Colombia and Venezuela

The FARC files

Just how much help has Hugo Chávez given to Colombia's guerrillas?

THEY represent only one side of a story, and most of their claims have yet to be independently corroborated. But Interpol has now concluded that the huge cache of e-mails and other documents recovered from the computers of Raúl Reyes, a senior leader of the FARC guerrillas killed in a Colombian bombing raid on his camp in Ecuador on March 1st, are authentic and undoctored. The documents throw new light on the inner workings of the FARC. And they raise some very pointed questions about the ties between Venezuela's leftist president, Hugo Chávez, and a group considered to be terrorists by the United States and the European Union (EU).

Batches of the documents have been seen by The Economist and several other publications. They appear to show that Mr Chávez offered the FARC up to $300m, and talked of allocating the guerrillas an oil ration which they could sell for profit. They also suggest that Venezuelan army officers helped the FARC to obtain small arms, such as rocket-propelled grenades, and to set up meetings with arms dealers.

Venezuelan officials have dismissed the documents as fabrications. That was contradicted by Ronald Noble, Interpol's secretary-general, who announced in Bogotá on May 15th, after two months of study by a team of 64 foreign experts, that the computer files came from the FARC camp and had not been modified in any way. Mr Chávez called this “ridiculous”, questioning the impartiality of Mr Noble, who is American, and labelling him a “gringo policeman”. However, in one indication of their accuracy, the documents provided information that in March guided police in Costa Rica to a house where they found $480,000 in cash, as an e-mail suggested.

The FARC are in some ways a throwback to a past era in Latin America. In other ways they are part of the new face of organised crime in the region. Old-fashioned Marxists unmoved by the collapse of the Soviet Union, they have flourished since then by drug-trafficking and kidnapping. Their war against Colombia's elected government has almost no public support, especially since they showed no interest in making peace during three years of talks with the government from 1999 to 2002. Since then, a determined security build-up by Álvaro Uribe, Colombia's popular president, has put the FARC on the defensive, driving it into remote jungles and savannahs—and towards the country's borders.

Mr Chávez has long expressed sympathy for the FARC. But Colombian officials, backed by detailed testimony from guerrilla deserters, accuse Venezuela and Ecuador of more than rhetoric, saying they have turned a blind eye to guerrilla camps on their territory. The killing of Mr Reyes, a member of the FARC's seven-man secretariat, underlined the point. The captured documents seem to confirm that FARC commanders have co-ordinated closely with Venezuelan army and intelligence officers on the border for several years, according to a Colombian official.

The documents also cast light on the FARC's strategic thinking. Its overriding objective seems to be to obtain international recognition as a “belligerent force” and to persuade the EU to stop labelling it a terrorist group. The guerrillas are desperate to establish a “strategic alliance” with Mr Chávez. But that was still just an aspiration in early 2007, the documents suggest. “We don't know if we enjoy their trust,” writes Jorge Briceño (alias “Mono Jojoy”), the FARC's military leader, to other members of the secretariat.

Contacts intensified last September after Mr Uribe asked Mr Chávez to mediate with the FARC to release the guerrillas' hostages, including Ingrid Betancourt, a politician with French and Colombian nationality. The secretariat agreed to send one of its members, Iván Márquez, to meet Mr Chávez in Caracas to talk about swapping the hostages for jailed guerrillas—but also, wrote Mr Briceño, “to lay the foundations for mutual political relations...even though this might be in the long term.”

At their meeting, Mr Chávez “approved totally and without batting an eyelid” a FARC request for $300m, Mr Márquez reported to his colleagues in a message published by Spain's El País and Colombia's Semana. In a long e-mail 12 days later, Mr Briceño notes that it was not clear whether the money was “a loan or for solidarity” but that the FARC should offer Mr Chávez help in return. According to a document obtained by the Wall Street Journal, Mr Chávez's interior minister, Ramón Rodríguez Chacín, asked the FARC to train Venezuelan soldiers in guerrilla tactics for use if the United States were to invade.

In an e-mail dated February 8th, Mr Márquez and a colleague report that Mr Chávez (whom they identify with the pseudonym “Ángel”) had told them that the first $50m was “available”, with another $200m over the course of the year. However, there is no corroboration as to whether any money was actually paid. Colombian officials have long said that the FARC was wealthy through drug money. So why were they so jubilant about the loan? Perhaps because army pressure against the guerrillas has disrupted their drug business. The government has evidence that some FARC fronts are short of cash and have trouble paying farmers for coca paste, says Sergio Jaramillo, the deputy defence minister.

The secretariat's e-mail correspondence sheds light on several other matters. It confirms that Manuel Marulanda, the FARC's veteran leader, is still alive and apparently in overall command. It also shows the FARC's cynicism about the plight of its hostages. Mr Briceño says repeatedly that he does not expect to achieve the hostage-for-prisoners swap while Mr Uribe is in power but that the FARC will keep pushing it to create problems for the president. When Mr Chávez asked for Ms Betancourt's release “we told him that if we did that we would be without cards,” Mr Márquez writes.

The e-mails show the extent to which the army has the FARC on the run: the secretariat members often complain of their difficulties in communicating with each other. Days after Mr Reyes was killed another member of the secretariat, Iván Ríos, was murdered by his own bodyguard. This week Mr Ríos's deputy, Nelly Ávila Moreno (aka “Karina”), surrendered. But the FARC is far from defeated. In an e-mail last August Mr Briceño notes that guerrilla landmines are undermining army morale. Their impact is “very good and we are going to increase them,” he writes.

The e-mails released so far represent only a fraction of the almost 40,000 written documents and 610 gigabytes of data on the computers. For all his bravado, Mr Chávez is clearly discomfited by all this. At a get-together of European and Latin American leaders in Lima on May 16th he was unusually conciliatory. Some Republicans in the United States have seized upon the computer cache as grounds for declaring Venezuela to be a state sponsor of terrorism. This could require the United States to impose trade sanctions on a country from which it buys some 10% of its imported oil—and so is unlikely to happen. And the e-mails are not a smoking gun implicating Mr Chávez unequivocally. It was Mr Márquez and other FARC commanders, not Mr Reyes, who handled relations with Venezuela. So there are no e-mails from Venezuelan officials on his computer.

Even so, the documents should trouble Venezuela's South American neighbours. None of them echoed Mr Chávez's call in January for the FARC to be recognised as legitimate belligerents. The centre-left governments in many countries are wary of Colombia's close alliance with the United States, which supplies it with military aid. But all have signed the Organisation of American States' democratic charter, requiring them to support, not undermine, each other's democracies. Last month José Miguel Insulza, the OAS's secretary-general, said that “no evidence” linked Venezuela to the FARC. But the evidence from the laptops suggests that there is certainly a case to be answered—by something more than a blustering denial.

The coming days

The week ahead

One more test for the junta in Myanmar, and other news of the coming week

• IF THE military leaders of Myanmar dare to take it, an opportunity arises on Tuesday May 27th to nudge their wretched country in a slightly less desperate direction. By that date the junta is supposed to announce whether the detained opposition leader, Aung San Suu Kyi, will be released from house arrest. The Nobel laureate has been in detention for a dozen of the past 18 years. But in the aftermath of the cyclone, which has claimed perhaps 130,000 lives—partly as a result of the government's decision to delay foreign aid—it seems more likely that her detention will be extended for another year.

For background see article

• THE diamond industry has been in flux for some years, as the dominant position of De Beers has gradually been eroded by the success of smaller rivals. But some things are constant in the industry: big stones draw great attention and hefty price tags. In Hong Kong on Wednesday May 28th Christie's will host the sale of the largest colourless diamond—more than 100 carats—to be seen on an auction floor in 18 years.

For background see article

• A GROUP of economists, including Nobel laureates, get together this week in Denmark's capital city, concluding on Friday May 30th, to seek new ways to tackle big social, economic and environmental problems facing the planet. The Copenhagen Consensus gathering will address a wide range of issues—hunger, education, trade and subsidies, water and sanitation, climate change—relevant to the development of poor countries in particular.

For background see article

• THE race to pick a Democratic nominee to contest the presidential election may, finally, be grinding to an end. One of the sticking points between the rival candidates, Hillary Clinton and Barack Obama, has been the question of whether—and how—to seat delegates from Michigan and Florida at the Democratic convention. The two states held primary contests earlier than the party rules allowed, in theory forfeiting their right to send delegates. On Saturday May 31st members of the party's rules committee will meet in Washington, DC, to discuss how to resolve the matter, potentially clearing a way to end the race.

For background see article

To listen to a discussion of the news in the coming week click here

Israeli GDP Growth Slows Less Than Expected to 5.4% (Update1)

May 25 (Bloomberg) -- Israel's economy slowed less than expected in the first quarter, growing an annualized 5.4 percent, buoyed by a surge in consumer spending, increased investment in fixed capital and continued export growth.

Growth was above the 4.2 percent estimated by economists surveyed by Bloomberg, as consumer spending jumped almost fivefold to a 14.1 percent annual rate. Exports of goods and services grew an annualized 12.6 percent in the first three months of the year, after rising 14.7 percent in the fourth quarter, while investment in fixed-capital formation rose 9.6 percent.

``This is really nice growth, better than we thought it would be,'' Eyal Klein, chief strategist at Israel Brokerage & Investments Ltd. said by telephone. ``The Bank of Israel's growth forecast now looks a bit pessimistic.''

On April 1, the Israeli central bank lowered its projection for gross domestic product growth this year to 3.2 percent from 3.5 percent, the slowest pace since 2003, citing the deceleration in world growth.

GDP is likely to grow by more than 4 percent in 2008, Bank Hapoalim said in an e-mailed note, after the data. Most of the effect of the global slowdown will be felt next year, when growth will fall to 3 percent, the bank said.

The statistics bureau revised fourth-quarter growth to 5.8 percent today, from the previously reported 6.4 percent. Israel's economy expanded 5.3 percent last year.

`Very Strong' Exports

``Exports are very, very strong, despite the strong shekel, and despite the slowdown in the U.S.,'' Vered Dar, chief economist of Psagot Investment House Ltd. in Tel Aviv said by telephone. ``It's very hard to see any sign of a slowdown. Maybe we will start to see it in the third quarter.''

The growth in consumer spending was buoyed by a ``sharp'' increase in private car purchases, the statistics bureau said. Spending on home appliances, including refrigerators, washing machines, and air conditioners, rose as well, it said.

The increase in spending on consumer durables may vary a from quarter to quarter and doesn't necessarily point to a change in the trend, Dar said.

Imports of goods and services, including spending by Israelis abroad, rose 18.7 percent, compared with a 6.8 percent gain in the fourth quarter.

Gross domestic product for the business sector rose 6.1 percent, slowing from a 7.6 percent gain in the previous quarter, the government said.

Rate Hike Predicted

The first-quarter growth data support a central bank interest rate hike, Bank Hapoalim said. The Bank of Israel is due to announce the June base rate tomorrow at 6:30 p.m. local time, with the median estimate of 17 economists surveyed by Bloomberg indicating a quarter-point increase to 3.5 percent.

``The strong growth figures will bolster the feeling in the Bank of Israel that the real interest rate is too low and should be raised gradually,'' Hapoalim said.

Spending Probably Slowed, Confidence Sank: U.S. Economy Preview

May 25 (Bloomberg) -- The pace of consumer spending in the U.S. probably slowed as property values and confidence sank, economists said before reports this week.

Purchases were up 0.2 percent in April after increasing 0.4 percent the prior month, according to the median estimate of economists surveyed by Bloomberg News before the Commerce Department's May 30 report. Other figures may show home prices declined at a faster rate and consumers were the most pessimistic in at least 15 years.

The tax-rebate checks being sent by the government will only provide a temporary boost to spending as smaller wage gains, declining home equity and soaring fuel costs keep eroding Americans' buying power. Another report is projected to show that companies are also retrenching.

``We continue to expect sluggish growth through next year as the economy battles several shocks,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York. ``Falling home prices, along with tight credit, rising energy prices and a weaker labor market should curb consumer spending.''

Households will spend about $90 billion more this year on gasoline if fuel prices remain at current levels, according to a forecast by economists at Credit Suisse Holdings in New York. That will consume about 80 percent of the more than $110 billion in rebate checks the government is sending out.

Incomes rose 0.2 percent in April, the smallest gain in six months, the Commerce data on spending may also show.

Ex-Food, Fuel

The report's inflation figures may show prices outside of food and fuel remain tame. A gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure, increased 0.1 percent in April after a 0.2 percent gain the prior month, the survey showed.

``Costs are rising faster than we've seen in more than a dozen years,'' McDonald's Corp. Chief Operating Officer Ralph Alvarez told reporters May 22. ``In today's environment, we believe strongly that you cannot pass on all your costs.''

Still, the jump in fuel expenses is one reason consumers are becoming more pessimistic. The Conference Board's confidence measure fell to 60 this month, the lowest reading since August 1993, according to the survey median. A similar index from Reuters/University of Michigan, to be released May 30, may have decreased to the lowest level since June 1980.

Fed Forecasts

Federal Reserve officials last month projected the economy would grow about a percentage point less this year then they anticipated in January, according to minutes of their April meeting released last week. They also estimated a higher rate of inflation than previously thought.

Officials expected ``much weaker'' growth in 2008 than last year, ``owing primarily to a continued contraction of housing activity, a reduction in the availability of household and business credit and rising energy prices,'' the minutes said.

A glut of unsold properties is pushing prices lower. The S&P/Case-Shiller home-price index, scheduled for release May 27, may show prices in 20 U.S. metropolitan areas fell 14.2 percent in March from a year earlier. The decrease would be the biggest since the group started keeping year-over-year records in 2001.

Commerce's report on sales of new houses, due the same day, may show purchases fell to an almost 17-year low pace of 520,000 in April.

Home Sales

Sales of new homes are viewed as a leading indicator of the market because they are tabulated when a contract is signed. Existing-home sales reflect contract closings, which typically come a month or two later.

Growth in the first three months of the year may have been better than first estimated even as the economic outlook dims. The economy expanded at a 0.9 percent annual pace in the first quarter, up from the Commerce Department's 0.6 percent estimate issued last month, according to the survey median.

The improvement reflected a bigger narrowing of the trade deficit than initially projected. The government's update is due May 29.

``All told, the news will be one that shows an economy growing sluggishly, but not contracting,'' said Jonathan Basile, an economist at Credit Suisse. ``Exports have been a positive force for growth, but there's been a lot of drag coming from housing and now it looks like consumer spending and business spending is slowing.''

Orders for durable goods fell 1.5 percent in April, the third decline in four months, economists project figures from Commerce on May 28 may show. The drop signals that slowing demand and rising costs are prompting a pullback in business investment and manufacturing.

Ford Motor Co. on May 22 abandoned its target of turning a profit next year and said it is cutting North American vehicle production for the rest of 2008. U.S. sales at the company fell 9.8 percent this year through April and the outlook worsened in the first half of May, Chief Executive Officer Alan Mulally told analysts and investors.

                        Bloomberg Survey

================================================================
                      Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
================================================================
Case Shiller Quarterly    5/27       1Q      -8.9%     -12.5%
Case Shiller Monthly YO   5/27     March     -12.7%    -14.2%
Consumer Conf Index       5/27      May       62.3      60.0
New Home Sales ,000's     5/27     April      526       520
New Home Sales MOM%       5/27     April     -8.5%     -1.1%
Durables Orders MOM%      5/28     April     -0.3%     -1.5%
Durables Ex-Trans MOM%    5/28     April      0.9%     -0.5%
GDP Annual QOQ%           5/29      2Q P      0.6%      0.9%
Initial Claims ,000's     5/29     25-May     365       370
Cont. Claims ,000's       5/29     18-May     3073      3080
Pers Inc MOM%             5/30     April      0.3%      0.2%
Pers Spend MOM%           5/30     April      0.4%      0.2%
Core PCE Prices MOM%      5/30     April      0.2%      0.1%
Core PCE Prices YOY%      5/30     April      2.1%      2.1%
Chicago PM Index          5/30      May       48.3      48.5
U of Mich Conf. Index     5/30     May F      59.5      59.5

Colombia's FARC Rebels Confirm Leader's Death, Name Replacement

May 25 (Bloomberg) -- Colombia's largest rebel group today confirmed the death of its leader, Manuel Marulanda, in a video released to Venezuelan television station Telesur.

In the video, Marulanda's lieutenant Timoleon Jimenez, better known by his alias Timocheko, said the 77-year-old leader of the Revolutionary Armed Forces of Colombia, or FARC, died of a heart attack two months ago. A guerrilla known by his alias Alfonso Cano was named Marulanda's replacement as head of the FARC's seven-member Secretariat, its central governing body, Timocheko said.

``Our commander blazed the trail and now it is with immense sorrow we inform he died March 26th in the arms of his companera and surrounded by his troops,'' Timocheko said in a reference to Marulanda's girlfriend.

Marulanda's death is the latest blow to FARC following the killings of two other Secretariat members since March 1. President Alvaro Uribe yesterday said some of the 9,000 members of FARC, which has waged a half-century insurgency, may now be ready to lay down their arms and give up hostages.

Defense Minister Juan Manuel Santos, in a nationally televised press conference today, presented recordings of intercepted communications in which a FARC commander known as Alberto Cancharima can be heard discussing Marulanda's death with a subordinate.

Santos challenged the FARC to surrender Marulanda's body so an autopsy could be performed to back up its claim Marulanda died of natural causes and not from an intense bombing campaign by Colombia's U.S.-backed military.

``We had him located and isolated,'' Santos said.

Santos said he hoped Cano, an academic from Bogota whose middle class background differs from the FARC's peasant base, would lead the insurgency into peace talks with the government. Until that happens, he said military operations against the group would continue.

``We're finally seeing the light at the end of the tunnel of a conflict that has cost our country so much,'' Santos said.