LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, October 1, 2018

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, October 1, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Why Are Electoral Venezuelan Cargill Joyce Chang Migrant Costs Global Head of Research, Reforms a Priority Adding Up: Duque JPMorgan Chase & Co. Dirk Donath Colombian President Iván Duque Senior Partner, said on Friday that Venezuelan Catterton Aimara for Paraguay? migrants fl eeing economic Marlene Fernández hardship and political repression Corporate Vice President for are costing his country about $1.5 Government Relations, Arcos Dorados billion each year. Page 2 Peter Hakim President Emeritus, Inter-American Dialogue POLITICAL Donna Hrinak President, Boeing Latin America Women Lead Jon Huenemann Vice President, U.S. & Int’l Affairs, Protests Against Philip Morris International Bolsonaro James R. Jones Chairman, Tens of thousands of women Monarch Global Strategies took to the streets in cities across Craig A. Kelly Brazil Saturday to protest against Director, Americas International Conservative former senator Mario Abdo Benítez was elected Paraguay’s president in April by a the front-runner in this coming Gov’t Relations, Exxon Mobil difference of four percentage points. // File Photo: Government of Paraguay. Sunday’s presidential election, John Maisto Jair Bolsonaro, whose supporters Director, U.S. Education Paraguay’s government sat down with political parties and also rallied over the weekend. Finance Group civil society organizations last month in the fi rst of a series Page 2 Nicolás Mariscal Chairman, of scheduled meetings to discuss the possibility of an elec- Grupo Marhnos Q ECONOMIC toral reform before the 2020 municipal elections. Proposed Thomas F. McLarty III Chairman, measures include establishing an electronic voting system and stricter Canada, Mexico, McLarty Associates campaign fi nance rules, with the left-leaning Guasú Front suggesting a Carl Meacham U.S. Reach Deal Associate VP for Latin America full structural overhaul that includes the replacement of the judges on on New NAFTA Int’l Advocacy Division, PhRMA the country’s electoral court. Is an electoral reform urgent in Paraguay? Carlos Paz-Soldan Facing a midnight deadline, Cana- Partner, What are the most important proposals, and what are the reasons behind dian negotiators, led by Foreign DTB Associates, LLP them? How likely is it that the reform will take place before 2020? Minister Chrystia Freeland, agreed Beatrice Rangel to sign on to a trade deal between Director, the United States and Mexico. AMLA Consulting LLC Sebastián Acha, former legislator and executive director of Ernesto Revilla Page 2 Head of Latin American PRO desarrollo Paraguay: “Electoral reform in Paraguay is Economics, Citi urgent. The electoral laws from the 1990s have effectively Gustavo Roosen strengthened civic participation. However, they have three big Chairman of the Board, A Envases Venezolanos weaknesses. The fi rst weakness is the use of party lists that are ‘closed Andrés Rozental and blocked,’ especially for Senate elections, which consist of one single President, Rozental & Asociados and Senior national list. It is referred to as a ‘sheet’ because it ‘hides’ candidates Policy Advisor, Chatham House that are included among the fi rst slots only because of their economic Shelly Shetty Head of Sovereigns Ratings, contributions during the campaign: the more money you contribute, the Latin America, Fitch higher up your name will be on the list. Voters should be able to select Roberto Sifon-Arevalo Managing Director, Americas candidates through plurinominal lists. The second weakness, somehow Sovereign & Public Finance Ratings, Standard & Poor’s linked to the fi rst one, is control over dirty money in campaigns. There is no control over the sources of such contributions and this has facilitated Freeland // File Photo: Government narcotraffi ckers’ access to politics. One senator and one deputy have of Ukraine. Continued on page 3

ECONOMIC NEWS NEWS BRIEFS Venezuelan Migrants Canada, U.S. Reach Costing Colombia U.N. Court to Issue Ruling on Bolivia-Chile Dispute Deal on NAFTA Billions: Duque The U.N.’s International Court of Justice is scheduled to rule today on a longstanding Facing a self-imposed midnight deadline, Can- Colombian President Iván Duque said on Friday dispute between Bolivia and Chile over access ada agreed late Sunday to sign on to a trade that Venezuelan migrants fl eeing economic to the Pacifi c Ocean, Agence France-Presse deal between the United States and Mexico, hardship and political repression are costing reported. The judgment is binding and cannot CNN reported. The agreement, which provides his country about $1.5 billion each year, a be appealed. Bolivia, which lost large swaths of greater access for U.S. farmers to Canada’s fi gure equivalent to 0.5 percent of its annual its territory in a 19th century war, has demand- dairy market, overcomes the last remaining hur- gross domestic product, Reuters reported. “The ed ocean access from Chile for generations, dles after more than a year of talks to revamp fi scal impact that the migration crisis has could but Chile holds that the matter was decided in the three-country North American Free Trade be about 0.5 percent of GDP; obviously we a 1904 treaty. [Editor’s note: See related Q&A in Agreement. In a joint statement from United want to look at how that’s refl ected in health, the April 2 issue of the Advisor.] States Trade Representative Robert Lighthiz- in education, in infrastructure, in lots of public er and Canadian Foreign Minister Chrystia assets,” said Duque after a meeting with World Freeland, the countries re-branded NAFTA as Bank offi cials. Nearly a million Venezuelan the United States-Mexico-Canada Agreement, immigrants are living in Colombia, Duque said. China, Argentina Near or USMCA. “USMCA will give our workers, The World Bank is planning to release a report Deal on $9 Billion farmers, ranchers and businesses a high-stan- in the coming weeks assessing the fi scal and Currency Swap dard trade agreement that will result in freer social consequences of the crisis on Colom- markets, fairer trade and robust economic bia, according to the report. Speaking at the Argentina’s central bank said Sunday it has growth in our region,” the statement said. The United Nations General Assembly in New York “nearly closed” a new currency swap deal with two also thanked Mexican Economy Secretary last Wednesday, Duque said Latin American China that will add the equivalent of $9 billion Ildefonso Guajardo by name “for his close countries needed the world’s help to deal with to the South American country’s reserves, Reu- collaboration over the past 13 months.” The the millions of Venezuelans who have fl ed the ters reported. The amount under negotiation is new agreement will require U.S. Congressional country since 2015, the Miami Herald reported. more than twice the $4 billion fi gure reported approval. Senate Finance Committee Chairman “The world must act and come together so that by local media in August. Argentina’s central Orrin Hatch (R-Utah) said he is pleased Canada this tragic exodus comes to an end and so that bank has struggled to contain a more than 50 will remain in the new trade deal, The Hill hope can fl ower again [in Venezuela],” he said. percent slide in the peso’s value and infl ation reported. “NAFTA is a proven success for the Among the solutions he offered is the estab- on track to rise 40 percent this year. United States, supporting more than two mil- lishment of a multinational fund to support the lion American manufacturing jobs and boosting countries that are absorbing the migrants. agricultural exports to Canada and Mexico by IDB Plans to Collateralize 350 percent,” Hatch said. However, AFL-CIO Mortgage-Backed Bonds President Richard Trumka said after reading POLITICAL NEWS the text that “too many details still need to be in Trinidad, Caribbean worked out before working people make a fi nal The Inter-American Development Bank is in judgment on a deal,” according to the report. Women Lead Protests talks to collateralize mortgage-backed bonds U.S. President Donald Trump threatened last Against Bolsonaro in Trinidad and Tobago as part of a larger week to push Canada out of the deal. In the effort to attract investment in the Caribbean end, the United States reportedly gained ground Tens of thousands of women and their support- and Latin America more broadly, LatinFinance on its demands for intellectual property protec- ers took to the streets in cities across Brazil reported today. According to Fabio Fagundes tions, environmental regulations and rules of Saturday to protest against the front-runner with the bank’s fi nancial products and services origin terms for automakers. U.S. negotiators in this coming Sunday’s presidential election, division, the multilateral lender will observe the also reportedly managed to keep a version of conservative congressman Jair Bolsonaro, the regulatory framework used in European nations its sunset clause, meaning the agreement will Associated Press reported. Peaceful marchers such as Spain and Germany, which allows issu- come up for review every six years. However, fl ooded avenues in major cities shouting the ance of mortgage-backed bonds as a model. the contentious Chapter 19 dispute resolution slogan, “Not him!” Coincidentally, Bolsonaro Currently, only Brazil’s legal framework allows system will remain the same. was discharged Saturday from a São Paulo for covered bonds in the region.

hospital, where he had undergone surgery and FEATURED Q&A / Continued from page 1 treatment for an infection after being stabbed during a campaign rally last month. Bolsonaro’s been dismissed and are currently in prison reduce their power. State subsidies to the far-right candidacy has attracted international in connection to money laundering and drug parties and individuals fi nance campaigns. attention, and small protests were held against traffi cking. The third necessary reform lies There are virtually no meaningful limits on him Saturday in London, Lisbon, Berlin and in the composition of voting stations. Elec- or regulation of individual contributions. Paris. Thousands of Bolsonaro supporters tronic ballots can help transparency in the The Frente Guasú has proposed cutting took to the streets Sunday in a counter-march. electoral process, especially since the com- the party subsidy in half and requiring free According to an XP Presidential Poll released position of voting stations is currently based and equal access to media for campaign last week, Fernando Haddad with the Workers’ on parliamentary majorities in Congress, advertising in order to reduce the infl uence Party (PT) has continued on an upward trend, which allows traditional parties to control of money in elections. The trigger for the rising from 16 percent to 21 percent support, most voting stations and manipulate elector- current high-level consideration of electoral narrowing the gap to seven percent between al records in their favor. The government has reform was President Abdo Benítez’s call him and Bolsonaro, who held steady at 28 not really acted clearly yet. President Abdo for a constitutional convention, which would percent of voter intentions. The second-round himself must sit down at the negotiating require the election of delegates. Opposition scenarios have become increasingly negative table, not simply send some of his ministers. parties demanded that electoral reform be for Bolsonaro as well, according to the poll. He Otherwise, the reform will not be viable.” considered before any election to a consti- was polling three points ahead of Haddad, but tutional convention. If the government is last week the PT candidate stood four points Brian Turner, professor and truly interested in holding a convention, the ahead of Bolsonaro in a second round simula- chair of the Department of proponents of electoral reform have some tion, 43 percent to 39 percent. Both Bolsonaro’s Political Science at Ran- leverage, since approval of a convention re- rejection rate, which has climbed to 60 percent, A dolph-Macon College: “Election quires a two-thirds absolute majority in both and Haddad’s rejection rate rose in the most re- reform is urgently needed due to the crisis houses, which the Colorados do not have.” cent poll, highlighting the extreme polarization in representation. The two factors in the among voters in this year’s election, according electoral system that Paraguayans believe Juan Francisco Facetti, profes- to XP. The most moderate candidate, Geraldo contribute the most to the crisis in repre- sor and researcher at the Uni- Alckmin, holds only eight percent support. sentation are the use of closed-list ballots versidad Nacional de Asunción for legislative bodies and campaign fi nance. A and consultant on governance: The closed-list ballot allows for the election “Paraguay’s past April elections left a bitter BUSINESS NEWS of individuals implicated in corruption and taste of uncertainty after different political other criminal activities who nevertheless sectors brought up serious fraud allegations. have the capacity to purchase top spots on a The claims came in regard to an electoral Brazil Sees Strong major party’s list. Public ‘scratch’ protests in system perceived as extremely vulnerable Interest in Oil Blocs recent weeks have forced several legislators and perished, especially due to manual to resign after having won re-election this processes and weak control barriers that Ahead of Election past April. The proposed solution is the brought questionable results. As the new open-list ballot, which allows voters to vote legislature began, rumors of a constitution- With a week to go before national elections, for specifi c candidates. Party and faction al reform spread, but they were mitigated the government of President Michel Temer on leaders are opposed, as this system would almost immediately, with sectors warning Friday successfully auctioned four blocs in Continued on page 4 the pre-salt region offshore Brazil with signing bonuses totaling $1.7 billion, The Wall Street market-friendly policies enacted in recent came a day after state oil company Petrobras Journal reported. Foreign oil companies includ- years, Reuters reported. Fernando Haddad, who agreed to an $853 million settlement with U.S. ing BP, Chevron, CNOOC, Ecopetrol, ExxonMobil recent polls suggest would win in a hypo- and Brazilian authorities to end investigations and Shell were eager to bid because it remains thetical second round of voting, has vowed tied to the massive Operation Car Wash bribery unclear how the next government might handle to “recover” the pre-salt to serve Brazilians and kickbacks scheme. Petrobras was the investment in the pre-salt area, according instead of foreign oil companies, according to sole bidder and winner of the Southwest of to analysts. Bids were made by offering a reports. However, executives at BP and Shell Tartaruga Verde block in the Campos Basin. percentage of profi t oil, which is the proportion on Friday told Reuters they make long-term de- [Editor’s note: See Q&A on what’s at stake for of gains, after costs, from the fi elds that will cisions when investing in oil projects, and that Brazil’s energy sector as a result of the Oct. 7 go to the government. Leftist candidates in “volatile issues” and the day-to-day price of oil presidential election in last week’s issue of the the race have indicated they could walk back do not drive their decision-making. The auction Energy Advisor.]

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2018 of the high risk of having elections before a the opportunities for electoral malpractice real electoral reform took place, creating a at voting stations. After the April elections, Erik Brand consensus that major changes in the elector- the electoral commission, TSJE, immediately Publisher [email protected] al system cannot wait any longer. In this destroyed the ballot papers. The outgoing context, both chambers in Congress have Colorado president, Horacio Cartes, had Gene Kuleta Editor taken initiatives to work closely on a 90-day earlier vetoed a law that would have kept [email protected] timeframe with projects related to electoral them for 30 days, suggesting that he did so Anastasia Chacón González reforms that had been kept on hold in the because plans were already afoot to cheat Reporter past. The executive branch is also leading a on the counting. The image of the electoral [email protected] conversation with representatives of major commission has improved markedly now political parties. Among major proposals that the transmission and national counting that have been brought up, there’s the of election results is very rapid. A wider is- Michael Shifter, President opening of electoral lists which are currently sue concerns the endemic corruption by the Genaro Arriagada, Nonresident Senior Fellow closed (promoted by Patria Querida Party three senior judges who head the TSJE. His- Sergio Bitar, Nonresident Senior Fellow since 2003), the use of electronic voting with torically, they have followed directions from Joan Caivano, Director, Special Projects printed ballots, biometric identifi cation to the political leadership of the Colorado Par- Michael Camilleri, Director, Peter D. Bell Rule of Law enter voting premises, new rules for polling ty. In 2012, they ruled that President Cartes Program stations and strict controls for fi nancing could stand as a normal senator in the 2013 Kevin Casas-Zamora, Nonresident Senior Fellow campaigns, among others. There’s a com- Ariel Fiszbein, Director, Education Program mon belief that these changes will improve Alejandro Ganimian, Nonresident Fellow candidates, make elections auditable, avoid It is unlikely that any Peter Hakim, President Emeritus fraud that currently takes place especially signifi cant reform Claudio Loser, Senior Fellow Nora Lustig, Nonresident Senior Fellow in polling stations and track money that will take place during fi nances campaigns. If the timeframe goes Margaret Myers, Director, Asia and the administration of Latin America Program as expected, the fi rst changes should start Abdo Benítez...” Manuel Orozco, Director, Migration, taking place by the end of this year, with Remittances & Development — R. Andrew Nickson Congress approving major reforms in the Jeffrey Puryear, Senior Fellow fi rst half of next year.” Tamar Solnik, Director, Finance & Administration Lisa Viscidi, Director, Energy Program R. Andrew Nickson, honorary general elections even though the Constitu- Denisse Yanovich, Director of Development and External Relations reader in public management tion states unequivocally that ex-presidents

and Latin America studies at the are automatically ‘life-long’ senators with Latin America Advisor is published every University of Birmingham: “Elec- voice but without vote. Family ties are also business day, except for major U.S. holidays, A by the Inter-American Dialogue at toral reform is needed in Paraguay. There important in Paraguay’s elite-driven political 1155 15th Street NW, Suite 800 is still no law on electoral fi nance despite system. Following protests of electoral fraud Washington, DC 20005 growing evidence of funding of campaigns after the April election, the three electoral www.thedialogue.org by narcotics gangs, especially at local gov- judges simply refused to show the electoral ISSN 2163-7962 ernment elections. Widespread malpractice records, or ‘actas.’ It is unlikely that any Subscription inquiries are welcomed at takes place in the weeks running up to the signifi cant reform will take place during [email protected] election day itself. The buying of votes re- the administration of Abdo Benítez, who is The opinions expressed by the members of the Board of mains common, especially in rural areas, and beholden to the conservative forces that Advisors and by guest commentators do not necessarily is increasingly funded by illicit sources. The have maintained the political hegemony of represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily supervision of vote-counting is weak, with the Colorado Party for decades at any cost, represent the views of their respective employers or fi rms. voting booths staffed exclusively by political including corrupt electoral practices.” The information in this report has been obtained from appointees from major parties rather than by reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have independent citizens. Electronic voting was The Advisor welcomes comments on its Q&A any questions relating to the contents of this publication, introduced some years ago but was later section. Readers can write editor Gene Kuleta contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a outlawed by Congress because it reduced at [email protected]. retrieval system, or transmitted without prior written permis- sion from the publisher.