Top stories this week are likely to include: continued fallout over YPF expropriation; Leon Panetta to South America; Humala approves controversial mining project; and IMF warns of protectionism in Latin America.

Global Response to YPF Seizure: Repsol has threatened to take legal action against any company that invests in YPF SA, its Argentine subsidiary that was nationalized last week. This will complicate efforts by Argentine Planning Minister Julio de Vido to elicit investments in YPF. Beyond Repsol’s response, Argentine President Cristina Fernández de Kirchner faces continued condemnation from Spain and the European Parliament, which is looking at the possibility of imposing trade sanctions on Argentine imports. Petrobras, Brazil’s state-owned oil corporation, has pledged to expand cooperation with Argentina. Look for further official reaction from Europe this week.

Panetta in South America: U.S. Secretary of Defense Leon Panetta departs today for a five-day tour in South America, where he will visit Colombia, Brazil and Chile. A defense official reports that Panetta will stop in Bogotá to evaluate U.S.-funded Plan Colombia and discuss further measures to combat the Revolutionary Armed Forces of Colombia (FARC). Then, he heads to Brasilia and Rio de Janeiro to discuss potential military deals, including Embraer’s participation in a now-cancelled military aircraft contract for the U.S. effort in Afghanistan. AQ Senior Editor Jason Marczak notes, “Although the Embraer deal was worth less than $400 million, getting it back on track would be a huge plus for U.S.-Brazil relations.” Panetta and his Brazilian and Chilean counterparts will also discuss drug interdiction measures off the coasts of Africa and Central America—two of the world’s worst drug transit points.

Peru Approves Conga Mine: Peruvian President Ollanta Humala gave conditional approval last week to the controversial Conga mining project, constructed by U.S.-owned Newmont Mining Corporation. Previously, it had been stalled due to environmental concerns and protests by local Indigenous peoples in the Cajamarca region. Independent environmental auditors recommended a series of changes including larger artificial reservoirs that would allow for the adequate supply of water to local populations; Humala gave Newmont the green light for construction on the condition that these suggestions be met. Cajamarca President Gregorio Santos remains unconvinced, so watch out for the possibility of further local backlash.

IMF Warns of Protectionism: During its spring meetings over the weekend, the International Monetary Fund predicted 3.75 percent growth for the Latin America and Caribbean region this year. The IMF also warned emerging economies against adopting protectionist measures in response to the “accommodative monetary policy” adopted by the U.S. and other developed countries. The 3.75 percent figure represents a moderation of the region’s 4.5 percent growth in 2011. Given Brazil’s criticism of the United States’ monetary behavior, pay attention to whether Latin American economies heed the IMF’s advice.

*RELATED – Angelina Jolie Visits Refugees in Ecuador: In her capacity as a United Nations High Commissioner for Refugees ambassador, Angelina Jolie visited displaced Colombian refugees in Ecuador over the weekend. Read an Americas Quarterly dispatch on refugees in Ecuador from the Winter 2012 issue.

In March 2012, the Export-Import Bank of China (China Eximbank) and the Inter-American Development Bank (IDB) announced that an approximately $1 billion investment fund to promote sustainable economic development in Latin America and the Caribbean (LAC) would be operational this year. The joint project will invest in the public and private sectors and focus primarily on infrastructure, projects on energy and natural resources, and small- and medium-sized enterprises (SMEs).

At the root of sustainable development is the notion that economies can still grow without endangering resources and the environment for future generations. However, although discussions about economic resources and the environment dominate the spotlight, the central role of future generations, or youth, in driving that notion and identifying related solutions is often relegated to the background.

Leslie Forman grew up in Silicon Valley, California, as the daughter of two serial startup veterans. She lived in China for several years and worked in diverse industries, such as advertising, consulting, corporate social responsibility and education. In 2011, she moved to Chile to take part in Start-Up Chile—a government-sponsored entrepreneurship program.

Given her unique background, Leslie has a coveted window into many worlds. She recently shared some valuable insights related to her entrepreneurial experiences and vision to connect Chile, China, California and beyond.

The Amaury Sports Organization (ASO) announced Wednesday that the 2013 Dakar Rally will be held once again in Latin America. The off-road race first staged from Paris, France to Dakar, Senegal, in 1979 will take place from January 5-20, 2013, starting in Lima, Peru, passing through Argentina (crossing the Andes mountains twice) and finishing in Santiago, Chile.

Peru’s National Chamber of Commerce estimates that the 2013 Dakar Rally will generate around $600 million for the Peruvian economy alone. José Luis Silva, minister of foreign commerce and tourism, stated that all expectations were surpassed during the 2012 race, including 1,200 hours of television exposure and millions of dollars in publicity around the world. “We hope to surpass the number of spectators from 2012 [in 2013],” Silva told Agencia Andina.

The prestigious competition of cars, trucks and motorcycles was moved from Dakar, Senegal, in 2008 to Latin America, because of the dangers encountered along the route in Africa. According to Etienne Lavigne, director of the rally, it is the organization’s intention to return to Africa at some point. But until violence and insecurity in the region subsides, Latin America will remain the host continent.

Student protests erupted in Santiago, Chile, yesterday when an estimated 5,000 demonstrators took to the streets to demand free, high-quality public education for all Chileans. The organization that convened the demonstrations, Asamblea Coordinadora de Estudiantes Secundarios (ACES), contends that steps taken by the Chilean government last year to quell similar protests are insufficient.  Shortly after protesters began leaving a designated area, police intervened with tear gas, water cannons and crowd control horses, which prompted demonstrators to retaliate by throwing tree branches, bottles and rocks. The street conflict and demonstration lasted for approximately three hours and resulted in 50 arrests and three police officers injured.

Although yesterday’s demonstrations were the first major education-related protests of 2012, widespread protests have forced President Sebastián Piñera to replace two education ministers since 2010. Student demands also include requests for interest rate reductions on loans and a break on university fees, which have saddled many graduates with overwhelming personal debt.

Human rights organization such as Amnesty International have expressed concerns about the Piñera government’s crackdown on protesters, saying  there have been complaints “by demonstrators about the use of excessive force and mistreatment of tear gas and water cannons  by the police, arbitrary arrests and reports of torture and mistreatment, including beatings and threats of sexual violence.” In 2011, there were more than 40 major protests during which an estimated 5,000 people were detained.

Chilean airline company LAN hit a landmark on Wednesday, flying its first-ever commercial flight using biofuel. An Airbus 320 flew 170 passengers from the capital of Santiago to the southern city of Concepción, powered by a biofuel made from refined vegetable oil.

Ignacio Cueto, general manager of LAN, said the flight “represented a key step toward the future of the industry,” and that there is “high potential” for biofuel production in South America. As LAN expands its operations in Latin America—with the acquisition of Colombia’s Aires and the recent merger with Brazil’s TAM airlines—the company is looking to develop alternate and cleaner sources of fuel. This is consistent with the direction in which the global airline industry is headed; the International Air Transport Association has committed to increasing its use of renewable fuels to 1 percent by 2015 and 5 percent by 2020. At the same time, Cueto and others emphasize that “the strictest technical standards” will continue to be upheld, and that investment to expand the use of biofuels will not be prohibitively high.

Cueto did not specify the cost of a ticket for Wednesday’s Santiago–Concepción flight, saying only that the costs of biofuel-powered flights are not yet competitive. Yet he also affirmed LAN’s future willingness to use biofuel in all its flights, and to work with any supplier that can offer competitive costs. Wednesday’s flight was accomplished as a part of a joint initiative with biofuel and forestry conglomerate Copec, with biofuel imported from the United States. Yet Copec general manager Lorenzo Guzmari expressed confidence that Chile could develop its own renewable fuels.

Biofuels are commonly made from plants with high levels of sugar and some oils. The ones used for LAN’s flight can be made from plants such as algaes, jatropha and halophytes and organic wastes, which can then be processed into high-quality fuels. In its press release LAN clarified that none of the fuels used were destined for consumption as food. The release also noted that the amount of carbon dioxide emitted during combusion of these biofuels is about the same as the amount taken up by plants during their growth cycle, which means that it results in no net addition of carbon dioxide to the atmosphere.

Yesterday President Sebastián Piñera signed a bill to create the Superintendencia de Telecomunicaciones, an agency expected to supervise Chile’s $30 million-telecommunications industry. Accompanied by the Minister of Transporation and Telecommunications Pedro Errázuriz, Piñera said the goal of the bill—which will now be sent to Congress—is to “ensure a deeper control that allows the protection of consumers’ rights and the rapid resolution of conflicts between users and service providers.”

The size of the industry and the lack of a proper regulatory infrastructure to support it motivated the bill. According to official data from the Instituto Nacional de Estadísticas, Chile has more cellphones than people. In September 2010 the country showed 100 percent penetration with 17.6 million cellphones for a population of 17.1 million people. In addition, there are 3.5 million fixed lines and 2 million cable TV subscribers, accounting for 98 percent of households being provided the telecommunications service. “With this level of demand we must worry about the quality of the service,” said Minister Errázuriz.

The government expects the bill to be approved by the end of 2012 and the agency to be operational by 2013. Among the tasks that the new agency would have under its control are ensuring that service providers comply with the law, enforcing the regulation (with fines up to 1,000 per cent), issuing and terminating licenses, collecting and administering information about the sector, and regulating prices. Currently, the system is administered by the Subsecretaría de Telecomunicaciones (Subtel). In practice, once the Superintendencia starts working it will take charge of Subtel’s control and punitive attributions, while the Subsecretaría will keep promoting the industry’s development and growth.

The bill to create the regulatory agency is part of a comprehensive plan to reform the sector. During the last 20 months, other improvements have taken place such as unblocking cellphones, a neutral network, mobile number portability, and most recently the completion of the first phase of a plan to remove charges for domestic long-distance calls. So far, over six million customers have benefitted from this elimination.

Latin American stock markets plunged on Monday registering the worst numbers since February 2010.  The Morgan Stanley Capital International (MSCI) Latin America—an index to measure equity market performance in emerging markets in the region—dropped 5.52 percent partly over concerns of the financial situation in the United States and Europe.

The downgrade from AAA to AA+ announced by Standard & Poor’s on Friday after the close of trading impacted the markets in Brazil, Chile, Colombia, Mexico, and Peru—the countries covered by the MSCI Latin America. Brazil’s Bovespa, the most dynamic market, lost 8.08 percent, the lowest since October 2008, amid international concern as well as domestic uncertainty over inflation and interest rates and a possible slowdown in consumer credit. Companies such as Petrobras (oil) and Vale (iron ore), two Brazilian giants, lost market value for up to 42 billion real ($26.5 billion).

Replying to suggestions that Brazil’s dominance as an emerging market is at stake, President Dilma Rousseff has said the country’s “fundamentals justified confidence in its prospects. Brazil’s foreign exchange reserves today are nearly $350 billion, up 80 percent since the global financial crisis in 2008.”

The Bolsa de Valores de Lima (BVL) dropped 7.09 percent, followed by Chile’s IPSA with 6.92 percent and Mexico’s Bolsa Mexicana de Valores (MBV), which fell 5.88 percent. While Colombia’s Bolsa de Valores (BVC) registered a decrease of 4.11 percent—and the 35 largest companies faced a market value decrease of 19.5 billion pesos ($10.7 million)—Argentina’s Merval suffered the most, plummeting 10.73 percent.

According to Nick Chamie, from RBC Capital Markets in Toronto, “Friday’s downgrade, along with recent weakness in the U.S. economic data and the ongoing European sovereign debt crisis, highlight the external risks currently facing emerging markets.”

The leaders of widespread student and faculty protests in Chile yesterday announced plans to mount a national strike and an additional series of mass demonstrations to contest a far-reaching education reform bill supported by the government. In response, Chilean Interior Minister Rodrigo Hinzpeter indicated that his office would deny to students permission to demonstrate in downtown Santiago where prior confrontations with police have caused significant property damage: “The march will not be approved by our government due to the damage caused to property, bystanders and police. We will take all necessary measures to enforce the decision. It is time for the demonstrations to end.”

According to student leaders, the government’s proposed education reforms would allow for excessive levels of privatization in the education sector and lead to higher levels of indebtedness among graduates. “We analyzed the ministry’s proposal and students considered it a setback because it allows profit in the education sector. We do not see any structural changes, but only further privatization and perpetuation of student debt," said Univeridad Católica de Valparaíso official Nataly Espinoza.

Chile has long struggled with education reform initiatives and these latest demonstrations are the culmination of more than two months of smaller protests across Chile. Students are calling for a halt of the trend toward privatization in education and other basic services such as public transportation.

Union workers at Chile’s Escondida copper mine broke off labor negotiations on Tuesday over unmet contract terms, and are threatening to extend their five-day strike indefinitely. The 2,300 striking miners from the Escondida—the world’s largest copper mine—will be joined by 7,000 contractors today, according to union leader Marcelo Tapia. Workers from Chile’s state-owned Codelco mining company may join the strike on Thursday, though the intervention of President Sebastián Piñera has made it unlikely.

The strike at Escondida that began last Thursday was spurred by disagreement over monthly production bonuses. The mine is willing to pay workers a total of $6,000 in bonuses by the end of the year, but the worker’s union rejected the offer, demanding $10,800 per worker instead. Other union demands include protections for workers who contract serious illnesses on the job, punch clocks that better control their 12-hour work days, and removal of company surveillance camera which, the union claims, violates worker privacy.

Escondida has deemed the strike illegal and has refused to continue talks. Australian mining company BHP Billiton Ltd, which holds a 57 percent share of the mine, has refused the same government mediation that appears to have eased tensions at Codelco.

Union demands are buoyed by the near all-time high price of copper, currently at $4.40 per pound, that is generating record profits for shareholders like BHP, Rio Tinto PLC and Mitsubishi Corporation. The mine, located in the northern region of Antofagasta, produces about 3,000 tons of copper per day, or 7 percent of the world’s copper, worth about $30 million.

Chilean President Sebastián Piñera announced several changes to his Cabinet yesterday, after his government’s approval rating fell to 31 percent, from 63 percent last October. The low approval is due in part to ongoing protests by students who demand reforms to the national education system. Justice Minister Felipe Bulnes will now take over the Education Ministry, and Pablo Longueira and Andrés Chadwick—two well-known senators from the conservative Unión Demócrata Independiente party, which is part of President Piñera’s Alianza por Chile coalition—have been assigned to the Ministries of Economy and Interior.

Thousands of students convened by the Confederación de Estudiantes de Chile (CONFECH) have taken to the streets of Santiago and other main cities of Chile calling for reform of the education system inherited from the Pinochet-era. The protests started in mid-May this year and have intensified since then. According to a statement published on the CONFECH website, the mobilizations aim for the defense and restoration of public education, the increase of state expenditures on education, not-for-profit schooling, and democratization of educational institutions.

Mining and Energy Minister Laurence Golborne, who gained enormous popularity following the rescue of 33 miners in October 2010 and is thought to have presidential aspirations, will move to the Ministry of Public Works. He leaves behind the problem of increasing labor unrest at the state copper mine CODELCO.

Piñera has been criticized by other political leaders for his cabinet reshuffle. José Antonio Gómez, from the opposition Partido Radical party, questioned why the president has appointed a total of four senators from his Alianza por Chile coalition—out of 16 in the Senate—to ministry positions. Noting that party leadership will now designate senators to fill those seats, Gómez and others argued that the decision undermines democracy, as it does not give citizens the opportunity to vote for those who will represent them.