Order Code RL30971
CRS Report for Congress
Received through the CRS Web
Latin America and the Caribbean:
Legislative Issues in 2001
October 10, 2001
K. Larry Storrs, Coordinator
Foreign Affairs, Defense, and Trade Division
J.F. Hornbeck, Nina M. Serafino,
Mark P. Sullivan, and Maureen Taft-Morales
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Latin America and the Caribbean:
Legislative Issues in 2001
Summary
This report provides an overview of the major legislative issues facing Congress
in 2001 relating to the Latin American and Caribbean region, and provides reference
and linkages to other reports covering the issues in more detail. The report is
organized by the regions and subregions of the Western Hemisphere.
At the hemispheric level, the major legislative issues include the implementation
of the Declaration and Action Plan of hemispheric leaders at Summit of the Americas
III in Quebec City, Canada, on April 20-22, 2001. This includes individual and
collective action to achieve the goal of creating a Free Trade Area of the Americas
(FTAA) by 2005, to promote democracy throughout the hemisphere, to strengthen
multilateral mechanisms for counter-narcotics activity, and to further sustainable
development and environmental protection in the region. The hemispheric response
to the September 2001 terrorist attacks on the United States is also included.
With neighbor Mexico in North America, the major bilateral issues for the United
States are related to trade, drug trafficking, and migration, as new President George
W. Bush seeks to advance friendly relations with new President Vicente Fox, the first
President of Mexico from an opposition party in over 70 years.
With regard to the Central American and Caribbean region, the major issues are
disaster relief and reconstruction in both Central America and the Caribbean,
earthquakes in El Salvador, implementation of the peace accords in Guatemala,
elections in Nicaragua, and dealing with Panama’s new control of the Panama Canal.
President Bush has announced a “Third Border Initiative” to strengthen the
development of the smaller Caribbean countries, and will be seeking ways to advance
democracy in Cuba and Haiti.
In the Andean region, the major issues are President Bush’s Andean Regional
Initiative for Colombia and regional neighbors, the Andean Trade Preference Act
(ATPA) under consideration for renewal, dealing with a new government in Peru, and
finding ways to engage the “maverick” government in Venezuela.
In the region encompassing Brazil and the Southern Cone countries of South
America, the major issues are dealing with trade and economic issues with Brazil,
dealing with a serious economic crisis in Argentina, and completing negotiations for
a U.S.-Chile Free Trade Agreement with Chile.

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Contents
I. Hemispheric Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summit of the Americas III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Free Trade Area of the Americas (FTAA) . . . . . . . . . . . . . . . . . . . . . . . . . 1
Democracy in Latin America and the Caribbean . . . . . . . . . . . . . . . . . . . . . 2
Hemispheric Response to September 2001 Terrorist Attacks . . . . . . . . . . . 2
Drug Certification Process and the OAS Multilateral Evaluation
Mechanism (MEM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Sustainable Development and Environmental Protection . . . . . . . . . . . . . . 4
II. Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Fox Administration in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Mexico-U.S. Bilateral Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
III. Central America and the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Disaster Relief and Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Earthquakes in El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Guatemala and the Peace Accords . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Nicaragua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Panama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Caribbean “Third Border Initiative” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Cuba . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Haiti . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
IV. Andean Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Andean Regional Initiative (ARI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Andean Trade Preference Act (ATPA) . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Venezuela . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
V. Brazil and the Southern Cone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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Latin America and the Caribbean:
Legislative Issues in 20011
I. Hemispheric Issues
Summit of the Americas III
Summit of the Americas III was held in Quebec City, Canada, from April 20-22,
2001, with 34 democratically elected Presidents and Prime Ministers from the
Western Hemisphere in attendance, including George W. Bush from the United
States. The hemispheric leaders dealt with three major themes: (1) Strengthening
Democracy, where they agreed to a democracy clause that specified that democratic
government was an essential condition for participation in the summit process; (2)
Creating Prosperity, where they agreed to advance toward the conclusion of the
agreement on the Free Trade Area of the Americas (FTAA) by January 2005; and (3)
Realizing Human Potential, where they agreed to initiatives to promote education,
health, and greater equity for women, youth, and indigenous peoples.
For more information, see CRS Report RL30936, Summit of the Americas III,
Quebec City, Canada, April 20-22, 2001: Background, Objectives, and Results, by
K. Larry Storrs and M. Angeles Villarreal.
Free Trade Area of the Americas (FTAA)
A centerpiece of the Third Summit of the Americas discussions was the Free
Trade Area of the Americas (FTAA). The FTAA would support greater Western
Hemisphere economic integration by creating a comprehensive framework for
reducing tariff and nontariff barriers to trade and investment. Despite protests from
various interest groups, all countries except Venezuela signed the Declaration of
Quebec City adopting the bracketed or draft text of the FTAA and reaffirming the
commitment to complete negotiations of the FTAA by January 2005, with the
agreement’s entry into force no later than the end of the same year. There are still
many areas where negotiations present formidable challenges including market access
1 For information on legislative issues in 2000, see CRS Report RS20474, Latin America:
Overview of Legislative Issues for Congress in 2000, coordinated by Mark P. Sullivan. The
current report, organized by regions, is entitled Latin America and the Caribbean to include
the English-speaking countries in the Caribbean area. The term “Latin America” is a cultural
rather than a geographical term, and includes all countries where Latin-based languages are
spoken. “Latin America” includes Mexico in North America and most countries in Central
America and South America. It also includes Cuba and the Dominican Republic in the
Caribbean where Spanish is spoken, Haiti in the Caribbean where French is spoken, and
Brazil in South America where Portuguese is spoken.

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issues (particularly with agricultural products), investment rules, antidumping
provisions, dispute settlement, and the perennial issues over environmental and labor
provisions. To the surprise of some, President Bush gave a nod toward addressing
many of these issues at Quebec, including labor and environment provisions. All these
issues have been sufficiently contentious as to threaten progress in negotiations if
extreme positions cannot be resolved. Negotiators are eager to see what guidance,
particularly on the most controversial issues, the U.S. Congress may offer should it
decide to pass trade promotion authority legislation. On October 9, 2001, the House
Ways and Means Committee ordered favorably reported H.R. 3005, the “Bipartisan
Trade Promotion Authority Act of 2001,” as amended, by a recorded vote of 26-13.
This measure includes compliance with labor and environmental laws as negotiating
objectives in the granting of trade promotion authority, but critics argue that the
environmental and labor protections are inadequate.
For more information, see CRS Report RS20864, A Free Trade Area of the
Americas: Status of Negotiations and Major Policy Issues, by J. F. Hornbeck; CRS
Issue Brief IB95017, Trade and the Americas, by Raymond J. Ahearn; and CRS
Report RL30935, Agricultural Trade in the Free Trade Area of the Americas, by
Remy Jurenas.
Democracy in Latin America and the Caribbean
Latin America has made enormous strides in recent years in the development of
democracy, with all countries but Cuba led by democratically-elected heads of state.
Nonetheless, many government institutions in the region have proven ill-equipped to
deal with challenges to their further development, such as strong, often autocratic
presidents; violent guerrilla conflicts; militaries still not comfortable with civilian rule;
and narcotics trafficking and related crime and corruption. The Organization of
American States has also made progress in efforts to promote democracy in the
hemisphere by establishing procedures for collective action when democracy is
interrupted, beginning with the Santiago Commitment to Democracy in 1991, and
culminating most recently with the adoption of the Inter-American Democratic
Charter in Lima, Peru, on September 11, 2001, the same day as the terrorist attacks
on the United States.
For more information, see CRS Report 98-684, Latin America and the
Caribbean: Fact Sheet on Leaders and Elections, by Mark P. Sullivan, as well as
references cited above on Summit of the Americas III and cited below on Haiti and
Peru.
Hemispheric Response to September 2001 Terrorist Attacks
Latin American nations strongly condemned the September 11, 2001 terrorist
attacks on New York and Washington, D.C. and took action through the
Organization of American States (OAS) and the Rio Treaty to strengthen hemispheric
cooperation against terrorism. The OAS, which happened to be meeting in Peru on
September 11, 2001, swiftly condemned the attacks, reiterated the need to strengthen
hemispheric cooperation to combat terrorism, and expressed full solidarity with the
United States. At a special session on September 19, 2001, OAS members invoked

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the 1947 Inter-American Treaty of Reciprocal Assistance, also known as the Rio
Treaty, which obligates signatories to the treaty come to one another’s defense in case
of outside attack. Another resolution approved on September 21, 2001, called on Rio
Treaty signatories to “use all legally available measures to pursue, capture, extradite,
and punish those individuals” involved in the attacks and to “render additional
assistance and support to the United States, as appropriate, to address the September
11 attacks, and also to prevent future terrorist acts.” Although Canada and most
English-speaking Caribbean nations are not parties to the Rio Treaty, it is expected
that they will participate in efforts to coordinate hemispheric action. In another
resolution, the OAS called on the Inter-American Committee on Terrorism to identify
urgent actions aimed at strengthening inter-American cooperation in order to combat
and eliminate terrorism in the hemisphere.
For more information, see “The Americas’ Response to Terrorism” on the
O r g a n i z a t i o n o f A m e r i c a n S t a t e s ( O A S ) W e b s i t e a t
[http://www.oas.org/OASpage/crisis/crisis_en.htm].

Drug Certification Process and the OAS Multilateral
Evaluation Mechanism (MEM)
Since the mid-1980s, Congress has required the President to certify that drug
producing and drug-transit countries are cooperating fully with the United States in
counter-narcotics efforts in order to avoid a series of sanctions, including suspension
of U.S. foreign assistance and financing, and opposition to loans in the multilateral
development banks. The sanctions would also apply if the Congress, within 30
calendar days, passed a joint resolution of disapproval to overturn the presidential
certification, although any resolution would be subject to veto.
Over the years, spokesmen from many countries have complained about the
unilateral and non-cooperative nature of the drug certification requirements, and have
urged the United States to end the process and to rely upon various multilateral
methods of evaluation that have been developed recently. Mexico, often the focus of
congressional debate, particularly expressed dissatisfaction with the process, even
though it was regularly certified as being a fully cooperative country. Following the
July 2000 election of opposition candidate Vicente Fox as President of Mexico, a
number of legislative measures were introduced to modify the drug certification
requirements, and these initiatives were mentioned when President Bush met with
President Fox in Mexico in mid-February 2001, and in the United States in early
September 2001.
Acting to soften existing requirements, on April 5, 2001, the Senate Foreign
Relations Committee reported out a substitute version of S. 219, which would (1)
suspend the existing drug certification procedures for a 3-year trial period, and (2)
require the President to identify by October 1 of each year major drug-transit or major
illicit drug producing countries and to deny assistance to any country that has failed
demonstrably, during the previous 12 months, to make substantial efforts to adhere
to its obligations under international counternarcotics agreements. The measure
expresses the sense of Congress that the United States should at the earliest feasible
date in 2001 convene a multilateral conference of relevant countries to develop

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multilateral drug reduction and prevention strategies. It also urges the President to
request legislative changes to implement the strategies no later than one year after
enactment. On August 1, 2001, the Senate Foreign Relations Committee approved
S. 1401, the Foreign Relations Authorizations Act for FY2002-FY2003, with the
provisions of S. 219 incorporated as Sections 741-745 in Title VII, Subtitle D,
Reform of Certification Procedures Applicable to Certain Drug Producing or
Trafficking Countries. The Committee reported out S. 1401(S. Rept. 107-60) on
September 4, 2001, and the measure was placed on the Senate Legislative Calendar.
One of the multilateral mechanisms most frequently mentioned is the Multilateral
Evaluation Mechanism (MEM) developed by the Inter-American Drug Abuse Control
Commission (CICAD) of the Organization of American States (OAS). Under the
MEM, all hemispheric countries are evaluated on the basis of 61 common criteria.
Representatives of each country evaluate all countries except their own. Hemispheric
leaders at Summit of the Americas III noted with satisfaction the first set of
evaluations and recommendations under the MEM procedures and called for
strengthening the MEM process and for strengthening hemispheric counter-narcotics
cooperation.
For more information, see CRS Report RL30892, Drug Certification
Requirements and Proposed Congressional Modifications in 2001; CRS Report
RL30949, Drug Certification Procedures: Side-by-side Comparison of Existing
Procedures and S. 219 as Reported; and CRS Report RL30950, Drug Certification
Procedures: A Comparison of Current Law to S. 219 and S. 1401 as Reported, by K.
Larry Storrs.
Sustainable Development and Environmental Protection
Roughly 50% of the world’s tropical forests, 40% of its biological diversity, and
extensive freshwater and marine resources are located in the Latin American and
Caribbean region. The U.S. Agency for International Development (USAID) has
devoted about $65 million per year to environment programs in the region in recent
years, supporting sustainable forestry, improved hillside agriculture, conservation of
biological diversity, prevention of industrial pollution, and better water management.
In Brazil, for example, USAID, working with other bilateral and multilateral donors
and non-governmental organizations (NGOs), supports programs to conserve the
Brazilian rainforest. The programs’ goals are to suppress fires, and to develop and
train leaders for sustainable development activities that will reduce the extensive
burning/clearing of tropical forests in Brazil’s vast Amazon region which allegedly
contributes to the loss of biological diversity and increased global warming.
For further information, see CRS Report RL30121, Brazil under Cardoso:
Politics, Economics, and Relations with the United States, by K. Larry Storrs; CRS
Report 97-291, NAFTA: Related Environmental Issues and Initiatives, by Mary E.
Tiemann; and CRS Electronic Briefing Book on “Global Climate Change” on the CRS
web site, [http://www.congress.gov/brbk/html/ebgcc1.html] as well as references to
Summit of the Americas III above. See also the explanation of USAID’s environment
programs in Latin America and the Caribbean at USAID’s web site
[http://www.usaid.gov/environment/lac.html].

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II. Mexico

Fox Administration in Mexico
Vicente Fox of the conservative Alliance for Change was inaugurated as
President of Mexico on December 1, 2000, for a six year term, promising to promote
free market policies, to strengthen democracy and the rule of law, to fight corruption
and crime, and to end the conflictive situation in the state of Chiapas. Fox’s
inauguration ended 71 years of presidential control by the long dominant party. Since
his inauguration he has worked with a divided Congress to obtain passage of his
budget along with fiscal and tax reforms calculated to produce resources for his
educational and social initiatives. However, the proposals have been controversial
because they remove tax exemptions on medicine and food.
President Fox has sought to resolve the conflictive situation in Chiapas by
submitting legislation to strengthen indigenous rights, withdrawing military from
certain areas, releasing some Zapatista prisoners, and calling for peace talks with the
rebels. The Zapatistas made a peaceful march from Chiapas to Mexico City from
February 24 to March 9 to generate support. They pressed their proposals in the
Chamber of Deputies on March 28, 2001, and eventually agreed to renew a peace
dialogue with the government. After the Mexican Congress passed a modified version
of the indigenous rights legislation on April 28, 2001, the Zapatistas denounced the
legislation as inadequate and withdrew from any dialogue with the Government.

President Fox has indicated that Mexico will pursue a more activist and
diversified foreign policy, with greater involvement in UN activities, and stronger ties
to Latin America and Europe. He has also indicated that it will be more aggressive
in defending the interests of Mexicans living in foreign countries, particularly those
in the United States, and he established a Special Office for Mexicans Abroad. On
various occasions, President Fox has indicated that he expects to have warm and
friendly relations with the United States, and he has called for greater cooperation
under NAFTA and for a more open border between the countries over time.
The United States Congress has closely followed political and economic
developments in Mexico, and is interested in President Fox’s efforts to advance
democracy, promote free market reforms, and resolve the conflictive situation in
Chiapas because of the effects of these developments on bilateral relations and
because of the threat of possible instability on the southern border.
For more information, see CRS Issue Brief IB10070, Mexico-U.S. Relations:
Issues for the 107th Congress, by K. Larry Storrs.
Mexico-U.S. Bilateral Issues
The United States and Mexico have a special relationship under the North
American Free Trade Agreement (NAFTA), which removes trade and investment
barriers between the countries. The friendly relationship has been strengthened in
2001 by President Bush’s meetings with President Fox in mid-February in Mexico, in
mid-April in Canada, and in early May, early September, and early October in the

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United States. During the official state visit in early September 2001, the two leaders
called for full adherence to NAFTA, measures to strengthen the North American
Development Bank (NADBank) and the Border Environmental Cooperation
Commission (BECC), heightened cooperation on legal issues, including sharing of
seized assets and new mechanisms for multilateral cooperation, and agreement as
soon as possible on border safety, a temporary worker program, and the status of
undocumented Mexicans in the United States. During President Fox’s visit to
Washington, D.C. and New York City on October 4, 2001, he expressed solidarity
with the United States and the willingness to cooperate with the United States as a
partner and as a neighbor on security and counter-terrorism issues. In the early part
of the year, Congress had been considering a number of immigration initiatives to
broaden temporary admission or to permit legalization of status, but since the
September 2001 attacks the trend seems to be toward tighter border control. With
regard to drug certification issues, the Senate Foreign Relations Committee has
reported out S. 1401 that would suspend the drug certification requirements for 3
years (See discussion above on Drug Certification Process).
For more information on congressional action on bilateral issues, including trade,
drug trafficking, and migration issues, see CRS Issue Brief IB10070, Mexico-U.S.
Relations: Issues for the 107th Congress; and CRS Report RL30886, Mexico’s
Counter-Narcotics Efforts under Zedillo and Fox, 1994 to 2001, by K. Larry Storrs;
as well as CRS Report RL30852, Immigration of Agricultural Guest Workers:
Policy, Trends and Legislative Issues, by Ruth Ellen Wasem and Geoffrey K. Collver;
the section on Border Security in the CRS Electronic Briefing book on Terrorism, by
William Krouse, available online [http://www.congress.gov/brbk/html/ebter124.html]
and the section on NAFTA in the CRS Electronic Briefing Book on “Trade,” by J.F.
Hornbeck, available online [http://www.congress.gov/brbk/html/ebtra42.html]
III. Central America and the Caribbean
Disaster Relief and Reconstruction
Following the destruction caused by Hurricane George in the Caribbean and
Hurricane Mitch in Central America in late 1998, the United States responded with
some $312 million in emergency relief, and an additional $621 million in grant
assistance through AID and other agencies, funded through the 1999 Emergency
Supplemental Appropriations Act. Donors and country officials pledged to be better
prepared for disasters, and to “build back better” in reconstruction efforts, including
work to reduce poor conservation and land use practices that often contributed to the
severity of the disaster damage in the countries. Congress is interested in oversight
over this major project in Central America, with expenditure of the designated funding
continuing until the end of 2001.
For background, see CRS Report 98-1030, Central America: Reconstruction
after Hurricane Mitch, coordinated by Lois McHugh. For current status, see
USAID’s Hurricane Reconstruction Site on the web [http://hurricane.info.usaid.gov/].

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Earthquakes in El Salvador
El Salvador experienced several major earthquakes in January and February 2001
that killed over a one thousand people, and displaced nearly two million people. The
United States and other countries have responded with emergency and relief
assistance. U.S. emergency assistance totaled nearly $10 million by mid-February
2001, with $6.1 million provided in response to the mid-January earthquake, and $3.3
million in response to the mid-February earthquake. When President Bush met with
Salvadoran President Francisco Flores in early March 2001, he said that the United
States had provided over $16 million in emergency relief assistance, and he pledged
to provide $52 million in reconstruction assistance in FY2001, and an equal or greater
amount in FY2002. He also notified the Salvadoran President of the U.S. Attorney
General’s decision to grant Temporary Protected Status (TPS) to Salvadoran
immigrants in the United States for a period of 18 months. The Salvadoran
government had expressed concern about the additional strain that returned
immigrants would place on already stretched resources. The Foreign Operations
Appropriations Act for FY2002 (H.R. 2506), passed by the House on July 24, 2001,
provides in Section 582 that not less than $100 million in rehabilitation and
reconstruction assistance will be provided to El Salvador.
For background, see CRS Report 98-1030, Central America: Reconstruction
after Hurricane Mitch, coordinated by Lois McHugh. For current status, see
USAID’s updates on Earthquake in El Salvador [http://usaid.gov/about/el_salvador/].
Guatemala and the Peace Accords
Guatemala is beginning the fifth year of implementation of the historic peace
accords signed in December 1996, which called for programs to transform Guatemala
into a more participatory and equitable society. The United States is the single largest
bilateral donor in this area, having offered $260 million in support over the four-year
period from 1997 to 2000. Additional support was pledged through FY2003,
although multilateral institutions are making larger contributions. Bush
Administration-requested assistance for FY2002 includes $24 million in development
assistance, $18 million in food assistance, and $10 million in Economic Support
Funds, largely to support the peace process. U.S. assistance helps the Guatemalan
Government to implement its social reform program, modernize the justice sector,
carry out land bank and titling programs, and encourage participation from marginal
communities.
For background, see CRS Report 98-1030, Central America: Reconstruction
after Hurricane Mitch, coordinated by Lois McHugh. For current status, see
USAID’s reports on Guatemala [http://www.usaid.gov/countries/gt/index2.html].
Nicaragua
Ongoing congressional concerns regarding Nicaragua include resolution of
property claims, U.S. assistance to Nicaragua, and human rights issues. Resolution
of property claims by U.S. citizens regarding expropriations carried out by the
Sandinista government in the 1980s remains the most contentious area in U.S.-

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Nicaraguan relations. After a 3-year freeze in property-related lawsuits, new property
tribunals began hearing cases in July 2000. According to the State Department’s
2001 Human Rights Report, almost 100 cases had been filed, and 35 cases settled as
of December 2000. The report also said “it was too early to judge [the tribunals’]
fairness and efficiency.” U.S. technical assistance is aimed at improving the
mechanism for settling property disputes. The Bush Administration has requested
$35.9 million for Nicaragua in FY2002, including $10.4 million in food aid. U.S. law
prohibits aid to countries that have confiscated assets of U.S. citizens, but U.S.
administrations have granted annual waivers to allow Nicaragua to receive aid.
Additional concerns for the 107th Congress are the national elections scheduled
for November 4, 2001, and subsequent Nicaraguan international relations. The top
two presidential candidates, who are in a virtual tie according to polls, are former
President Daniel Ortega of the Sandinista National Liberation Front (FSLN), and
Enrique Bolanos, of the ruling Liberal Constitutional party. From 1979 to1990,
Ortega headed Sandinista governments that were socialist and pro-Soviet and fought
a bloody civil war against U.S.-backed “contras”. Bolanos was Vice-President under
current President Aleman but resigned last year in accordance with the law in order
to run for president. As perceptions of corruption in the Aleman Administration have
risen, Bolanos has distanced himself from Aleman, denouncing the January 2000
agreement between Aleman and Ortega on constitutional changes that have been
criticized as helping the latter two maintain a hold on power.
The Bush Administration stated on October 5 that “The United States will
respect the result of a free and fair election that expresses the will of the Nicaraguan
people.” Echoing concerns of some Members of Congress, the State Department
added, “However, we continue to have grave reservations about the FSLN’s history
of trampling civil liberties, violating human rights, seizing people’s property without
compensation, destroying the economy, and ties to supporters of terrorism [such as
Iraq and Libya].” The Sandinistas say they have abandoned their socialist policies and
anti-American rhetoric of earlier years and will now try to create jobs through the free
market and pay for any land confiscated for continued land redistribution. Skeptics,
including some representatives of the business sector, worry that an Ortega victory
would trigger capital flight and halt investment in Nicaragua.
For further information, see CRS Report RS20983, Nicaragua: Country Brief,
by Maureen Taft-Morales.
Panama
The 1977 Panama Canal Treaty terminated on December 31, 1999 and the
United States turned operation of the Panama Canal over to Panama on that date. All
U.S. troops withdrew from Panama and all U.S. military installations reverted to
Panamanian control. Under the terms of the 1977 Treaty on the Permanent Neutrality
and Operation of the Panama Canal, which has no termination date, Panama now has
responsibility for operating and defending the Canal. However, the treaty gives the
United States the right to use military force to reopen the Canal or restore its
operations.

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In 1999, some Members of Congress and politicians in Panama suggested that
there was an opportunity for the United States to negotiate the use of facilities in
Panama for U.S. antidrug flights, similar to the Forward Operating Locations (FOLs)
arrangements being made with Ecuador, Aruba, and Curacao. However, in 2000,
Panamanian President Moscoso resisted a request from the United States to allow the
U.S. military to establish a military presence in Panama for antidrug flights.
For background, see CRS Report RL30981, Panama-U.S. Relations by Mark
P. Sullivan and M. Angeles Villarreal.
Caribbean “Third Border Initiative”
At the 2001 Summit of the Americas in Quebec, Canada, President Bush
announced the “Third Border Initiative” for the Caribbean region. According to the
Administration, the initiative aims to deepen U.S. commitment to fighting the spread
of HIV/AIDS, to respond to natural disasters, and to make sure the benefits of
globalization are felt in even the smallest economies, particularly those in the
Caribbean, which can be seen as a “third border” of the United States. U.S.initiatives
include $20 million in HIV/AIDS funding, establishment of a teacher training “Center
for Excellence,” increased funding for Disaster Preparedness and Mitigation,
assistance to improve regional civil aviation oversight, and additional funding for anti-
corruption and anti-money laundering law enforcement efforts.
For more information on the “Third Border Initiative,” see the U.S. Department
of State, Washington File, Fact Sheet: Caribbean “Third Border Initiative” on the
State Department Web site [http://usinfo.state.gov/regional/ar/summit/factb.htm].
Cuba
Cuba, a hard-line Communist state with a poor record on human rights, has been
led by Fidel Castro since the 1959 Cuban Revolution. Since the early 1960s, U.S.
policy toward Cuba has consisted largely of isolating the island nation through
comprehensive economic sanctions. These were made stronger with the Cuban
Democracy Act (CDA) in 1992 and the Cuban Liberty and Democratic Solidarity Act
in 1996, often referred to as the Helms/Burton legislation. Another component of
U.S. policy consists of support measures for the Cuban people, including private
humanitarian donations and U.S.-sponsored radio and television broadcasting to
Cuba. In May 2001, President Bush stated that his Administration would oppose any
efforts to weaken sanctions against Cuba, and in July 2001, he asked the Treasury
Department to enhance and expand its embargo enforcement capabilities. Yet in mid-
July 2001, President Bush also extended for 6 months the waiver of Title III of the
Helms-Burton law that would allow U.S. nationals to sue for damages those persons
who traffic in property confiscated in Cuba.
Although there appears to be broad agreement among those concerned with
Cuba on the overall objective of U.S. policy toward Cuba — to help bring democracy
and respect for human rights to the island – there have been several schools of
thought on how to achieve that objective. Some advocate a policy of keeping
maximum pressure on the Cuban government until reforms are enacted, while

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continuing current U.S. efforts to support the Cuban people. Others argue for an
approach, sometimes referred to as constructive engagement, that would lift some
U.S. sanctions that they believe are hurting the Cuban people, and move toward
engaging Cuba in dialogue. Still others call for a swift normalization of U.S.-Cuban
relations by lifting the U.S. embargo.
Legislative initiatives introduced in the 107th Congress reflect these divergent
views on the direction of U.S. policy toward Cuba (whether sanctions should be eased
or intensified) and also cover a range of issues including human rights, migration, drug
interdiction cooperation, and broadcasting to Cuba. On July 25, 2001, in action on
the Treasury Department Appropriations for FY2002 (H.R. 2590), the House
approved an amendment that would prohibit the Treasury Department from using
funds to enforce restrictions on travel to Cuba, but it rejected another amendment that
would prohibit enforcement of the overall economic embargo.
For further information, see CRS Report RL30806, Cuba: Issues for Congress,
by Mark P. Sullivan and Maureen Taft-Morales.
Haiti
Former President Jean-Bertrand Aristide was inaugurated on February 7, 2001
to a second, non-consecutive term. Aristide and his Fanmi Lavalas party swept
presidential and legislative elections on November 26, 2000. All of the major
opposition parties boycotted the elections, however, citing widespread fraud by
Aristide supporters and the unresolved dispute over May 2000 legislative elections.
Also on February 7, a coalition of 15 political parties, the Convergence
Democratique, formed an alternative government and repeated its call for new
elections.
As President-elect, Aristide pledged in December 2000 to make several political,
judicial, and economic reforms, including correcting the problems of the May
elections, in which Aristide supporters were awarded 10 disputed Senate seats. At
the Summit of the Americas on April 22, 2001, hemispheric leaders singled out Haiti
as a country whose problems are limiting its democratic and other development, and
urged President Aristide to carry through on his pledges to reform.
In H.R.2506, the Foreign Operations appropriations for FY2002 bill (approved
by the House on July 24, 2001), Section 520 would prohibit providing assistance to
Haiti except through regular notification procedures to the Committees on
Appropriations. No other conditions on aid to Haiti are currently in the proposed bill.
Section 554 would allow the Haitian government to purchase defense articles and
services for the Haitian Coast Guard. USAID currently provides humanitarian
assistance to Haiti only through non-governmental organizations and will probably
only provide direct assistance to the government once it makes the reforms it has
promised, including resolving the disputed elections.
H.R. 1646, the Foreign Relations Authorization Act for FY2002 and 2003
(passed by the House May 16, 2001) would authorize $6,000 to the Organization of
American States for each fiscal year to be appropriated only for the investigation and
dissemination of information on violations of freedom of expression by the

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Government of Haiti. The Senate version, S. 1401 (reported by Committee on
Foreign Relations September 4, 2001), contains no such provision.
For further information see CRS Issue Brief IB96019, Haiti: Issues for
Congress, by Maureen Taft-Morales.
IV. Andean Region
Andean Regional Initiative (ARI)
President Bush announced in budget submissions and at the 2001 Summit of the
Americas III in Quebec, Canada, the “Andean Regional Initiative” that is extended to
provide $882.29 million in FY2002 economic and counter-narcotics assistance to
Colombia and regional neighbors to deal with drug trafficking and related activities.
According to the Administration, distinctive features of the initiative, compared
to last year’s Plan Colombia assistance, are that the economic and social programs are
roughly equal to the counter-narcotics programs, and that more than half of the
assistance is directed at regional countries that are experiencing the spill-over effects
of illicit drug and insurgency activities. Assistance is requested for the following
countries:
! Colombia ($399 million), the major producer of cocaine and the central
challenge in dealing with guerrillas, paramilitaries; and drug traffickers;
! Peru ($206 million) and Bolivia ($143 million), where past successes in
reducing cocaine production could be threatened by expected progress in
Colombia;
! Ecuador ($76 million), the most exposed neighbor because of its proximity to
Colombian areas controlled by drug producers and guerrillas; and
! Brazil ($26 million), Venezuela ($21 million), and Panama ($11 million), where
the threat is primarily confined to common border areas with Colombia.
Critics of the Andean Regional Initiative argue that it is a continuation of what
they regard as the misguided approach of last year’s Plan Colombia, with an
overemphasis on military and counter-drug assistance, and with inadequate support
for human rights and the peace process in Colombia. Supporters argue that it
continues needed assistance to Colombia while providing more support for regional
neighbors and social and economic programs.
In action on the FY2002 foreign operations appropriations bill, H.R. 2506, the
House on July 24, reduced ARI funding to $826 million, while the Senate
Appropriations Committee voted on July 26 to reduce ARI funding to $718 million
and to add conditions on the aerial fumigation program. Four related reporting
requirements and a prohibition on the issuance of visas to members of illegal armed
groups in Colombia were included in the Foreign Relations Authorization for
FY2002-FY2003 (H.R. 1646) passed by the House on June 16, 2001.

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For additional information, see CRS Report RL31016, Andean Regional
Initiative (ARI): FY2002 Assistance for Colombia and Neighbors, by K. Larry Storrs
and Nina M. Serafino; see also material available under Plan Colombia on the U.S.
Department of State’s International Information Programs Internet site
[http://usinfo.state.gov/regional/ar/colombia/].
Andean Trade Preference Act (ATPA)
For ten years, the Andean Trade Preference Act (ATPA) has provided
preferential, mostly duty-free, treatment of selected U.S. imports from Bolivia,
Colombia, Ecuador, and Peru. It is scheduled to expire on December 4, 2001.
Enacted in 1991, ATPA was part of a broader Andean initiative to address the
growing drug trade problem in Latin America. ATPA reduces the cost of certain
imports in the United States, improving access to U.S. markets, which in turn is an
incentive for Andean workers (particularly farmers) to pursue economic alternatives
to the drug trade (e.g. growing coca). Because many Andean imports are not eligible
under ATPA, or enter the United States under other preferential trade arrangements,
most studies conclude that ATPA’s effects on trade diversification and reducing drug
production have been positive, but nonetheless, small. ATPA supporters also argue
that there may be economic development and broader regional political cooperation
(good will) benefits related to ATPA, although they are even less tangible.
ATPA’s reauthorization provides the opportunity to evaluate its efficacy as a
counternarcotics policy tool. On a broad scale, ATPA is part of a larger “alternative
development” strategy, which, given the extraordinary profitability of coca
production, is fighting an uphill battle. Some analysts believe that for ATPA to be
considered successful, there must be some evidence of export diversification into
ATPA-eligible products, which to date is not overwhelming. One option suggested
is to expand the category of eligible products to include apparel, footwear, tuna, and
sugar, among other products. On October 5, 2001, the House Ways and Means
Committee approved an amended extension of ATPA entitled the Andean Trade
Promotion and Drug Eradication Act (H.R. 3009). It would extend the program
through December 31, 2006, and provide duty-free treatment to selected apparel,
tuna, and other products previously excluded. The bill would also expand the
conditions countries would have to meet to remain eligible for the program benefits.
For further reading, see CRS Report RL30790, The Andean Trade Preference
Act: Background and Issues for Reauthorization, by J. F. Hornbeck. Updated
information can be found in the CRS trade electronic briefing book at
[http://www.congress.gov/brbk/html/ebtra1.html].
Colombia
U.S. ties to Colombia have broadened extensively with Congress’ approval of
the Clinton Administration’s “Plan Colombia” legislation(P.L. 106-246) in July 2000,
which stirred a new set of congressional concerns about the future of U.S. policy
there. The Bush Administration has requested some $399 million in FY2002 funding
for Colombia, which will be used to continue to carry out the “Plan Colombia”
programs. These focus on developing and sustaining three Colombian Army

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Counternarcotics battalions (CACBs) to assist the Colombian National Police in the
fumigation of illicit narcotics crops and the dismantling of laboratories, beginning with
coca fumigation in the southern provinces of Putumayo and Caquetá.
Last year, Congress approved some $1.3 billion in regular and supplemental
FY2000 and FY2001 appropriations for “Plan Colombia” programs (some of which
will carry into FY2002). Congressional approval came in June 2000, as President
Andres Pastrana was completing the second year of a 4-year term, unable to advance
significantly in the peace process he had launched to bring two leftist guerrilla groups
into the political system and grappling with a depressed economy. The rationale for
this “Push Into Southern Colombia” program was to debilitate the guerrillas by
depriving them of the substantial income they derive from taxing narcotics
cultivation, processing, and marketing. The Congress also provided substantial
assistance for economic development, displaced persons, human rights monitors, and
administration of justice and other governance programs.
However, even as Plan Colombia-financed fumigation operations began in
Putumayo in December 2000, debate over the wisdom and prospects of success for
the policy intensified. The European nations that were expected to contribute
substantial amounts for economic development have been reluctant to contribute,
alleging a U.S. “militarization” of the Pastrana plan. In addition, the Pastrana
government has been unable to come up with the $4 billion that it had expected to
contribute to its Plan Colombia. The missing funds raise another area of concern
because economic opportunities will be unavailable to those whose livelihoods are
being disrupted by coca fumigation, and others who may be attracted to guerrilla or
paramilitary groups because of economic deprivation.
On the human rights front, despite the Pastrana government’s efforts to curb the
rightist “paramilitaries” or “self-defense” groups and the Colombian military leaders
who have directly or indirectly supported them, the paramilitaries have conducted
many massacres since the beginning of 2001. In an effort to push the Colombian
military further, to not only cease support but to take action against the paramilitary
organizations, in September 2001, the State Department designed the largest of them,
the United Self-Defense Forces (AUC), a foreign terrorist organization (FTO).
However, new human rights concerns had been raised when the Colombian Congress
approved in June, and President Pastrana signed on August 13, 2001, a national
security law that expanded the military’s powers to hold suspects, enabled it to
subordinate local civilian officials to military control in military “theaters of
operations,” and shortened the time period in which human rights violations by
members of the security forces must be completed.
The U.S.-backed fumigation of crops has also caused considerable controversy
both in the United States and Colombia, many groups lobbying for a cessation of all
spraying until alleged ill health effects are investigated and all those whose subsistence
crops could be affected by the spraying are given the opportunity to join voluntary
eradication and well-supported alternative development efforts. As a result, spraying
was suspended in “Plan Colombia” target areas of Putumayo and Caquetá. Finally,
some question whether the net result of the U.S. initiative will be just to push the
cultivation of illegal narcotics, along with its attendant labor flows and criminality,

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into neighboring countries, thus spreading Colombia’s instability throughout the
region.
Although the 107th Congress appears favorable to continuing some level of
assistance to Colombia under the Bush Administration’s Andean Regional Initiative,
it is unclear at this point how much funding will be available for Colombia. (See
discussion on funding for the ARI under that section, above.) Because 55% of the
ACI funding was requested for Colombia, other countries would have to be cut
deeply if funding for Colombia were to remain at the full level of the request.
Members of Congress, however, have been of varying minds on conditions
regarding Colombia, as reflected in action on the foreign operations appropriations
and on other legislation. The House version of the foreign operations appropriations
legislation, H.R. 2506, would exempt any ACI-funded programs from the mandatory
cap of 300 civilian contractors in Colombia set by the Plan Colombia legislation (P.L.
106-246, Section 3204 (b)(1)(B), but not from that act’s 500 person limit on U.S.
military personnel in Colombia. It would also exempt the use of ACI funds from
Section 482 (b) of the Foreign Assistance Act of 1961, as amended, which prohibits
procurement of weapons and ammunition, with certain exceptions. The Senate
Appropriations Committee version of H.R. 2506 would also waive the Section 482
(b) prohibition, but would retain both caps. It would condition require the Secretary
of State to report that the chemicals used in fumigation spraying were safe, being used
in accordance with instructions, and that mechanisms were in place to evaluate claims
of damage, before funds could be used for their purchase. If the Colombian military
did not observe specified human rights conditions, helicopters would be withdrawn.
In action on other legislation, in the Foreign Relations authorization bill for
FY2002 and FY2003, H.R. 1646, the House prohibited the issuance of visas to any
alien found to have willfully provided direct or indirect support to either of the two
leftist guerrilla groups in Colombia, or to the rightist self-defense forces (Section
236). The House included a cap of 500 on the number of military personnel in
Colombia (with exceptions for emergency and transiting personnel, and those
stationed with the U.S. Embassy) in Section 1209 of its version of the National
Defense authorization act for FY2002, H.R. 2586.
For more information, see CRS Report RL31016, Andean Regional Initiative
(ARI): FY2002 Assistance for Colombia and Neighbors, cited above, which tracks
action on FY2002 assistance to Colombia; CRS Report RL30541, Colombia: Plan
Colombia Legislation and Assistance (FY2000-FY2001) for information on legislation
approved in 2000, and assistance through mid-2000; and CRS Report RL30330,
Colombia: Conditions and U.S. Policy Options, by Nina M. Serafino.
Peru
Alejandro Toledo was inaugurated as President of Peru on July 28, 2001,
following two-round presidential elections in April and June 2001 that were widely
regarded as free and fair. Toledo’s primary tasks are seen as stimulating economic
growth, maintaining stability, and restoring the independence of democratic
institutions – and public confidence in them – by continuing to root out the
widespread political corruption that is part of the legacy left behind by former

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President Alberto Fujimori. Fujimori fled to Japan and resigned in November 2000,
following allegations of electoral fraud and a series of corruption and human rights
scandals involving his top aide. An interim government was formed according to
constitutional rules of succession and was praised for maintaining calm, attacking
corruption, and organizing presidential and legislative elections in its eight months in
office. An anti-Fujimori opposition leader, Toledo was elected with 53% of the valid
vote, against left-leaning former Peruvian President Alan Garcia with 47% of the vote.
In legislation and committee reports, the 106th Congress expressed concern about
the Clinton Administration’s provision of counter narcotics assistance to Peru’s
intelligence service, which was widely reported to be responsible for a wide array of
human rights violations. Since the fall of the Fujimori government, many observers
have also expressed concern regarding the former head of that intelligence service,
Vladimiro Montesinos, and his relationship to U.S. agencies, especially the Central
Intelligence Agency, and to counter narcotics operations. Montesinos also fled, was
captured in Venezuela and returned to Peru, where he faces some 168 criminal
investigations into crimes including money laundering, illicit enrichment and
corruption, organizing death squads, protecting drug lords, and illegal arms
trafficking. In its oversight of counter narcotics programs in Peru, the 107th Congress
can be expected to monitor these investigations, especially as they relate to relations
between Montesinos and U.S. agencies.
Congressional support for a U.S.-Peruvian aerial drug interdiction program
waned following an accident on April 20, 2001, in which an American missionary
plane was accidentally shot down in Peru, killing a missionary woman and her infant
daughter. The program, which involves intelligence sharing between Central
Intelligence Agency-contracted private military personnel and Peruvian authorities,
has been suspended and is under review. The U.S. and Peruvian governments
conducted a joint investigation into the accident. Their report, released August 2,
2001, concluded that lax procedures, including the inability of Peruvian and U.S.
personnel to communicate in the same language, contributed to the erroneous shoot
down. Another report making recommendations for the program’s future is yet to be
released. Peru’s Foreign Minister, Diego Garca-Sayan, reportedly asked that the
program be resumed, arguing that is the only practical way to combat narcotics
traffickers in Peru. Others argue that the flight interdiction program’s impact is
minimal because traffickers use a variety of other means to export coca from Peru.
A provision of H.R.2506, the Foreign Operations appropriations for FY2002 bill
(approved by the House on July 24, 2001), would withhold $65 million of the
program’s funds until the Secretary of State submits a full report to Congress on the
April 20, 2001 shootdown, and the Secretaries of State and Defense, and the Director
of Central Intelligence certify to Congress, 30 days before any resumption of U.S.
involvement in a counter-narcotic aerial interdiction program, that such a program
will include enhanced safeguards and procedures to prevent the occurrence of any
incident similar to the one of April 2001. The Senate version (reported by Committee
on Appropriations with an amendment in the nature of a substitute on September 4,
2001) omits any reference to the aerial interdiction program. It instead sets forth
health and safety guidelines for aerial coca fumigation and specifies that not less than
$200 million shall be applied to USAID economic and social programs in the Andean
region.

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H.R. 1646, the Foreign Relations Authorization act for FY2002 and 2003
(passed by the House May 16, 2001), would authorize $6,000 to the Organization of
American States for each fiscal year to be appropriated only for the investigation and
dissemination of information on violations of freedom of expression by the
government of Peru.
Members of Congress have also expressed concern regarding the case of Lori
Berenson, an American jailed in Peru on charges of treason. Berenson was convicted
in January 1996 by a secret Peruvian military tribunal of helping plan a thwarted
attack against the legislature by the Tupac Amaru Revolutionary Movement (MRTA),
a guerrilla group, and given a life sentence. A new trial concluded in June 2001 with
a new conviction – which she is appealing – and a sentence of 20 years on charges
of collaboration with terrorists. 143 Members of Congress signed a letter to the
Peruvian government in July 2001 asking for the immediate release of Berenson,
who maintains her innocence. Others, including former U.S. Ambassador to Peru
Dennis Jett, say it would be “a major mistake” to make Berenson’s pardon a high
priority in U.S.-Peru relations, and would risk making President Toledo appear to be
soft on terrorism or as interfering with the courts. Jett, who was serving in Peru when
the MRTA took hundreds of people hostage at the Japanese ambassador’s residence
in 1996, says it would be asking President Toledo “to commit political suicide” by
pardoning Berenson.
For further information, see CRS Report RL30918, Peru: Recovery from Crisis,
and CRS Report RS20536, Peruvian Elections in 2000: Congressional Concerns and
Policy Approaches, by Maureen Taft-Morales.
Venezuela
Since the election of former coup leader Hugo Chavez as President in 1998,
Venezuela has undergone enormous political changes, with a new constitution and
revamped political institutions. Chavez remains widely popular, with an approval
rating of over 60%, but critics and other observers have raised concerns about his
government and fear that the President is moving toward authoritarian rule with his
domination of most government institutions. Many analysts agree that Chavez’s
continued popularity will depend on progress in improving living conditions in
Venezuela, which have eroded over the past decade. Key U.S. interests in Venezuela
include continued U.S. access to Venezuelan oil reserves, the largest outside of the
Middle East; promotion and protection of U.S. trade and investment; the preservation
of constitutional democracy; and continued close anti-narcotics cooperation.
Venezuela would like to be included in the reauthorization of the Andean Trade
Preference Act, the U.S. preferential trade program for Andean nations, and the Bush
Administration has requested $10.5 million in assistance for Venezuela as part of the
anti-drug strategy of the Andean Regional Initiative.
For additional information, see CRS Report RS20978, Venezuela under
Chavez: Political Conditions and U.S. Relations, by Mark P. Sullivan.

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V. Brazil and the Southern Cone
Brazil
President Fernando Henrique Cardoso, first elected President of Brazil in 1994,
was resoundingly reelected to a second term in 1998, largely on the basis of the
success of his anti-inflation Real Plan and voters’ confidence that he could best deal
with mounting difficulties resulting from the 1997-1998 global financial crisis. In late
October 1998, Cardoso announced a major package of reforms to reduce the budget
deficit, and in December 1998 he obtained a $41.5 billion support package from the
International Monetary Fund (IMF) and the international community. In mid-January
1999, the government was forced to let the real float, and the currency’s value fell
about 40% and then rebounded. In March 1999, the government had to set even
more austere budgets to obtain the second tranche of the IMF support package.
Brazil recovered remarkably well in late 1999 and 2000, and prospects were
promising for 2001 until the country was forced to announce energy rationing when
a severe drought hampered hydroelectric energy production. It was forced to
announce new austerity measures and to obtain an additional $15 billion in IMF
funding in early August 2001 to contain the contagion effects from neighbor
Argentina that was approaching the brink of default. In the midst of these difficulties,
new presidential, congressional, and gubernatorial elections are approaching in
October 2002, with doubts about the survivability of the pro-government center-right
coalition.
In the foreign policy area, Brazil’s relations with the neighboring countries of
Argentina, Uruguay, and Paraguay, which together with Brazil form the Southern
Common Market (Mercosur), strengthened significantly in the 1990s, although
Brazil’s devaluation of the real and Argentina’s economic difficulties are posing new
challenges to the subregional bloc. Brazil and members of Mercosur have emerged
as the major advocates of a slower approach to achieving an agreement on a Free
Trade Area of Americas ( FTAA). Even so, relations with the United States have also
warmed considerably as demonstrated by President Cardoso’s visits with President
Bush in Washington, D.C. and Quebec, Canada The two countries are cooperating
in many areas, despite continuing trade disputes.
For additional information, see CRS Report RL30121, Brazil under Cardoso:
Politics, Economics, and Relations with the United States, by K. Larry Storrs, and
CRS Report 98-987, Brazil’s Economic Reform and the Global Financial Crisis, by
J.F. Hornbeck.
Argentina
Argentina faces an extended financial and economic crisis, brought on by a 3-
year recession, persistent fiscal deficit, and large contraction in exports, in part,
resulting from Brazil’s 1999 devaluation. These trends have made it difficult for
Argentina to meet payments on its $130 billion in public debt, which represents some
20% of emerging market bonds. As confidence in Argentina’s future began to fade
in 2001, it was faced with increasing capital flight, higher interest rates, and the

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prospect of a full blown financial crisis. In response, the Argentine government in
2001 completed a $29.5 billion debt swap earlier in the year to reduce interest
payments, legislatively forced a balanced budget, and has been given two financial
stabilization assistance packages. The first included a December 2000 $39.7 billion
joint effort involving the International Monetary Fund (IMF), World Bank, Inter-
American Development Bank (IDB), and government of Spain. An August 2001 $8
billion follow-on IMF loan was made in response to Argentina’s decisive move to
eliminate its fiscal deficit. It was supported by the United States. These measures are
intended to provide Argentina with the liquidity to halt capital flight and assure
investors and debtors that the country will not have to resort to either defaulting on
its debt or turning to devaluing its currency. At the heart of the issue is protecting
Argentina’s currency board arrangement, which rests on a one-to-one peg between
the peso and the U.S. dollar with provisions for automatic convertibility. This
monetary arrangement served as the pillar of Argentina’s economic stability in the
1990s, until fiscal policies and external shocks compromised the system.
President Bush has pledged to work with President de la Rua to expand regional
trade and expressed support for the government’s economic stabilization program, but
many doubt whether Argentina will be able to fix its financial dilemma given that
assumptions of meeting future debt payments rest on strong economic growth. This
is an unlikely prospect given that Argentina has imposed strict austerity measures and
that there is an increasing possibility of a global recession following the September 11,
2001 terrorist attacks in the United States. Argentina faces strong resistence to its
severe budget cuts, which include major reductions in public sector wages and
benefits, including social security. Default fears are still being expressed, which would
be a costly option, but so too would abandoning the currency board. Observers are
concerned that given the lack of maneuvering ability in Argentine public policy, it may
yet have to consider one of these unthinkable outcomes. Given that confidence may
take a long time in coming, the prospect of a self-fulfilling crisis cannot be discounted.
For more information, see CRS Report RS20781, Argentina: Political and
Economic Conditions and Relations with the United States, by M. Angeles Villarreal.
Chile
Chile and the United States enjoy good political and economic relations. Since
1994, U.S.-Chilean relations have centered on negotiating a free trade agreement,
with the hope initially that Chile would accede to the NAFTA. The United States and
Chile commenced formal negotiations on a bilateral free trade agreement (FTA) on
December 6-7, 2000, in Washington, D.C.. Because Chile is a relatively minor
trading partner and one of the most open, reformed, and developed economies in
Latin America, expectations are running high that there is a good chance of
congressional approval of the FTA even without trade promotion (fast track)
authority (TPA) in place, which requires Congress to consider trade agreement
implementing legislation within a limited time frame, under limited debate, and with
a single up or down vote. Despite Chile’s widely regarded economic track record and
willingness to address a wide spectrum of issues, differences in how to address
controversial provisions, such as those on labor, environment, and antidumping
measures are the main hurdles to clear. Although TPA may not be needed to pass a

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U.S.-Chile FTA, negotiators currently appear to be expecting action on such
legislation to provide guidance on these more controversial matters.
For background information see CRS Report RL30035, Chile: Political/
Economic Conditions and U.S. Relations, by Mark P. Sullivan. For information on
U.S.-Chile trade relations, see CRS Issue Brief IB95017, Trade and the Americas,
by Raymond J. Ahearn, and CRS Report RL31144, A U.S.-Chile Free Trade
Agreement: Economic and Trade Policy Issues, by J.F. Hornbeck.

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