LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, October 22, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, October 22, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Will Venezuela’s US Renews Waiver CEO, DevryBV Sustainable Strategies Allowing Firms to Joyce Chang Global Head of Research, Opposition Retain Work in Venezuela JPMorgan Chase & Co. The license allows Chevron and Paula Cifuentes four other U.S. oil services firms Director of Economic & Fiscal Affairs, Control of Citgo? to work in Venezuela despite Latin America & Canada, Philip Morris International sanctions against the government Marlene Fernández of President Nicolás Maduro. Corporate Vice President for The waiver was set to expire this Government Relations, Friday. Arcos Dorados Page 2 Peter Hakim President Emeritus, Inter-American Dialogue POLITICAL Donna Hrinak President, Boeing Latin America Violence Breaks Jon E. Huenemann Out in Bolivia, Former Corporate and Government Senior Executive Election Contested James R. Jones Violent protests erupted Monday Chairman, night in nine cities across Bolivia Monarch Global Strategies Venezuela’s opposition-controlled National Assembly appointed a new Citgo board of directors amid confusion over the result of Craig A. Kelly (pictured above) earlier this year. // Photo: Citgo. Director, Americas International Sunday’s presidential election. Gov’t Relations, Exxon Mobil Page 2 John Maisto A U.S. appeals court last month lifted an impediment that Director, U.S. Education had frozen efforts by defunct Canadian gold miner Crys- Finance Group POLITICAL tallex to take control of Citgo, Venezuelan state oil company Nicolás Mariscal Trudeau’s Party Chairman, Q PDVSA’s U.S.-based refiner. The ruling marks a defeat for Grupo Marhnos opposition leader Juan Guaidó and his allies, who have been fighting to Secures Minority Thomas F. McLarty III Chairman, prevent creditors from seizing Citgo since taking effective control of the Government McLarty Associates company from President Nicolás Maduro’s government. Moreover, if the Canadian Prime Minister Justin Carlos Paz-Soldan Trudeau and his Liberal Party on opposition fails to make a $913 million payment on a 2020 PDVSA bond Partner, Monday held on to just enough DTB Associates, LLP due on Oct. 27, creditors reportedly could attempt to seize the company. seats in Ontario, Quebec and the Beatrice Rangel Atlantic provinces to win a minori- Director, What does the court’s ruling mean for Citgo and for Venezuela? How AMLA Consulting LLC likely is Crystallex to successfully take control of the U.S.-based refiner, ty government. With some ballots yet to be counted, the Liberals Jaana Remes Partner, and is it expected to put the Citgo shares up for sale, as it has stated it appear to have won 156 seats. McKinsey Global Institute would do? Is the opposition likely to complete the upcoming payment, Page 2 Ernesto Revilla and what would happen if it fails to do so? Head of Latin American Economics, Citi Gustavo Roosen Chairman of the Board, Luisa Palacios, chairwoman of Citgo: “In terms of Crystallex, Envases Venezolanos we believe the lifting of the stay by the Third Circuit does Andrés Rozental not change the underlying situation with Crystallex’s claims, President, Rozental & Asociados which remain stayed by an order of the United States District Shelly Shetty A Court. More importantly, Crystallex does not presently have a license from Head of Sovereign Ratings, Latin America, Fitch OFAC, without which it cannot seize or sell the stock in question, and we Roberto Sifon-Arevalo do not expect that to change. This case continues to work through the Managing Director, Americas Sovereign & Public Finance Ratings, appeals process, which means it can still be reversed. The Third Circuit Standard & Poor’s just requested a briefing from Crystallex on why it should not rehear the Trudeau // File Photo: @Justin- case en banc. For those reasons and others, we do not see any near-term Trudeau via Twitter. Continued on page 3

POLITICAL NEWS victory late Sunday, telling supporters that the NEWS BRIEFS votes still to be counted would be enough to Violence Breaks Out give him the win. “The people again imposed Trump Extends Venezuela their will,” he said. The U.S. State Department Sanctions Waiver for in Bolivia as Election accused Bolivian authorities of trying to subvert the vote, and an observer mission from Oil Companies Result Contested the Organization of American States expressed The administration of U.S. President Donald concerns about the counting process, The Trump on Monday renewed a wavier that allows Violent protests erupted Monday night in nine Washington Post reported. Being forced into several oil companies to continue operating in cities across Bolivia amid confusion over the a runoff would be a sharp blow to Morales, Venezuela despite U.S. sanctions against the result of Sunday’s presidential election, La “whose political success has been impressive, regime of President Nicolás Maduro. The U.S. Razón reported. The most damage was report- and who seemed confident of a first-round win,” Department of the Treasury said five compa- ed in Potosí, Oruro, Tarija and Chuquisaca. In Michael Shifter, president of the Inter-American nies—Chevron, Halliburton, Schlumberger, Bak- Potosí, two people threw themselves off the Dialogue, told The Washington Post. er Hughes and Weatherford—could continue second floor of the offices of the Departmental operating in the country. The license was due Electoral Court (TED) to save their lives after Canada’s Trudeau to expire this Friday, but the Trump administra- protesters set fire to the building, according to tion decided to extend it through Jan. 22, 2020. the report. The vote count was suspended in Ekes Out a Win, Loses La Paz, Oruro, Potosí, Chuquisaca and Tarija. In the capital of La Paz, supporters of President Seats in Parliament Evo Morales and his closest rival in the race, JetBlue Reports Lower Carlos Mesa, tried to enter the hotel where the Justin Trudeau and his Liberal Party on Monday Earnings on Latin held on to just enough seats in Ontario, Quebec America Disruptions and the Atlantic provinces to secure a minority New York-based JetBlue Airways said today With 95 percent of the government, CBC reported. With some ballots that disruptions in its operations across yet to be counted, the Liberals appear to have votes counted Monday Latin America and the Caribbean hurt its third won 156 seats, 21 fewer than they started quarter results. “Our Latin and Caribbean fran- night, Morales led with with before the election. The Conservatives chise was impacted by disruption in multiple 46.8 percent. moved up from 95 seats to an estimated markets,” said Joanna Geraghty, JetBlue’s pres- 122, while the left-of-center New Democratic ident and chief operating officer. The company Party, or NDP, lost 15 seats to end up with said third quarter revenue per available seat members of the Supreme Electoral Tribunal, or 24. The Conservatives likely won the popular mile declined nearly 1 percent, year over year, TSE, were coordinating the vote count, clashing vote, taking 34.5 percent of the vote to the while operating expenses increased slightly with police. In Oruro, a Morales party campaign Liberals’ 33 percent. Conservative turnout and over the period. office was burned, and the police gassed support was very high in the prairie provinces. protesters. Bolivian Interior Minister Carlos In Alberta, the Conservatives won almost 70 Romero accused the opposition of trying to percent of the popular vote to the Liberals’ 14 create turmoil and warned that Mesa would be percent, while in Saskatchewan, the Conserva- Shell Sells Stake in Brazil held responsible. “Violence can generate dire tives won 65 percent of the vote to the Liberals’ Pre-Salt to Ecopetrol consequences for people, institutions amd 10 percent. “Tonight Conservatives have put Colombian state oil firm Ecopetrol has reached public and private goods,” he warned. Election Justin Trudeau on notice,” said Andrew Scheer, an agreement with Shell Brasil to acquire 30 officials abruptly stopped releasing results Trudeau’s rival in the race. “And Mr. Trudeau, percent of interests, rights and obligations in hours after the polls closed Sunday. As of early when your government falls, Conservatives two areas in the Gato do Mato discovery in Tuesday morning, results showed Morales top- will be ready and we will win,” he added, Fox Brazil’s pre-salt area, Ecopetrol said Monday. ping the eight other candidates and just barely News reported. Polls showed Scheer had Under the deal, Shell will cut its stake from 80 reaching the 10 points needed to avoid what a chance of victory after a combination of percent to 50 percent but will continue man- would have been the first runoff in his nearly 14 scandals and unmet expectations damaged aging operations. French company Total will years in power, The New York Times reported. Trudeau’s prospects. Trudeau, who will likely maintain the remaining 20 percent stake in the Morales led with 46.8 percent to Mesa’s 36.7 have to work with the Conservatives to pass Gato do Mato shared production agreement. percent, with about 95 percent of the votes any major legislation, has pushed for securing Light hydrocarbons have been found in three counted. The president had claimed an outright the United States-Mexico-Canada Agreement to wells in the two blocks, Ecopetrol said.

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Tuesday, October 22, 2019 replace NAFTA, the North America Free Trade ton has found that the United States was the buildings were set ablaze, including an office Agreement, which remains mired in the U.S. primary source of weapons used in crime in of energy company Enel Chile, the Associated Congress. Mexico and Canada, according to the report. Press reported. The violence, which broke out initially over transit fare increases but has morphed into an expression of frustration and U.S., Mexico Agree Protests Continue outrage over economic inequality, marks the to Curb Illicit Guns Across Chile worst social unrest in decades in Chile, which is set to host the Asian Pacific Economic Cooperation, or APEC, summit next month. Mexican President Andrés Manuel López Ob- Thousands of protesters gathered in city pla- The country’s peso currency and local shares rador’s call with U.S. President Donald Trump zas across Chile on Monday after a weekend of dropped sharply Monday, as violence seemed over the weekend will mark a “before and after” riots, looting and clashes with security forces poised to continue. In a statement televised in the fight against illicit arms trafficking from that left 11 dead, Bloomberg News reported. Sunday night, President Sebastián Piñera the United States to its southern neighbor, In the capital of Santiago, more than 10,000 imposed curfews and extended the country’s Mexican Foreign Minister Marcelo Ebrard said soldiers and police officers met the protest- state of emergency in hopes of deterring more Monday on Twitter. His comment followed a ers with riot gear and tear gas. The Chilean protests. The United Nations’ humans rights meeting between Mexican Security Minister Prosecutor’s Office said that more than 2,100 chief, Michelle Bachelet, who served as Chile’s Alfonso Durazo and U.S. Ambassador to Mex- people have been detained. So far, the damage president from 2006 to 2010, tweeted about ico Christopher Landau to discuss measures to the city’s metro transit system is estimated the violence, asking protesters to organize to “freeze” the black market for arms between to cost at least $200 million. Interior Minis- peacefully and urging the government to “find ter Andrés Chadwick told reporters Monday solutions and bring calm.” that 110 supermarkets were looted and 13

FEATURED Q&A / Continued from page 1

impact to Citgo’s operations or outlook. come in during the last stages, and the court As to the PDVSA 2020 bonds, it is hard to wasn’t able to balance the policy of the U.S. imagine that the Guaidó administration government supporting Guaidó against the should be expected to make an almost interest of the speculators who acquired the $1 billion payment to satisfy the Maduro claim from Crystallex. Even if the ruling is Durazo // File Photo: Mexican Government. regime’s irresponsible debts in the midst of upheld, the shares’ value is a multiple of the the two nations. The high-level meeting comes an unprecedented humanitarian crisis. We days after Mexican authorities arrested and are confident that a solution will emerge that then immediately released drug cartel leader is consistent with the Trump administration’s Losing Citgo would Ovidio Guzmán, the son of renown drug kingpin policy of saving Citgo on behalf of Venezu- be a significant blow Joaquín “El Chapo” Guzmán. Ovidio Guzmán’s elan democracy. Continued support from to U.S. foreign policy capture in the city of Culiacán sparked a fierce the United States government also is vitally toward Venezuela.” important to preserve American jobs and gun battle between members of the Sinaloa — Francisco J. Monaldi drug cartel and Mexican armed forces that energy security.” spread across the city, prompting the authorities to release Guzmán. López Obrador Francisco J. Monaldi, fellow claim, and it would be a matter of protracted supported their decision, saying the choice in Latin America energy policy litigation how the process of selling these to let him go prevented further violence and and lecturer in energy econom- shares would be implemented. But, more saved many lives. On Saturday, Trump called A ics at Rice University’s Baker importantly, right now, the claimants do not the Mexican president to express his “solidar- Institute for Public Policy: “The ruling was have a license from the Treasury and thus ity” following the failed arrest attempt, López undoubtedly negative for the Guaidó team, cannot execute the sale of the stock. The Obrador said. Research shows that a majority but the dispute is far from over. The legal PDVSA 2020 bondholders are a more imme- of guns in Mexico come from the United States, case continues, and although rulings are diate threat to Citgo, because the creditors with 70 percent of guns that Mexican authori- hard to reverse in the appeal process (or do have a license to execute the collateral. ties seize traced back to its northern neighbor, the Supreme Court), the case is unusual It would be very challenging, financially PBS reported earlier this year. A study from because the Guaidó team was only able to and even more politically, for the Guaidó the Center for American Progress in Washing- 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 © 2019 team to make a payment of this size, when its efforts on attaining asset protection from it does not control the country’s cash flow, either the U.S. government or the United Na- Erik Brand and Venezuela is facing the worst economic tions. Failure to meet the bond payment, re- Publisher [email protected] collapse in the region’s history. Losing Citgo voke GL 5, secure asset protection or reach would be a significant blow to U.S. foreign agreement with creditors could increase the Gene Kuleta Editor policy toward Venezuela, to the Guaidó team risks of losing Citgo in the short term, which [email protected] and to the possibility of an orderly recovery could be a heavy blow for the Venezuelan Anastasia Chacón González of Venezuela’s public finances and economy, oil industry and its recovery prospects in the Reporter after a transition. The Trump administration future.” [email protected] would be ill advised to allow these creditors, who were part of a legally dubious financing Michael Lynch, president of

deal with Maduro, to carve out Citgo. The Strategic Energy & Economic Michael Shifter, President ball is in their hands.” Research in Amherst, Mass.: Rebecca Bill Chavez, Nonresident Senior Fellow “The latest court ruling could A Sergio Bitar, Nonresident Senior Fellow Asdrúbal Oliveros, director, hasten the end of Venezuela’s control of Joan Caivano, Director, Special Projects and Giorgio Cunto Morales, Citgo, one of its more valuable assets at Michael Camilleri, Director, Rule of Law Program economist, both at Econanalíti- present. Although there is every likelihood Kevin Casas-Zamora, Nonresident Senior Fellow A ca in Caracas: “The Third Circuit of continuing court action, and possibly an Héctor Castro Vizcarra, Nonresident Senior Fellow Court of Appeals’ ruling increases the risk Julia Dias Leite, Nonresident Senior Fellow of Venezuela losing its most valuable asset Ariel Fiszbein, Director, Education Program overseas, as it could incentivize other Citgo will almost Peter Hakim, President Emeritus creditors of the country’s debt to push certainly be sold Nora Lustig, Nonresident Senior Fellow for similar settlements, given Crystallex’s Margaret Myers, Director, Asia and successful precedent of linking PDVSA as and merged with Latin America Program an ‘alter-ego’ of the Venezuelan government another operator.” Manuel Orozco, Director, Migration, Remittances & Development and allowing debt from the latter to be — Michael Lynch Xiaoyu Pu, Nonresident Senior Fellow essentially transferred to the former; the Jeffrey Puryear, Senior Fellow list of potential claimants over Citgo could Mateo Samper, Nonresident Senior Fellow grow considerably larger. Likewise, current effort by the Trump administration to assist Tamar Solnik, Director, Finance & Administration holders of PDVSA’s debt may be emboldened opposition leader Guaidó in order to prevent Lisa Viscidi, Director, Energy Program to push their claims in the face of steeper the transfer of control to Crystallex, it might Denisse Yanovich, Director of Development and competition. In practice, though, these legal be too late to prevent that. At any rate, Citgo External Relations proceedings can be extended for prolonged seems increasingly unlikely to remain under Latin America Advisor is published every periods and, even with a denouement in the control of Petróleos de Venezuela, as business day, except for major U.S. holidays, favor of claimants, Crystallex and others it continues to deteriorate, and its opera- by the Inter-American Dialogue at would require a license by the U.S. govern- tions become more and more problematic. 1155 15th Street NW, Suite 800 Washington, DC 20005 ment, as current sanctions forbid transfer of Perhaps the best outcome would be for a www.thedialogue.org Venezuelan government’s assets within the court-appointed receiver to assume control ISSN 2163-7962 United States. The biggest concerns lie with of the company so that it can continue to Subscription inquiries are welcomed at PDVSA’s 2020 bond, which is backed by 50.1 function, but ultimately, Citgo will almost [email protected] percent of Citgo shares, as General License certainly be sold and merged into another The opinions expressed by the members of the Board of 5 of Executive Order 13835 clears the way operator.” Advisors and by guest commentators do not necessarily for bondholders to claim the collateral in represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily case of default. The opposition-controlled The Advisor welcomes comments on its Q&A represent the views of their respective employers or firms. National Assembly, which honored a $71 mil- section. Readers can write editor Gene Kuleta The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, lion interest payment in April, has focused at [email protected]. nor the opinions based thereon, are guaranteed. If you have any questions relating to the contents of this publication, contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher.