
The petroleum and natural gas, coal mining, chemical, and manufacturing industries attract the greatest U.S. investment interest. U.S. investment accounted for 37.8% ($4.2 billion) of the total $11.2 billion in foreign direct investment at the end of 1997 (excluding petroleum and portfolio investment). Worker rights and conditions in the U.S.-dominated sectors are superior to general working conditions. Examples include shorter-than-average working hours, higher wages, and compliance with health and safety standards