LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, July 2, 2018

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, July 2, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Will Macri’s New Brazil Slashes Cargill 2018 Growth Joyce Chang Global Head of Research, Cabinet Boost Forecast JPMorgan Chase & Co. A nationwide trucker strike in May Dirk Donath Senior Partner, the Economy? paralyzed key sectors of Latin Catterton Aimara America’s largest economy, but Marlene Fernández the central bank also cited an Corporate Vice President for easing of economic activity at the Government Relations, start of the year, as well as weak- Arcos Dorados ness in business and consumer Peter Hakim President Emeritus, confi dence indicators. Inter-American Dialogue Page 2 Donna Hrinak President, Boeing Latin America BUSINESS Jon Huenemann Vice President, U.S. & Int’l Affairs, Chile to Inject Philip Morris International James R. Jones $1 Bn in Codelco Chairman, Chile’s fi nance minister said Monarch Global Strategies Argentine President Mauricio Macri met on June 22 with governors of provinces in his Cambie- Friday the government will inject Craig A. Kelly mos coalition to discuss new cabinet changes, state news agency Télam reported. // Photo: $1 billion in “extraordinary” capi- Director, Americas International Télam. Gov’t Relations, Exxon Mobil talization into state-owned copper Argentine President Mauricio Macri has shuffl ed some of miner Codelco. John Maisto Director, U.S. Education his government’s top cabinet members in the wake of a Page 3 Finance Group plummet of the country’s currency. Finance Minister Luis Nicolás Mariscal Q POLITICAL Chairman, Caputo was tapped as the country’s central bank chief, Grupo Marhnos replacing Federico Sturzenegger. Engineer Javier Iguacel is taking over López Obrador Thomas F. McLarty III Chairman, as energy minister for Juan José Aranguren. And economist Dante Sica Wins Mexico’s McLarty Associates was named production minister, succeeding Francisco Cabrera. Why has Presidency Carl Meacham Associate VP for Latin America Macri’s government made the changes? Will the newly named offi cials Andrés Manuel López Obra- Int’l Advocacy Division, PhRMA bring a different direction to their respective departments? How much dor won a landslide victory in Carlos Paz-Soldan Mexico’s presidential election on Partner, success will Macri have at steadying Argentina’s economy now that the Sunday, claiming more votes than DTB Associates, LLP International Monetary Fund’s board has approved its $50 billion loan his three competitors combined. Beatrice Rangel package for the country? Director, His Morena party also appears to AMLA Consulting LLC have done well in Congress. Ernesto Revilla Page 2 Head of Latin American Paula Alonso, director of the Latin America and Hemispher- Economics, Citi ic Studies Program at The George Washington University: Gustavo Roosen “The gradual adjustment strategy implied risks from external Chairman of the Board, Envases Venezolanos A shocks and domestic doubts regarding credibility in both Andrés Rozental infl ation and fi scal targets. The currency crisis was a product of these President, Rozental & Asociados and Senior vulnerabilities and the resulting fall in growth expectations has made the Policy Advisor, Chatham House adjustment process more problematic. The government has replaced Roberto Sifon-Arevalo Managing Director, Americas its previous overly enthusiastic predictions with announcements of a Sovereign & Public Finance Ratings, Standard & Poor’s few months of recession ahead; growth for the year might be around 1.3 percent. The $50 billion IMF package, while politically costly, may en- hance credibility. This is also the objective of the reshuffl e of personnel. Former Minister of Finance Luis Caputo, now at the helm of the central bank, seeks greater confi dence with fi nancial markets. The reunifi cation López Obrador // Photo: López Obrador campaign. Continued on page 4

POLITICAL NEWS Eurasia Group analysts told clients that López NEWS BRIEFS Obrador’s large margin of victory suggests López Obrador Takes his party would have a strong position in both U.S. Judge Sides With houses and be able to attract support from Puerto Rico Hurricane Mexico’s Presidency smaller parties as well, Bloomberg News reported. Running with López Obrador’s Morena Evacuees in Mass. Hotels in Landslide Win party, Claudia Sheinbaum, an environmentalist, A U.S. district judge in Massachusetts on appears to have become the fi rst woman ever Saturday ordered federal emergency offi cials Andrés Manuel López Obrador won a landslide to be elected Mexico City’s mayor, a position to extend vouchers paying for temporary hotel victory in Mexico’s presidential election on López Obrador once held, with 47 percent of housing for nearly 1,700 Puerto Rican hurricane Sunday, claiming more votes than his three the vote, according to El Universal. “We have evacuees, the Associated Pres reported. On competitors combined, El Universal report- witnessed today a very profound reshaping of the eve of the program’s expiration, Judge Leo ed. In his third run at the presidency, López the country’s political map,” Goldman Sachs Sorokin said ending the vouchers could cause Obrador, or AMLO as he is popularly known, economist Alberto Ramos told Reuters. “The irreparable harm. He also said that evidence took nearly 54 percent of the vote, far ahead balance of power at the federal and local levels showed problems with the Federal Emergency of Ricardo Anaya of the PAN party, with 23 has defi nitely shifted to the left, with unclear Management Agency’s efforts to notify and percent, and José Antonio Meade of the ruling implications for the near-term policy direction.” provide transitional help for the hurricane PRI party, with 15 percent. “I’m very aware of It has been a “change year” in several Latin refugees. my historical responsibility,” López Obrador, American elections, with the youngest candi- 64, told cheering supporters in Mexico City’s dates in recent history winning presidential rac- central square, NBC reported. “I don’t want to es in Costa Rica and Colombia, the resignation Colombian Park in go into history as a bad president. Now we of Peru’s president over corruption allegations, are going to transform Mexico.” Earlier in a and an unpredictable election ramping up in Amazon Added to Latest speech to reporters, López Obrador pledged South America’s most populous country, Brazil. U.N. World Heritage List to seek “a relationship of friendship” with the Colombia’s Chiribiquete National Park on United States, with which Mexico is currently Sunday made UNESCO’s World Heritage List, renegotiating the North American Free Trade ECONOMIC NEWS Agence France-Presse reported. The United Agreement. The two countries have also been Nations agency said the Amazon-region park, at odds over border security and migration, with an area of 2.7 million hectares (6.7 million with U.S. President Donald Trump pledging to Brazil Slashes 2018 acres), will be the ninth world heritage listing in “build a wall” on the border that Mexico will Growth Forecast Colombia. The Andean nation’s president, Juan pay for. The fi rst high-level contact between Manuel Santos, said Sunday via Twitter that his López Obrador and the White House is likely to Brazil’s central bank last week slashed its government this week will expand the protect- be a phone call today, according to the report. forecast for gross domestic product growth for ed territory in the area by 1.5 million hectares, Trump tweeted his congratulations Sunday 2018, Reuters reported Friday. The government according to the report. night, saying, “There is much to be done that now sees GDP growth of 1.6 percent this will benefi t both the United States and Mexico!” year, compared to 2.6 percent previously. A Analysts have pointed out that the conserva- nationwide trucker strike in May paralyzed key tive Trump and leftist López Obrador, despite sectors of Latin America’s largest economy, Ecuador GDP Rises More their ideological differences, campaigned on but the bank also cited an easing of economic Slowly in First Quarter similar themes, catering to anti-intellectual or activity at the start of the year, as well as a xenophobic sentiments, capitalizing on existen- Ecuador’s gross domestic product grew 1.9 weakness in business and consumer confi - tial worries among middle- and working-class percent in the fi rst quarter as compared to dence indicators. Brazil’s unemployment rate populations who see their jobs being lost to the same period last year, América Economía remained at a 12.7 percent in May, state sta- technology or to lower-paid workers, Tracy reported Friday, citing central bank data. tistics agency IBGE said Friday. However, the Wilkinson and Kate Linthicum wrote in the Los However, the rate of growth fell of 0.7 percent composition of new jobs remains of low quali- Angeles Times today. Like Trump, López Obra- as compared to the previous quarter. The gov- ty, and formal salaried jobs are still contracting dor benefi ted from a strong current of outrage ernment’s expenditures increased 1.3 percent from a year ago, economists noted. Increases where many voters felt disenfranchised, left in the period, largely due to more spending on in jobs were driven chiefl y by the informal out or overlooked. While it will likely be a few education, which expanded by more than 5 sector jobs, up 5.7 percent, year over year, and days before the makeup of congress is certain, percent, and health, which grew by 1.3 percent. public sector hiring, up 2.9 percent.

BUSINESS NEWS THE DIALOGUE CONTINUES Chile to Inject $1 Billion to Bolster Will Latin America’s Crippling Codelco Output Labor Strikes Continue? Labor unions in Brazil, Peru and tals lacked important medications, critical Chile’s fi nance minister said Friday the gov- Argentina have either launched surgeries were stopped, and GDP contract- ernment will inject $1 billion in “extraordinary” or threatened paralyzing ed—in the end, even the truck drivers and capitalization into state-owned copper miner Q transportation strikes in recent their families were affected with scarcity of Codelco, Reuters reported. Finance Minister weeks, in several cases yielding big con- goods and prices going up. So how can this Felipe Larraín said Codelco needs to overhaul cessions from governments grappling with be prevented from happening again? The its aging mines, which produce nearly 10 widening fi scal imbalances and few options best solution is for politicians to be closer percent of the world’s copper. Chile is planning to address them. How successful has the to their constituents’ needs, requests and a 10-year, $39 billion “total overhaul” of sev- strike strategy been, as compared to past issues. People should expect to be able to eral of its operations as it seeks to maintain periods of austerity, and what scenarios are have access to food, healthcare, education production amid declining ore grades at Chile’s likely to play out in the future? Have unions and security. Living in a democracy, when massive deposits. “If it does not invest, its and protesters hijacked economic policy, or one or more of those is not available, a pop- mines will run dry,” Larraín said, adding that have politicians been ignoring the needs of ulation will fi ght for their rights. It’s amazing half the funds would be dispersed immediately their citizens to the point that protests and how the Internet is helping populations in and all would be paid out by February next strikes are the only way to be heard? Will organizing themselves. The easier approach year. With metals prices rising after years in labor strife worsen in Latin America in the is calling for attention through strikes. Much the doldrums, Codelco delivered $3 billion in coming months and years? harder is listening and fi nding mechanisms profi ts to Chile’s coffers last year, accounting of communication and dialogue. The prob- for 16 percent of the South American nation’s Maria Fernanda Teixeira, CEO lem is that politicians are elected and then exports and more than one-third of its copper of Integrow in São Paulo and they go to Olympus, forgetting who voted for production. However, copper prices last week a board director of the In- them. Most of the politicians in Latin Amer- hit three-month lows as the market expected A ter-American Dialogue: “Brazil’s ica really believe they are there to only to weaker demand from top consumer China amid truck driver strike—the fi rst of its kind—sur- work on their own behalf, and they do not lis- a trade spat with the United States even as its prised the government and population alike ten to the needs of their constituents. With manufacturing sector slows, Reuters reported. in its scope and unprecedented impact, elections pending, I think there is a good In related news, Chile’s mining industry cheered even compared to famous automotive union chance we’ll see more strikes, especially a decision last week to drop a glacier-protec- strikes of the past, which never stopped the in countries with governments in their last tion bill, Bloomberg News reported. Claiming country completely like the trucker strike months. After the elections, I expect a break the proposed rules would thwart mineral did. Brazilians never imagined how depen- will happen, because the public generally extraction, Environmental Minister Marcela dent the whole country is on truck drivers. trusts that new politicians will work to fulfi ll Cubillos requested the withdrawal of the After a few days of paralyzation, all areas their promises. The challenge starts after bill from the lower house, nullifying former of the country started lacking food and the famous fi rst 100 days in offi ce, when socialist President Michelle Bachelet’s push for materials for industries. Even industries with populations become less patient with politi- special protections that included banning some some available materials on hand had to cal promises. One important attitude change activities on and around glaciers, according stop production since the warehouses got (from both sides) is the communication and to the report. “The bill’s hidden objective was full. Truck drivers did not realize the power dialogue that has to happen, urgently, but to prevent mining from happening, rather they had, either. The way they got organized politicians need to take the fi rst step.” than protecting glaciers,” Joaquín Villarino, was through social media tools such as executive president of the Mining Council, told WhatsApp. Now they know how to pressure Bloomberg News. “The new law will protect the government to get their requests attend- EDITOR’S NOTE: The comment above is a glaciers and all other environmental assets ed to, but are they right? Maybe, in part, but continuation of the Q&A published in the with a more rational and reasonable legisla- is it right to affect the whole population? June 26 issue of the Advisor. tion,” he added. Many people were left without food, hospi-

FEATURED Q&A / Continued from page 1 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2018 of the fi nance and treasury ministries under government to repair the relationship with strengthened Minister Nicolás Dujovne the industrial sector, which had deteriorated Erik Brand certainly has logic, while Minister Aran- under his predecessor. The deal with the IMF Publisher [email protected] guren’s replacement may introduce a softer provides much-needed fi nancing for Argen- approach to the unpopular energy tariffs. tina’s fi scal defi cit: the fi rst $15 billion has Gene Kuleta Editor The fi scal defi cit, however, remains Presi- already been disbursed. With about a year to [email protected] dent Macri’s Achilles’ heel, a challenge that go before the presidential campaign kicks Anastasia Chacón González requires further attention in at least three off, Macri will try to share the burden of the Reporter main areas. First, the negotiations between adjustment with the provinces, preserve [email protected] Minister of Interior Rogelio Frigerio and the social peace and maintain as much of his governors to reduce provincial defi cits and public works program as possible.”

agree on a national budget for 2019. Second, Michael Shifter, President negotiations with the trade unions. Last Andrés Asiain, director of Genaro Arriagada, Nonresident Senior Fellow Monday’s general strike, the third and most Centro de Estudios Económi- Sergio Bitar, Nonresident Senior Fellow successful since Macri took offi ce, shows cos y Sociales Scalabrini Ortiz Joan Caivano, Director, Special Projects union leadership in search of a national role in Buenos Aires: “Argentina’s A Michael Camilleri, Director, Peter D. Bell Rule of Law and a prime place in the overdue restructur- economy in April entered the declining stage Program ing of the Peronist Party. Third, as adjust- of a speculative cycle initiated by Mauricio Kevin Casas-Zamora, Nonresident Senior Fellow ment proceeds, the government will need Macri. The exchange rate run pushed Macri Ariel Fiszbein, Director, Education Program to monitor its impact on the popularity of to ask for stand-by credit from the IMF, Alejandro Ganimian, Nonresident Fellow Buenos Aires Governor María Eugenia Vidal, which comes conditioned by cuts in public Peter Hakim, President Emeritus Macri’s main political asset.” spending and a policy of a free-fl oating ex- Claudio Loser, Senior Fellow change rate that has caused an even greater Nora Lustig, Nonresident Senior Fellow Bruno Binetti, nonresident re- devaluation of the peso, as well as a drop in Margaret Myers, Director, China and Latin America Program search fellow at the Inter-Amer- real wages and domestic consumption. It’s Manuel Orozco, Director, Migration, ican Dialogue: “Argentina is a combination that contracts the domestic Remittances & Development A facing a perfect storm: fi nancial market, which has already been hit by inter- Jeffrey Puryear, Senior Fellow turbulence keeps punishing the peso and est rates that are among the highest on the Tamar Solnik, Director, Finance & Administration the stock market; the government expects a planet. Facing the prospect of a production Lisa Viscidi, Director, Energy Program recession for the rest of 2018 after the worst crisis, the government aims to recompose Denisse Yanovich, Director of Development and drought in 50 years; and this year’s infl ation parts of its relationship with the business External Relations rate will be 27 percent or more, higher than community through changes to sectoral pol- Latin America Advisor is published every in 2017. In this context, changes in Macri’s icies. The removal of the minister of energy business day, except for major U.S. holidays, team had been expected in Argentina points to containing price hikes for fuel and by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 and abroad. In no small part because of utilities, which drown the productive sector. Washington, DC 20005 government interference, Sturzenegger had The new minister of production also has www.thedialogue.org lost the confi dence of fi nancial markets and links to the business community. Caputo’s ISSN 2163-7962 was incapable of containing the run. Caputo appointment to the central bank is related to Subscription inquiries are welcomed at has Macri’s trust and is trying to stabilize the the previous chief’s mala praxis. But, at the [email protected] market and clean up the balance sheet of same time, it speaks to Caputo’s relations The opinions expressed by the members of the Board of the central bank. Former minister Aranguren with international banks and funds holding Advisors and by guest commentators do not necessarily was effective in reducing subsidies for the Argentine paper that want to use the IMF represent those of the publisher. The analysis is the sole energy sector, but there is little room for credit dollars in order to sell, thus transfer- view of each commentator and does not necessarily represent the views of their respective employers or fi rms. more hikes in utility rates because of their ring fi nancial losses from the foreseeable The information in this report has been obtained from high political cost. His successor’s mission crisis to that body. There’s nothing more reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have will be to shift the burden of the adjustment strategic for that than Macri appointing his any questions relating to the contents of this publication, from consumers to electric companies, in own man to control the central bank, which contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a order to preserve the government’s waning administers international reserves that have retrieval system, or transmitted without prior written permis- political capital. Finally, Sica entered the been padded by the IMF’s loans.” sion from the publisher.