QLeaders gathered in Lima earlierthis month for the third summit ofSouth American and Arab coun-tries, which brought together the

Union of South American Nations and theArab League. Delegates agreed to form ajoint investment bank, expressed supportfor Palestine and urged the resolution ofthe conflict in Syria. What is the currentstate of economic and political relationsbetween the two regions? Will LatinAmerican countries play a larger role inthe Middle East’s geopolitical affairs inthe future? What do Arab states and LatinAmerican nations stand to gain from clos-er ties?

ASergio I. Moya Mena, coordina-tor of the Center for Middle Eastand North Africa Studies at theUniversidad Nacional in Costa

Rica: "Although ongoing turmoil in theMiddle East prevented a significant pres-ence of Arab heads of state at the thirdASPA Summit, the diplomatic meetingrepresents significant progress for theincreasingly strong ties between LatinAmerica and the Middle East. The ASPASummit is an expression, at the highestpolitical level, of a growing trend, evi-denced by the deepening of economic ties,the opening of new embassies and even thecall to build alternative axes of powerbetween the two regions. At the momentthe most promising area of cooperation istrade. Although Latin American andCaribbean countries' exports to the Middle

East account for only 2.91 percent of theirglobal exports, a recent study by the LatinAmerican Economic System (SELA) findsample opportunities for new business. Thekey element would be exploiting the com-plementarity of the regions' economies andespecially the growing need for food andagricultural products for many countriesin the Middle East. An example of this isthe increase in purchases of Brazilian meat,corn and wheat by some countries thathave been shaken by the Arab Spring, suchas Egypt and Libya. The latter country

Inside This Issue

BOARD OF ADVISORS

Copyright © 2012, Inter-American Dialogue Page 1 of 4

www.thedialogue.org Monday, October 15, 2012

FEATURED Q&A: Will Latin America Be Getting More Involved in the Middle East? .......1

Brazil: More Than 800 Police Move Into Two Rio Favelas...................................2

Negotiators Delay Departure for Colombian FARC Peace Talks ........................2

Peru Posts Trade Deficits as Demand for Minerals Continues to Fall ..............................2

Brazil Will Defend Itself Against Capital Flows: Tombini ...........................................2

Telefónica Plans to Sell CRM Unit to Bain Capital for $1.3 Billion ..............................3

FEATURED Q&A

Will Latin America Be Getting More Involved in the Middle East?

Continued on page 3

Police officers in Rio de Janeiroswarmed into two crime-ridden favelasSunday, taking control of territory gov-erned largely by drug gangs that have inthe past clashed violently with policeattempting to establish control there.See story on page 2.

Photo: Agência Brasil.

More Than 800 Police Move Into Two Rio Favelas

Diego ArriaDirector, Columbus Group

Genaro ArriagadaNonresident SeniorFellow,Inter-AmericanDialogue

Joyce ChangGlobal Head ofEmerging MarketsResearch, JPMorganChase & Co.

W. Bowman CutterFormer Partner, E.M. Warburg Pincus

Dirk DonathManaging Director,Eton Park CapitalManagement

Jane EddyManaging Director,Corporate & Govt.Ratings Group,Standard & Poor's

Marlene FernándezCorporate VicePresident for Government Relations,Arcos Dorados

Jason HafemeisterVice President,Allen F. Johnson &Associates

Peter HakimPresident Emeritus, Inter-AmericanDialogue

Donna HrinakPresident,Boeing Brazil

Jon HuenemannVice President,U.S. & Int'l Affairs,Philip MorrisInternational

James R. JonesCo-chair,Manatt JonesGlobal Strategies LLC

Craig KellyVice President,The Cohen Group

John MaistoDirector,U.S. Education FinanceGroup

Nicolás MariscalChairman,Grupo Marhnos

Thomas F. McLarty IIIPresident, McLarty Associates

Carlos Paz-SoldanPartner,DTB Associates, LLP

Beatrice Rangel Director,AMLA Consulting LLC

José Antonio RíosChief Executive Officer,Vadium Technology Inc.

Gustavo RoosenChairman of the Board,Envases Venezolanos

Andrés Rozental President, Rozental & Asociadosand Senior Fellow,Brookings Institution

Everett Santos President, DALEC LLC

Shelly ShettyHead, Latin AmericaSovereign Ratings,Fitch Inc.-Start Content-

Political News

Brazil: More Than 800 Police Move Into Two Rio Favelas

More than 800 police officers and 13armored vehicles on Sunday took controlof two Rio de Janeiro favelas, or slums, ina bid to establish law and order, AgenceFrance-Presse reported. The Jacarezinhoand Manguinhos neighborhoods are con-trolled by drug gangs that have in the pastclashed violently with police attempting

to establish control there. "The situationis calm," police spokesman ColonelFederico Caldas told local television."There have been no incidents, but we areprepared for any possible development."After decades of lawlessness and neglect,authorities in Brazil are trying to takecontrol of and clean up some of the mostdangerous areas of the country in prepa-ration for the 2014 Soccer World Cup andthe Olympic Games of 2016.

Negotiators Delay Departure for Colombian FARC Peace Talks

Colombian government negotiators andFARC rebels have delayed their departurefor peace talks in Norway, Reuters report-ed today. Colombian government officialswere expected to have arrived in Norwayover the weekend, but now will notdepart until Tuesday because of "logisti-cal difficulties," a government spokes-woman said. It is also unclear when theFARC negotiators would arrive. The twosides agreed in August to start talks in thefirst two weeks of October. Norway hasdeclined to discuss the delay. A foreignministry spokesperson said the sides stillplan to attend a press conference onWednesday, their only public event,according to Reuters.

Economic News

Peru Posts Trade Deficits as Demandfor Minerals Continues to Fall

Peru's central bank said Friday the coun-try posted a trade deficit of $52 million inAugust, Reuters reported. Lower demandfor minerals abroad have shrunk exportsdramatically this year. The central banknow expects the 2012 trade surplus to fallto $2.2 billion from an estimate of $6.7billion earlier this year. Sales of mineralslike gold, silver, copper and zinc make up60 percent of export earnings. But its tra-ditional exports have suffered this yearfrom weaker demand from abroad. TheAndean nation continues to post stronggrowth rates and low inflation figures,however, based largely on domesticdemand. The central bank said Friday itwill hold its benchmark interest ratesteady at 4.25 percent, state news agencyAndina reported. The bank has kept ratesunchanged since April 2011. Peru's GDPexpanded by an annual rate of 6.1 percentin the second quarter this year, the samerate as in the first, among the fastestgrowth rates in the Americas. The infla-tion rate in September rose 0.54 percentfrom the previous month for an annualrate of 3.7 percent, up from 3.5 percent inAugust, with the cost of perishable items,such as potatoes, driving up prices.

Brazil Will Defend Itself AgainstCapital Flows: Tombini

Brazilian central bank presidentAlexandre Tombini said today his countrywill continue to defend itself from short-term capital flows that threaten to bringfinancial instability and inflation,Bloomberg News reported. Monetary eas-ing in industrialized economies haveincreased inflows of short-term capital toBrazil that have undermined efforts tokeep inflation down, Tombini toldreporters in Tokyo today. Yesterday, U.S.Federal Reserve Chairman Ben Bernankerejected the view that U.S. stimulus poli-cies are hurting emerging markets, butTombini countered that statement, sayingtoday that "We don't want Brazil to be amarketplace for other countries' devalued

Page 2 of 4

NEWS BRIEFS

Copyright © 2012, Inter-American Dialogue

Inter-American Dialogue’s Latin America Advisor Monday, October 15, 2012

Colombia Shifts from Brazil to Mexico-Led Bloc in IMF

Colombia is leaving a governinggroup within the InternationalMonetary Fund led by Brazil,Bloomberg News reported Sunday.Instead of Brazil's nine-nation con-stituency on the IMF's 24-memberexecutive board, the Andean nationwill join forces with a group led byMexico, Colombian central bankchief Jose Dario Uribe toldBloomberg News. The move is partof the IMF’s biggest board reshufflein two decades and signals alien-ation among Spanish-speakingcountries over Brazil's efforts to gaininfluence globally, according to thereport.

Hillary Clinton Visits Peru toDiscuss Ties, Social Inclusion

U.S. Secretary of State HillaryClinton is scheduled to arrive inLima, Peru today for a two-day visit,EFE reported Sunday. Plans includea meeting with President OllantaHumala and Foreign Minister RafaelRoncagliolo. She is also planning toaddress a conference on womenempowerment for Social InclusionWeek.

Ecuador Will Fight Not to PayCourt Judgment to Occidental

Ecuador's president, Rafael Correa,said over the weekend that his gov-ernment will fight a ruling to payOccidental Petroleum some $1.8billion in compensation that wasordered by an international tribunalfor canceling a contract in 2006,Dow Jones reported. "We will con-tinue fighting to not pay a pennyfrom the Ecuadorean people to thisabusive transnational company thattried to defraud the country,"Correa said during his weekly mediaaddress. Last week Ecuador filed anappeal to overturn the ruling.

“ There have been no incidents,

but we are prepared for

any possible development.”— Federico Caldas

currencies," according to the report.President Dilma Rousseff ’s governmenthas imposed barriers on capital inflowsand purchased dollars in the spot andfutures markets to weaken the real cur-rency and help the country's manufactur-ers. Interest rate cuts have also helpedmake Brazil less attractive to short-termforeign capital compared with last year,but inflation has climbed as a result.[Editor's Note: See related Q&A in theOct. 4 issue of the Advisor.]

Company News

Telefónica Plans to Sell CRM Unit to Bain Capital for $1.3 Billion

Spain's Telefónica, a major player inLatin America's telecommunicationsmarket, is selling its Atento call centerbusiness to Bain Capital for about $1.3billion, Reuters reported Friday. The dealincludes debt that Telefónica is trying toshed in order to preserve its investmentgrade credit rating, according to thereport. Overall, Telefónica has some $74billion in debt. Atento runs more than165 contact centers in 17 countries, withapproximately 156,000 employees and$2.3 billion in revenue last year, accordingto information on its Web site. Its cus-tomer relationship management businessis especially strong in Latin America, a

market Bain sees as having growth poten-tial. The deal, which is Bain Capital's firstin Spain, is expected to close before theend of this year. The transaction includes$141 million in financing from Telefónicaand stipulates a nine-year agreement forthe call centers to continue providingservices to Telefónica. More than 50 per-cent of Atento's business is withTelefónica and another 9 percent comesfrom Spain's second-largest bank, BBVA.Telefónica had hoped to raise up to $980million in a public listing of Atento lastyear, but it scrapped the sale as marketappetite waned.

Inter-American Dialogue’s Latin America Advisor Monday, October 15, 2012

Page 3 of 4Copyright © 2012, Inter-American Dialogue

Atento had $2.3 billion

in revenue last year.

increased its purchases from the SouthAmerican nation by 170 percent in thefirst six months of 2012."

ASergio Widder, director forLatin America at the SimonWiesenthal Center: "Ourfocus regarding the South

American–Arab Countries Summit(ASPA) was mainly about the politicalagenda and, especially, its implicationsfor Latin America. We were alarmedthat a condemnation of the currentmassacre committed by the Syriantyrant Bashar al-Assad did not reachconsensus due, reportedly, to therefusal of some of the South Americancountries (those of the ALBA bloc).South America has a dark historyregarding countries using their militaryforces against their own people, and theweak position vis-a-vis what is happen-ing in Syria was disappointing.Regarding the South American coun-tries advocating for Palestinian state-hood, we regret that they completelyignored an explicit recognition ofIsrael's right to exist within secure bor-ders. Promoting unilateral initiativeswill not contribute to peace and stabil-ity. In the past, we also protestedambiguous language of ASPA address-ing terrorism. There was a mix of con-demnation and acceptance of the 'rightto resistance,' a euphemism for groupslike Hamas and Hizbollah to disguisetheir terrorist nature. We are also criti-cal of this forum's defense of the rightto 'peaceful nuclear development,'while it refuses to condemn the Iraniannuclear plan, which is genocidal."

ACecilia Porras Eraso, presi-dent of the Colombian-ArabChamber of Commerce: "Theeconomies of the 34 South

American and Arab countries totaled$5.2 trillion in 2010, representing 8.5percent of the global economy, andthere are complementarities betweenthe two regions. Much of South

America's GDP is constituted byagribusiness. Meanwhile, Arab coun-tries receive large portions of their rev-enues from oil exports, though they arecurrently investing in resources todiversify their economies. In 2010, thetwo regions' trade balance reached$21.45 billion; South America exported$13.42 billion, while Arab countriesexported $8.74 billion. The largestexporters were Saudi Arabia, the UnitedArab Emirates, Brazil and Argentina. Itis also important to note that negotia-tions of free trade agreements are likelyto come into force in 2012 or 2013.During a Mercosur summit at the endof 2010, Palestine and Egypt signedtrade agreements with the bloc that areonly pending congressional ratifica-tion, and the Gulf Cooperation Council(GCC) and Jordan are currently innegotiations. These countries' desire tonegotiate economic agreements showsa growing mutual awareness. Politicalmomentum is also mounting, with fre-quent visits of heads of state and otherofficials. At Brazil's initiative, the firstASPA Summit took place in 2005 inBrasília, where they defined importantobjectives for the next few years. In par-allel, an economic forum was held,including around 500 businessmenfrom both blocks. The second summittook place in Doha in 2009, which alsoincluding an economic forum, and theFederation of Arab-South AmericanChambers of Commerce was launchedwith the goal of establishing chambersin every country in South America. Thethird ASPA Summit, which took placein Lima, gave entrepreneurs the oppor-tunity to have one-on-one meetingsand develop new relationships, whichwill result in successful business rela-tions."

AJohanna Mendelson Forman,senior associate in theAmericas Program at theCenter for Strategic and

International Studies: "The ThirdArab–South American Summit (ASPA)held in Lima had something for every-one. Investment opportunities and polit-

Featured Q&AContinued from page 1

Continued on page 4

Page 4 of 4Copyright © 2012, Inter-American Dialogue

Inter-American Dialogue’s Latin America Advisor Monday, October 15, 2012

ical dialogue dominated the meeting. Astrade between Latin America and theMiddle East continues to grow, $30 bil-lion and rising, it is no wonder that Perurolled out the red carpet for guests from22 Arab countries. Since the first Summitin 2005, the brainchild of formerBrazilian President Lula da Silva, theemphasis has been on South-Southengagement, promoting inter-regionaleconomic and political ties. The reality,however, is that economic links betweenthe two regions are still very modest incomparison to trade with the UnitedStates. Trade could grow substantially dueto three factors. First, agricultural sup-plies from Brazil and Argentina are ingreat demand in the Middle East. Second,for wealthy investors from the MiddleEast, real estate is a relative bargain. Anew hotel deal signed in Peru during theSummit underscores this trend. Arabstates also offer venture capital, a factornot lost on the South American businesscommunity. Third, technology transfer

from Latin America to the Middle Eastwill grow, given the strict rules that gov-ern the transfer of technology from theUnited States. Brazil will be a major ben-eficiary. Speaking during the Summit,King Abdullah of Saudi Arabia notedboth regions sought 'common ground inour view of terrorism and extremism inthe promotion of a culture of peace.'Going beyond the banalities of Summitdeclarations, there was more troublingpolitical language about support forSyrian sovereignty, a call for a two statesolution to resolve the Israel-Palestineconflict and a commitment to workthrough the United Nations to end thepolitical stalemate in the peace process.As South American leaders seek partnersin a world where they no longer considerthe United States to be the dominantglobal power in their future, this meeting

may be a portent of a more vibrant andcompetitive multilateralism that is sur-facing in regional diplomacy. "

AMustafa Abu Naba'a, director ofMiddle East programs at theGlobal Foundation forDemocracy and Development in

the Dominican Republic: "The third Arab-South American Summit (ASPA) consoli-dated an initiative started in 2005 underthe leadership of Brazilian President LuizInácio Lula da Silva. Seven years is a shorttime to realize such unprecedented rela-tions. Just a decade ago, political coopera-tion between the regions was almost non-existent and trade was even lower than1970, when Latin America imported alarge part of its oil from the Middle East.In this sense, the outcome is without adoubt positive. The ASPA process has cre-ated a mechanism that has allowed theregions to grow closer in political terms,like the increasingly strong SouthAmerican commitment to the creation ofa Palestinian state, as well as economicterms, thanks to the creation of new busi-ness networks between the two regions.The journey is just beginning. Muchremains to be done given the importantcomplementarities that remain untapped.Energy, food, mining and infrastructureare some of the sectors where there arebusiness and investment opportunities. Agreater push for academic exchanges andscientific cooperation would create syner-gies in the fields of biotechnology, watermanagement and renewable energy. Thedevelopment of social science networksbetween Arabs and Latin Americanswould also enable a better mutual com-prehension of the political and culturaltraits of each region. If Brazil plays the roleof a leader in South America, it's impor-tant not to neglect Mexico, CentralAmerica and the Caribbean in this processof regional cooperation. In those coun-tries, there also exists a growing interest inexpanding relations with Arab countries.The Arab-Latin American Forum, whichwas inaugurated by Leonel Fernández andwhose next meeting will take place inDecember in Abu Dhabi, has the objectiveof integrating efforts at the civil societyand NGO level on projects like cultural,academic and student exchanges."

Featured Q&AContinued from page 3

“ Arab states also offer

venture capital ...”— Johanna Mendelson Forman

-End Content-

Latin America Advisor is published every business day by the

Inter-American Dialogue, Copyright © 2012

Erik BrandGeneral Manager, Publishing

ebrand@thedialogue.org

Gene KuletaEditor

gkuleta@thedialogue.org

Rachel SadonReporter, Assistant Editorrsadon@thedialogue.org

Inter-American Dialogue

Michael Shifter, President

Peter Hakim, President Emeritus

Genaro Arriagada, Nonresident Senior Fellow

Sergio Bitar, Nonresident Senior Fellow

Joan Caivano, Director, Special Projects

Maria Darie, Director, Finance & Administration

Claudio Loser, Senior Fellow

Nora Lustig, Nonresident Senior Fellow

Margaret Myers, Director, China and Latin America Program

Manuel Orozco, Director, Remittances and Development Program

Tamara Ortega Goodspeed, Senior Associate, Education

Jeffrey Puryear, Vice President, Social Policy

Latin America Advisor is published everybusiness day, except for major U.S. holidays, bythe Inter-American Dialogue at:1211 Connecticut Avenue NW, Suite 510Washington, DC 20036Phone: 202-822-9002 Fax: 202-822-9553www.thedialogue.org ISSN 2163-7962

Subscription Inquiries are welcomed at freetrial@thedialogue.org

The opinions expressed by the members of theBoard of Advisors and by guest commentators donot necessarily represent those of the publisher. Theanalysis is the sole view of each Advisor and does notnecessarily represent the views of their respectiveemployers or firms. The information in this reporthas been obtained from reliable sources, but neitherits accuracy and completeness, nor the opinionsbased thereon, are guaranteed. If you have any ques-tions relating to the contents of this publication,contact the editorial offices of the Inter-AmericanDialogue. Contents of this report may not be repro-duced, stored in a retrieval system, or transmittedwithout prior written permission from the publisher.