LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Wednesday, October 10, 2018

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Wednesday, October 10, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Does Haddad Have Mexico Opens Cargill Joyce Chang Military Base Global Head of Research, a Chance in Brazil’s North of Cancún JPMorgan Chase & Co. Mexican President Enrique Peña Dirk Donath Senior Partner, Nieto inaugurated the military Catterton Aimara Second Round? base near the resort city, which Marlene Fernández has seen rising violence. For the Corporate Vice President for first eight months of this year, Government Relations, homicides more than doubled in Arcos Dorados Cancún as compared to the same Peter Hakim President Emeritus, period last year. Inter-American Dialogue Page 2 Donna Hrinak President, Boeing Latin America BUSINESS Jon Huenemann Vice President, U.S. & Int’l Affairs, Pemex Announces Philip Morris International James R. Jones Oil Discoveries Chairman, The Mexican state oil company Monarch Global Strategies In the first round of Brazil’s presidential election on Sunday, former São Paulo Mayor Fernando Haddad advanced to the runoff, but came in a distant second. // File Photo: Haddad Cam- discovered as much as 180 Craig A. Kelly million barrels of oil equivalent Director, Americas International paign. Gov’t Relations, Exxon Mobil offshore. [Editor’s note: Due to the importance of Brazil’s election and John Maisto Page 3 Director, U.S. Education an extraordinary response from commentators wishing to Finance Group write on the subject, we are presenting a double issue on POLITICAL Nicolás Mariscal Chairman, Q the topic, with four commentaries today, in addition to those Ex-Guatemalan Grupo Marhnos we published in Tuesday’s issue of the Advisor.] Far-right candidate Jair Thomas F. McLarty III VP Baldetti Gets Chairman, Bolsonaro trounced his opponents in the first round of Brazil’s presiden- 15 Years in Prison McLarty Associates tial election on Sunday, garnering 46 percent of the vote, just four per- Carl Meacham Former Guatemalan Vice Associate VP for Latin America centage points short of winning the election outright. His closest rival, President Roxana Baldetti was Int’l Advocacy Division, PhRMA Fernando Haddad of the leftist Workers’ Party, trailed with 29 percent sentenced to 15 years and six Carlos Paz-Soldan months in prison in connection Partner, of the vote. A runoff between the two candidates is scheduled for Oct. with an $18 million fraud scheme DTB Associates, LLP 28. To what can Bolsonaro attribute his support? How much of a chance to clean up a decontaminated Beatrice Rangel does Haddad have of coming from behind and winning the runoff, and Director, lake. Twelve others were also AMLA Consulting LLC what must he do over the next three weeks to achieve that? What is the sentenced in the case. Ernesto Revilla significance of the strong showing of Bolsonaro’s Social Liberal Party Page 2 Head of Latin American Economics, Citi in Sunday’s congressional elections, and what is the importance of the Gustavo Roosen results of other key state and legislative races? Chairman of the Board, Envases Venezolanos Andrés Rozental Daniel Cunha, macro strategist at XP Securities and Erich President, Rozental & Asociados and Senior Decat, political analyst at XP Investments: “Jair Bolsonaro Policy Advisor, Chatham House has proved to be not just a candidate, but rather a move- Shelly Shetty Head of Sovereigns Ratings, ment—an electoral force not seen since Lula in the 2002 Latin America, Fitch A election. In general, all local and regional candidates who linked their Roberto Sifon-Arevalo candidacy to Bolsonaro’s campaign, directly or indirectly, were elected, Managing Director, Americas Sovereign & Public Finance Ratings, and with stronger support than polls had suggested. To some extent, the Standard & Poor’s far-right candidate confirms his stronger momentum and heads to the

runoff as the clear favorite against Haddad. That is not to underestimate Baldetti // File Photo: Guatemalan Government. Continued on page 3

POLITICAL NEWS conspiracy to traffic cocaine into the country NEWS BRIEFS between 2010 and 2015. Baldetti’s sentence is Former Guatemalan part of several cases in which CICIG has been Hurricane Michael Lashes involved. With the support of the commission, Cuba, Takes Aim at U.S. VP Baldetti Gets Guatemalan prosecutors have attempted three times to strip President Jimmy Morales of his Work to clean up debris was underway Tuesday More Than 15 Years immunity in order to pursue allegations against in Cuba after Hurricane Michael pounded the him of illegal campaign financing. However, island with heavy rain and winds and destroyed Former Guatemalan Vice President Roxana Morales recently announced that he would several buildings in the western part of the Baldetti was sentenced Tuesday to 15 months not extend the commission’s mandate, which country, Miami’s WPLG-TV reported. Cuban au- and six months in prison after being convict- expires next September, and banned its head, thorities evacuated about 300 people in Pinar ed in connection with a multi-million-dollar Iván Velásquez, from re-entering the country. del Río Province. As of 8 a.m. Eastern Time fraud scheme to decontaminate a major lake, Morales has argued that the commission has today, the storm was about 90 miles southwest Prensa Libre reported. Guatemalan prosecu- overstepped its mandate. of Panama City, Fla., moving north, with sus- tors supported by the United Nations-backed tained winds of 145 miles an hour, according to International Commission Against Impunity in the U.S. National Hurricane Center. Guatemala, or CICIG, had discovered a criminal Bolsonaro Vows network that Baldetti had operated to award to Appoint Non- Mexico Opens Military Partisan Ministers Base With 2,850 Soldiers Judge Pablo Xitumul Brazilian far-right presidential candidate Jair North of Cancún called Baldetti “the big Bolsonaro said Tuesday he would appoint Mexican President Enrique Peña Nieto on chief” of the scheme. non-partisan ministers if he is elected Tuesday inaugurated a military police base president in the upcoming runoff, breaking north of Cancún in an effort to curb rising vio- Brazilian tradition of building cabinets through lence in the Caribbean coastal resort city, the a government contract worth $18 million to coalitions, Reuters reported. Two days after Associated Press reported. The 2,850 soldiers Israel-based M. Tarcic Engineering to clean up winning the most votes in the first round of “should offer optimal security conditions for Lake Amatitlán. The company had claimed to Brazil’s election with 46 percent support and a the millions of visitors who come here each have a formula that could clean the lake in a 17-percentage point lead over his closest rival, year,” Peña Nieto said. From January to August, matter of months, but the substance it used there were 342 killings in Cancún, about 1.4 turned out to be nothing more than water, salt homicides a day, more than double in the same and chlorine, the Associated Press reported. period last year, the AP reported. Judge Pablo Xitumul imposed Baldetti’s prison sentence for fraud, influence trafficking and illegal association, calling her “the big chief” of the plan. In addition to the former vice Peru’s Vizcarra Sets president, 12 others were sentenced in con- Date for Referendum nection with the case. A representative of the on Anti-Graft Measures Israeli company, Uri Roitman, was sentenced Bolsonaro // File Photo: Bolsonaro Campaign. to 11 years in prison on charges of fraud and Peruvian President Martín Vizcarra on Tuesday set Dec. 9 as the date for a national refer- illegal association. Baldetti, who has denied Fernando Haddad of the Workers’ Party, Bol- endum on anti-graft measures, El Comercio wrongdoing, resigned as Guatemala’s vice sonaro said he has the capital to fundamentally reported. The proposals include a re-election president in 2015 amid corruption allegations change the political process. In a video posted ban for lawmakers, stricter financing rules for in a separate case. She served under then-Pres- to his social media, the senator and former political organizations, restructuring congress ident Otto Pérez Molina, who was forced to army captain said his government would be to make it bicameral and a measure to ensure resign amid graft allegations and remains in more technocratic and suggested that Onyx only lawyers can form part of a committee to jail where he is awaiting trial. In addition to Lorenzoni, another conservative congressman, select judges and prosecutors. Vizcarra had the corruption cases, Baldetti also faces U.S. could potentially lead it. “Once we get there, been pushing for the referendum since an influ- drug trafficking charges. In a U.S. federal court let’s build a team of ministers committed to the ence-peddling scandal in the country’s judiciary indictment, she and others stand accused of future of Brazil and not political and partisan came to light earlier this year.

COPYRIGHT © 2018, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Wednesday, October 10, 2018 interests,” Bolsonaro said in the video, with FEATURED Q&A / Continued from page 1 Lorenzoni beside him, Terra reported. “And who knows, Onyx here as chief of staff in Brasília, the second round, but all Bolsonaro has to leaders. These results, borne of the same okay?” Bolsonaro has said he would like to ap- do is to avoid any major mistakes in the next anti-establishment sentiment propelling point generals and business leaders to several 20 days to become the next president. In Bolsonaro’s first-round win, shift legislative cabinet positions to curb corruption. Bolsonaro this context, he might adopt a more passive power to the right. Critically, this shift in the will face Haddad in a second round scheduled strategy by skipping some TV debates and legislature will give Bolsonaro, if he wins the for Oct. 28. avoiding direct combat with Haddad. He’ll runoff, a significantly larger pool of allies probably prefer to give occasional inter- views for certain TV channels that should be chosen very carefully, in addition to BUSINESS NEWS Bolsonaro’s PSL continuing to rely on the Internet. Regarding party saw unprece- Bolsonaro’s governability in a possible future Mexico’s Pemex government, there are more questions than dented growth.” answers. However, Bolsonaro has said he — Ana Heeren Announces Oil will seek the support of the center-right. Discoveries in Gulf It’s a good sign for those who campaigned against the establishment. The administra- in Congress and key states than expected. Mexico’s Pemex has discovered oil in the tion’s upper hand will be necessary to try to That said, to approve constitutional reforms, shallow waters of the Gulf of Mexico that address controversial reforms, but it is not such as pension reform, 66 percent of could contain as much as 180 million barrels sufficient. Having political skills and the the legislature is needed, and an absolute of crude equivalent, the state-run oil company right team in the right place is still pivotal.” majority requires 257 votes. This weekend’s announced Tuesday, El Financiero reported. first-round results have certainly dampened Pemex’s director, Carlos Treviño, said the Ana Heeren, managing director concerns that Bolsonaro would not be able company had discovered seven basins in two for strategic communications to govern if elected president, but he would of its wells, known as Manik and Mulach, off and Latin America head at still need to forge alliances to be able to the coast of Tabasco in southeastern Mex- A FTI Consulting: “Bolsonaro’s enact major reforms.” ico. “These are the reservoirs that will feed dominant performance reflects the powerful the country’s reserves,” said Mexican Energy anti-Workers’ Party (PT) and anti-establish- Juliano Griebeler, director of ment sentiment being fueled by the PT’s government affairs at Barral M central role in massive corruption scandals Jorge Consultores Associados: and its inability to resolve Brazil’s financial A “The main driver for Bolsonaro’s crisis and rising levels of violent crime. The support came from anti-Workers’ Party (PT) overwhelming desire for new leadership was sentiment and fear that Bolsonaro could lose also seen in other key state and legislative to the PT in the second round. In the second races. Bolsonaro’s PSL party saw unprec- round, Haddad will have to win over all of edented growth, dominating in Brazil’s two Gomes’ supporters, and he will have to win most populous states, São Paulo and Rio the support of the voters who did not vote in de Janeiro; and securing four seats in the the first round and those who cast blank bal- Treviño // File Photo: Pemex. Senate (where it previously had none) and 52 lots. For his part, Bolsonaro has to keep with Minister Pedro Joaquín Coldwell at a confer- in the lower house (where it previously held his successful anti-establishment strategy. ence with Pemex officials, Reuters reported. He eight). The Senate only had eight senators So for the next three weeks, we can expect called the discovery among Mexico’s 10 most re-elected of the 54 seats that were up for Bolsonaro to increase his rhetoric against important shallow-water discoveries in the last re-election, and several traditional political the PT and Haddad to soften his rhetoric 15 years. By 2020, the Manik and Mulach wells, figures were voted out to make way for new to try to win over undecided voters. The an- in addition to other discoveries in recent years, Continued on page 4 could add as much as 210,000 barrels of oil per day and 350 million cubic feet of gas to Pe- josa, El Financiero reported. It would require President-elect Andrés Manuel López Obrador’s mex’s output, which has been declining for 14 an investment of between $7 billion and $10 goal of increasing the company’s current daily years, according to the oil company’s director billion for equipment and infrastructure. The output by about 700 million barrels by the end of exploration and production, Javier Hino- discovery would represent about one-third of of his six-year term.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2018 ti-establishment feeling that was apparent in ed a warning signal in Haddad’s campaign, the presidential election was also reflected as states where gubernatorial candidates Erik Brand in the congressional elections. Bolsonaro won first-round victories might see higher Publisher [email protected] was able to help elect 52 representatives of abstention rates in the runoff.” his party to the Chamber of Deputies. This Gene Kuleta Editor will help Bolsonaro construct a government Thyago Mathias, director of [email protected] coalition and have governability to move for- advocacy and strategic commu- Anastasia Chacón González ward with his agenda. We can expect a more nication at Llorente y Cuenca in Reporter A Brazil: “The first-round results [email protected] confirm the growth of a conservative wave in Brazil. This wave gathers voters disillu-

In the second round, sioned with politics and against corruption Michael Shifter, President and the Workers’ Party. What do these voters Haddad will have to Genaro Arriagada, Nonresident Senior Fellow agree on? The answer includes a variety win over all of Gomes’ Sergio Bitar, Nonresident Senior Fellow of issues including more security and the supporters...” Joan Caivano, Director, Special Projects social agenda. Bolsonaro, who has voted — Juliano Griebeler Michael Camilleri, Director, Peter D. Bell Rule of Law for a greater state presence in the economy Program during his 27 years as congressman, is now Kevin Casas-Zamora, Nonresident Senior Fellow signaling that he will avoid raising taxes Ariel Fiszbein, Director, Education Program and promote looser regulations. Bolsonaro’s Alejandro Ganimian, Nonresident Fellow conservative Congress in social aspects and electoral base is centered around a strong Peter Hakim, President Emeritus one that is more market-friendly. Regarding conservative agenda. The challenge for Claudio Loser, Senior Fellow states, the PSDB was not only defeated in Haddad is to move toward the center to con- Nora Lustig, Nonresident Senior Fellow the presidential race but also in the Senate. gregate millions of votes needed from other Margaret Myers, Director, Asia and Latin America Program In elections for governor, however, seven candidates or from the 40 million voters who Manuel Orozco, Director, Migration, party members managed to advance to stayed home or cast blank ballots in the first Remittances & Development the runoff, where they are the favorite in at round.” Jeffrey Puryear, Senior Fellow least three of those races. The PT won in Tamar Solnik, Director, Finance & Administration the states in which it traditionally obtained a The Advisor welcomes comments on its Q&A Lisa Viscidi, Director, Energy Program good performance (Bahia, Piauí and Ceará), section. Readers can write editor Gene Kuleta Denisse Yanovich, Director of Development and but lost in Minas Gerais. The scenario ignit- at [email protected]. External Relations

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