LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Wednesday, April 15, 2020

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Wednesday, April 15, 2020

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Can Latin America Argentina Likely to CEO, DevryBV Sustainable Strategies See 5.7% Economic Joyce Chang Global Head of Research, Expect Big Swings Contraction: IMF JPMorgan Chase & Co. The International Monetary Fund Paula Cifuentes said it expects Argentina’s econ- Director of Economic & Fiscal Affairs, in Consumer Prices? omy to contract 5.7 percent this Latin America & Canada, Philip Morris International year due to the downturn caused Marlene Fernández by the coronavirus pandemic. Corporate Vice President for Page 2 Government Relations, Arcos Dorados Peter Hakim POLITICAL President Emeritus, Inter-American Dialogue Deportations Donna Hrinak From U.S. Driving President, Boeing Latin America Jon E. Huenemann Up Covid Cases: Former Corporate and Health Chief Government Senior Executive Deportations from the United James R. Jones Monetary policy, stimulus programs and the collapse in demand amid the coronavirus pandem- Chairman, States are driving up the number ic could influence inflation or deflation this year. // Image: needpix.com. Monarch Global Strategies of Covid-19 cases in Guatemala, Craig A. Kelly said the country’s health minister, Director, Americas International Central banks across Latin America, including in Brazil, Hugo Monroy. Gov’t Relations, Exxon Mobil Page 2 John Maisto Mexico and Chile, have slashed interest rates and boosted Director, U.S. Education stimulus spending in efforts to fight the economic down- Finance Group Q turn caused by the Covid-19 pandemic. At the same time, POLITICAL Nicolás Mariscal Chairman, demand has collapsed for some goods and services, such as restaurant Two Brazilian Grupo Marhnos meals, fuels, transportation and tourism, as customers stay home under Governors Test Thomas F. McLarty III Chairman, quarantine orders. How is the global pandemic changing the outlook Positive for Virus McLarty Associates for inflation in Latin America’s largest economies? To what extent could Rio de Janeiro Governor Wilson Carlos Paz-Soldan Partner, deflation become a problem as consumer spending evaporates in some Witzel and Pará Governor Helder DTB Associates, LLP sectors? How are the actions of external actors such as the U.S. Federal Barbalho both said they had Beatrice Rangel tested positive for the novel coro- Director, Reserve and China shaping consumer prices in Latin America and the navirus. Witzel said he developed AMLA Consulting LLC Caribbean? symptoms, but Barbalho said he Jaana Remes was asymptomatic. Partner, Page 2 McKinsey Global Institute Claudio M. Loser, visiting senior fellow at the Inter-Ameri- Ernesto Revilla Head of Latin American can Dialogue, president of Centennial Group Latin America Economics, Citi and former head of the Western Hemisphere Department of Gustavo Roosen Chairman of the Board, the International Monetary Fund: “The outlook for prices in Envases Venezolanos A Latin America is unlikely to be deflationary. It is important to understand Andrés Rozental that the pandemic is a two-pronged phenomenon: On one side there is a President, Rozental & Asociados collapse of demand, but on the other there is a supply shock, at least in Shelly Shetty internal markets. If the focus is on commodities, prices have declined for Managing Director, Sovereigns Fitch Ratings oil, metals and industrials, but no significant decline has been observed regarding food and other necessities. This will depress exports, and thus has already led to currency depreciations. As for manufacturing, both demand and supply have effectively collapsed, and beyond some issue of accumulated inventories (cars, appliances, clothing), there is no reason Witzel // File Photo: Municipality of Cordeiro. Continued on page 3

ECONOMIC NEWS POLITICAL NEWS NEWS BRIEFS

Argentina’s Economy Deportations Driving Two Brazilian Governors to Contract at Least up Guatemala Covid Test Positive for Covid-19 The governors of Brazil’s Rio de Janeiro and 5.7% This Year: IMF Cases: Health Chief Pará states said Tuesday that they have tested positive for the novel coronavirus, Reuters Argentina’s economy will contract by at least Deportations of Guatemalans from the United reported. In a video posted to Twitter, Rio de 5.7 percent this year due to the coronavirus States are driving up the Central American Janeiro Governor Wilson Witzel, 52, said he pandemic, according to the International nation’s cases of the novel coronavirus, the began feeling ill on Friday, with a sore throat, Monetary Fund’s latest forecasts in the World country’s health minister said Tuesday, the Los fever and a loss of smell, a prominent symptom Economic Outlook released Tuesday, the Bue- Angeles Times reported. More than half of the of the virus. Pará Governor Helder Barbalho, 40, nos Aires Times reported. The global recession deportees flown back to Guatemala from the also said he tested positive, though he reported will slash $9 trillion from the world economy United States have tested positive for Covid-19, no symptoms, after other members of his staff over two years under the Fund’s best-case said the official, Hugo Monroy. “We’re not just contracted the disease. scenario, IMF chief economist Gita Gopinath talking about one flight,” he said. “We’re talking told reporters when presenting the study. Ar- about all the flights.” On one flight alone, some gentina fell into recession two years ago, with 75 percent of the deportees tested positive GM to Begin Producing for Covid-19, Monroy added, the Associated Press reported. However, Carlos Sandoval, 1.5 Million Face Masks The IMF expects a spokesman for Guatemalan President Monthly at Mexican Plant a contraction of Alejandro Giammattei, later contradicted the General Motors will begin producing 1.5 5.2 percent this year health minister, saying Monroy was referring million face masks per month at its plant in the to a single flight in March on which “between Mexican city of Toluca at the end of April, the for Latin America and 50 percent and 75 percent [of the passengers] U.S. car manufacturer said on Tuesday, Reuters the Caribbean. during all their time in isolation and quarantine reported. The company aims to make nine mil- have come back positive.” In a video released lion masks over six months. Some masks will later on Tuesday, Monroy reversed his own be donated to Mexican public hospitals, while GDP shrinking 2.2 percent last year. During a statement, saying he was referring to just one others will go to employees and distributors, currency crisis in 2018, the administration of flight. A Guatemalan Foreign Ministry spokes- GM’s Mexico unit said in a statement. GM in then-President Mauricio Macri tapped the IMF man said Tuesday that the “official” number of late March said it would start making as much for the largest credit line in the lender’s history, deportees diagnosed with Covid-19 is four, in- as 1.5 million masks a month in the United worth some $57 billion, of which Argentina so cluding one who arrived on a flight Monday, the States. far has received $44 billion. According to the Los Angeles Times reported. U.S. immigration IMF forecasts, the global economy is expected officials have said 77 migrants in U.S. custody to contract by 3 percent this year, the steepest have tested positive for coronavirus, adding downturn since the Great Depression of the that some may no longer be in custody. The Chilean Court Upholds 1930s, Reuters reported. The Fund forecasts a U.S. Department of Homeland Security did not Three-Year Prison partial rebound in 2021, with global economic respond to the newspaper’s request for com- Sentence of Pinochet Aide growth of 5.8 percent, though it noted “extreme ment. Officials in Guatemala have expressed uncertainty” and that outcomes could be concerns for weeks that deportations from the A Chilean court on Tuesday upheld a three- much worse depending on how the coronavi- United States could lead to a spike in cases of year prison sentence for Cristian Labbe, a rus pandemic evolves. Latin America and the the virus in the Central American nation. Gua- former aide to dictator Augusto Pinochet, for Caribbean’s economy will shrink 5.2 percent in temala was the first country to halt incoming torturing a detainee in 1973, Reuters reported. 2020, the report said, the worst recession since deportation flights when it took that action Labbe, a far-right politician who was mayor of 1980, the first year in the IMF’s World Economic on March 17. However, the flights resumed a Santiago suburb until 2012, was convicted Outlook database. By comparison, the financial two days later. On March 30, Guatemalan Vice in September. Labbe issued an appeal, which crisis in 2009 caused a regional recession less President Guillermo Castillo told a local radio the Temuco Court of Appeals rejected. It also than half as deep as the one predicted for this station that he “begged” U.S. officials to stop ordered the state to pay compensation of year. deportation flights. The flights stopped for a about $35,000 to the victim, who was 26 at the time of the crime.

COPYRIGHT © 2020, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Wednesday, April 15, 2020 week but then restarted on Monday. At least 21 FEATURED Q&A / Continued from page 1 employees of U.S. Immigration and Customs Enforcement working at migrant detention to expect a decline in prices yet, although new normal requires less consumption. centers have tested positive for the virus, the conditions will change when there is a slow Firms, in turn, are postponing investment agency has said. They include 13 employees at recovery. As far as most services are con- or looking for safe alternatives outside the the agency’s staging facility in Alexandria, La., cerned, the current lockdown that prevails region. Most governments are implement- which has been sending deportation flights to in most of the region precludes the use of ing fiscal and monetary policies to counter countries including Guatemala. Eighty other prices to increase demand, while there is this trend with their limited resources. To employees of the agency who do not work in strong demand for basic items. In addition, continue doing it, and given the low prices detention facilities have also tested positive. demand is being sustained by the stimulus/ Guatemala, El Salvador, Honduras and Mexico income-support policies that the various re- have urged the United States to stop deporta- gional governments have put in place. Also, This time, consumers tions and take other steps to halt the spread of the policies of key world players—the United will reduce spending coronavirus from the United States. However, States, China, the European Union, Japan even after the U.S. President Donald Trump last Friday signed and the United Kingdom—will help demand, quarantine is over...” a memorandum to allow sanctions against any with a spillover to the rest of the world. In — Nelson Altamirano country that does not accept deportations from this regard, the worldwide expansionary the United States. Additionally, Guatemala has fiscal and monetary policies should not be put on hold a deal that it made with the Trump expected to have a major inflationary impact for commodities, we expect these govern- administration last year to accept deportees under current circumstances. However, if ments to renegotiate their debt obligations from other countries. As of today, Guatemala they extend beyond the pandemic in Latin with the IMF and World Bank soon to allow has 180 confirmed cases of Covid-19 and five America, the continued expansion will most them to support fiscal policies without related deaths. likely have an inflationary effect.” inflationary risks. However, we expect some inflation to occur because of the devalua- Nelson Altamirano, professor tions of local currencies against the U.S. Alleged Brazilian of economics at the School of dollar, as it happens in Argentina, Brazil and Kingpin Arrested Business and Management at Chile. The only country we expect to have A National University: “Economic two-digit inflation rates is Argentina, which in Mozambique growth predictions for Latin America for this already suffered a 53.8 percent inflation rate year are negative—between -1.9 percent and last year. It may suffer an inflation rate of International authorities in Mozambique -3.8 percent. These numbers are based on a between 40 percent and 50 percent this year. arrested a man believed to be Brazil’s largest contraction of exports, reduction of domes- Brazil, Chile and Colombia may be suffering cocaine supplier, police in the African country tic markets and reduction of fiscal spending inflation rates of around 4 percent. Overall, confirmed on Tuesday, Agence France-Presse as compared to 2019. Contrary to the boom inflation rates will not become the major reported. Agents from Brazil, Mozambique and economic context before the financial crisis issue for Latin America in 2020. Unemploy- the U.S. Drug Enforcement Administration in of 2008-2009, the coronavirus-fueled eco- ment, informality, extreme poverty and low a sting operation arrested Gilberto “Fuminho” nomic recession strikes when Latin America investment will be the major issues.” Aparecido dos Santos, an alleged drug traffick- has very low economic growth, increasing er accused of running international cocaine social discontent and shrinking investment Desmond Lachman, resi- operations for one of the Latin American coun- levels. So, even if this recession is shorter, dent fellow at the American try’s biggest gangs, First Capital Command, or it could affect demand harder than the one Enterprise Institute: “By now, PCC. Dos Santos stands accused of moving 12 years ago. This time, consumers will A there can be little doubt that the tons of cocaine around the world, Brazilian reduce spending even after the quarantine coronavirus pandemic will plunge the world federal police said, adding that “the accused is is over due to the uncertainties created by economy into a significantly deeper econom- considered the largest cocaine supplier” for the unemployment and the realization that the ic recession than that of 2008-2009. There is São Paulo-based PCC. He had been on the run Continued on page 4 for more than 20 years, it said. The 49-year-old was arrested in a luxury hotel in the Mozam- fake Brazilian passport, some cannabis, more other gang members in Mozambique,” police bican capital of Maputo on Monday, along than a dozen cellphones and a car. Dos Santos spokesman Leonardo Simbine told reporters. with two Nigerians, officials said, BBC News arrived in Mozambique in mid-March, they add- “He does not operate alone, he is part of a reported. During the operation, police seized a ed. “We are still investigating whether there are gang,” Simbine added.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2020 also reason to fear that the world economy inflation in most Latin American countries. will be very slow to recover as global asset However, that downward pressure could Erik Brand price bubbles burst, as bankruptcies become be offset to a large degree by considerable Publisher [email protected] pervasive and as credit conditions tighten. exchange rate weakness. In that context, In the context of the likely sustained rise in it must be of some concern that since the Gene Kuleta Editor world unemployment and very depressed start of the year we have seen more than 20 [email protected] percent declines in major Latin American Anastasia Chacón González currencies, such as the Brazilian real and the Deflation rather Reporter & Associate Editor Mexican peso.” than inflation is likely [email protected]

to be the main eco- Daniel Artana, chief economist nomic challenge.” at FIEL in Buenos Aires: “In Michael Shifter, President — Desmond Lachman a deep recession, monetary Rebecca Bill Chavez, Nonresident Senior Fellow A printing is unlikely to produce Sergio Bitar, Nonresident Senior Fellow international commodity prices, deflation a sizable increase in inflation. But as the Joan Caivano, Director, Special Projects rather than inflation is likely to be the main recession is reduced, central banks need Michael Camilleri, Director, Rule of Law Program economic challenge. This view is shared by to come back to the initial ‘flow’ situation Kevin Casas-Zamora, Nonresident Senior Fellow global bond markets where long-dated gov- and at the same time mop up all the excess Héctor Castro Vizcarra, Nonresident Senior Fellow ernment bond yields are negative in Europe liquidity they issued in the meantime. This is Julia Dias Leite, Nonresident Senior Fellow and at all-time lows in the United States. The not an easy task. Therefore, some above- Ariel Fiszbein, Director, Education Program Latin American economy now appears to the-norm inflation is likely both in developed Peter Hakim, President Emeritus be facing a perfect storm, which is likely to and in developing nations after the pan- Nora Lustig, Nonresident Senior Fellow cause a deeper regional recession than that demic is over. In the meantime, we will add Margaret Myers, Director, Asia and experienced in the industrialized countries. problems to estimate inflation properly, not Latin America Program Manuel Orozco, Director, Migration, Not only is Latin America’s economy being only because the quarantines make the life Remittances & Development hit by the pandemic, it is also being seriously of statistics offices more difficult, but also Xiaoyu Pu, Nonresident Senior Fellow challenged by an international commodity because there will be some activities with no Jeffrey Puryear, Senior Fellow price bust, a record pace of capital repatri- effective transactions.” Mateo Samper, Nonresident Senior Fellow ation and unusually weak external demand Tamar Solnik, Director, Finance & Administration for its products. Very weak demand and very The Advisor welcomes comments on its Q&A Lisa Viscidi, Director, Energy Program high unemployment rates at home should section. Readers can write editor Gene Kuleta Denisse Yanovich, Director of Development and exert considerable downward pressure on at [email protected]. External Relations

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