LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, August 2, 2021

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, August 2, 2021

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk What Factors Are Mexico’s Economy CEO, DevryBV Sustainable Strategies Joyce Chang Rebounds in Q2 Global Head of Research, JPMorgan Chase & Co. Driving Chile’s With 19.7% Growth Paula Cifuentes Mexico’s economy rebounded Director of Economic & Fiscal Affairs, in the second quarter, driven by Latin America & Canada, Economic Outlook? services and manufacturing for Philip Morris International export to the United States. Marlene Fernández Corporate Vice President for Page 2 Government Relations, Arcos Dorados (McDonald’s) BUSINESS Peter Hakim President Emeritus, Inter-American Dialogue Workers at Chile’s Donna Hrinak La Escondida Mine Senior VP, Corporate Affairs, Royal Caribbean Group Vote to Strike Jon E. Huenemann Workers at BHP Group’s La Escon- Council Member, dida copper mine in Chile voted GLG Inc. to strike after their labor union James R. Jones rejected the company’s latest Chairman, Monarch Global Strategies contract offer. BHP has requested Chile’s government is expecting 7.5 percent economic growth this year. Santiago is pictured government-mediated talks in an Craig A. Kelly above. // File Photo: Pixabay. Senior Director, Americas effort to prevent a work stoppage. Int’l Gov’t Relations, Exxon Mobil Page 3 Barbara Kotschwar Chile’s government in July revised its economic growth out- Executive Director, Visa Economic look for this year to 7.5 percent, up from a previous forecast Empowerment Institute ECONOMIC of 6 percent. However, it expects the economy to expand John Maisto Pedro Francke Director, U.S. Education Q 2.9 percent in 2022, down from an earlier estimate of 3.5 Finance Group percent. What are the most important factors driving Chile’s economic Tapped as Peru’s Nicolás Mariscal Chairman, outlook for this year and next year? What are the biggest headwinds Finance Minister Grupo Marhnos facing the Chilean economy in the period ahead? How big of a role has Peruvian President Pedro Castillo Thomas F. McLarty III confirmed Pedro Francke Friday the country’s rapid pace of vaccination played in the country’s economic Chairman, night as his finance minister. McLarty Associates recovery? Francke had not been sworn in Beatrice Rangel with other ministers on Thursday, Director, AMLA Consulting LLC leading to questions about wheth- Mariana Zepeda, Latin America analyst at FrontierView: “A er he had rejected the job. Jaana Remes Partner, few short-term factors are driving Chile’s faster-than-expected Page 2 McKinsey Global Institute 2021 rebound: an aggressive vaccination campaign, sky-high Ernesto Revilla Head of Latin American copper prices and expanded fiscal stimulus. However, Chile Economics, Citi A is not out of the woods. On the Covid-19 front, risks remain that new Gustavo Roosen President, variants could disrupt Chile’s emergence from the pandemic despite IESA high vaccination levels. While higher mobility levels are bound to bolster Andrés Rozental economic activity in the second half of this year, fiscal stimulus will President, Rozental & Asociados eventually fade out and with Chileans largely tapped out on pensions Shelly Shetty savings, consumption levels should begin to moderate. Export revenues Managing Director, Sovereigns Fitch Ratings from copper are likely to slow into 2022 as well, further raising fiscal risks. This means Chile will need private investment to continue to bolster its recovery momentum and propel labor market recovery, which has stalled in recent months. But an uncertain political environment may Francke // File Photo: Peruvian complicate that investment recovery. Chile is entering a pivotal moment Government. Continued on page 2

ECONOMIC NEWS which Alberto Fujimori privatized after the 1992 NEWS BRIEFS self-coup, is quite deficient,” Francke told the Peruvian President Advisor. During his campaign, Castillo vowed to Nicaragua Grants increase taxes on mining companies in order to Citizenship to Former Confirms Francke pay for health and education reforms, Reuters reported. Among the other officials Castillo Salvadoran President as Finance Minister named to his cabinet was Iván Merino, a mining Nicaragua has granted citizenship to former specialist close to Castillo’s Free Peru party. Salvadoran President Salvador Sánchez Cerén, New Peruvian President Pedro Castillo late according to Nicaragua’s official gazette, the Friday confirmed moderate leftist Pedro Mexico’s Economy Associated Press reported. The former leader Francke, a former economist at the World is facing an international arrest order in con- Bank, as his finance minister, the Financial Rebounds in Q2 With nection with corruption charges in his home Times reported. Castillo had widely been country. Sánchez Cerén’s wife, daughter and expected to tap Francke as finance minister 19.7 Percent Growth grandson also received citizenship in Nicara- until last Thursday when the new president gua, according to government documents. Last named far-leftist Guido Bellido as his prime Mexico’s economy rebounded in the second Wednesday, a judge in El Salvador order the minister. While Castillo confirmed most of his quarter, driven by services and manufacturing pre-trial arrest of Sánchez Cerén and nine other cabinet on Thursday, Francke left the ceremony for export to the United States, according to former government officials on corruption shortly before the new ministers were sworn a preliminary estimate the national statistics charges. in, leading to questions as to whether he had agency released Friday, Reuters reported. refused the job or was not offered it. Markets Economic growth was up by 19.7 percent as reacted to the development, with Peru’s stock compared to the same quarter in 2020, when Haitian Authorities Arrest exchange plunging as much as 6 percent and much of the formal and informal economies the country’s currency, the sol, experiencing its were shut down due to pandemic-related re- Fourth Police Officer sharpest drop in seven years. After the markets strictions. It was the first time since before the in Moïse Assassination closed on Friday, Castillo said Francke had “our pandemic began that Mexico posted year-on- Haitian authorities said Friday that they had de- complete backing” to implement his promised year quarterly growth. The Mexican economy tained a fourth police officer in connection with economic plan, the Financial Times reported. contracted 8.5 percent last year, its worst the July 7 assassination of President Jovenel In a Q&A published Feb. 17 in the Advisor, performance since 1932. Demand in the United Moïse, the Associated Press reported. National Francke said Peru’s pension system would be States for cars and electronics prompted much Police spokesperson Marie-Michelle Verrier among the reforms debated after the transition of the annual growth in the second quarter, said 27 people have been arrested and others to a new government. “Peru’s pension system, while remittances sent home by Mexicans are still being sought as part of the case. Meanwhile, nine officers are being held in iso- FEATURED Q&A / Continued from page 1 lation for questioning on whether they actively participated or were negligent in their duties in amid a long-awaited constitutional process and that Chile will remain one of the most relation with the murder. Verrier also asked the that could alter the country’s political and competitive countries in Latin America, the population for help. “Give your participation, economic model. The Nov. 21 presidential country’s medium-to-long-term economic help us find these people,” said Verrier. election is approaching, and recent Constit- growth could hinge on decisions made over uent Assembly elections and presidential pri- the next few months.” maries signal that Chilean voters are shifting left and away from the political establish- Alfredo Coutiño, director for Biden Administration ment. High levels of political uncertainty will Latin America at Moody’s Sanctions Cuban Police persist beyond the elections. Political noise Analytics: “Chile has shown a and Two of its Leaders is likely to weigh on investment levels as the A rapid recovery after the plunge constitutional process unfolds, addressing caused by the Covid-19 crisis in 2020, which The administration of U.S. President Joe Biden sensitive topics such as the pension system has been driven by strong external demand on Friday sanctioned Cuba’s police force and or the government’s role in providing social and progressive domestic reopening. The two of its leaders in response to the govern- services. While our view is that uncertain- economy in the first quarter of 2021 put ment’s crackdown on protesters last month, ty will gradually dissipate in the long run production at a level above the pre-pan- Reuters reported. The sanctions came after Continued on page 4 Biden met with Cuban-Americans at the White House to discuss the demonstrations.

COPYRIGHT © 2021, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Monday, August 2, 2021 living abroad, mostly in the United States, also helped to boost consumption. Compared to THE DIALOGUE CONTINUES the first three months of the year, seasonally adjusted economic growth in the second quarter was up 1.5 percent, the Associated Press Will the Colombian Government’s reported. That marked the fourth consecutive Revised Tax Plan Win Approval? quarter of economic expansion, Reuters reported. However, Goldman Sachs economist Colombian President Iván changes. The bill will be discussed under Alberto Ramos warned of risks in the period Duque on July 20 presented an urgent notice, and it is expected to be ahead. “We expect real GDP growth to reach lawmakers with a nearly $4 approved by the end of August. Generally, 6.0% in 2021, but the recent deterioration of Q billion tax reform bill, a more the bill has been well received by the public, the COVID backdrop, high inflation and rising modest proposal than a plan his govern- mainly because it places most of the burden rates could slow down the envisaged recovery,” ment presented in April, which sparked of tax rate increases on companies. No Ramos said in a note, Reuters reported. weeks of deadly protests and nationwide provisions affecting individuals are included. strikes. How much of a chance does the In my view, protest organizers used the prior new plan have at winning approval in reform as an excuse to continue what they BUSINESS NEWS Congress, and how might lawmakers revise started back in 2019. This became clear it? Does the public support the plan, and after the government withdrew the bill, but what chance is there that protests will again the protests continued under other motives. Workers at Chile’s derail it? To what extent would Duque’s new It’s hard to imagine that the same groups will La Escondida plan address Colombia’s fiscal problems, be against a proposal that does not affect and would its passage help Colombia to individuals or expand the value-added tax to Mine Vote to Strike regain its investment-grade status, which it basic goods. Because the proposed reform lost in early July? is limited in terms of its collection goal, the The labor union representing workers at BHP next government will likely need to consider Group’s La Escondida copper mine in Chile on Juan Carlos Valencia Marquez, a more ambitious tax bill. Unfortunately, Co- Saturday rejected the company’s latest con- partner at Holland & Knight: lombia’s investment-grade status may take tract offer, with employees instead voting to “The new tax bill is the product several years to recover, and it will demand go on strike, The Wall Street Journal reported. A of a consensus with the most more than one tax bill.” Following the announcement, BHP requested representative groups in Congress, and this government-mediated talks in a final effort to ensures a high probability of approval. Given avoid strikes that could disrupt supply of the that the government took several months to EDITOR’S NOTE: The comment above is red metal to the world’s economies from the prepare the bill, it is likely that lawmakers a continuation of the Q&A published in number-one global copper exporter. La Escon- will support its approval in an expeditious Friday’s issue of the Advisor. dida, the world’s largest copper mine, produced manner and without suggesting major about 5 percent of global supply, which is a key component of electrical wiring and motors that could become the costliest in the country’s acts drew just 7 percent turnout on Sunday as well as in construction and other applica- union history,” the union said in a statement, as few people liked what critics said was a tions, the newspaper reported. If confirmed, Reuters reported. poorly worded question and would-be voters the government-mediated talks could last for stayed home amid a third wave of the Covid-19 between five and 10 days, according to Chilean pandemic, the Associated Press reported. labor law, Reuters reported. If the two parties POLITICAL NEWS While 90 percent of those who cast ballots fail to reach an agreement, then the strike voted “yes,” the turnout was far below the 40 would ensue. By law, miners must continue to percent threshold needed to make the vote work while the negotiations are ongoing. The Referendum That binding. The referendum cost the country $25 union said in a statement that 99.5 percent of Cost Mexico $25 Mn million, the AP reported. Critics of holding the employees who participated in the vote reject- referendum noted that Mexico has no formal ed BHP’s final contract offer after nearly two Draws Low Turnout amnesty for ex-officials, and nothing in current months of talks, which have been conducted in law precludes them from being tried for alleged secret. “We hope that this strong vote will be a A referendum pushed by Mexican President crimes. José Antonio Crespo of Mexico’s Cen- decisive wake-up call for BHP to begin substan- Andrés Manuel López Obrador to ask whether ter for Economic Research and Training called tive talks … if it is to avoid an extensive conflict former officials should be put on trial for illegal the vote a gauge of López Obrador’s support.

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue ISSN 2163-7962 demic volume reported at the end of 2019. and investment decisions. Therefore, the However, the volume of production is still recovery is not free from risk.” Erik Brand one percentage point below the peak in the Publisher [email protected] third quarter of 2019. The recovery’s main Dorotea López Giral, director driver has been the solid advance of the of the Institute of International Gene Kuleta Editor world’s two main locomotives (China and Studies at the University of [email protected] the United States), which are important Chile: “The crisis in Chile caused A Anastasia Chacón González consumers of Chile’s exports. The domes- by the pandemic has overlapped with the ef- Reporter & Associate Editor tic market is a second driver, which keeps fects of social protests, the future of a new [email protected] gaining traction as the economy reopens, constitutional framework and an acutely po- thus reabsorbing spare labor. The domestic larized political situation. Therefore, the real market is also supported by the mitigation equation of economic performance must Michael Shifter, President incorporate health-related variables, the Rebecca Bill Chavez, Nonresident Senior Fellow capacity to add value to our products and Bruno Binetti, Nonresident Fellow The recovery’s main recover employment and the ability to demo- Sergio Bitar, Nonresident Senior Fellow driver has been the cratically consider the central questions that Joan Caivano, Senior Advisor solid advance of the Chileans have raised since October 2019 Santiago Cantón, Director, Peter D. Bell world’s two main lo- about the country’s institutions, its social Rule of Law Program comotives, China and contract and its economic model. Women Kevin Casas-Zamora, Nonresident Senior Fellow have been the most affected in today’s Julia Dias Leite, Nonresident Senior Fellow the United States...” Ariel Fiszbein, Director, Education Program global context, and there are many uncer- — Alfredo Coutiño Sandra García Jaramillo, Nonresident Senior Fellow tainties about their future. The uncertainties Selina Ho, Nonresident Senior Fellow at the national level will start to dissipate Edison Lanza, Nonresident Senior Fellow policies that the government and the central when solutions surrounding employment Nora Lustig, Nonresident Senior Fellow bank have implemented. The acceleration issues are put in place, particularly for low- Margaret Myers, Director, Asia Program of the vaccination process has reinforced and middle-income women who have been Manuel Orozco, Senior Fellow confidence and improved Chile’s business affected. There will also be more clarity Xiaoyu Pu, Nonresident Senior Fellow climate and prospects. All this supports an when the constitutional process settles after Jeffrey Puryear, Senior Fellow economic rebound of between 7 percent and an unsteady start. Several variables show a Tamar Solnik, Director, Finance & Administration 7.5 percent in 2021, a growth rate amplified high potential for a number of conflicts to Lisa Viscidi, Director, Energy Program by the arithmetic effect generated by the emerge, creating an uncertain environment. Denisse Yanovich, Director of Development low comparison base in 2020. Moreover, These include a resurgence in protests, a the recovery has already moderated to slowing of the vaccination process and the Latin America Advisor is published every business day, except for major U.S. holidays, rates more consistent with the economy’s emergence of new virus variants. Among by the Inter-American Dialogue at capacity, which will bring growth in 2022 to a the many challenges that the pandemic has 1155 15th Street NW, Suite 800 rate in the range of 3 percent and 4 percent. highlighted is the urgent need to improve Washington, DC 20005 The country is facing two main risks, which income distribution through addressing the www.thedialogue.org could slow the recovery. First, the new wave provisional health and educational reforms. Subscription inquiries are welcomed at [email protected] of infections caused by new virus strains Chile must continue to implement more could introduce mobility restrictions and public policies and adopt a digital paradigm The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily partial business interruptions. Second, the for its long-term growth, particularly among represent those of the publisher. The analysis is the sole steady increase in inflation already forced women. If external conditions are favorable, view of each commentator and does not necessarily represent the views of their respective employers or firms. a change in monetary plans, triggering an meaning more economic dynamism in China The information in this report has been obtained from earlier policy normalization. A persistent and the United States, the main challenges reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have inflation trend could force a faster monetary will be to stabilize the national scenario and any questions relating to the contents of this publication, normalization that could cause a sudden give priority to addressing the gender gap.” contact the editorial offices of the Inter-American Dialogue. market adjustment and affect consumption Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher.