LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Wednesday, May 31, 2017

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Wednesday, May 31, 2017

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Trum Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Will Brazil Force Ecuadorean Gov’t Cargill Raises $2 Billion Joyce Chang Global Head of Research, Another President in Bond Sale JPMorgan Chase & Co. The sale indicates optimism W. Bowman Cutter Former Partner, From Office? from investors about the ability E.M. Warburg Pincus of new President Lenín Moreno’s Dirk Donath government to curb spending. Senior Partner, Investors have been cheered by Catterton Aimara the placement of offi cials seen Barry Featherman as market-friendly in the central Senior Director, bank. International Government Affairs, Gilead Sciences Page 2 Marlene Fernández Corporate Vice President for Government Relations, ECONOMIC Arcos Dorados Mexico Sees Peter Hakim President Emeritus, Slower Drop in Inter-American Dialogue Oil, Gas Reserves Donna Hrinak Brazilian President Michel Temer has faced single-digit approval ratings and calls for his President, Boeing Latin America resignation. // File Photo: Brazilian Government. Reserves declined again in 2016, Jon Huenemann but at a slower pace, according to Vice President, U.S. & Int’l Affairs, Mexico’s oil commission. Philip Morris International Doubts increased this month that embattled Brazilian Page 2 James R. Jones President Michel Temer would be able to fi nish out his term Chairman, ManattJones after the release of secretly recorded audio in which Temer Global Strategies Q POLITICAL purportedly was heard endorsing the payment of hush Craig A. Kelly Trump Eyeing Director, Americas International money to Eduardo Cunha, the jailed former speaker of the lower house Gov’t Relations, Exxon Mobil Changes on Policy John Maisto of Congress. The development led to massive violent protests in Brazil Director, U.S. Education and calls for Temer’s ouster. Will Temer be able to fi nish his term, or is it Toward Cuba Finance Group As early as June, U.S. President Nicolás Mariscal a matter of time before he is forced from offi ce? If Temer does have to Donald Trump may roll back parts Chairman, step down, who is likely to serve out the rest of his term? What does the Grupo Marhnos of the Obama administration’s possibility of two presidents being forced from offi ce, Dilma Rousseff Thomas F. McLarty III policy toward Cuba. Among them, Chairman, last year and Temer this year, mean for the country’s politics and democ- he may ban U.S. companies from McLarty Associates racy? What does the current political uncertainty mean for investors at making deals with Cuba’s military, Carlos Paz-Soldan which controls much of the Partner, home and abroad who have been watching Temer’s efforts at economic tourism industry. DTB Associates, LLP reforms? Page 2 Beatrice Rangel Director, AMLA Consulting LLC Peter Hakim, member of the Advisor board and president Gustavo Roosen Chairman of the Board, emeritus of the Inter-American Dialogue: “President Temer is Envases Venezolanos not likely to survive much longer in offi ce. His public approval Andrés Rozental President, Rozental & is in the single digits. A late-night meeting with a billionaire Asociados and Senior A Policy Advisor, Chatham House businessman guilty of bribing government offi cials has confi rmed his Shelly Shetty deep involvement in Brazil’s sprawling corruption scandal. Still, Temer is Head, Latin America a talented politician who has had some success at promoting vital, but Sovereign Ratings, Fitch Inc. Roberto Sifon-Arevalo wildly unpopular, reforms needed to lift the economy from recession. Managing Director, Americas Moreover, Temer has no obvious substitute—someone with the unblem- Sovereign & Public Finance Ratings, Standard & Poor’s ished integrity and credibility that Brazilians now demand, coupled with a commitment to keep economic reform on track. Temer has refused Trump // File Photo: White House. Continued on page 3

POLITICAL NEWS U.S. policy toward the communist-run island. NEWS BRIEFS The developments come as Raúl Castro is Trump Eyeing expected to step down as Cuba’s president. Venezuelan Lawmakers Castro has said that he will leave the post next Ask U.S. Congress to Probe Changes to U.S. February. While the United States still offi cially bans tourism to Cuba, the U.S Treasury allows Goldman Sachs Bond Deal Policy on Cuba Americans to “self-license” under 12 catego- Venezuela’s opposition-led National Assembly ries of travel, including educational tours and is asking the U.S. Congress to investigate U.S. President Donald Trump may roll back participation in sporting events, a practice that what it is calling an “immoral” deal in which parts of the Obama administration’s thaw with allows virtually anyone to travel to the island. New York-based Goldman Sachs purchased Cuba as early as June, CNN reported today, Trump could end that loophole, sources told $2.8 billion of Venezuelan bonds for pennies citing a U.S. government offi cial involved in CNN. on the dollar, Reuters reported. The bank has the review of Washington’s policy toward the faced criticism for going through with the deal, island nation. By next month, Trump could Brazilian Supreme which infuses the government with desperately announce that the United States will make no needed cash. Goldman in a statement said it further unilateral concessions to Cuba, which Court Orders Temer bought the securities from a broker and did the Obama administration was accused of not communicate with the government, The to Testify in Writing Wall Street Journal reported. “We recognize that ... Venezuela is in crisis,” the bank said. The Brazilian Supreme Court justice in charge I’m 1,000 percent “We agree that life there has to get better, and of the massive “Car Wash” graft case on we made the investment in part because we sure the president is Tuesday ruled that President Michael Temer believe it will.” going to deliver on would have to testify in writing “on the grounds his commitment.” of the exceptionality of the investigation,” the —Rep. Mario Diaz-Balart Financial Times reported. Temer would be Mexico Sees Slower required to respond within 24 hours once the questionnaire is delivered, the Supreme Court Drop in Oil, Gas Reserves said. The order came nearly two weeks after The Mexican oil commission said that the doing, according to the offi cial, as well as other the release of a recording in which Temer is al- country’s proven and possible oil and natural current and former administration offi cials legedly heard endorsing the payment of bribes gas reserves dropped again in 2016, but that and Cuba experts. Trump is also expected to to jailed former Chamber of Deputies Speaker the rate at which they dropped seemed to have demand the extradition from Cuba of fugitives Eduardo Cunha by Joesley Batista, the former moderated, the Associated Press reported such as Assata Shakur, who escaped from a chairman of meatpacking company JBS. Temer Tuesday. Unproven but possible reserves that U.S. prison and received political asylum in has denied the allegations. are known as “2P” increased by 5.7 percent to Cuba after being convicted of killing a New 16.8 billion barrels of crude equivalent, while Jersey state trooper. Trump also is expected unproven but possible reserves that are known to prohibit U.S. companies from making deals ECONOMIC NEWS as “3P” decreased by 1.1 percent to 25.9 billion with Cuba’s military, which controls much of barrels. the country’s tourism industry. While Trump is not expected to roll back all of former Ecuadorean Gov’t President Barack Obama’s thaw with Cuba, he Raises $2 Billion is expected to make symbolic gestures to the Brazilian Government to U.S. lawmakers who are staunch opponents of in Bond Off ering Sell Shares in IRB Brasil the Cuban government as well as conservative Brazil’s government is among the entities sell- Cuban-American voters. “I’m 1,000 percent The Ecuadorean government raised $2 billion ing all or a portion of their shares in IRB Brasil sure the president is going to deliver on his from its most recent bond offering on Tuesday, Resseguros through an initial public offering, commitment,” Rep. Mario Diaz-Balart (R-Fla.), indicating that investors were optimistic about Reuters reported Tuesday, citing documents recently told the National Journal. “I have no the ability of new President Lenín Moreno to fi led with the country’s securities regulator, doubt that you’re going to see in short order a curb spending, Reuters reported. Moreno’s CVM. The FGEDUC state-owned fund will sell different policy.” Cuban offi cials have not pub- narrow victory initially caused concern that he an undisclosed amount of common shares in licly commented about the possible changes in might not make the necessary policy moves to IRB.

lower public spending, but investors say they FEATURED Q&A / Continued from page 1 have seen positive signs from his government. “Some market friendly people have been put to step down, but the Supreme Electoral David Fleischer, emeritus into key posts of the central bank,” said Sean Tribunal could depose him with a fi nding professor at the University of Newman, a portfolio manager at Invesco. Citi- that his election as vice president (with his Brasília and editor of Brazil group priced the offering, with a $1 billion six- predecessor Dilma Rousseff) was illegally A Focus: “Brazil is going through fi nanced. Or, Temer could, like Rousseff, be very diffi cult times. Less than one year impeached. Polls report that, should Temer after former President Dilma Rousseff was leave offi ce, most Brazilians want a direct, impeached, her successor, Michel Temer, popular election, which would require a con- is now facing ouster due to the insinuation stitutional amendment. Democracy, however, he committed serious crimes during a would be best served by sticking to the letter clandestine taped conversation with JBS of Constitution, not by altering the rules executive Joesley Batista. Four parties in in the midst of a crisis, but by letting the fl awed Congress choose the next president.

Moreno // File Photo: Ecuadorean Government. Congress should be able to fi nd someone who has the credentials and credibility There is a good year tranche carrying a yield of 8.75 percent, to command a decent measure of public chance (perhaps 80 and a $1 billion 10-year tranche with a 9.63 support. The new president’s main task percent) that the court percent yield. Ahead of the sale, Ecuador met will be to assure that next year’s election is might remove Temer.” with buyside participants in the United States fair, without illegal campaign contributions — David Fleischer and Britain, and in the past had indicated to or other fraud. Ideally, the president would investors that the country would need to raise also be able to advance some economic $12.5 billion this year. It was expected that reform, even if less than ideal, that bolsters nearly half of the funds raised would come the confi dence of an increasingly skeptical from external sources like bilateral loans and investment community. Hopefully, Brazilians Temer’s support coalition in Congress have the international bond market, Newman said. and their leaders have learned some things joined the opposition, and some other larger Following Tuesday’s sale, Ecuador has now that will allow the country to emerge from parties have adopted a ‘wait and see’ pos- raised a total of $5.75 billion since last July. the crisis stronger. By now, they should know ture and are discussing possible candidates corruption cannot be allowed to fi nance pol- in an indirect election to succeed Temer. It is itics, that minor corruption transforms easily possible that Temer might be removed by the Scotiabank Beats into major corruption, and that it should not Supreme Electoral Tribunal, which will begin Estimates With 30% be tolerated. Maybe they are ready to better to deliberate the use of illicit campaign manage good economic times so they are contributions by the Dilma-Temer slate in Rise in Net Income prepared for the bad. The actions of the judi- the 2014 elections. There is a good chance ciary may be teaching lessons of transparen- (perhaps 80 percent) that the court might Bank of Nova Scotia posted a stronger profi t cy. These are not easy lessons.” remove Temer. In that case, Chamber of Dep- for the second quarter of the fi scal year and Continued on page 4 beat expectations of more modest earnings following a strong fi rst quarter, The Globe and tions in countries like Mexico and uncertainties from the previous quarter, which is a “sign Mail reported Tuesday. Scotiabank’s earnings about potential changes in economic policy of improving commercial loan growth,” said in the quarter ending April 30 were especially following the election of U.S. President Donald Gabriel Delchaine, an analyst at National Bank boosted especially by strong returns in its Latin Trump. The bank’s net income for the quarter Financial. Porter said that despite uncertainties American markets, the Toronto-based lender rose 30 percent to 2.06 billion Canadian dollars surrounding housing markets and mortgages, said. “We continue to see great short- and long- ($1.53 billion), or 1.62 Canadian dollars per as well as talks from the Trump administration term potential across our Pacifi c Alliance coun- share. Scotiabank said its growth was also due of renegotiating the North American Free Trade tries,” said Scotiabank CEO Brian Porter. The to strong performance in domestic retail and Agreement, the bank’s goals will not change, Pacifi c Alliance countries include the bank’s business banking and higher profi ts in capital “whether a housing markets shifts, [NAFTA] operations in Mexico, Peru, Chile and Colom- markets. The bank’s international arm, which is modernized, regulatory changes are made bia. The bank exceeded expectations amid drives its growth, saw international loans grow or short-term matters emerge in the latest uncertainties over economic growth projec- by 3 percent year-over-year and by 4 percent headlines.”

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2017 uties President Rodrigo Maia would become but its own survival. Their recent efforts to interim president for up to 30 days, while a undermine the ‘Car Wash’ probe threaten to Erik Brand joint session of Congress holds an indirect unravel the one silver lining of these past Publisher [email protected] election to select a new president and vice four years of crisis: the strengthening of an president to fi ll out the rest of this presi- independent Brazilian judicial system. Every- Gene Kuleta Editor dential term, until Jan. 1, 2019. Possible day Brazilians can’t fi nd anyone interested [email protected] candidates frequently mentioned are Senator Nicole Wasson Tasso Jereissati as well as former deputy, Reporter, Assistant Editor ex-Supreme Court President and former Min- Most of the political [email protected] ister of Justice and Defense Nelson Jobim. class, including However, because the deputies hold a very Temer, has essentially large majority in this indirect election, it is possible that they might insist on selecting stopped pretending it Michael Shifter, President a current deputy. Current Finance Minister cares about anything Genaro Arriagada, Nonresident Senior Fellow Henrique Meirelles is a potential candidate, but its own survival.” Sergio Bitar, Nonresident Senior Fellow Joan Caivano, Director, Special Projects but the government coalition would prefer — Brian Winter Michael Camilleri, Director, Peter D. Bell Rule of Law to maintain him at the Finance Ministry and Program keep him in reserve as a possible candi- Kevin Casas-Zamora, Nonresident Senior Fellow date in the 2018 presidential election. This Ariel Fiszbein, Director, Education Program situation has produced a strong feeling of in addressing their real-life concerns: rising Alejandro Ganimian, Nonresident Fellow alienation and discredit in Brazil’s democra- unemployment and violence, and shoddy Peter Hakim, President Emeritus cy by a large part of the electorate.” health care and education. So what does Claudio Loser, Senior Fellow all this add up to? Potentially, the risk of a Nora Lustig, Nonresident Senior Fellow Brian Winter, editor-in-chief ‘soft authoritarian’ outsider winning the 2018 Margaret Myers, Director, China and of Americas Quarterly and election, the substantial watering down or Latin America Program vice president of the Americas outright rollback of necessary pro-market Manuel Orozco, Director, Migration, Remittances & Development Society/Council of the Ameri- reforms, and a less politically and economi- A Jeffrey Puryear, Senior Fellow cas: “Regardless of whether President Temer cally stable Brazil for several more years to Tamar Solnik, Director, Finance & Administration hangs on, these latest scandals have taken come.” Lisa Viscidi, Director, Energy Program a heavy toll on Brazil’s economy, institutions Denisse Yanovich, Director of Development and and faith in democracy. Most of the political The Advisor welcomes comments on its Q&A External Relations class, including Temer, has essentially section. Readers can write editor Gene Kuleta stopped pretending it cares about anything at [email protected]. Latin America Advisor is published every business day, except for major U.S. holidays, 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 What’s Keeping [email protected] The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily You Up at Night? 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 Latin America Advisor gets answers to the questions that informed executives The information in this report has been obtained from are asking, every business day, so that you can rest easy. reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have Prospective subscribers can email [email protected] any questions relating to the contents of this publication, contact the editorial offi ces of the Inter-American Dialogue. for complimentary preview access. SUBSCRIBE Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permis- sion from the publisher.