LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Thursday, October 10, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, October 10, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Is Russia Helping Ecuador’s Moreno CEO, DevryBV Sustainable Strategies Returns to Quito Joyce Chang Global Head of Research, to Keep Venezuela’s as Strike Shutters JPMorgan Chase & Co. Schools, Stores Paula Cifuentes Director of Economic & Fiscal Affairs, Maduro in Power? Ecuadorean President Lenín Latin America & Canada, Moreno returned his government Philip Morris International to Quito in an apparent show of Marlene Fernández force as protests continued and Corporate Vice President for as a general strike paralyzed Government Relations, Arcos Dorados commerce and closed schools. Page 2 Peter Hakim President Emeritus, Inter-American Dialogue ECONOMIC Donna Hrinak President, Boeing Latin America Oil Spill Likely Jon E. Huenemann Former Corporate and From Venezuela: Government Senior Executive Brazilian Official James R. Jones Chairman, Oil that has been washing up Monarch Global Strategies Venezuelan President Nicolás Maduro and his Russian counterpart, Vladimir Putin, met last and polluting Brazil’s northeast- Craig A. Kelly month in Moscow while world leaders gathered in New York for the U.N. General Assembly. // ern beaches likely came from Director, Americas International Photo: Russian Government. Venezuela, Brazilian Environment Gov’t Relations, Exxon Mobil While world leaders gathered last month in New York for the Minister Ricardo Salles told a John Maisto congressional hearing. Director, U.S. Education U.N. General Assembly meeting, the presidents of Venezu- Finance Group Page 2 ela and Russia were meeting in Moscow. Russian Presi- Nicolás Mariscal Chairman, Q dent Vladimir Putin reiterated his support for Venezuelan POLITICAL Grupo Marhnos President Nicolás Maduro’s government and said Russia would continue Thomas F. McLarty III Colombia’s FARC Chairman, cooperating with Venezuela in areas including energy, food supplies and Political Party McLarty Associates health care. What did Maduro accomplish on his latest trip to Moscow? Carlos Paz-Soldan Expels Dissidents Partner, How critical is Russia’s backing of Venezuela as the South American DTB Associates, LLP country grapples with political and economic crises? What will the future Colombia’s FARC political party Beatrice Rangel expelled dissidents, including Director, bring in terms of Russian investment in Venezuela and the two coun- former rebel commander Iván AMLA Consulting LLC tries’ cooperation? Márquez, who issued a new call to Jaana Remes arms in August. Partner, Page 2 McKinsey Global Institute Stephen Johnson, senior advisor for Latin America and Ernesto Revilla Head of Latin American the Caribbean at the International Republican Institute and Economics, Citi former deputy assistant secretary of defense for Western Gustavo Roosen Chairman of the Board, hemisphere affairs: “Russia and Venezuela have been on Envases Venezolanos A each other’s radar screens since at least 2001, when then-President Andrés Rozental Hugo Chávez flew to Moscow looking for an ally to promote a ‘multi-polar President, Rozental & Asociados world’—code for ending U.S. geopolitical dominance. That meeting hap- Shelly Shetty pened just as Washington was seeking to build a national missile defense Head of Sovereign Ratings, Latin America, Fitch shield and Russia needed help from OPEC founding member Venezuela Roberto Sifon-Arevalo in boosting global oil prices. Over the next 18 years, their friendship Managing Director, Americas Sovereign & Public Finance Ratings, blossomed. Russia increased its investment in Venezuela, reportedly Standard & Poor’s loaning it some $17 billion, selling it $11.4 billion in military equipment Márquez // File Photo: FARC. like Sukhoi multirole fighters and exporting millions more in non-military Continued on page 2

POLITICAL NEWS struggled to get close to the presidential NEWS BRIEFS Carondelet palace, which has been sealed off Moreno Returns by police barricades, according to the report. Colombia’s FARC Political The Red Cross said it was suspending aid Party Expels Dissidents to Quito as Strike after volunteers had been attacked in several locations in recent days, the aid group said. Returning to Arms Paralyzes Ecuador [Editor’s note: See related Q&A in the Oct. 4 Colombia’s FARC political party announced issue of the Advisor.] Wednesday that it had expelled a group of In a surprise move, Ecuadorean President Lenin dissidents who in August issued a new call to Moreno returned to Quito Wednesday after tem- arms, Agence France-Presse reported. “The porarily relocating his government away from ECONOMIC NEWS re-armament announcement disregards our the capital amid days of strikes and protests, national leadership,” the FARC political party The Wall Street Journal reported. At the same Mexico’s Inflation said in a statement, which was aimed at rebels time, a general strike closed schools, stores including Iván Márquez and Jesús Santrich, and factories across the country. Protesters Slows to Three-Year who appeared in a video, saying they were have disrupted commerce and transportation in returning to armed struggle and accusing the Quito for a week to demonstrate against More- Low in September government of failing to adhere to its obliga- no’s decision Oct. 3 to eliminate fuel subsidies tions under the country’s 2016 peace deal. that cost state coffers more than a billion Mexico’s inflation slowed to a three-year low [Editor’s note: See related Q&A in the Sept. 16 dollars annually. Looting and riots broke out in in September, coming in line with the central issue of the Advisor.] recent days, prompting Moreno to temporarily bank’s 3 percent target and with expectations move the seat of his government to Guayaquil, that the Bank of Mexico will continue to lower but he returned to Quito on Wednesday in a interest rates as the economy stalls, new data CAF Denies Consideration move apparently aimed at showing his adminis- from the national statistics agency showed tration’s strength. So far the number of injuries Wednesday, The Wall Street Journal reported. of Loan for Venezuela has been minimal, according to media reports. The country’s consumer price index rose 0.26 Multilateral lender CAF said Wednesday that it On Wednesday, stone-throwing demonstrators percent last month from the end of September is not currently considering a $400 million loan clashed with police using tear gas to fend off and increased 3 percent from one year ago, to Venezuela, Reuters reported. The develop- crowds, the Associated Press reported. But marking the lowest annual rate since Septem- ment bank’s statement contradicted Venezu- the demonstrators, made up largely of youth, ber 2016. Core CPI, which does not include elan opposition leader Juan Guaidó who said labor union members and indigenous people, volatile prices, such as those of energy and a day earlier that CAF was preparing financing for Venezuela that would not be administered FEATURED Q&A / Continued from page 1 by President Nicolás Maduro’s government.

goods, according to various accounts. and pour in enough troops to cause Venezu- Current stakes include building arms and ela’s neighbors and Washington to shudder munitions factories and investing in two gas about intervening on their own. Maduro’s Goldman Sachs Eyes fields off the Caribbean coast. To Venezuela, meeting in Moscow, followed by Deputy Sale of Stake in Mexico Russian assistance is a lifeline for its now Prime Minister Yury Borisov’s trip to Caracas Toll Road Operator collapsed economy. To Moscow, Venezuela this past weekend, were calculated more to is a convenient platform for aiding other scare the United States than to provide any New York-based investment firm Goldman populist authoritarian regimes in the region, actual benefit to Venezuelans.” Sachs is in advanced talks to sell a majority such as Cuba. More importantly, President stake in the Red de Carreteras de Occidente, or Putin sees Russian activities there as a Phil Gunson, senior analyst for RCO, one of Mexico’s largest private toll road strategic counterweight for perceived U.S. the Andes region at Internation- operators, Bloomberg News reported Wednes- intervention in what he considers Russia’s al Crisis Group: “For all the talk day, citing people familiar with the deal. Spain’s Eurasian backyard. For cheap, Putin only has of a ‘strategic partnership,’ the Abertis Infraestructuras and Singapore’s A sovereign wealth fund GIC could pay some $3.3 to throw soup bones to the Nicolás Maduro Venezuelan and Russian governments have regime, promote dialogue with Venezuela’s very different views of their relationship. For billion for a 70 percent stake in the company, democratic opposition to look diplomatic President Maduro, the backing of Russia, according to the report. No final decision has been made and Goldman could opt to keep the Continued on page 4 asset or sell it to other suitors, the people said.

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Thursday, October 10, 2019 agricultural products, was up 0.30 percent in September from the previous month, bringing THE DIALOGUE CONTINUES the annual rate to 3.75 percent, from 3.78 in August. In a Banxico poll last month, econo- mists lowered their median year-end inflation Is the USMCA Deal Doomed forecast to 3.07 percent from 3.36 percent in August, The Wall Street Journal reported. If Congress Fails to Ratify It? The estimate for core CPI remained about the Nearly a year after U.S. are less unequivocal in their support. In same, at 3.63 percent. “Core services inflation President Donald Trump’s the Canadian context, this is important was impacted by the seasonal increase in administration reached a trilat- as ratification occurs through passage by education costs but benefited from lower pro- Q eral agreement on the United the cabinet, not by a vote in parliament. In fessional service costs and declining prices for States-Mexico-Canada, or USMCA, trade Canada, the governor-in-council prepares Internet/TV/phone packages,” Alberto Ramos pact, the U.S. Congress has yet to ratify the an order-in-council authorizing the minister of Goldman Sachs said in a note. Banxico deal. Meanwhile, the U.S. manufacturing of foreign affairs to sign an instrument of cut its benchmark interest rate in August and sector saw the worst reading in 10 years, ratification or accession; debate and voting in September, each time by 25 basis points, and Mexico’s manufacturing sector ended in parliament are advisory and symbolic. Reuters reported. Another rate cut is expected the third quarter with its worst performance Should the coming federal election produce in November. [Editor’s note: See related Q&A in in eight years, according to an IHS Markit a minority government, the ratification of the the Sept. 10 issue of the Advisor.] survey. How likely is the U.S. Congress to new agreement could become a very public approve USMCA this year, and what sorts of political bargaining chip. This could add Oil Spill Likely From complications would pushing its ratification fuel to ongoing debates in the United States into 2020 bring? How are political dynamics for changes to the agreement, especially by Venezuela: Brazil’s affecting the deal’s passage? If the trade left-of-center groups. Bizarrely, the current pact is delayed further, to what extent will Canadian government chose not to join Environment Chief North America’s manufacturers suffer? Mexico in ratifying the agreement. This would have helped reinforce to those arguing Brazilian Environment Minister Ricardo Salles Carlo Dade, director of the for changes and to the general public that said Wednesday that the oil polluting the Centre for Trade and Invest- renegotiation is not possible. It also would country’s northeastern beaches is “very likely ment Policy at the Canada have avoided potential ratification complica- from Venezuela,” citing a report by Brazilian West Foundation and member tions under a minority government scenario. state oil company Petrobras, Reuters reported. A of the Mexican Council on Foreign Rela- On the importance a new agreement, it is as, Salles told a congressional hearing that “all tions: “The United States is not alone in not if not more, important for agriculture than indications” suggest that a foreign vessel near having ratified the new North American trade manufacturing. Canada and Mexico are the the Brazilian coast caused the spill “accidental- agreement; Canada, which is now in the United States’ largest agricultural trading midst of a federal election, has also failed partners. Given the hits that U.S. and Canadi- to ratify it. The agreement has not featured an agricultural exporters have taken from prominently in campaigning in Canada, China, disruption in each countries’ largest being relegated to a second-tier issue in the markets would be severe.” general public debates. What discussion has occurred indicates that both parties most likely to form a new government, the EDITOR’S NOTE: The comment above is Liberals and Conservatives, would support a continuation of the Q&A published in ratification. Parties that may play a role if Wednesday’s issue of the Advisor. Salles // File Photo: Brazilian Government. there were to be a minority government, the left-of-center New Democrats and Greens, ly or not,” adding that the spill is “enormously difficult to contain,” the wire service reported. investigated. Bolsonaro told reporters on the oils the firm produces and sells. In recent Earlier this week, Brazilian President Jair Monday that “it could be something criminal, weeks, environmental agencies in Brazil have Bolsonaro said the oil found was not produced it could be an accidental spill, it could also be collected more than 100 metric tons of oil or sold in Brazil and suggested instead that a ship that sank,” Reuters reported. Petrobras across hundreds of kilometers of coastline in it could be the result of criminal activity or a said this week that molecular tests of oil the state of Sergipe, Salles has said, according shipwreck. The origin of the spill is still being samples showed they are not compatible with to the report.

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2019 with its permanent seat on the U.N. Security limited to the fulfilment of existing mainte- Council and its adversarial stance vis-à-vis nance and support contracts, the occasional Erik Brand Washington, is a crucial asset, even though high-profile visit notwithstanding.” Publisher [email protected] Moscow has made it clear it cannot and will not bail him out financially, instead limiting Diego Arria, member of the Gene Kuleta Editor its economic co-operation to facilitating Advisor board, director of [email protected] oil exports and engaging in a number of the Columbus Group in New Anastasia Chacón González joint mining ventures. For Vladimir Putin, York and former permanent A Reporter Venezuela represents a relatively low-cost representative of Venezuela to the United [email protected] means of posing as a global power-bro- Nations: “Maduro attempted to create a ker (if not an actual global power), with a false impression in Venezuela of continued

presence in the Western Hemisphere that Russian political, military and economic sup- Michael Shifter, President port to face the increasing U.S. sanctions. Rebecca Bill Chavez, Nonresident Senior Fellow Russia’s backing of Maduro is marginal, Sergio Bitar, Nonresident Senior Fellow The Russian presi- as Putin’s people see a rapidly collapsing dent wants above all Joan Caivano, Director, Special Projects regime and are concerned by the negative Michael Camilleri, Director, Rule of Law Program to avoid Venezuela implications of Russia backing up a regime Kevin Casas-Zamora, Nonresident Senior Fellow falling into the U.S. condemned not only for gross violations of Héctor Castro Vizcarra, Nonresident Senior Fellow sphere of influence.” human rights, but also as a narco tyranny. In Julia Dias Leite, Nonresident Senior Fellow addition, Maduro’s two nephews are in pris- Ariel Fiszbein, Director, Education Program —Phil Gunson on in Florida for narcotrafficking, and one of Peter Hakim, President Emeritus them is his adopted son. This reality does Nora Lustig, Nonresident Senior Fellow enables the Kremlin to put a brake on U.S. not help Russia’s relations in Latin America. Margaret Myers, Director, Asia and pretensions. The Russian president wants Future Russian cooperation with Venezuela Latin America Program above all to avoid Venezuela falling into the will definitely be rhetorical support rather Manuel Orozco, Director, Migration, Remittances & Development U.S. sphere of influence. A win for Trump, in than a real commitment, as illustrated by Xiaoyu Pu, Nonresident Senior Fellow this zero-sum game, would be seen as a net Foreign Minister Sergey Lavrov’s intervention Jeffrey Puryear, Senior Fellow loss for Russia. But Russian officials long at the opening of the U.N. General Assembly Mateo Samper, Nonresident Senior Fellow ago ran out of patience with the mismanage- when he said that Russia rejects attempts to Tamar Solnik, Director, Finance & Administration ment and corruption of Maduro’s govern- return to the rules of the time of the Monroe Lisa Viscidi, Director, Energy Program ment. Contrary to popular belief, Russia’s Doctrine in Latin America. To better illustrate Denisse Yanovich, Director of Development and advice (particularly on the economic front) this point, last week while Russian Prime External Relations is disregarded. And while Russia has a Minister Dmitry Medvedev visited Havana Latin America Advisor is published every ‘pro-dialogue’ stance, the idea that Putin is a to sign $330 million in investments, Putin business day, except for major U.S. holidays, puppet-master who can instruct Maduro—or sent the Russian deputy Prime Minister Yuri by the Inter-American Dialogue at indeed is interested in instructing Maduro— Borisov to Caracas to sign 264 agreements 1155 15th Street NW, Suite 800 Washington, DC 20005 to negotiate or not is wide of the mark. As but no investments.” www.thedialogue.org with the ending of Russian financial support, ISSN 2163-7962 the days of massive arms transfers are also The Advisor welcomes comments on its Q&A Subscription inquiries are welcomed at long gone. Venezuela has run out of money, section. Readers can write editor Gene Kuleta [email protected] and Russian military involvement is mostly at [email protected]. The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily represent the views of their respective employers or firms. The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have any questions relating to the contents of this publication, contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher.