LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, December 23, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, December 23, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Are Social Protests CEO, Rebels Attack DevryBV Sustainable Strategies Military, Police Joyce Chang in Latin America Posts in Venezuela Global Head of Research, JPMorgan Chase & Co. The attackers, reported to be led Paula Cifuentes by a deserting soldier, seized Director of Economic & Fiscal Affairs, Hurting Growth? weapons and killed at least one Latin America & Canada, Philip Morris International army offi cer at a military outpost Marlene Fernández in the remote Bolívar state before Corporate Vice President for fl eeing. Several have been appre- Government Relations, hended by authorities. Arcos Dorados Page 2 Peter Hakim President Emeritus, Inter-American Dialogue POLITICAL Donna Hrinak President, Boeing Latin America Cuba Names First Jon E. Huenemann Prime Minister in Former Corporate and Government Senior Executive Four Decades James R. Jones Manuel Marrero Cruz, 56, who will Chairman, Ongoing protests in several countries could be bad news for some of the region’s economies Monarch Global Strategies and investor appetite, commentators say below. A protest last month in Cali, Colombia is serve a fi ve-year term as prime minister, has been Cuba’s tourism Craig A. Kelly pictured above. // Photo: Roboting via Creative Commons. minister for almost 16 years. The Director, Americas International Social and political unrest have taken a toll on Latin Ameri- Gov’t Relations, Exxon Mobil position was eliminated by Fidel John Maisto can assets, with the region’s dollar bonds dropping 3.5 per- Castro in 1976. He reports to Cu- Director, U.S. Education cent from early August to November, the worst performance ban President Miguel Díaz-Canel. Finance Group Q Page 2 among emerging markets, according to JP Morgan Chase. Nicolás Mariscal Chairman, Of the 10 emerging markets with the worst-performing dollar debt in No- Grupo Marhnos vember, six are from Latin America. Additionally, currencies of countries ECONOMIC Thomas F. McLarty III Chairman, such as Chile, Mexico, Peru and Brazil have seen volatility in the past Argentina Enters McLarty Associates months, and several governments have also cut their forecasts for this ‘Virtual Default’ Carlos Paz-Soldan Partner, year’s economic growth. To what extent have social protests dampened President Alberto Fernández DTB Associates, LLP investor appetite for Latin American and Caribbean debt and assets? unilaterally postponed until August paying some $9 billion in Beatrice Rangel How much has the growth outlook changed as a result? What will next Director, maturities, which resulted in the AMLA Consulting LLC year bring for the region’s largest economies, and how can they prepare country’s debt being downgraded Jaana Remes by ratings agencies. Partner, for it? Which countries will fare best and worst, and why? McKinsey Global Institute Page 2 Ernesto Revilla Head of Latin American Joydeep Mukherji, managing director of Latin American Economics, Citi Sovereigns Ratings at Standard & Poor’s in New York: “We Gustavo Roosen Chairman of the Board, expect the region to grow less than 2 percent for the seventh Envases Venezolanos A consecutive year. Despite low interest rates and continued Andrés Rozental growth in the United States, the region’s economic performance will be President, Rozental & Asociados dampened by low investment and diverse political challenges. Among Shelly Shetty the bigger economies, Colombia may grow fastest, around 3.2 percent, Head of Sovereign Ratings, Latin America, Fitch followed by Peru at 2.8 percent. Brazil is likely to grow only 2 percent, un- Roberto Sifon-Arevalo less progress with the government’s reforms spurs greater private sector Managing Director, Americas Sovereign & Public Finance Ratings, investment. Mexico will grow around 1 percent, despite recent agreement Standard & Poor’s on the USMCA. Both Argentina and Venezuela will contract again in 2020. Infl ation is likely to be low across the region, other than in Venezuela and Fernández // File Photo: Argentine Government. Continued on page 3

POLITICAL NEWS U.S. President Donald Trump has issued 78 NEWS BRIEFS sanctions against Maduro’s government. Rebel Soldier Leads ExxonMobil Begins Oil Attack on Venezuelan Cuba Names First Production in Guyana Prime Minister in ExxonMobil on Saturday announced it has Military, Police Posts started producing oil from the Liza fi eld off- Four Decades shore Guyana ahead of schedule and less than Venezuela’s defense minister said that “extrem- fi ve years after the fi rst discovery of hydrocar- ist opposition sectors” attacked an outpost Cuban President Miguel Díaz-Canel on Satur- bons there, which it said is well ahead of the near the border with Brazil early Sunday, killing day named the country’s fi rst prime minister industry average for deepwater developments. at least one army offi cer, the Associated Press in more than four decades, CNN reported. In a statement, the Houston-based company reported. Gen. Vladimir Padrino López said via Manuel Marrero Cruz, 56, who will serve a said it expects to reach full capacity of 120,000 Twitter that the attackers, reported to be led fi ve-year term as prime minister, has been barrels of oil per day in coming months. About by a deserting soldier, took weapons from the Cuba’s tourism minister for almost 16 years. half its 3,400 employees and other workers post. Some of those involved were detained Tourism has become increasingly important to supporting its activities in Guyana are Guya- and being questioned while the army and other Cuba’s communist economy, which struggles nese, ExxonMobil said. security forces were pursuing the rest, he said, with electricity outages and shortages of basic adding that the weapons were later recovered. goods. But tourism to Cuba is expected to drop Information Minister Jorge Rodríguez said six 8.5 percent this year in the wake of tighter U.S. 18 Inmates Killed in Latest travel restrictions to the Caribbean island, the Honduran Prison Riot Cuban government said in July. Analysts say Marrero’s experience in negotiating deals with Eighteen inmates were killed Sunday in fi ghts international companies could prove critical to between rival gangs at Honduras’ El Porvenir a government facing broader sanctions from prison, less than two days after similar violence the United States, the Associated Press report- at another facility, La Prensa reported. Deputy ed. The post of prime minister was last held by minister for security Luis Suazo said machetes revolutionary leader Fidel Castro, who changed and guns were used in the fi ght, which broke his title to president and abolished the post of out during visiting hours when women and prime minister in 1976. Marrero is expected to children were present, according to the report. Padrino // File Photo: Russian Government. manage the day-to-day operations of the Cuban On Friday, 18 inmates were killed and 16 hurt people had been arrested in connection with government but will still report to the president. in a prison near Tela, BBC News reported. The the attack by a “group of armed terrorists.” A Díaz-Canel is the country’s head of state. Raúl government declared a state of emergency in police station in Bolívar state was also hit by Castro, Fidel’s octogenarian brother, remains the prison system last Wednesday. the group, Reuters reported. The incident took the fi rst secretary of the Communist Party, place in Gran Sabana National Park, home to still playing a powerful role in the government, the tallest waterfall in the world and one of the according to Cuba observers. [Editor’s note: Colombia Raises $1.5 Bn country’s most important tourist destinations. See related Q&A in the Nov. 11 issue of the In related news, the United States on Friday Advisor.] in Bandwidth Auction accused Venezuelan President Nicolás Maduro Colombia’s government on Friday awarded of trying to rig a coming election for control of bandwidth to three phone companies in an his country’s parliament, either by detaining op- ECONOMIC NEWS auction that raised some $1.5 billion, Reuters position leaders, stripping lawmakers of their reported. Claro, a subsidiary of América Móvil, immunity or bribing them with up to $500,000 Millicom’s Tigo and Novator Partners from for each vote, The New York Times reported. Argentina Falls Into Britain each won awards. Movistar, a subsid- Elliott Abrams, the State Department’s special ‘Virtual Default’ iary of Telefónica of Spain, did not make a envoy for Venezuela, said lawmakers have re- winning bid. “This is the largest mobile social ported being offered hundreds of thousands of connectivity project in the history of Colombia Argentine President Alberto Fernández said dollars to vote against Juan Guaidó, the leader that will allow, for the fi rst time, Internet access Sunday his country is in virtual default on its of the National Assembly who faces internal for millions of Colombians in rural areas,” debt and compared the situation with the 2001 re-election on Jan. 5. The administration of President Iván Duque said on Twitter. economic meltdown, Agence France-Presse

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Monday, December 23, 2019 reported. “It is not the same as 2001, but it is FEATURED Q&A / Continued from page 1 similar. At that time poverty was at 57 percent, today we have 41 percent poor people; then Argentina, a rare bit of good economic news. without Venezuela), compared with 3.5 per- we had a debt default, today we are in virtual Poor economic performance increases the cent globally. Even with slowing population default,” Fernández said in an interview with risk of social protests across the region. growth, the recent trend has meant a fall in TV program La Cornice. On Friday, Fernández’s The protests vary in their focus, ranging per capita income of 0.3 percent a year. The government unilaterally postponed until August from corruption and law and order, to social IMF projected growth of almost 2 percent paying some $9 billion in maturities, which re- policies to economic austerity. Regardless sulted in the country’s debt being downgraded of their causes, our credit rating analysis by ratings agencies Fitch and S&P, which now focuses on the political and economic No matter how out- consider it in selective default. “Argentina has capacity of sovereigns to respond to them. siders look at it, the defaulted on its sovereign obligations, and this Most Latin American sovereigns have limited region’s economic development constitutes a ‘distressed debt ex- fi scal capacity to meet demands for more prospects look bleak, change,’ ” Fitch said in a statement, Bloomberg spending. Weak political institutions in some or at least worrisome.” News reported. The South American country countries constrain the ability to channel — Claudio Loser is in recession and has suffered 18 months of discontent into peaceful political dialogue economic crisis sparked by a currency crash. to resolve issues. Social media has made Its economy is expected to shrink by 3.1 it easier to organize protests by providing for 2020, but it would not be surprising for percent in 2019. Soon after taking offi ce earlier quick access to many people. As a result, the growth rate to be closer to 1 percent. this month, Fernández announced 30 percent protest movements often lack an organized The popular demonstrations, which are not tariffs on foreign purchases, the so-called and disciplined leadership, making it diffi cult unique to Latin America, will make inves- “tourism tax,” among other measures in a bid to for the government to negotiate directly with tors weary of the situation. Moreover, this raise revenue for the state treasury. “We must anyone. Much of the world’s political class will be compounded by a general concern end the practice of saving in foreign curren- is still struggling to respond to this new style about global growth, from the United States, cies,” he said, La Nación reported. Although of politics.” through the European Union and the United a series of economic measures passed in Kingdom, to India, China and Japan. The Congress last week, the bill as of today has not Claudio Loser, former head inclination will be to increase public expen- been entered into the offi cial gazette, accord- of the Western Hemisphere diture and widen public sector defi cits, but ing to the report. Pensioners have been push- Department at the IMF and there will be serious diffi culties in attaining ing back against a reported freeze on increases A founder and CEO of Centennial it, as Argentina is already recognizing, and in payments despite the fact that citizens have Latin America: “No matter how outsiders Brazil and Mexico may also become keenly been suffering from infl ation rates that are look at it, the region’s economic prospects aware of. Reduced access to foreign fi nanc- among the highest in the world. In Sunday’s look bleak, or at least worrisome. The IMF’s ing, low growth and domestic political prob- interview, Fernández said that a total freeze is estimates for GDP growth were low when lems are not easily compatible. It may well not accurate and there would be increases for they appeared in October, but today they be that after a bout of fi scal and monetary pensioners in the months ahead, although the may overestimate the prospects. Latin expansion, countries may end up without formula for calculating payouts is changing. America has shown the weakest growth of access to markets and may request help all subregions of the world since 2014, with from the IMF. This may be fi nancially sound, an average growth of 0.6 percent (1 percent but it is certainly explosive politically.” BUSINESS NEWS Continued on page 4

a Facebook live video that he convinced Trump on Brazilian and Argentine steel and aluminum, Trump Drops Brazil to reverse course on the levies. “We discussed saying in a tweet that the two South American many subjects including trade. The relationship countries were devaluing their currencies and Steel Tariff Threat between the United States and Brazil has never hurting U.S. farmers. However, a week after the been stronger!” Bolsonaro said, The New York tweet, the director of the White House National U.S. President Donald Trump on Friday back- Times reported. A U.S. ofﬁ cial familiar with Economic Council, Lawrence Kudlow, said that tracked on a threat to reimpose tariffs on steel the call conﬁ rmed that Trump told Bolsonaro “no decisions have been made,” The Wall Street and aluminum from Brazil after speaking to he would not impose the tariffs. The U.S. Journal reported. It is unclear whether the Brazilian President Jair Bolsonaro, The Wall president earlier this month unexpectedly United States will move ahead with the threat Street Journal reported. Bolsonaro said during announced his administration would slap levies to impose the tariffs on Argentine metals.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2019 Alfredo Coutiño, director for co, are expected to advance to rates around Latin America at Moody’s 2 percent and 1.3 percent in 2020, while Erik Brand Analytics: “The emergence of Colombia and Peru will still move in the 3 Publisher [email protected] A social protests in Latin America percent neighborhood. Chile will grow in the has its roots in the accumulated discontent range of 1 percent to 1.2 percent. Argentina Gene Kuleta Editor regarding the lack of improvement in social and Venezuela will remain in recession. [email protected] well-being. Notorious social protests have Unfortunately, Latin America is now facing Anastasia Chacón González erupted in Ecuador and Bolivia, and most the consequences of the prolonged lack of Reporter recently in Chile and Colombia, with a severe public policies to resolve the accumulated [email protected] degree of violence, not only interrupting social lag.” activities but also destroying infrastructure.

The original movements have been infi ltrated Carol Wise, associate professor Michael Shifter, President by radical protesters with little relationship, of international relations at the Rebecca Bill Chavez, Nonresident Senior Fellow if any, with the genuine social cause. This University of Southern Califor- Sergio Bitar, Nonresident Senior Fellow radicalization is the main reason for the nia: “At the close of the 2010s, A Joan Caivano, Director, Special Projects destruction of infrastructure, which together Latin America and the Caribbean have seen Michael Camilleri, Director, Rule of Law Program a new elected wave of nationalist-populist Kevin Casas-Zamora, Nonresident Senior Fellow presidents. Argentina, Brazil and Mexico are Héctor Castro Vizcarra, Nonresident Senior Fellow Social unrest has prime cases in point. Chileans are rioting Julia Dias Leite, Nonresident Senior Fellow certainly reduced over inequality and the false promises Ariel Fiszbein, Director, Education Program investor appetite of neoliberal social reforms, while Peru’s Peter Hakim, President Emeritus for Latin American president simply disbanded the Congress Nora Lustig, Nonresident Senior Fellow assets.” and called for new elections in January. The Margaret Myers, Director, Asia and 20-month U.S.-China trade war has spiked Latin America Program — Alfredo Coutiño export growth for soybeans in Argentina and Manuel Orozco, Director, Migration, Remittances & Development Brazil and auto parts in Mexico, although Xiaoyu Pu, Nonresident Senior Fellow with the lack of fi rm actions from govern- the Inter-American Development Bank has Jeffrey Puryear, Senior Fellow ments to apply the law, has raised uncertain- warned that, ‘If we have a ... combination of Mateo Samper, Nonresident Senior Fellow ty and shaken domestic fi nancial markets. shocks in which China’s growth falls, U.S. Tamar Solnik, Director, Finance & Administration Domestic assets have been affected, and the growth falls, and asset prices also fall, we Lisa Viscidi, Director, Energy Program demand for U.S. dollars has increased, thus could have a reduction in Latin American Denisse Yanovich, Director of Development and generating signifi cant currency deprecia- growth rates that could reach negative terri- External Relations tions. Given the prolongation of protests, tory in 2020.’ Keep in mind that the pattern investors are not only seeking refuge in the of political and economic underachievement Latin America Advisor is published every business day, except for major U.S. holidays, dollar but also quitting domestic markets. in Latin America and the Caribbean may be by the Inter-American Dialogue at Social unrest has certainly reduced investor long running, but it is not structurally deter- 1155 15th Street NW, Suite 800 Washington, DC 20005 appetite for Latin American assets. The mined. Rather, a turnaround depends on the www.thedialogue.org interruption of several activities and the de- tenacity and leadership of politicians and ISSN 2163-7962 struction of physical investment have taken policymakers within each of these countries Subscription inquiries are welcomed at a toll on economies, particularly in Chile, Bo- to pursue policies that promote ‘technology [email protected] livia and Ecuador, thus affecting the region’s upgrading, high-quality education, signifi cant The opinions expressed by the members of the Board of production capacity and the potential for diversifi cation of trade with China, betting Advisors and by guest commentators do not necessarily growth in the future. Before Chile’s protests, on strong regional integration processes, represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily the region was expected to grow around 1.6 and heavy investing in physical infrastruc- represent the views of their respective employers or fi rms. percent in 2020. The country’s growth has ture.’ These, argues José Antonio Ocampo The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, now been revised down to around 1.2 per- of Columbia University, ‘are, together, the nor the opinions based thereon, are guaranteed. If you have cent with a high risk of further downgrade. structural keys to dynamic long-term growth any questions relating to the contents of this publication, The two largest economies, Brazil and Mexi- in Latin America.’ ” 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 permission from the publisher.