LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Thursday, October 18, 2018

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, October 18, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Who Is Likely to Court Releases Cargill Keiko Fujimori Joyce Chang Global Head of Research, Win El Salvador’s From Prison JPMorgan Chase & Co. Peruvian opposition leader Keiko Dirk Donath Senior Partner, Presidential Race? Fujimori remains under investiga- Catterton Aimara tion over about $1.2 million in un- Marlene Fernández declared ﬁ nancial contributions to Corporate Vice President for her 2011 presidential campaign. Government Relations, Page 2 Arcos Dorados Peter Hakim President Emeritus, POLITICAL Inter-American Dialogue Donna Hrinak Colombia: Protests President, Boeing Latin America Seek More Money Jon Huenemann Vice President, U.S. & Int’l Affairs, for Education Philip Morris International Tens of thousands of students James R. Jones Chairman, from public universities organized Monarch Global Strategies protests in several Colombian Nayib Bukele, a former mayor of San Salvador, is leading early polls ahead of El Salvador’s cities, asking the government to Craig A. Kelly presidential election next February. He is pictured on Monday, the day that he registered as a Director, Americas International candidate. // Photo: @nayibbukele via Twitter. comply with a list of 10 demands. Gov’t Relations, Exxon Mobil El Salvador’s presidential campaign ofﬁ cially kicked off Page 2 John Maisto Director, U.S. Education earlier in October, four months ahead of the election in Finance Group ECONOMIC February. Former San Salvador Mayor Nayib Bukele, who was Nicolás Mariscal Q U.S. Increases Size Chairman, expelled from the FMLN party last year, leads initial polls. Grupo Marhnos Opposition party ARENA’s candidate, Carlos Calleja, a businessman who of Credit Line Thomas F. McLarty III Chairman, owns the country’s main supermarket chain, is polling second, while the to Mexico McLarty Associates ruling FMLN party’s candidate, Hugo Martínez, ranks third. How is the U.S. Treasury Secretary Steven Carl Meacham Mnuchin has tripled the size of Associate VP for Latin America presidential race shaping up? What themes will be at the forefront of the a credit program, known as the Int’l Advocacy Division, PhRMA campaigns in the coming months, and what issues are most important exchange stabilization agreement, Carlos Paz-Soldan Partner, for voters? Are big changes in store for El Salvador? available to Mexico in the form of DTB Associates, LLP a “swap line” in case the country Beatrice Rangel faces a currency crisis, allowing it Director, Mari Carmen Aponte, former U.S. ambassador to El Salvador to borrow as much as $9 billion. AMLA Consulting LLC and former acting assistant secretary of state for Western Page 2 Ernesto Revilla Head of Latin American Hemisphere affairs: “Although polls in El Salvador show Economics, Citi A Mr. Bukele as an early front-runner in the upcoming 2019 Gustavo Roosen presidential election, in political terms, there is still a long time before Chairman of the Board, Envases Venezolanos the election. Certainly, in the coming months, the two major parties with Andrés Rozental organized, longstanding national party structures will work hard on their President, Rozental & Asociados and Senior ground operations. This will be a hard-fought election all the way to elec- Policy Advisor, Chatham House tion day. The themes Salvadorans will want to see campaigns address will Shelly Shetty Head of Sovereigns Ratings, be security, improvement in quality of life and employment opportunities. Latin America, Fitch These issues have not had satisfactory and sustainable solutions in the Roberto Sifon-Arevalo Managing Director, Americas past 20 years. In fact, they have been the subject of empty promises and Sovereign & Public Finance Ratings, have eluded concrete solutions for far too long. In the last year alone, Standard & Poor’s Salvadorans have seen breathtaking abuses and corruption. And like many countries, most recently Brazil, the electorate will ‘bill’ the parties in Mnuchin // File Photo: U.S. Government. Continued on page 3

POLITICAL NEWS Treasury Department tripled the size of a credit NEWS BRIEFS program, known as the exchange stabilization Colombia Protesters agreement, available to Mexico in the form Brazil Economic Activity of a “swap line” in case the country faces a Rises 2.5 percent in August Seek More Spending currency crisis, allowing it to borrow as much as $9 billion. A previous agreement under the Brazil’s central bank on Thursday said eco- on Higher Education original North American Free Trade Agreement, nomic activity rose 0.47 percent on a month- or NAFTA, offered Mexico a $3 billion credit to-month basis in August. A higher fi gure than Thousands of students took the streets across line, which the Latin American country tapped expected, the growth added to a 0.65 percent Colombia on Wednesday, the second organized in the aftermath of its economic crisis in gain in July. In annual terms, Brazil’s economic demonstration in less than a week to demand 1995. A senior Treasury offi cial told reporters activity grew 2.5 percent in August. However, an increase in higher education funding, El Wednesday the deal was not made in anticipa- market analysts say the growth does not yet Tiempo reported. Students from public univer- tion of any such event in Mexico, given the high suggest the economy is on a strong trajec- sities organized protests in several Colombian level of its foreign-currency reserves, at $173 tory. “At this stage of the cycle, the forward cities, including Bogotá, Medellín and Cali, billion. The “close coordination” of the Treasury momentum is still underwhelming,” Goldman asking the government to comply with a list of Department and Mexico’s fi nance ministry Sachs economist Alberto Ramos told clients in 10 demands, among them an increase in the “refl ects the mutual benefi ts derived from con- a research note Wednesday. education budget of 4.5 billion pesos, or nearly tinuous economic growth and fi nancial stability $1.5 million, by the end of the year. On Tuesday, in both of our economies,” Mexican Finance Colombian President Iván Duque agreed to ex- Minister José González Anaya said on Twitter Court Releases Keiko pand the budget by one billion pesos over the after signing the deal with his U.S. counterpart, Fujimori From Prison next two years. “We do not agree with Duque’s Steven Mnuchin. “We continue to value the fi nancial promise because we are demanding very close economic and fi nancial coopera- Peruvian opposition leader Keiko Fujimori was 4.5 billion pesos, which is the minimum public tion that exists between our countries to help freed by an appeals judge late Wednesday, and technological institutions need to be promote macroeconomic growth and stability, a week after she was arrested on corruption able to function in 2019,” Angie Delgado, the including on exchange rates,” Mnuchin said charges, the Associated Press reported. She spokeswoman for one of the student groups in a Treasury Department statement. Mexico remains under investigation over about $1.2 that organized the marches, told El Tiempo. has an additional $3 billion line with the U.S. million in undeclared fi nancial contributions to “Offering one billion pesos will continue Federal Reserve and last year renewed an $87 her 2011 presidential campaign that Odebrecht, suffocating our universities.” According to the billion fl exible credit line with the International the Brazilian construction fi rm, allegedly made. students, public universities are facing a $1 Monetary Fund amid uncertainty over trade Ties to Odebrecht forced President Pedro Pab- million defi cit in outstanding salaries to profes- relations with the United States, The Wall Street lo Kuczynski, who narrowly defeated Fujimori in sors and administrative expenses. The lack of Journal reported. The deal comes as the United a 2016 presidential runoff, to resign from offi ce government funding has prompted universities States, Mexico and Canada prepare to sign a earlier this year. to boost enrollment fees, which in turn has revamped version of the NAFTA deal, known as negatively affected access, Semana reported. USMCA, in late November. Student protesters are reportedly considering Temer Attorneys Ask Top camping out in Bogotá’s main square, Plaza de Bolívar, until Saturday, El Tiempo reported. White House Eyes Court to Annul Police More Sanctions Report Alleging Graft Attorneys for Brazilian President Michel Temer ECONOMIC NEWS on Venezuela on Wednesday asked the country’s top court to annul a federal police report that recom- U.S. Increases Size of The Trump administration is considering mended he be charged with corruption, Reuters additional sanctions on Venezuela’s govern- reported. Authorities have been investigating Credit Line to Mexico ment but is seeing less of a need to target the Temer, who leaves offi ce this year, for allegedly South American country’s energy sector, a top taking bribes. Temer took over the presidency The United States has increased the size of a administration offi cial told Reuters Wednesday. in 2016 after former President Dilma Rousseff credit line for Mexico to use in times of crisis, Venezuela’s fl agging oil production is playing was impeached. He cannot be prosecuted according to a new deal signed on Wednesday, into the consideration, the offi cial said. Still, while in offi ce, unless the supreme court The Wall Street Journal reported. The U.S. the offi cial described potential sanctions on decides to strip his immunity.

Venezuelan economic sectors as possible. FEATURED Q&A / Continued from page 1 “With regards to Venezuela, all options are on the table,” said the unnamed source. “At the power. Salvadorans are looking for sensi- a newcomer, but he has been mayor of the end of the day, Nicolás Maduro has taken care ble, realistic answers. To the extent that capital and of another municipality close to of really running PDVSA to the ground, and candidates address the issues by concretely San Salvador, so he is no lightweight when essentially more and more making it a non-fac- explaining when and how they will solve it comes to politics. His image has been tar- tor,” the source added, referring to Venezuela’s basic problems, they will gain credibility and nished because he left both municipalities in president. The White House has already im- votes. Regardless of who wins, El Salvador debt, and, additionally, he has been sued by posed several rounds of sanctions on offi cials will continue to move forward as a stable an attorney who claims wrongdoing while he in Venezuela’s government and military, saying democracy. All the candidates are young was the mayor of San Salvador. Those accu- they are perpetrating human rights abuses and embody a new generation, producing sations and lawsuits will not go away soon, and at fault for the country’s economic col- enthusiasm for their respective tickets. The and they will affect his reputation ahead of lapse. Earlier this year, the United States had winner will have captured the electorate’s the fi rst round in February.” considered an escalation of sanctions against imagination and will inspire a new age of Maduro’s government by restricting insurance transparent and accountable government. El Douglas Farah, president of IBI coverage for Venezuelan oil shipments and Salvador needs it.” Consultants and senior visiting targeting a company that provided oil services fellow at National Defense and that is run by the country’s military. Last Ricardo Cevallos, partner at A University: “The FMLN’s ongoing year, Washington barred U.S.-based banks from BLP Abogados in El Salvador: corruption scandals tied to Venezuelan oil being part of any new borrowing deals with “Bukele of GANA is ahead in the giveaways, economic stagnation, ongoing Venezuelan authorities or Venezuelan state-run A polls thanks to a generalized gang violence and growing attacks on the oil company PDVSA. perception by voters that the traditional judiciary have badly tarnished the party’s parties are corrupt and ineffi cient. Frustra- promises of transparency, prosperity and tion is present every day in newspapers and peace. ARENA, with two former presidents BUSINESS NEWS opinion polls. For example, the Legislative convicted of massive corruption and a lack Assembly has not elected Supreme Court judges in more than two months, leaving a Mexico’s Banca Mifel large amount of constitutional cases pend- As in other countries, Pulls Plans for IPO ing. Calleja is the candidate with the highest the disgust with the possibility of raising his numbers in the polls traditional political Amid Market Worries and increasing his chance of winning in the parties has led to fi rst round in February. The issues continue the rise of a non- Mexico’s Grupo Financiero Mifel has postponed to be security, job generation and corruption. traditional alternative, an initial public offering the company had The new relationship with China is also in this case hoped to close this week, Reuters reported. In a matter of concern for many voters who Nayib Bukele.” a statement, the holding company of mid-tier believe the FMLN was not transparent about — Douglas Farah bank Banca Mifel said late on Wednesday that why it broke off relations with Taiwan and it had put the deal on hold because of market immediately established diplomatic relations conditions, without giving further details. It with China. If the candidate of FMLN or of a clear agenda, has yet to present itself is the second major listing to be canceled GANA wins, he or she will probably continue as a viable option. As in other countries, the this week amid a market downturn. Retailer to maintain ties with China; ARENA does not disgust with the traditional political parties and lender Grupo Coppel called off a more like the relationship but has not openly said has led to the rise of a non-traditional than $1 billion IPO earlier this week after the it would go back to Taiwan. Unemployment alternative, in this case Nayib Bukele. While family owners backed out, Reuters reported is voters’ top concern. This is due to the low he has been mayor of Santa Tecla and San on Tuesday. Banca Mifel had planned to place growth, low investment numbers and the Salvador, he is not from the historic FMLN. 167 million shares, plus a possible overal- shutting down or downsizing of many facto- He is a young candidate who uses social lotment option, at between 35 pesos and 40 ries and businesses over the last 10 years. media and can reach those who are tired of pesos ($1.59 and $2.12) per share. The Mexico Generalized corruption by both parties when the two main parties re-litigating the civil City-based bank, which was founded in 1993, they have been in power in the past also war every electoral cycle. The main issues had hoped to raise $450 million in the offering, concerns voters. Bukele is selling himself as are violence, economic growth and corrup- according to Bloomberg. Continued on page 4

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2018 tion. The gangs, particularly MS-13, control gesting that undecided votes are breaking much of the country, and their killings, for Bukele. Bukele, who was expelled from Erik Brand extortion and growing ties to the cocaine the FMLN in 2017, is running on the GANA Publisher [email protected] trade make them a formidable force that no ticket after attempts to register his party, government has successfully tackled. On the Nuevas Ideas, and to forge an alliance with Gene Kuleta Editor economic front, the FMLN’s incompetence the now-dissolved Democratic Change party [email protected] and corruption, coupled with the Trump both failed. Though some are critical of his Anastasia Chacón González administration’s decision to deport thou- alliance with GANA, voters seem willing to Reporter sands of Salvadorans, means few jobs and overlook this. A win by Bukele would disrupt [email protected] fewer remittances ﬂ owing into the economy. the country’s two-party dominant system, The corruption issue touches all parties. which could be a positive development. But

Bukele has not articulated policies to deal a lot can happen between now and February. Michael Shifter, President with these issues except for platitudes and Bukele’s popularity in the race is unsurpris- Genaro Arriagada, Nonresident Senior Fellow promises of change. He is very likely to win. ing considering both his high favorability Sergio Bitar, Nonresident Senior Fellow The question is whether—allied with GANA, a scores and the very strong anti-establish- Joan Caivano, Director, Special Projects party synonymous with corruption and likely ment mood among voters that we saw in the Michael Camilleri, Director, Peter D. Bell Rule of Law little support in the Legislative Assembly—he March elections. Salvadoran voters are in- Program can do anything without allying with the creasingly eschewing party identifi cation in Kevin Casas-Zamora, Nonresident Senior Fellow FMLN. That would likely mean little real favor of candidate- and policy-based voting. Ariel Fiszbein, Director, Education Program change except in style and marginal issues.” El Salvador’s main parties, ARENA and the Alejandro Ganimian, Nonresident Fellow FMLN, have failed to solve serious economic Peter Hakim, President Emeritus Christine Wade, professor of and social problems and are plagued by Claudio Loser, Senior Fellow political science and interna- charges of corruption. In the same poll, 30 Nora Lustig, Nonresident Senior Fellow tional studies at Washington percent said unemployment was the most Margaret Myers, Director, Asia and Latin America Program College: “Former San Salvador pressing problem in the country, followed A Manuel Orozco, Director, Migration, Mayor Nayib Bukele holds a commanding closely by corruption at 25 percent. Crime, Remittances & Development lead in the current fi eld of presidential as- which has been the primary concern for Jeffrey Puryear, Senior Fellow pirants. The most recent Gallup poll shows Salvadoran voters for years, was a distant Tamar Solnik, Director, Finance & Administration him with 45 percent support, followed by third with only 19 percent saying it was the Lisa Viscidi, Director, Energy Program ARENA’s Carlos Calleja with 20 percent and most pressing problem.” Denisse Yanovich, Director of Development and the FMLN’s Hugo Martínez with 7 percent. At External Relations present, 27 percent say they’re undecided. The Advisor welcomes comments on its Q&A Latin America Advisor is published every Support for Bukele has increased by four section. Readers can write editor Gene Kuleta business day, except for major U.S. holidays, percentage points since May’s poll, sug- at [email protected]. by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 Washington, DC 20005 www.thedialogue.org ISSN 2163-7962 Subscription inquiries are welcomed at [email protected] LATIN AMERICA ADVISOR 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 fi rms. The information in this report has been obtained from Energy Advisor 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, The answers to questions that informed contact the editorial offi ces of the Inter-American Dialogue. SUBSCRIBE executives are asking ... every week. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permis- sion from the publisher.