Order Code RL32733
CRS Report for Congress
Received through the CRS Web
Latin America and the Caribbean:
Issues for the 109th Congress
Updated January 13, 2005
Mark P. Sullivan, Coordinator
J.F. Hornbeck
Clare Ribando
Lenore Sek
K. Larry Storrs
Maureen Taft-Morales
Connie Veillette
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

---

Latin America and the Caribbean:
Issues for the 109th Congress
Summary
The Latin America and Caribbean region has made enormous strides over the
past two decades in terms of political and economic development. While the region
overall experienced an economic setback in 2002-2003, by the end of 2004, it had
rebounded with an estimated growth rate of 5.5% for the year, surpassing even the
most optimistic predictions. Nevertheless, several nations face considerable
challenges that could threaten political stability, including persistent poverty, violent
guerrilla conflicts, autocratic leaders, drug trafficking, and increasing crime.
Legislative and oversight attention to Latin America and the Caribbean in the
109th Congress will likely focus on continued counter-narcotics efforts; potential
consideration of several free trade agreements; threats to democracy; efforts to foster
political change in Cuba; and cooperation on border security, migration and anti-
terrorism measures.
Since 2000, the Andean Counterdrug Initiative (ACI) has been the primary U.S.
program supporting the Colombian government’s efforts to combat drug trafficking
and terrorist activity perpetrated by guerrilla and paramilitary groups. The 109th
Congress will likely review ACI progress in response to an anticipated
Administration request to continue such assistance after FY2005.
In the trade arena, Congress could potentially consider legislation to implement
the U.S.-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)
completed in 2004, as well as two additional free trade agreements currently being
negotiated with Panama and with Colombia, Ecuador, and Peru. Congressional
consideration of the DR-CAFTA could prove controversial because of opposition
from labor advocates and some industry groups.
With regard to democracy, Congress will likely focus on continued support to
Haiti, which is suffering continued political instability despite the presence of a
United Nations peacekeeping force. Venezuela — a major supplier of oil to the
United States — will also remain a congressional concern because of fears among
some observers that President Hugo Chavez will use his political power to push
toward authoritarian rule. With regard to U.S. policy toward communist Cuba,
Congress will likely continue to debate economic sanctions, especially restrictions
on travel.
Congress will likely maintain an active interest in neighboring Mexico, focusing
especially on border security and migration issues.
This report, which will be updated periodically, provides an overview of issues
in U.S. relations with Latin America and the Caribbean, focusing especially on the
role of Congress and congressional concerns. For further information, see the CRS
products listed after each topic.

---

Contents
Conditions in the Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Policy Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Regional Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
U.S. Foreign Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Colombia and the Andean Counterdrug Initiative . . . . . . . . . . . . . . . . . . . . . 5
Free Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Dominican Republic-Central America-United States FTA . . . . . . 6
U.S.-Panama FTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
U.S.-Andean FTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Free Trade Area of the Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Terrorism Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
AIDS in the Caribbean and Central America . . . . . . . . . . . . . . . . . . . . . . . . 10
Afro-Latinos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Country Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Cuba . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dominican Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Ecuador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Haiti . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Panama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Venezuela . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

---

Latin America and the Caribbean:
Issues for the 109th Congress
Conditions in the Region

The Latin America and Caribbean region has made enormous strides over the
past two decades in political development, with all countries but Cuba having regular
free and fair elections for head of state. Despite this democratic progress, several
nations face considerable challenges that could threaten political stability, including
persistent poverty, violent guerrilla conflicts, autocratic leaders, drug trafficking, and
increasing crime.
While the region overall experienced a gross domestic product (GDP) decline
of 0.6% in 2002 and only a modest growth rate of 1.5% in 2003, by the end of 2004,
the region had rebounded with an estimated growth rate of 5.5% for the year,
surpassing even the most optimistic predictions. Every country in the region, with
the exception of Haiti, experienced positive economic growth, and even per capita
income for the region as a whole increased by an estimated 4% for the year.1
Countries that had suffered the deepest recessions in recent years — Argentina,
Uruguay, and Venezuela — all experienced significant economic growth in 2004.
In South America, the Andean region still faces considerable challenges.
Colombia continues to be threatened by drug trafficking organizations and by two
left-wing guerrilla groups and a rightist paramilitary group, all of which, combined,
have been responsible for thousands of deaths each year. Bolivia, Ecuador, and Peru
have all faced varying levels of political instability in the past two years. Venezuela
under President Hugo Chávez has been plagued by several years of political
polarization, although Chávez’s rule was strengthened after he survived a recall
referendum in August 2004. While Argentina has emerged from its 2001-2002
economic and political crisis, the government of President Néstor Kirchner faces the
challenge of negotiating a debt restructuring accord for over $100 billion in defaulted
bond debt.
In Central America, countries such as El Salvador, Honduras, and Nicaragua
emerged from the turbulent 1980s and 1990s with democratic institutions more
firmly entrenched, yet violent crime is a major problem in all countries. Honduras
and Nicaragua are among the poorest countries in the hemisphere. While Guatemala
has made significant progress in improving the government’s human rights policy,
significant problems remain. Former Guatemalan dictator Rios Montt (1982-1983)
is being investigated for his role in the killing of thousands in a counter-insurgency
1 U.N. Economic Commission for Latin America and the Caribbean (ECLAC), “Preliminary
Overview of the Economies of Latin America and the Caribbean,” December 15, 2004.

---

CRS-2
campaign against leftist guerrillas during his rule. Anti-corruption efforts have
gained momentum in the region as several Central American governments — Costa
Rica, Guatemala, Nicaragua, and Panama — have taken action to either prosecute or
investigate former leaders on corruption charges.
In the Caribbean, Haiti — the hemisphere’s poorest nation — continues to be
plagued by violence and political instability. In the aftermath of President Aristide’s
departure in February 2004, Haiti’s interim government is being supported by a U.N.
Stabilization Mission attempting to ensure a secure and stable environment and to
restore the rule of law. The goal of new elections in 2005 could prove illusive amid
continued violence. Cuba remains a hardline communist state under Fidel Castro
with a human rights situation that has deteriorated significantly since 2003. Several
Caribbean nations were hard hit by several devastating storms in 2004, including
Haiti, Grenada, Jamaica, and the Bahamas. The AIDS epidemic in the Caribbean,
where infection rates are among the highest outside of sub-Saharan Africa, has also
been a major challenge for the region.
U.S. Policy Overview
Legislative and oversight attention to Latin America and the Caribbean in the
109th Congress will likely focus on continued counter-narcotics efforts, especially in
the Andean region; trade issues, including potential consideration of several free
trade agreements (FTAs); threats to democracy in such nations as Haiti and
Venezuela; efforts to foster political change in Cuba; and cooperation on border
security, migration and anti-terrorism measures.
Since 2000, the Andean Counterdrug Initiative (ACI) has been the primary U.S.
program supporting the Colombian government’s efforts to combat drug trafficking
and terrorist activity perpetrated by guerrilla and paramilitary groups. The ACI has
also provided interdiction and development support to six of Colombia’s neighbors:
Bolivia, Peru, Ecuador, Venezuela, Brazil, and Panama. The 109th Congress will
likely review ACI progress in response to an anticipated Administration request to
continue such assistance after FY2005. Human rights and the environmental
consequences of aerial fumigation will likely continue to be the issues of contention
during congressional debate.
In the trade arena, Congress could potentially consider legislation to implement
the U.S.-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA)
completed in 2004 as well as two additional free trade agreements currently being
negotiated with Panama and with Colombia, Ecuador, and Peru. The Bush
Administration views such trade agreements as a way for the region to help create
jobs, attract foreign investment, and advance good governance. Congressional
consideration of the DR-CAFTA could prove controversial because of opposition
from labor advocates and some industry groups. Congress will also likely monitor
negotiations for the region-wide Free Trade Area of the Americas (FTAA).
With regard to democracy, Congress will focus on continued support to Haiti,
which is suffering continued political instability despite the presence of a United
Nations peacekeeping force. Venezuela — a major supplier of oil to the United
States — will also remain a congressional concern because of the belief among some

---

CRS-3
observers that President Hugo Chavez will use his political power to push toward
authoritarian rule. With regard to U.S. policy toward communist Cuba, Congress
will likely continue to debate whether loosening or tightening the U.S. embargo will
encourage political change.
Congress will likely maintain an active interest in neighboring Mexico, focusing
especially on border security and migration issues. The issues for attention include
proposals on identity documents and border fencing carried over from the
intelligence reform passed last year, President Bush’s January 2004 immigration
reform and expected congressional proposals, and the social security totalization
agreement with Mexico that would eliminate dual social security taxation and fill
gaps in benefit protection for affected employees who work in both countries.
Congressional consideration of the annual foreign operations appropriations
legislation that funds foreign aid is an important way for Congress to influence U.S.
policy toward the region. U.S. foreign aid is largely administered by the U.S. Agency
for International Development (USAID). The agency supports such activities as
education, poverty reduction, health care, conservation, natural disaster mitigation
and reconstruction, counter-narcotics and alternative development, and HIV/AIDS
prevention and education. In addition, the United States provides food assistance,
anti-terrorism assistance, and security assistance. Overall U.S. foreign aid to the
Latin America region amounted to $862 million in FY2001, $1.5 billion in FY2002,
$1.7 billion in FY2003; about $1.6 billion in FY2004; and a similar amount
requested for FY2005. In the aftermath of several devastating storms in 2004, the
United States provided disaster and reconstruction assistance to several Caribbean
nations. The Millennium Challenge Account (MCA), could also significantly
increase U.S. aid to three Latin American nations — Bolivia, Honduras, and
Nicaragua.
CRS Products:
CRS Report RL32160, Caribbean Region: Issues in U.S. Relations, by Mark P.
Sullivan.
CRS Report 98-684, Latin America and the Caribbean: Fact Sheet on Leaders and
Elections, by Mark P. Sullivan.
CRS Report RS21700, Special Summit of the Americas — Monterrey, Mexico,
January 2004: Background and Objectives, by Clare Ribando.
CRS Report RL32427, Millennium Challenge Account: Implementation of a New U.S.
Foreign Aid Initiative, by Larry Nowels.
CRS Report RL32487, U.S. Foreign Assistance to Latin America and the Caribbean,
coordinated by Connie Veillette.

---

CRS-4
Regional Issues
U.S. Foreign Assistance
The United States maintains a variety of foreign assistance programs in Latin
America and the Caribbean, including security assistance, counternarcotics,
economic development, and trade capacity building programs. Aid to the region
increased during the 1960s with the Alliance for Progress and during the 1980s with
aid to Central America. Since 2000, aid levels have again increased, especially in the
Andean region as the focus has shifted from Cold War issues to counternarcotics and
security assistance. Current aid levels to Latin America and the Caribbean comprise
11.4% of the worldwide aid budget, representing an increase over levels ten years ago
of 8.2%. Current aid levels to the region could increase further as the Millennium
Challenge Account is implemented.
The annual Foreign Operations Appropriations bills have been the vehicles by
which Congress provides funding for, and sets conditions on foreign assistance
programs. On November 18, 2004, Congress approved the conference report to the
FY2005 omnibus appropriations measure, which included funding for foreign
operations (Division D of P.L. 108-447). For FY2004, U.S. assistance to Latin
America and the Caribbean amounted to an estimated $1.58 billion, the largest
portion of which, $978 million, was allocated to the Andean region. Mexico and
Central America received $289 million, while the Caribbean received $154 million.
Brazil and the Southern Cone of South America received an estimated $59 million.
The United States also maintains programs of a regional nature that totaled an
estimated $98 million in FY2004. For FY2005, the Administration, requested about
$1.6 billion for the region.
Aid programs are designed to achieve a variety of goals, from poverty reduction
to economic growth. Child Survival and Health (CSH) funds focus on combating
infectious diseases and promoting child and maternal health. Development
Assistance (DA) funds improvements in key areas — such as trade, agriculture,
education, the environment, and democracy — in order to foster sustainable
economic growth. Economic Support Funds (ESF) assist countries of strategic
importance to the United States, and fund programs relating to justice sector reforms,
local governance, anti-corruption, and respect for human rights. P.L. 480 food
assistance is provided to countries facing emergency situations, such as natural
disasters. Counternarcotics programs seek to assist countries to reduce drug
production, to interdict trafficking, and to promote alternative crop development.
Foreign Military Financing (FMF) provides grants to nations for the purchase of U.S.
defense equipment, services and training.
The Millennium Challenge Account (MCA) is a new initiative that provides
sizable aid grants to a few low-income nations that have been determined, through
a competitive process, to have the strongest policy reform records and where new
investments are most likely to achieve their intended development results. In Latin
America, Bolivia, Honduras, and Nicaragua were deemed eligible to participate;
other Latin American or Caribbean nations could be eligible to receive assistance in
future years. U.S. support to counter the HIV/AIDS epidemic in the region is

---

CRS-5
provided through programs administered by several U.S. agencies, although the U.S.
Agency for International Development (USAID) is the lead agency in the
international fight against AIDS. The United States also provides contributions to
multilateral efforts, such as the Global Fund to Fight AIDS, Tuberculosis, and
Malaria.
CRS Products:
CRS Report RL32487, U.S. Foreign Assistance to Latin America and the Caribbean,
coordinated by Connie Veillette.
Colombia and the Andean Counterdrug Initiative
The Andean Counterdrug Initiative (ACI) is the primary U.S. program that
supports Plan Colombia, a six-year plan developed by the Colombian government in
1999 to combat drug trafficking and related guerrilla activity. Because Plan
Colombia was developed as a six year plan, the 109th Congress will most likely
review its progress in response to an anticipated Administration request to continue
U.S. assistance after FY2005. Such consideration could provoke a broader debate
on the effectiveness of U.S. counternarcotics policy in the region. U.S. support for
Plan Colombia began in 2000, when Congress passed legislation providing $1.3
billion in interdiction and development assistance (P.L. 106-246) for Colombia and
six regional neighbors: Bolivia, Peru, Ecuador, Venezuela, Brazil, and Panama.
Funding for ACI from FY2000 through FY2005 totals approximately $4.2 billion.
Colombia produces 80% of the world’s supply of cocaine and increasing
amounts of high quality heroin. Illegally armed groups of both the left and right are
believed to participate in the drug trade. In addition to the basic debate over what
role the United States should play in Colombia’s struggle against drug trafficking and
illegally armed groups, Congress has repeatedly expressed concern with a number of
related issues. These include continuing allegations of human rights abuses; the
expansion of U.S. assistance for counterterrorism and infrastructure protection; the
health and environmental consequences of aerial fumigation of drug crops; the
progress of alternative development to replace drug crops; the level of risk to U.S.
personnel in Colombia, including the continued captivity of three American hostages
by the Revolutionary Armed Forces of Colombia (FARC); and the current
demobilization talks between the Colombian government and paramilitaries.
The 108th Congress considered assistance for Plan Colombia during the annual
appropriations process, providing $731 million for the region in the FY2005
Consolidated Appropriations Act (P.L. 108-447). The FY2005 Ronald W. Reagan
National Defense Authorization Act (P.L. 108-375) raised the cap on military
personnel allowed to be deployed in Colombia in support of Plan Colombia from 400
to 800 for military personnel, and from 400 to 600 for civilian contractors. Since
FY2002, the Congress has authorized support for a unified campaign against
narcotics trafficking and activities of organizations designated as terrorist
organizations by the Department of State.

---

CRS-6
According to U.S. and Colombian officials, coca cultivation dropped 15% in
Colombia during 2002 and 21% in 2003. This marked the first reduction in acreage
devoted to coca cultivation in Colombia. Poppy cultivation was reduced by 24% in
2002 and 10% in 2003. It is believed that the Plan Colombia goal of spraying 50%
of the country’s coca crop by the end of 2005 may have been accomplished two years
ahead of schedule. It should be noted that spraying does not prevent, although it may
discourage, the replanting of illicit crops. However, according to the Administration,
during 2002 and 2003, coca cultivation picked up in Bolivia, reversing a declining
trend there. Peru’s coca cultivation in 2003 decreased by 15%.
Critics of U.S. policy contend that winning the war against drugs is a losing
proposition as long as demand continues. They argue that despite the successes in
eradicating illicit crops, the amount of drugs entering the United States has not
declined, and prices have remained stable. Critics contend that U.S. policy should
focus on the “demand side” in the United States. The Bush Administration has,
however, recast the debate, arguing that the United States faces not only a threat from
drug trafficking, but also from the increasing instability brought on by insurgent
guerrilla organizations that are fueled by the drug trade. Supporters of U.S. policy
argue that assistance to Colombia is necessary to help a democratic government
besieged by drug-supported leftist and rightist armed groups. Assistance to
Colombia’s neighbors, according to supporters, is merited because of an increasing
threat from the spillover of violence and drug production from Colombia.
While some critics agree with this assessment, they argue that U.S. assistance
overemphasizes military and counter-drug assistance and provides inadequate
support for protecting human rights and encouraging a peace process in Colombia.
In particular, they express concern that current military assistance is strengthening
the Colombian military which, they charge, has substantial ties to rightist
paramilitary groups who have committed gross violations of human rights. Critics
also assert that U.S. assistance is disproportionately targeted to eradication of crops
and military training rather than to alternative development projects that could
provide alternative livelihoods for growers who voluntarily give up illicit crops.
CRS Products:
CRS Report RL32337, Andean Counterdrug Initiative (ACI) and Related Funding
Programs: FY2005 Assistance, by Connie Veillette.
CRS Report RL32250, Colombia: Issues for Congress, by Connie Veillette.
Free Trade Agreements
The Dominican Republic-Central America-United States FTA. On
May 28, 2004, the United States, Guatemala, El Salvador, Honduras, Nicaragua, and
Costa Rica signed the U.S.-Central America Free Trade Agreement (CAFTA). On
August 5, 2004, the Dominican Republic, having completed separate negotiations
with the United States, was added to the agreement (the DR-CAFTA) in a subsequent
signing by all parties. In the United States, the DR-CAFTA has been controversial,

---

CRS-7
with concerns over 1) allegations of weak enforcement of labor standards in some
countries, and 2) the economic effects on all countries of liberalizing trade of the
region’s major export sectors: agriculture, textiles, and apparel. The DR-CAFTA
ran into problems when the United States Trade Representative (USTR) threatened
to exclude the Dominican Republic because of a 25% tax on beverages containing
high fructose corn syrup that was passed in the fall of 2004. This tax was repealed
in January 2005, but another issue arose with a December 2004 law passed in
Guatemala that could be interpreted to be in violation of data protection (on research
resulting in product with patent possibilities) commitments in the DR-CAFTA. The
USTR may again decline to move forward with the FTA if this law is not repealed
or changed, although the Guatemalans note that the DR-CAFTA would supercede
this law were it to take affect, so this law is technically not a problem.
U.S.-Panama FTA. On November 16, 2003, President Bush formally notified
Congress of his intention to negotiate a bilateral FTA with Panama. Negotiations
commenced in April 2004 and may be concluded in early 2005, perhaps at the close
of the seventh round taking place during the week of January 10-14. Panama is a
services-based economy, which distinguishes it, and the trade negotiations, from
those of its Central American neighbors. Agriculture, services, and maritime
concerns have been the most challenging issues to negotiate. The United States also
seeks to loosen Panamanian rules limiting activities of foreign professionals, and is
focused intently on government procurement provisions given Panama’s plan to
invest some $8 billion in the Panama Canal expansion project. Unlike the DR-
CAFTA, there is little textile and apparel trade and labor issues have not taken on the
same importance. Implementing legislation for the proposed U.S.-Panama FTA may
be considered in the 109th Congress, and conceivably ahead of the DR-CAFTA, if it
is delayed.
U.S.-Andean FTA. On May 18-19, 2004, the United States began free-trade
negotiations with Colombia, Peru, and Ecuador. Bolivia has participated as an
observer. Six rounds have been held thus far, and at least two more rounds are
expected in 2005. In a letter notifying Congress of the intent to begin negotiations,
the U.S. Trade Representative said that an FTA would not only reduce barriers to
trade between the Andean countries and the United States, but would “ ...also
enhance our efforts to strengthen democracy and support for fundamental values in
the region....”2
An FTA could eliminate tariff and nontariff barriers to trade among the
countries, but there are some difficult issues in the on-going negotiations. The United
States insists that disputes involving U.S. investments in Ecuador and Peru be
resolved before reaching an FTA. It also wants the elimination of agricultural trade
barriers such as the price band mechanism, which controls the price of imports
through fluctuating tariffs. U.S. labor groups are protesting against the worker rights
records of Ecuador and Colombia. In general, the Andean countries want a long-term
commitment that they will be able to export duty-free to the U.S. market, since their
current trade preferences expire in 2006. They are also seeking protections for
2 Office of the USTR. USTR Notifies Congress of Intent to Initiate Free Trade Talks with
Andean Countries. November 18, 2003. Available at [http://www.ustr.gov].

---

CRS-8
“traditional knowledge” under provisions on intellectual property rights and easier
entry into the United States for business people.
Free Trade Area of the Americas. The proposed Free Trade Area of the
Americas (FTAA) was originally conceived ten years ago as a regional (presumably
WTO-plus) trade agreement that would include 34 nations of the Western
Hemisphere. Since then, three drafts of the agreement have been released, but the
original January 2005 date for signing it has been postponed. It also appears unlikely
that the year-end 2005 deadline for enacting it will be met. At the center of the delay
are deep differences between the United States and Brazil, the co-chairs of the Trade
Negotiating Committee, which have competing visions over how the FTAA should
operate. The result may be a less than fully comprehensive agreement. In the
meantime, both countries are courting other Latin American countries to join them
in sub-regional trade agreements. Until Brazil and the United States come to some
agreement over how to proceed, it appears that the region will continue to follow a
path of integration based on bilateral and sub-regional trade arrangements, which
most economists argue is far inferior to a region-wide FTA.
CRS Products:
CRS Report RL31870, The Dominican Republic-Central America-United States Free
Trade Agreement (DR-CAFTA), by J. F. Hornbeck.
CRS Report RL32540, The Proposed U.S.-Panama Free Trade Agreement, by J. F.
Hornbeck.
CRS Report RS20864, A Free Trade Area of the Americas: Status of Negotiations and
Major Policy Issues, by J. F. Hornbeck.
CRS Report RL32322, Central America and the Dominican Republic in the Context of
the Free Trade Agreement (DR-CAFTA) with the United States, coordinated by
K. Larry Storrs.
CRS Report RS21868, U.S.-Dominican Republic Free Trade Agreement, by Lenore
Sek.
Terrorism Issues
In the aftermath of the September 2001 terrorist attacks on New York and
Washington, D.C., U.S. attention to terrorism in Latin America intensified, with an
increase in bilateral and regional cooperation. Latin American nations strongly
condemned the attacks, and took action through the Organization of American States
to strengthen hemispheric cooperation. In June 2002, OAS members signed an Inter-
American Convention Against Terrorism in order to improve regional cooperation,
including a commitment by parties to deny safe haven to suspected terrorists.
President Bush submitted the convention to the Senate in mid-November 2002 for
its advice and consent, and it was referred to the Senate Foreign Relations Committee
(Treaty Doc. 107-18). The committee held a hearing on the treaty on June 17, 2004,

---

CRS-9
but no action was taken by the end of the 108th Congress. In the aftermath of 9/11,
the OAS also reinvigorated the Inter-American Committee on Terrorism (CICTE),
which cooperated on border security mechanisms, controls to prevent funding of
terrorist organizations, and law enforcement and counterterrorism intelligence.
In October 2003, the OAS held a Special Conference on Security in Mexico City
that focused on identifying new threats, concerns, and challenges facing the
hemisphere, and agreed on a cooperative approach toward addressing them. Among
the threats identified in the adopted Declaration on Security in the Americas were
“terrorism, transnational organized crime, the global drug problem, corruption, asset
laundering, illicit trafficking in weapons and the connections among these
activities.”3
The State Department, in its annual report on worldwide terrorism (Patterns of
Global Terrorism, April 2004), highlights terrorist threats in Colombia, Peru, and the
tri-border region of Argentina, Brazil, and Paraguay, which has been a regional hub
for Hizballah and Hamas fundraising activities. Cuba also has been listed as a state
sponsor of terrorism since 1982. In the aftermath of 9/11, U.S. attention focused on
potential links in the region to the Al Qaeda terrorist network, but the Patterns report
maintained that reports of an Al Qaeda presence in the tri-border region remained
“uncorroborated by intelligence and law-enforcement officials.” There were
increased concerns in 2004 by some Central American officials about potential Al
Qaeda threats in the region, although U.S. officials maintained that there was no
evidence supporting such concerns.4
Through the State Department, the United States provides Anti-Terrorism
Assistance (ATA) training and equipment to Latin American countries to help
improve their capabilities in such areas as airport security management, hostage
negotiations, bomb detection and deactivation, and countering terrorism financing.
ATA financing is generally provided through the annual foreign operations
appropriations measure. In FY2002, a total of $27.5 million was provided for the
region, with $25 million for an anti-kidnapping program in Colombia (appropriated
through an FY2002 supplemental appropriations measure, P.L. 107-206) and $2.5
million for the regular Western Hemisphere program. For FY2003, $3.6 million in
ATA assistance was provided for the region, with $3.3 million of that for Colombia.
For FY2004, an estimated $2.6 million in ATA assistance was provided for the
Western Hemisphere, while the Administration requested $5.2 million for FY2005,
including $1 million for the tri-border region of Argentina, Brazil, and Paraguay, and
$3.9 million for Colombia.
The 108th Congress called for two reports from the Administration regarding
terrorist activities in Latin America. The FY2005 Ronald W. Reagan National
Defense Authorization Act (P.L. 108-375), enacted into law October 28, 2004,
required: a report within 180 days from the Secretary of Defense on the activities of
3 Organization of American States. Declaration on Security in the Americas. Oct. 28, 2003.
4 “U.S. Officials Dispute Al Qaeda Role in Hemisphere,” Homeland Security Monitor
(Intellibridge), September 30, 2004; Jerry Seper, “Al Qaeda Seeks Tie to Local Gangs.”
Washington Times, September 28, 2004.

---

CRS-10
Al Qaeda and associated groups in Latin America and the Caribbean (Section 1047);
and a report within 60 days from the Secretary of State regarding any relationships
between foreign governments or organizations and terrorist groups in Colombia
(Section 1021).
Both chambers in the 108th Congress also expressed concern regarding the
continuing investigation into the July 1994 bombing of the Argentine-Israeli Mutual
Association (AMIA) in Buenos Aires that killed 86 people. Allegations have linked
Hizballah, the radical Lebanon-based Islamic group, to the 1994 bombing as well as
to the1992 bombing of the Israeli Embassy in Buenos Aires that killed 30 people.
Both the House and the Senate approved similar resolutions — H.Con.Res. 469 (Ros-
Lehtinen) and S.Con.Res. 126 (Coleman) — on July 22, 2004, that, among other
provisions, urged Argentina to provide resources to investigate all areas of the AMIA
case, encouraged U.S. law enforcement support, and suggested the establishment of
an OAS task force to assist in the investigation.
CRS Products:
CRS Report RS21049, Latin America: Terrorism Issues, by Mark P. Sullivan.
AIDS in the Caribbean and Central America
The AIDS epidemic in the Caribbean and Central America has begun to have
negative consequences for economic and social development, and continued
increases in infection rates threaten future development prospects. In contrast to
other parts of Latin America, the mode of transmission in several Caribbean and
Central American countries has been primarily through heterosexual contact, making
the disease difficult to contain because it affects the general population. The
Caribbean countries with the highest prevalence or infection rates are Haiti, with a
rate of 5.6%; Trinidad and Tobago, with a rate of 3.2%; the Bahamas, with a rate of
3%; Guyana, with a rate of 2.5%; and Belize, with a rate of 2.4%. (Belize and
Guyana are considered Caribbean nations because of their extensive linkages.) Four
other Caribbean countries — the Dominican Republic, Suriname, Barbados, and
Jamaica — have rates over 1%. In Central America, Honduras has the highest
prevalence rate of 1.8%, while Guatemala has a rate over 1%.
The response to the AIDS epidemic in the Caribbean and Central America has
involved a mix of support by governments in the region, bilateral donors (such as the
United States, Canada, and European nations), regional and multilateral
organizations, and nongovernmental organizations (NGOs). The World Bank, the
Inter-American Development Bank, and the Global Fund to Fight AIDS,
Tuberculosis, and Malaria have funded numerous HIV/AIDS projects in the
Caribbean and Central America. Many countries in the region have national AIDS
programs that are supported through these efforts.
The U.S. Agency for International Development (USAID) has been the lead
U.S. agency fighting the epidemic abroad since 1986. USAID’s funding for

---

CRS-11
HIV/AIDS in Central America and the Caribbean region rose from $11.2 million in
FY2000 to $33.8 million in FY2003. In May 2003, Congress approved the United
States Leadership Against HIV/AIDS, Tuberculosis, and Malaria Act of 2003 (P.L.
108-25), which authorized $3 billion per year for FY2003 through FY2008 to fight
the three diseases worldwide. The legislation and the President’s Emergency Plan
for AIDS Relief (PEPFAR) focus on assisting 12 African countries plus Guyana and
Haiti, although the legislation notes that other countries may be designated by the
President. Because of the inclusion of Guyana and Haiti in PEPFAR, FY2004 U.S.
assistance to the region for HIV/AIDS increased to an estimated $56.6 million in
FY2004, and the FY2005 request increased to an estimated $86 million. PEPFAR
also has included increased funding for Caribbean and Central America regional
programs as well as for Honduras.
In the 108th Congress, some Members of Congress wanted to expand the list of
Caribbean countries in the 2003 HIV/AIDS legislation. Both the House-passed
FY2004-FY2005 Foreign Relations Authorization Act, H.R. 1950 (Section 1818),
and the Senate Foreign Relations Committee’s reported FY2005 Foreign Relations
Authorization Act, S. 2144 (Section 2518), had provisions that would have added 14
Caribbean countries to those listed in the May 2003 legislation, but no final action
was taken on these measures.
CRS Products:
CRS Report RL32001, AIDS in the Caribbean and Central America, by Mark P.
Sullivan.
Afro-Latinos
In recent years, people of African descent in the Spanish and Portuguese-
speaking nations of Latin America — also known as “Afro-Latinos” — have been
pushing for increased rights and representation. Afro-Latinos comprise some 150
million of the region’s 540 million total population, and, along with women and
indigenous populations, are among the poorest, most marginalized groups in the
region. Afro-Latinos have begun forming groups that, with the help of international
organizations, are seeking political representation, human rights protection, land
rights, and greater social and economic rights and benefits.
Improvement in the status of Afro-Latinos could be difficult and contentious,
however, depending on the size and circumstances of the Afro-descendant
populations in each country. Afro-Latinos are, generally, descendants of the millions
of West African slaves brought to the Americas by European traders during the
colonial period. Afro-Latinos tend to reside in coastal areas, although in many
countries they have migrated to large cities in search of employment. Afro-Latinos
comprise a majority of the population in Cuba and the Dominican Republic, while
in Brazil, Colombia, Panama, Venezuela, Ecuador, and Nicaragua, they form a
significant minority.

---

CRS-12
Afro-Latinos have sought assistance from international organizations, such as
the World Bank and the Inter-American Development Bank (IDB), and have forged
partnerships with some African-American business and political leaders. Afro-
Latinos, as with indigenous groups, have presented some demands, such as legal and
environmental protection of land rights, that may conflict with entrenched interests
in their respective countries.
Assisting Afro-Latinos has not been a primary stated U.S. foreign policy
objective, although a number of foreign aid programs exist that benefit Afro-Latino
populations. Those programs are funded through the U.S. Agency for International
Development (USAID), the Inter-American Foundation (IAF), the Peace Corps, and
the National Endowment for Democracy (NED). They include agricultural, micro-
credit, health, grassroots organizing, and bilingual education programs.
Congress has expressed some concern in recent years about the status of Afro-
Latinos in Latin America. Some observers assert that the United States has an
interest in improving the condition of Afro-Latinos in Latin America. Assisting
vulnerable peoples fits into larger U.S. policy goals for the region: promoting
democracy, encouraging economic growth and poverty reduction, and protecting
human rights. Others disagree, however, as to whether U.S. foreign aid should be
specifically targeted towards Afro-Latinos (as it has in the case of some indigenous
groups), or be distributed broadly through efforts to support marginalized
populations. Skeptics question whether increasing assistance to Afro-Latinos is
feasible in a time when limited development assistance is being allocated to Latin
America. Still others caution that the United States should be careful when
intervening in the sensitive racial politics of other countries.
CRS Products:
CRS Report RL32713, Afro-Latinos in Latin America and Considerations for U.S.
Policy, by Clare Ribando.

---

CRS-13
Country Issues
Argentina
Although Argentina has emerged from its 2001-2002 economic and political
crisis, the current administration of President Néstor Kirchner faces considerable
challenges. These include the ability to build the political consensus needed in order
to ensure sustainable economic growth and financial stability, and the ability to
negotiate a debt restructuring deal for over $100 billion in defaulted bond debt. A
member of the center-left Peronist Party (Justicialist Party or PJ), Kirchner emerged
from a crowded April 2003 presidential race with 22% of the vote and was
inaugurated to a four-year term on May 25, 2003. He succeeded another Peronist,
Eduardo Duhalde, who had become President in January 2002 in the aftermath of the
resignation of President Fernando de la Rua of the Radical Civic Union (UCR).
Social protests over deteriorating economic conditions had led to De la Rua’s
resignation. Although the country was under considerable stress in 2001 and 2002,
the democratic political system weathered the crisis, and economic growth resumed
from a decline of almost 11% in 2002 to an estimated increase of over 7% in 2003.
The forecast for 2004 is for an economic growth rate of almost 8%.5
President Kirchner’s bold policy moves in the areas of human rights,
institutional reform, and economic policy have helped restore Argentines’ faith in
government. He vowed to prosecute military officials responsible for past human
rights violations during the last era of military rule (1976-1983). He supported the
successful congressional annulment of amnesty laws from the 1980s that had blocked
prosecution for crimes committed during the period of military rule. In the economic
arena, the Kirchner government reached a three-year stand-by agreement with the
International Monetary Fund (IMF) in September 2003, after several months of tough
negotiations, that provided a credit line of about $12.5 billion. However, Argentina
suspended its IMF loan program in mid-August 2004 because of IMF pressure on
completion of debt negotiations with bondholders and on Argentine progress in
implementing key economic reforms. Argentina expects to renew talks with the IMF
in early 2005, after it makes progress in restructuring its $100 billion in defaulted
bond debt. The bondholders had strongly criticized the terms of Argentina’s initial
restructuring proposal in September 2003, which included a 75% “haircut” or debt
reduction. A new Argentine proposal in early June 2004 included an agreement to
pay billions in unpaid interest, but the proposal again was criticized by many
bondholders. A formal launching of the proposal is expected on January 14, 2005.
U.S.-Argentine relations have been strong since the country’s return to
democracy in 1983 and were especially close during the Menem presidency (1989-
1999). U.S. officials have urged the Kirchner government and its private creditors
to move expeditiously to work out a fair and mutually acceptable debt restructuring
agreement, which they believe is critical to ensuring Argentina’s continued economic
recovery. The State Department also has highlighted concerns about the tri-border
area (TBA) of Argentina, Brazil, and Paraguay because of activities of the radical
Lebanon-based Islamic group Hizballah (Party of God) and the Sunni Muslim
5 “Argentina: Country Report,” Economist Intelligence Unit, December 2004, pp. 10-11.

---

CRS-14
Palestinian group Hamas (Islamic Resistence Movement). The 108th Congress
expressed concern regarding Argentina’s investigation into the July 1994 bombing
in Buenos Aires of the Argentine-Israeli Mutual Association (AMIA) that killed 86
people. Allegations have linked Hizballah to the AMIA bombing as well as to a 1992
bombing of the Israeli Embassy in Buenos Aires that killed 30 people. (Also see
Terrorism Issues section above.)
CRS Products:
CRS Report RS21113, Argentina: Political Conditions and U.S. Relations, by Mark P.
Sullivan.
CRS Report RL32637, Argentina’s Sovereign Debt Restructuring, by J.F. Hornbeck.
CRS Report RS21072, The Financial Crisis in Argentina, by J. F. Hornbeck.
CRS Report RL31582, The Argentine Financial Crisis: A Chronology of Events, by J.
F. Hornbeck.
Brazil
Luis Inácio Lula da Silva of the leftist Workers’ Party (PT) was inaugurated
President of Brazil on January 1, 2003. He won the October 2002 elections
decisively, with the support of leftist parties and a variety of centrist elements.
During his first two years in office, President Lula da Silva has pursued cautious
economic policies and, after securing $20 billion in International Monetary Fund
(IMF) funds in November 2003, helped Brazil meet and even surpass the IMF’s fiscal
targets. As a result of President Lula da Silva’s economic policies, the country has
experienced lower inflation, a strengthening of the currency, a dramatic lowering of
Brazil’s credit risk rating, and an estimated 5% growth rate in 2004. In 2003,
President Lula da Silva reformed the social security system to make it more self-
sustaining and modified the tax system to make it more effective and fair. In 2004,
his government enacted new laws to reduce the length of legal proceedings and to
allow more private investment in public infrastructure projects.
In the second half of his four-year term, President Lula da Silva, though still
enjoying popular support, may struggle to find allies in the Brazilian Congress to
support his reformist agenda. Although the PT survived the October 2004 municipal
elections relatively well, its strongest opponent — the Brazilian Social Democratic
Party (PSDB) — strengthened its position by winning control of some traditional PT
strongholds, including Sâo Paulo. President Lula da Silva may also be increasingly
unable to rely on centrist parties such as the Brazilian Democratic Movement Party
(PMDB), whose leaders pulled out of the PT’s ruling coalition in December 2004
in order to post their own candidates for the 2006 presidential elections. Finally,
President Lula da Silva is likely to face increasing demands from within his own PT
party, the media, and civil society for more effective social programs, and for
solutions to the persistent problems of land distribution and crime.

---

CRS-15
Relations with the United States have been generally positive, although
President Lula da Silva has made relations with the neighboring countries in the
Southern Common Market (Mercosur) his first priority, and has been seeking to
strengthen ties with the European Union and with other non-traditional partners,
including India and China. On June 20, 2003, President Lula da Silva made an
official visit to Washington, D.C., and the countries’ leaders resolved “to create a
closer and qualitatively stronger [bilateral] relationship.” On October 4-6, 2004,
Secretary of State Colin Powell visited Brazil for high level discussions on
international trade, hunger, and security matters, as well as Brazil’s leading role in
the U.N.-sanctioned peacekeeping force in Haiti.
Lower level U.S. officials have visited Brazil on many occasions, with much of
the discussion relating to the Free Trade Area of the Americas (FTAA) since Brazil
and the United States are co-chairs of the FTAA Trade Negotiation Committee.
Brazil asserts that the FTAA must include measures to curtail agricultural subsidies
and to reduce the use of anti-dumping and countervailing duties, while the United
States has argued that these issues should be resolved in the Doha round of WTO
talks. In September 2003, the WTO talks held in Cancun, Mexico, stalled as Brazil
led a group of developing countries called the G-20 that insisted that developed
countries agree to reduce agricultural subsidies as part of any settlement. However,
the talks were revived in early 2004, and a series of meetings led to a July 31, 2004
agreement on a framework for completing the multilateral talks.
FTAA talks appeared to be in jeopardy as Brazil and the United States expressed
their divergent positions at the November 2003 Ministerial Meeting in Miami,
Florida. They finally agreed on a formula for the FTAA, called by some an “FTAA
light.” Under the formula, subsequently adopted by the Ministers, all of the countries
would agree to a set of core obligations, while countries which favored a more
ambitious agreement would negotiate plurilateral agreements. When the Trade
Negotiations Committee (TNC) met in Puebla, Mexico, in early February 2004, the
delegates were unable to agree on the FTAA common obligations, and the TNC was
suspended. Despite four separate efforts in March, April, and May 2004, the co-
chairs were unable to agree upon a framework for the FTAA negotiations, and it
became increasingly clear that negotiations would not be completed by the scheduled
deadline of January 2005.
On other trade issues, Brazil won a WTO dispute resolution case in 2004 against
the United States for subsidizing the U.S. cotton industry. The United States will
appeal the dispute settlement decision.
CRS Products:
CRS Report RL32571, U.S..-Brazil WTO Cotton Subsidy Dispute, by Randy Schnepf.
CRS Report RS21905, The Agriculture Framework in the WTO Doha Round, by
Charles Hanrahan.
CRS Report RL30121, Brazil under Cardoso: Politics, Economics, and Relations with
the United States, by K. Larry Storrs.

---

CRS-16
Cuba
Cuba under Fidel Castro remains a hard-line communist state, with a poor
record on human rights that has deteriorated significantly since 2003. With the cutoff
of assistance from the former Soviet Union, Cuba experienced severe economic
deterioration from 1989 to 1993. While there has been some improvement since
1994 as Cuba has implemented limited reforms, the economy remains in poor shape.
Since the early 1960s, U.S. policy toward Cuba has consisted largely of isolating
the island nation through comprehensive economic sanctions. The Bush
Administration has further tightened restrictions on travel and remittances to Cuba
significantly. 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 (Radio and TV Marti). While there appears to
be broad agreement on the overall objective of U.S. policy toward Cuba — to help
bring democracy and respect for human rights to the island — there are several
schools of thought on how to achieve that objective. Some advocate maximum
pressure on the Cuban government until reforms are enacted, others argue for lifting
some U.S. sanctions that they believe are hurting the Cuban people, and still others
call for a swift normalization of U.S.-Cuban relations by lifting the U.S. embargo.
There was considerable public reaction to the Bush Administration’s June 2004
tightening of restrictions for family visits and other categories of travel.
Congress continued its high level of interest in Cuba in the 108th Congress with
a variety of legislative initiatives regarding human rights and sanctions. Congress
demonstrated concern about the poor human rights situation by approving four
resolutions: S.Res. 97, H.Res. 179, S.Res. 62, and S.Res. 328. Several FY2005
appropriations measures had provisions that would have eased Cuba sanctions, but
ultimately these were not included in the FY2005 omnibus appropriations measure
(P.L. 108-447, H.Rept. 108-792). The House-passed version of the FY2005
Commerce, Justice, and State appropriations bill, H.R. 4754, would have prohibited
funds to implement, administer, or enforce recent restrictions on gift parcels and on
baggage for travelers. The House-passed version of the FY2005 Transportation /
Treasury appropriations bill, H.R. 5025, had three Cuba provisions that would have
eased sanctions on family travel, travel for educational activities, and private
commercial sales of agricultural and medical products.
The Senate committee version of the FY2005 Transportation/ Treasury
appropriations bill, S. 2806, had a provision that would have prohibited funds from
administering or enforcing restrictions on Cuba travel. The Senate committee
version of the FY2005 Agriculture appropriation bill, S. 2803, would have allowed
travel to Cuba without having to apply to the Treasury Department for a license if the
travel was related to the commercial sale of agricultural and medical products. The
Administration had threatened to veto both the Transportation/Treasury and
Agriculture appropriations measures if they had provisions weakening Cuba
sanctions. Numerous other legislative proposals were introduced that would have
eased sanctions on Cuba, but no action was taken on these initiatives. Cuba will
likely remain an issue of concern and contention in the 109th Congress.

---

CRS-17
CRS Products:
CRS Report RL32730, Cuba: Issues for the 109th Congress, by Mark P. Sullivan.
CRS Report RL31139, Cuba: U.S. Restrictions on Travel and Legislative Initiatives, by
Mark P. Sullivan.
CRS Report RL32251, Cuba and the State Sponsors of Terrorism List, by Mark P.
Sullivan.
CRS Report RS20468, Cuban Migration Policy and Issues, by Ruth Ellen Wasem.
CRS Issue Brief IB10061, Exempting Food and Agriculture Products from U.S.
Economic Sanctions: Status and Implementation, by Remy Jurenas.
CRS Report RS21764, Restricting Trademark Rights of Cubans: WTO Decision and
Congressional Response, by Margaret Mikyung Lee.
Dominican Republic
President Leonel Fernández of the Dominican Liberation Party (PLD), who
served as president previously (1996-2000), took office on August 16, 2004.
Fernández is charged with helping the Dominican Republic recover from a deep
economic crisis that occurred primarily as the result of three major banking failures
and bailouts in 2003. Since August 2004, the Dominican currency has risen 30%
against the U.S. dollar and inflation has declined dramatically. President Fernández
has passed tax measures and cut some extraneous public sector jobs. He has also
launched a plan to fight corruption. The Fernández administration has struggled,
however, to cope with rising crime rates and persistent electricity shortages. In
addition, President Fernández has yet to secure a new IMF agreement that could
bring $600 million to $1 billion in financing to the country.
A controversial issue in U.S.-Dominican relations has been the Dominican tax
on drinks containing high fructose corn syrup (HCFS), a major U.S. product. The
HCFS tax appears to be a measure to protect Dominican sugar producers. Enacted
in September 2004 as part of a fiscal bill containing reforms necessary to restart the
suspended IMF agreement, the HCFS tax threatened the country’s chances of being
included in the U.S.-Dominican Republic-Central America Free Trade Agreement
(DR-CAFTA). On December 27, 2004, the Dominican Chamber of Deputies voted
to repeal the tax after a unanimous vote against the tax in the Senate. President
Fernández signed the measure into law on December 28, 2004. The Dominican
government must now find a way to appease the country’s sugar producers without
jeopardizing the country’s finances.

---

CRS-18
CRS Products:
CRS Report RS21718, Dominican Republic: Political and Economic Conditions and
U.S. Relations, by Clare Ribando.
CRS Report RL31870, The Dominican Republic-Central America-United States Free
Trade Agreement (DR-CAFTA), by J. F. Hornbeck.
CRS Report RS21868, U.S.-Dominican Republic Free Trade Agreement, by Lenore
Sek.
CRS Report RL32322, Central America and the Dominican Republic in the Context of
the U.S.-Central America Free Trade Agreement (CAFTA), coordinated by K.
Larry Storrs.
Ecuador
In January 2003, Lucio Gutierrez, a former army Colonel who was part of the
junta that toppled the government of Jamil Mahuad in January 2000, became the
country’s sixth president in seven years. Upon assuming the presidency, Gutierrez
abandoned his populist rhetoric and adopted economic reform and good governance
policies in order to secure support from the United States and the International
Monetary Fund (IMF). Despite rapid economic growth driven by high oil prices,
President Gutierrez’s power has been limited by legislative gridlock, protests
organized by indigenous groups that at once formed part of his governing coalition,
and allegations of corruption within his administration. Gutierrez’s party, the
Patriotic Society Party (PSP), won barely 5% of the vote in the regional and
municipal elections held on October 17, 2004. Since that time, President Gutierrez
has formed new alliances with mid-size parties, including that of exiled President
Abdalá Bucaram, in order to stave off impeachment proceedings and shore up
support for his government. Gutierrez has been under criticism recently for using his
new legislative coalition to pack Ecuador’s courts with his political allies.

Despite some recent disagreements, Ecuador continues to cooperate with the
U.S. counter-narcotics program and has mobilized its military and police forces to
help control spillover effects from the conflict in Colombia along its northern border.
Ecuador and the United States possess a significant trade and investment relationship
that has been enhanced since 1992 by the Andean Trade Preference Act. The United
States has concluded six rounds of negotiations with Ecuador, along with Colombia
and Peru, for an Andean Free Trade Agreement. Ecuador was placed on the State
Department’s 2004 Tier 3 List of countries that had not adequately combated
trafficking in persons, but avoided U.S. sanctions by making progress on that issue
between June and September 2004.
CRS Products:
CRS Report RS21687, Ecuador: Political and Economic Situation and U.S. Relations,
by Clare Ribando.

---

CRS-19
El Salvador
On March 21, 2004, businessmen Tony Saca of the conservative National
Republican Alliance (ARENA) party soundly defeated his nearest rival, Shafick
Handal, a former guerrilla and Communist Party member, of the Farabundo Marti
National Liberation Front (FMLN) to win the Salvadoran presidential elections. Mr.
Saca took office on June 1, 2004, alongside Ana Vilma de Escobar, who became the
first Salvadoran woman to serve as vice president. The new administration is facing
a divided legislature, in which the FMLN continues to hold 31 of 84 seats. President
Saca scored a number of early legislative triumphs, such as the approval of the 2004
budget and tough legislation to combat gang violence. Although 60% of Salvadorans
approve of his overall job performance, 73% disapprove of his August 2004 decision
to send a new contingent of 380 Salvadoran soldiers to Iraq. The United States is
working with President Saca to combat narco-trafficking, to resolve immigration
issues, and to promote free trade, possibly through the proposed United States-
Dominican Republic-Central America Free Trade Agreement (DR-CAFTA). On
December 17, 2004, despite the opposition of the FMLN, El Salvador became the
first country in Central America to ratify DR-CAFTA. On January 6, 2005, the U.S.
government extended the Temporary Protected Status (TPS) of an estimated 290,000
undocumented Salvadoran migrants living in the United States until September 9,
2006.
CRS Products:
CRS Report RS21655, El Salvador: Political and Economic Conditions and Relations
with the United States, by Clare Ribando.
CRS Report RL32322, Central America and the Dominican Republic in the Context of
the Free Trade Agreement (DR-CAFTA) with the United States, coordinated by
K. Larry Storrs.
CRS Report RL31870, The Dominican Republic-Central America-United States Free
Trade Agreement (DR-CAFTA), by J. F. Hornbeck.
Haiti
The main issue for U.S.-Haiti policy during the 109th Congress will likely be
how to contain Haiti’s growing instability. Ongoing violence and the lack of a
functioning infrastructure make it difficult to pursue other U.S. goals in Haiti, such
as decreasing narcotics trafficking, promoting democracy and respect for human
rights, and alleviating poverty. A further Administration goal, of limiting illegal
immigration, has been challenged by some Members as not affording adequate
protection for Haitian asylum-seekers. Since armed rebellions led to the departure
of President Jean-Bertrand Aristide in February 2004, an interim government has
taken over, but security conditions are so tenuous that observers are calling Haiti a
failed state in danger of descending into civil war, anarchy, or a criminal state. The
Haitian National Police are considered understaffed and under equipped to maintain
order. The UN Stabilization Mission in Haiti (MINUSTAH) has also been

---

CRS-20
understaffed, as member governments have been slow to send the 6,700 troops and
1,622 civilian police that were authorized. MINUSTAH’s ability to carry out its
mandate to establish law and order is further hampered by the diversion of its
resources to help protect and deliver emergency assistance following natural disasters
which left thousands dead or homeless.
Policymakers concerned about security in Haiti are debating how best to support
the existing UN Mission, or whether to expand the UN’s role, with some observers
urging some sort of long-term international intervention, including the possibility of
protectorate status for Haiti. Observers are also debating what role U.S. troops
should play in enhancing Haitian security. Only six U.S. personnel are participating
in MINUSTAH. The interim Haitian government requested that U.S. troops return
to Haiti. Instead, the Department of Defense will conduct a humanitarian exercise
beginning in February 2005 as a show of support for the interim government. About
250 U.S. military personnel will participate in a three-month long civic assistance
program that will also help train U.S. military units in construction and medical care
services. As political disarray continues, human rights violations are increasing, and
elections scheduled for late 2005 are placed in greater jeopardy. The FY2005 foreign
operations appropriations act (incorporated into the FY2005 Consolidated
Appropriations Act, P.L.108-447) requires the Administration to provide Congress
reports on a multi-year assistance strategy within 90 days, and on a reforestation
strategy, including funding requirements, within 180 days of the bill’s enactment.
Supporters of trade preferences for Haiti have said they may bring them up for
reconsideration in the new Congress.
CRS Products:
CRS Report RL32294, Haiti: Developments and U.S. Policy Since 1991 and Current
Congressional Concerns, by Maureen Taft-Morales.
CRS Report RS21349, U.S. Immigration Policy on Haitian Migrants, by Ruth Ellen
Wasem.
CRS Report RS21839, Haitian Textile Industry: Impact of Proposed Trade Assistance,
by Bernard A. Gelb.
CRS Web Page CA9005, Haiti: Legislation in the 108th Congress, by Andy Mendelson,
available online at [http://www.crs.gov/products/browse/
officialsources/haitileg.shtml].
Honduras
Honduras faces the enormous challenge of improving economic and living
conditions in one of the hemisphere’s poorest countries while at the same time
dealing with a high crime rate perpetrated by youth gangs known as maras. Current
President Ricardo Maduro — inaugurated to a four-year term in January 2002 — is
the 6th elected president since the country’s return to civilian rule.

---

CRS-21
The United States has a close relationship with Honduras, characterized by
significant foreign assistance, an important trade partnership, a military presence in
the country, and cooperation on a range of transnational issues, including anti-
narcotics efforts and more recently the fight against terrorism. Honduras could
become one of the first beneficiaries of increased U.S. foreign assistance under the
Millennium Challenge Account (MCA). In 2004, it became eligible to compete for
MCA funding and is expected to receive more than $100 million under the program.
Honduras is a party to the U.S.-Central America Free Trade Agreement
(CAFTA) signed on May 28, 2004, and the U.S.-Dominican Republic-Central
America Free Trade Agreement (DR-CAFTA) signed on August 5, 2004. The Bush
Administration views DR-CAFTA as a means of solidifying democracy in Honduras
and promoting safeguards for environmental protection and labor rights in the
country; critics fear that an agreement without strong environmental and labor
provisions would do nothing to spur reforms in the country. Honduras views the
agreement as an important element of the country’s economic development strategy
that could spur additional foreign investment and non-traditional exports. Without
such an agreement, the country fears that there be would be disinvestment from its
export assembly sector and that it would not be able to compete with China in textile
and apparel exports to the U.S. market. As noted above (U.S.-Latin American Trade
Relations), Congress did not consider implementing legislation for the DR-CAFTA
by the end of the 108th Congress, but consideration by the 109th Congress is likely.

CRS Products:
CRS Report RS21103, Honduras: Political and Economic Situation and U.S.
Relations, by Mark P. Sullivan.
CRS Report RL32322, Central America and the Dominican Republic in the Context of
the Free Trade Agreement (DR-CAFTA) with the United States, coordinated by
K. Larry Storrs.
CRS Report RL31870, The Dominican Republic-Central America-United States Free
Trade Agreement (DR-CAFTA), by J. F. Hornbeck.
Mexico
Congressional interest in Mexico generally focuses on trade, migration, and drug
trafficking issues, but attention is expected to focus on immigration issues in 2005.
President Bush and President Fox both expressed the desire shortly after President
Bush’s re-election to follow up on President Bush’s earlier immigration proposal.
President Bush called in January 2004 for an overhaul of the immigration system to
permit the matching of willing foreign workers with willing U.S. employers when no
Americans can be found to fill available jobs. Under his proposal, temporary legal
status would be granted to new foreign workers who have work offers in the United
States and to undocumented workers already employed in the United States for a
term of three years that could be renewed but would end at some point. The proposal
is in line with Fox-Bush pledges in 2001, subsequently stalled because of terrorism

---

CRS-22
concerns, to achieve more orderly and humane migration flows between the
countries, and is similar to several congressional initiatives introduced in the 108th
Congress with guest worker and/or amnesty provisions.
Congress is also expected to deal with immigration provisions that were left out
of the Intelligence Reform and Terrorism Prevention Act of 2004 (P.L. 108-458),
including provisions in the pre-conference House version that would have prohibited
the acceptance of Mexican consular ID cards and the issuance of drivers’ licenses to
undocumented aliens, and that would have required the completion of a section of a
wall along the border in California. Congress may also consider the June 2002 social
security totalization agreement with Mexico that would eliminate dual social security
taxation and fill gaps in benefit protections for affected employees who work in both
countries.
On trade issues, Mexico is the United States’ second most important trading
partner, with two-way trade tripling since 1994 under the North American Free Trade
Agreement (NAFTA), but there are various disputes between the countries. Mexico
has complained, for example, that the United States is still failing to grant Mexican
trucks access to U.S. highways, in part because of congressionally-imposed safety
requirements. The United States has complained about Mexico’s 20% tax on soft
drinks made with high fructose corn syrup (HFCS), with devastating impact on
HFCS sales. Under congressional pressure, the USTR is pursuing WTO dispute
settlement procedures with Mexico, although producer groups are still hoping to
achieve a negotiated settlement. Mexico banned beef imports from the United States
in December 2003 following the discovery of mad cow disease in Washington state.
In March and April 2004, following the announcement of new U.S. procedures,
Mexico announced that it was resuming beef trade with the United States, but was
retaining the ban on live cattle imports.

On drug trafficking issues, the State Department’s March 2004 International
Narcotics Control Strategy Report praised Mexico for the capture of major drug
cartel figures, for the seizure of large quantities of illicit drugs, and for unprecedented
levels of cooperation with the United States in counter-narcotics efforts. The State
Department reported in April 2004, however, that marijuana and opium poppy
cultivation increased significantly in Mexico in 2003. In recent law enforcement
actions, on October 19, 2004, U.S. officials announced the dismantling of a major
Mexican money-laundering and drug trafficking organization operating in the United
States.

---

CRS-23
CRS Products:
CRS Report RL32724, Mexico-U.S. Relations: Issues for the 109th Congress, by K.
Larry Storrs.
CRS Report RS21737, NAFTA at Ten: Lessons from Recent Studies, by J.F.
Hornbeck.
CRS Report RL32669, Mexico’s Counter-Narcotics Efforts Under Fox, December
2000 to October 2004, by K. Larry Storrs.
CRS Report RL32038. Drug Certification/Designation Procedures for Illicit
Narcotics Producing and Transit Countries, by K. Larry Storrs.
CRS Report RS21561, Mexico’s Congress and July 2003 Elections, by K. Larry
Storrs.
CRS Report RL32044, Immigration: Policy Considerations Related to Guest Worker
Programs, by Andorra Bruno.
Panama
With four successive elected civilian governments, Panama has made notable
political and economic progress since the 1989 U.S. military intervention that ousted
the military regime of General Manual Antonio Noriega from power. The current
President is Martin Torrijos of the Democratic Revolutionary Party (PRD) who was
elected in May 2004 and inaugurated on September 1, 2004. Torrijos — the son of
former populist leader General Omar Torrijos — won a decisive electoral victory
with 47.5% of the vote in a four-man race. His electoral alliance also won a majority
of seats in the unicameral Legislative Assembly. He succeeded President Mireya
Moscoso of the Arnulfista Party (PA) who been elected in May 1999. The most
significant challenges facing the new government include dealing with the funding
deficits of the country’s social security fund (Caja de Seguro Social), developing
plans for the expansion of the Panama Canal, and combating poverty and
unemployment.
The United States has close relations with Panama, stemming in large part from
the extensive history of linkages developed when the Panama Canal was under U.S.
control and Panama hosted major U.S. military installations. The current U.S.
relationship with Panama is characterized by extensive cooperation on
counternarcotics efforts as well as U.S. assistance to help Panama assure the security
of the Canal and the security of its border with Colombia. U.S. assistance to Panama
has increased in the past several years with the country receiving assistance under the
Bush Administration’s Andean Regional Initiative to help Colombia and its
neighbors combat drug trafficking.
U.S.-Panamanian negotiations for a bilateral free trade agreement began in late
April 2004. To date, six negotiating rounds have been held, with the most recent
concluding in mid-December 2004. Reportedly significant progress has been made

---

CRS-24
and negotiators hope to conclude an agreement in early 2005. The most sensitive
issues in the talks are differences over market access for certain agricultural products;
for Panama, potatoes, onions, and vegetable oils are sensitive products, while sugar
remains a sensitive product for the United States.6 Panama is seeking an FTA as a
means of increasing U.S. investment in the country, while the Bush Administration
has stressed that an FTA with Panama, in addition to enhancing trade, would further
U.S. efforts to strengthen support for democracy and the rule of law. Since Panama
has a service-based economy, it traditionally has imported much more than it exports
to the United States. In 2003, the U.S. trade surplus with Panama was $1.5 billion,
with Panama exporting $301 million in goods and importing $1.8 billion in
merchandise. The stock of U.S. foreign investment in Panama was estimated at $20
billion in 2002, surpassing the combined U.S. foreign investment in the five other
Central American nations. (Also see U.S.-Panama FTA above.)
CRS Products:
CRS Report RL30981, Panama: Political and Economic Conditions and U.S.
Relations, by Mark P. Sullivan.
CRS Report RL32540, The Proposed U.S.-Panama Free Trade Agreement, by J.F.
Hornbeck.
Peru
Peru under President Alejandro Toledo has been characterized by two seemingly
contradictory trends: high economic growth and extremely low popularity of the
president. President Toledo has been criticized as having weak leadership skills, his
image has been damaged by personal issues, and his administration tarnished by
corruption charges. Toledo’s public support has remained low for two years, and was
at about10% in December 2004. The scandals have proved damaging to Toledo, who
came to office as a reformer. As the April 2006 presidential elections draw nearer,
it seems less likely that the Peruvian Congress will pursue the politically risky route
of impeaching a democratically elected president.
Toledo has presided over 37 consecutive months of economic growth, in
contrast to four years of stagnation under his predecessors. Peru has been more
stable economically than its neighbors. Under Toledo, Peru has exhibited one of the
highest growth rates in Latin America, with an increased economic output of over 4%
for 2003 and 2004, and similar rates expected for 2005-2006. Some 54% of the
population lives in poverty, and 43% are underemployed. Responding to nearly
constant, widespread protests by teachers, farmers, and others for higher wages,
Toledo has declared several states of emergency. Opposition in Congress — where
no party holds a majority — has also limited the President’s ability to push through
economic reforms.
6 “U.S. Looking to Wrap Up Free Trade Talks with Panama Early Next Year, Officials Say,”
International Trade Reporter, December 16, 2004.

---

CRS-25
Peru is a major illicit drug-producing and transit country. The United States and
Peru signed a five-year cooperative agreement for 2002-2007 that links alternative
development to coca eradication more directly than past programs have. After
thousands of coca growers protested against forced coca eradication, the government
and growers signed an agreement calling for the “gradual and fixed” reduction of
coca leaf cultivation and restricted forced eradication. Peru is the second largest
beneficiary, after Colombia, of the Andean Counterdrug Initiative. For FY2004, Peru
was allocated $66 million for interdiction, $50 million for alternative development,
and $1.7 million in Foreign Military Financing (FMF). For FY2005, Congress
allocated Peru $62 million for interdiction, $54.3 million for alternative development,
and $1 million for Foreign Military Financing funds in the FY2005 consolidated
appropriations act (P.L.108-447). The act continues to prohibit resumption of a
Peruvian air interdiction program until enhanced safeguards are in effect, with a 30
day notification to Congress required before resumption.

The FY2005 consolidated appropriations act also contained several other
provisions regarding Peru. Under Economic Support Funds, $8 million was
earmarked for Peru, and $3 million for the Peru-Ecuador Peace initiative. The act
also included $8 million to implement a regional strategy for conservation in the
Amazon basin countries, including programs to improve the capacity of indigenous
communities and local law enforcement agencies in indigenous reserves.
Support for democracy and human rights also is a U.S. concern in Peru. U.S.
initiatives include the provision of $50 million over five years to support
consolidating democratic reform, as Peru’s Congress continues to investigate
corruption and abuses under the government of former President Alberto Fujimori,
who fled the country in the wake of scandals in 2000.
Peru, along with Colombia and Ecuador, is negotiating a U.S.-Andean free trade
agreement. Some Members of Congress have expressed concern over unresolved
trade disputes with Peru. The Bush Administration has warned that it may drop Peru
(and Ecuador) from the agreement if those disputes are not resolved, rather than risk
losing congressional approval of a trade agreement with Colombia.
The case of Lori Berenson, an American jailed in Peru, has been an ongoing
issue in bilateral relations. The Inter-American Court of Human Rights announced
on December 3, 2004, that it was upholding her conviction on charges of
collaboration with terrorists. The ruling represents a reversal of a 2002 Inter-
American Commission on Human Rights decision, which found Peru responsible for
violations of the right to judicial guarantees, and recommended Peru make amends
for violations of Berenson’s human rights. Her 20-year sentence will end in 2015.
CRS Products:
CRS Report RS20536, Peruvian Elections in 2000: Congressional Concerns and
Policy Approaches, by Maureen Taft-Morales.
CRS Report RL32337, Andean Counterdrug Initiative (ACI) and Related Funding
Programs: FY2005 Assistance, by Connie Veillette.

---

CRS-26
Venezuela
An oil-exporting South American nation with a population of about 25 million,
Venezuela has been wracked by several years of political turmoil under the populist
rule of President Hugo Chávez, who was first elected in 1998. Under Chávez,
Venezuela has undergone enormous political changes, with a new constitution in
place, a new unicameral legislature, and even a new name for the country, the
Bolivarian Republic of Venezuela. Although Chávez remained widely popular until
mid-2001, his popularity eroded considerably after that, amid concerns that he was
imposing a leftist agenda on the country and that his government was ineffective in
improving living conditions. In April 2002, massive opposition protests and pressure
by the military led to the ouster of Chávez from power for a brief period. The
military ultimately restored him to power, but political opposition to Chávez’s rule
continued. From December 2002 until February 2003, the opposition orchestrated a
general strike that severely curtailed Venezuela’s oil exports, but was unsuccessful
in getting President Chávez to agree to new elections. After months of negotiations
facilitated by the OAS and the Carter Center, the Chávez government and the
political opposition signed an agreement in May 2003 that set forth mechanisms to
resolve the political crisis. This led to an August 15, 2004 presidential recall
referendum that Chávez won convincingly by a margin of 59.3% to 40.7%.
Chávez’s rule was further strengthened when his allies won a majority of
gubernatorial and municipal posts in elections held in late October 2004. The
country’s next presidential elections are set for late 2006, and there is a strong chance
that Chávez could win another six-year term. The Chávez government has benefitted
from the rise in world oil prices, which has increased government revenues, and
sparked an estimated economic growth rate of 16% for 2004.
Some observers are concerned that Chávez will use his political strength to push
toward authoritarian rule. Human Rights Watch, a U.S.-based human rights
organization, maintains that the Chávez government has dealt a severe blow to
judicial independence by packing the Supreme court under a new law that expands
the court from 20 to 32 justices.7 Critics of Chávez also fear that a new media law
enacted in early December will permit the government to censor news reports of
protests or government crackdowns. Other observers assert that freedom of the press
and assembly thrive in Venezuela and doubt that the Chávez government would
censor the press. They also maintain that allegations of threats to Venezuelan
judicial independence are grossly exaggerated.8
The United States has traditionally had close relations with Venezuela, but there
has been friction in relations with the Chávez government. The Bush Administration
expressed strong support for the work of the OAS in resolving the crisis, welcomed
the May 2003 political accord, and supported its implementation. After the recall
referendum, the Administration congratulated the Venezuelan people for their
7 “Venezuela: Chávez Allies Pack Supreme Court,” Human Rights Watch, December 14,
2004.
8 Mark Weisbrot, “U.S. Criticism of Chávez Unfounded,” Miami Herald, December 20,
2004.

---

CRS-27
commitment to democracy and commended the work of the OAS and Carter Center.
At the same time, U.S. officials stressed the importance of reconciliation on the part
of the government and the opposition in order to resolve their political differences
peacefully. A dilemma for U.S. policymakers has been how to press the Chávez
government to adhere to democratic principles without taking sides in Venezuela’s
polarized political conflict. Since Venezuela is a major supplier of foreign oil to the
United States (the fourth major foreign supplier in 2003, after Saudi Arabia, Canada,
and Mexico), a key U.S. interest has been ensuring the continued flow of oil exports
at a reasonable and stable price. Despite friction in U.S.-Venezuelan relations and
despite past threats by President Chávez to stop selling oil to the United States,
Venezuela has remained a steady supplier of oil to the United States.
CRS Products:
CRS Report RL32488, Venezuela: Political Conditions and U.S. Policy, by Mark P.
Sullivan.

---