LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, October 15, 2018

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, October 15, 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 the Largest Guatemala’s Cargill Joyce Chang Morales Seeking Global Head of Research, IMF Loan Ever $15 Bn in Loans JPMorgan Chase & Co. Dirk Donath Guatemalan President Jimmy Mo- Senior Partner, rales requested the development Catterton Aimara Rescue Argentina? loans during a trip to Washington, Marlene Fernández where he participated in the Alli- Corporate Vice President for ance for Prosperity conference. Government Relations, Arcos Dorados Page 2 Peter Hakim President Emeritus, POLITICAL Inter-American Dialogue Donna Hrinak Venezuelan Gov’t President, Boeing Latin America Releases, Expels Jon Huenemann Vice President, U.S. & Int’l Affairs, Student Activist Philip Morris International Lorent Saleh, a student leader and James R. Jones Chairman, political activist who has been Monarch Global Strategies held without trial since 2014, was unexpectedly released due to Craig A. Kelly The International Monetary Fund last month agreed to provide Argentina a $57.1 billion loan Director, Americas International package, the largest in the lender’s history. The deal was announced just days after Guido San- concerns over his “mental state,” Gov’t Relations, Exxon Mobil dleris was tapped as the country’s central bank chief. // File Photo: @gsandleris via Twitter. authorities claimed. He arrived in John Maisto Madrid on Saturday. Director, U.S. Education Argentina’s central bank chief, Luis Caputo, on Sept. 25 Page 2 Finance Group resigned after just three months on the job citing personal Nicolás Mariscal Chairman, reasons amid reports of differences with the International ECONOMIC Grupo Marhnos Q Monetary Fund. Caputo’s exit came a day before the IMF Thomas F. McLarty III Panama Canal Chairman, agreed to increase the size of the bailout package signed with Argentina McLarty Associates Sees Record Level earlier this year to $57.1 billion. The lender also agreed to speed up loan Carl Meacham of Shipments Associate VP for Latin America disbursements to Argentina. What precipitated Caputo’s departure, and A record 442 million tons of cargo Int’l Advocacy Division, PhRMA what can be expected of his successor, Guido Sandleris? To what extent Carlos Paz-Soldan were shipped last fi scal year Partner, will the new agreement with the IMF strengthen Argentina’s fi nances? through the waterway. However, DTB Associates, LLP Over the coming year, what are the biggest risks that Argentina’s econo- Jorge Quijano, the canal’s admin- Beatrice Rangel my faces, and how will President Mauricio Macri fare politically ahead of istrator, expects a drop in revenue Director, amid trade tensions between the AMLA Consulting LLC the country’s presidential election a year from now? United States and China. Ernesto Revilla Page 2 Head of Latin American Economics, Citi Horacio Verbitsky, president of the Center for Legal and Gustavo Roosen Chairman of the Board, Social Studies in Buenos Aires: “Argentina has broken a Envases Venezolanos record, with three central bank presidents in 90 days, as a Andrés Rozental consequence of Macri’s mistaken policies. The main problem President, Rozental & A Asociados and Senior in 2015 was a lack of dollars, given the trade defi cit. But Macri was Policy Advisor, Chatham House obsessed with the fi scal defi cit. To bolster it, he began an insane policy Shelly Shetty Head of Sovereigns Ratings, of external debt, which grew by $200 billion in less than three years. This Latin America, Fitch was possible due to the very low level of debt that Cristina Kirchner left. Roberto Sifon-Arevalo Managing Director, Americas To avoid the pesos acquired by these dollars causing infl ation, he created Sovereign & Public Finance Ratings, Standard & Poor’s fi nancial tools with more attractive interest rates, which killed credit and productive investment and from which the new central bank chief, Quijano // File Photo: Panama Guido Sandleris, also doesn’t know how to escape. For two years, there Canal Authority. Continued on page 2

POLITICAL NEWS Venezuela in recent weeks, reportedly pushing NEWS BRIEFS a plan for the European Union to halt sanctions Venezuela Releases on the socialist country amid shortages of Panama Sees Record food and medicine, El Mundo reported Sunday. Shipments Through Canal Student Activist Spanish Foreign Minister Josep Borrell plans to bring up changes in E.U. policy at a Council Despite Global Trade War Venezuela’s government on Friday released Lo- of Foreign Ministers meeting today in Luxem- A record high of 442 million tons of cargo was rent Saleh, a student leader and political activ- bourg, according to the report. shipped through the Panama Canal in the past ist who has been held without trial since 2014, fi scal year, a 9.5 percent increase compared to Agence France-Presse reported. Saleh, now 30, the previous year, Agence France-Press report- was escorted to the airport and put on a fl ight ECONOMIC NEWS ed Friday. The increase was largely driven by to Madrid with Spanish government offi cials. the transit of liquefi ed gas carriers. However, Accused of planning terrorist acts and having Guatemala’s canal administrator Jorge Quijano recently said links to Colombian paramilitaries, Saleh had he was expecting a $50 million drop in revenue been held in the country’s intelligence agency Morales Seeking next year as trade tensions between the United building in Caracas. Offi cials said he was being States and China hit shipments through the released due to concerns about his mental $15 Billion in Loans waterway. state. Last week, authorities say jailed opposition lawmaker Fernando Albán threw himself Guatemalan President Jimmy Morales last from the 10th fl oor of the intelligence agency week requested billions of dollars in develop- Mexican President-Elect ment loans during the Alliance for Prosperity building, an incident international human rights Promises Major Health advocates called suspicious and condemned. conference in Washington, Prensa Libre report- According to Albán’s friends and family, he nev- ed. In an effort to increase public spending and Sector Reforms boost Central America’s largest economy, Mo- er would have contemplated suicide, The Wall Mexican president-elect Andrés Manuel López rales on Thursday asked U.S. offi cials including Street Journal reported. Upon arriving in Ma- Obrador promised supporters at a rally in Méri- Vice President Mike Pence and State Secretary drid on Saturday, a defi ant Saleh told reporters da Friday that, at the end of his six-year term Mike Pompeo for help in securing $15 billion and supporters that “the fi ght goes on.” “What in offi ce, Mexico will have a free public health in loans over the next decade, adding the aid I ask is that we all think about the fact that in system based on models similar to Europe and could come in the form of “payable credits” Venezuela there are innocent people behind Canada, Milenio reported. He also promised through the World Bank or the Inter-American bars, people that have been kidnapped and who to end corruption in the health sector. López Development Bank. Morales said the loans deserve to cross the same bridge that I have,” Obrador, who takes offi ce Dec. 1, said Mexico’s could be used for building one million homes, Saleh said. Spain has taken a softer stance on government currently spends 100 billion pesos, or $5.3 billion, on medications, yet hospitals FEATURED Q&A / Continued from page 1 face shortages due to corruption and graft, according to the report. was a lack of investment. But, this year, Macri’s failed government is paying the institutional investors in Argentine stocks consequences of his botched policies. Even and bonds have left, one after another. If Christine Lagarde forecasts he’ll conclude Sandleris maintains the central bank bills his term in full stagfl ation.” Banco Nacional de (Lebacs), treasury bills (Letes and Lecaps) Panamá Sees 15 Percent and liquidity bills (Leliqs), interest payments Bruno Binetti, non-resident Growth in Loan Portfolio will devour any savings for public works, fellow at the Inter-American salaries and social benefi ts. If Sandleris Dialogue: “Through the new Government-owned Banco Nacional de Pana- prescinds them, the money will be directed A agreement with the IMF, which má’s total loan portfolio reached $4.4 billion in toward buying dollars. Since April, the peso guarantees its fi nancing needs until 2020, September, a 15 percent increase from a year has lost half of its value against the dollar. Argentina wants to reassure investors that ago, Panamá América reported last week. The And in Argentina, the transfer of devaluation it can service its debt, contain infl ation bank’s private portfolio also expanded, from to prices is nearing 40 percent, fanning through a very strict monetary policy and $3.4 billion last September to $3.7 billion this infl ation. Salaries’ loss in value is generating achieve fi scal consolidation in 2019. Caputo year, a 10 percent increase. Rolando de León social unrest. With only the IMF backing, resigned because he favored a more activist de Alba, an executive with the bank, said the Continued on page 4 fi gures were “worthy of celebration,” the newspaper reported.

COPYRIGHT © 2018, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Monday, October 15, 2018 developing ports and building new highways s in Guatemala. Over the past year, some 80 infrastructure projects were canceled amid graft allegations in connection to construction Subscriber Notice companies. “We can’t break an economy in the name of the ﬁ ght against corruption,” Morales said in an interview during his trip, Bloomberg Nicaragua Crisis: New Paths Forward?

Speakers VIOLETA GRANERA Director, Frente Amplio para la Democracia

and Morales // File Photo: Guatemalan Government. JOSÉ PALLAIS Former Deputy Minister of News reported. “We need to create jobs.” Gua- Foreign Relations of Nicaragua temala’s economy contracted to 2.8 percent last year. Morales said the country’s GDP could Moderator grow to 3 percent this year, adding that his CYNTHIA ARNSON government will increase budget expenditures Director, Latin American Program, this year to its highest amount in 25 years. Woodrow Wilson Center During his trip, Morales also said Guatemala had not received “a penny” of the $2.6 billion the United States had pledged under the Alliance for Prosperity program, which aims Wednesday, October 17 to boost development in the Northern Triangle countries of Central America to curb migration 4-6 p.m. north. Morales criticized the U.S. government’s Inter-American Dialogue requirements in exchange for releasing the 1155 15th Street NW, Suite 800 funds, saying in an interview on Friday that “not Washington, DC 20005 even Switzerland could comply with conditions they have given us,” Bloomberg News reported. RSVP to [email protected] or click here. BUSINESS NEWS

Banco do Brasil through WhatsApp to 500,000 customers every are secured with end-to-end encryption, The week, and it expects all account holders will Rio Times reported. Financial technology in Allows Transactions be able to make transactions through the mes- Brazil has expanded in recent years, with more Through WhatsApp saging app in the coming weeks. Since June, than 200 fi ntech companies offering services Banco do Brasil has offered banking consulta- in the South American country, the Financial tions via WhatsApp and Twitter, but customers Times reported recently. Last year, Goldman Customers of state-run lender Banco do are now also able to make money transfers, Sachs estimated the potential revenue pool Brasil can now carry out fi nancial transac- track their cards, access the balances of their for Brazilian fi ntech was 70 billion reais, or tions through instant messaging application current and savings accounts and issue card roughly $18 million, over the next 10 years, the WhatsApp, Brazilian government-run news invoices, among other uses. All operations are newspaper reported. [Editor’s Note: See related agency Agência Brasil reported last week. Latin handled by an artifi cial intelligence system. Q&A in the June 14-27 issue of the Financial America’s largest bank has been gradually According to the bank, customer transactions Services Advisor.] rolling out up to 11 types of fi nancial services

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2018 stance of the central bank to defend the keep fi scal consolidation on track, and the peso. In contrast, Sandleris negotiated 2019 budget negotiations have shown posi- Erik Brand the agreement with the IMF and will bring tive signs in this respect. The key risk we are Publisher [email protected] more coherence to the economic team. The assessing is how deep and severe the eco- extent of the crisis took the government by nomic recession will be, chiefl y because this Gene Kuleta Editor surprise, and its initial reaction showed wor- could affect tax collections and make the [email protected] rying signs of improvisation and lack of co- ambitious fi scal consolidation targets even Anastasia Chacón González ordination. President Macri is now forced to harder to achieve. So far, the consolidation Reporter end his gradualist strategy: he must reduce [email protected] public spending, raise taxes and accept sky- high interest rates amid a sharp recession. The key risk we The economy will contract by 2.6 percent are assessing is Michael Shifter, President this year and 1.6 percent in 2019, according Genaro Arriagada, Nonresident Senior Fellow to the IMF. Meanwhile, the sharp devaluation how deep and severe the economic Sergio Bitar, Nonresident Senior Fellow of the peso has fueled infl ation, which will Joan Caivano, Director, Special Projects recession will be...” top 40 percent in 2018. Not surprisingly, Michael Camilleri, Director, Peter D. Bell Rule of Law social tension and political polarization are — Todd Martinez Program on the rise. Austerity and public utility bill Kevin Casas-Zamora, Nonresident Senior Fellow increases have further eroded support for Ariel Fiszbein, Director, Education Program the government. All this takes place only a Alejandro Ganimian, Nonresident Fellow year before the next presidential election. strategy the government has chosen appears Peter Hakim, President Emeritus With his approval rating standing between to be one that minimizes negative growth Claudio Loser, Senior Fellow 30 and 40 percent, Macri could win another effects. For example, raising export taxes Nora Lustig, Nonresident Senior Fellow term as long as the economy shows signs was certainly a microeconomic setback for Margaret Myers, Director, Asia and Latin America Program of recovery by mid-2019 and the Peronist this market-oriented government, but could Manuel Orozco, Director, Migration, opposition remains divided in kirchnerist and be the best option in macro terms by putting Remittances & Development non-kirchnerist factions. That’s a big if. It the burden of fi scal consolidation on sectors Jeffrey Puryear, Senior Fellow will be a long and bumpy road until October that benefi t from peso depreciation. The ma- Tamar Solnik, Director, Finance & Administration 2019.” jor monetary tightening under the revamped Lisa Viscidi, Director, Energy Program stand-by arrangement could also weigh on Denisse Yanovich, Director of Development and External Relations Todd Martinez, director in the growth, but it may also be good news if it

sovereign ratings group at Fitch succeeds in stabilizing expectations, given Latin America Advisor is published every Ratings: “Despite the fact that uncertainty has been a key driver of the fall- business day, except for major U.S. holidays, the original IMF program quickly off in economic activity. Nevertheless, the by the Inter-American Dialogue at A 1155 15th Street NW, Suite 800 went off track, the IMF’s continued support outlook is very diffi cult and uncertain and Washington, DC 20005 for Argentina and the revamp of the stand-by could have implications for Macri’s re-elec- www.thedialogue.org arrangement is an important support for the tion chances, so we’ll be closely monitoring ISSN 2163-7962 sovereign’s ‘B’/Stable rating at this juncture. this and if it poses risks to the continuity of Subscription inquiries are welcomed at First, it helps dispel doubts about the gov- the current policy course.” [email protected] ernment’s ability to meet its fi nancing needs, The opinions expressed by the members of the Board of given that the recovery of market access The Advisor welcomes comments on its Q&A Advisors and by guest commentators do not necessarily hasn’t panned out as previously expected. section. Readers can write editor Gene Kuleta represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily Second, it provides very strong incentives to at [email protected]. represent the views of their respective employers or fi rms. The information in this report has been obtained from 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, contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permis- sion from the publisher.