LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Wednesday, October 5, 2016

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Wednesday, October 5, 2016

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Why Is Bolivia’s Senior Policy Advisor At Least 11 Killed Akin Gump Strauss Hauer & Feld, LLP as Hurricane Joyce Chang Global Head of Research, Foreign Direct Strikes Caribbean JPMorgan Chase & Co. Hurricane Matthew pounded W. Bowman Cutter Former Partner, Investment Falling? Haiti and Cuba and then churned E.M. Warburg Pincus toward north toward the Bahamas, Dirk Donath leaving a path of destruction in Senior Partner, its wake. Catterton Aimara Page 2 Marlene Fernández Corporate Vice President for Government Relations, BUSINESS Arcos Dorados Peter Hakim Citi Investing President Emeritus, Inter-American Dialogue $1 Billion in Donna Hrinak Mexico Unit President, Boeing Latin America Citigroup said the investment Jon Huenemann would improve the bank’s branch- Vice President, U.S. & Int’l Affairs, Philip Morris International Bolivia’s central bank, led by Marcelo Zabalaga Estrada, said foreign direct investment is es, ATMs and digital tools. The expected to decline this year for the third year in a row. // File Photo: Bolivian Government. bank is also renaming the unit James R. Jones Chairman, ManattJones Citibanamex, said Chief Executive Global Strategies Offi cer Mike Corbat Bolivia’s central bank said Sept. 19 that foreign direct Craig A. Kelly Page 3 Director, Americas International investment declined by 73 percent in the fi rst quarter of this Gov’t Relations, Exxon Mobil year as compared to the same period in 2015. Net FDI over John Maisto Q POLITICAL the fi rst three months of this year reached $73 million, while Director, U.S. Education Colombia Cease- Finance Group last year Bolivia received $272 million of FDI during that period. The Nicolás Mariscal Fire to End Oct. 31 Chairman, data projects that 2016 will be the third consecutive year of decline in Grupo Marhnos FDI for Bolivia. Why has FDI been on a downward trend for Bolivia? What Colombian President Juan Manuel Santos said his government’s Thomas F. McLarty III measures has the government already taken to halt the decline, and Chairman, cease-fi re with the FARC rebels McLarty Associates what more should the government be doing? What is the trend’s effect would end on Oct. 31, following Carlos Paz-Soldan on the economy? voters’ rejection of the country’s Partner, peace accord. Government and DTB Associates, LLP FARC representatives met in Cuba Beatrice Rangel Ronald MacLean-Abaroa, former Bolivian minister of fi nance to resume talks. Director, AMLA Consulting LLC and former mayor of La Paz: “The government’s statistics Page 2 José Antonio Ríos are now highly unreliable, and one would have to look behind Chief Executive Offi cer, Vadium Technology Inc. A the numbers to explain this dramatic decline in FDI. Repeated Gustavo Roosen past nationalizations, and threats of more nationalization are not condu- Chairman of the Board, Envases Venezolanos cive to FDI. Indeed, there have been cases of divestment where foreign in- Andrés Rozental vestors are selling their Bolivian assets to apparently local investors with President, Rozental & Asociados and Senior allegedly foreign fronts. In fact, a number of foreign direct investments Policy Advisor, Chatham House in local companies were acquired by a Venezuelan investor, very close to Shelly Shetty Head, Latin America the highest offi ce of the government, and in many cases, their directors Sovereign Ratings, Fitch Inc. are current Venezuelan government offi cials, including a Venezuelan Roberto Sifon-Arevalo ambassador. Chinese commitments to invest in Bolivia would have to be Managing Director, Americas Sovereign & Public Finance Ratings, verifi ed, and many investments, especially in mining, seem to have specu- Standard & Poor’s lative purposes, fl oating shares in Canadian and other commodity stock exchanges. Other than questionable FDI, Bolivia has not been able to lure Santos // File Photo: Colombian Government. Continued on page 3

POLITICAL NEWS sort of limbo, that is risky and can wash away NEWS BRIEFS the entire process,” Santos said, the Voice of At Least 11 Killed America reported. Government and FARC repre- Brazil’s Temer sentatives met in Cuba on Tuesday to resume Introduces Measure to as Matthew Plows talks to try to save the peace deal. Santos’ announcement was met with skepticism on Cap Public Spending Through Caribbean the part of rebel leader Rodrigo Londoño, also Brazilian President Michel Temer’s government known as Timochenko. After Santos said the on Tuesday introduced legislation that would At least 11 deaths are attributed to powerful cease-fi re would be extended just to the end cap public spending to the rate of infl ation for Hurricane Matthew, which roared toward the of the month, Londoño said in a posting on as long as 20 years, Reuters reported. The Te- Bahamas this morning after leaving a trail of Twitter, “And after that the war continues?” mer administration is hoping that the measure, destruction in Haiti. Matthew, the most pow- Santos will also meet with former President a constitutional amendment, will win the ap- erful hurricane to hit the Caribbean in nearly Álvaro Uribe, who spearheaded the opposition proval of a congressional committee this week a decade, packed winds of up to 145 miles an campaign to the peace deal. Uribe said in a ra- and receive a vote next week in the Chamber of hour as it slammed into Haiti’s western edge dio interview that he is willing to provide input Deputies. The measure is designed to address on Tuesday and then churned past eastern into how the negotiations should move forward a budget defi cit that last year amounted to 10 Cuba before taking aim at the Bahamas, so that the country could reach an end to its percent of Brazil’s gross domestic product. The Washington Post reported. As of 8 a.m. protracted civil war. [Editor’s note: See related Eastern Time today, the center of the storm Q&A in Tuesday’s Advisor.] was located about 45 miles east-northeast of Barrick Resumes Cabo Lucretia, Cuba and 115 miles south of Long Island in the Bahamas, according to the BUSINESS NEWS Operations at U.S. National Hurricane Center. The hurricane Argentina Mine was moving north-northwest at 10 miles a Barrick Gold Corp. said Tuesday that it had hour with maximum sustained winds of 115 Peru Pipeline to resumed normal operations at its Veladero miles an hour, the Hurricane Center added. The Resume Operations mine in Argentina after the company received 11 deaths blamed on the hurricane included approval to do so from local authorities, victims in Haiti and the Dominican Republic. Early Next Year following repairs after the spill of a processing The full extent of the damage and casualties solution containing cyanide last month, Reuters was unclear this morning, particularly in Haiti, Peruvian state-owned energy company reported. Operations had been suspended where the storm took down communications Petroperú’s president, Augusto Baertl, said at the mine since Sept. 15 after falling ice in some areas, The Washington Post reported. Monday that the company’s pipeline should damaged a pipe and caused it to spill crushed “What we know is that many, many houses resume operations in four to fi ve months ore saturated by the solution. The spill was the have been damaged,” said Haitian Interior Min- after repairs are completed, Reuters reported second of its kind for Veladero in slightly more ister François Anick Joseph, The Post reported. late Monday. The government had previously than a year. said that it would take at least a year for the pipeline to resume operations, following its Colombia Cease- shutdown in February after it leaked oil in the Fire Will End Amazon. This year, more than 7,000 barrels of Antofagasta Reaches Wage oil spilled in the Amazon over the course of Deal With Supervisors Oct. 31: Santos at least seven leaks, due to poor maintenance Chilean copper mine Antofagasta Minerals or vandalism, according to data from environ- said Tuesday it had reached a 36-month wage Colombian President Juan Manuel Santos mental regulator Oefa. Petroperú blames the agreement with unionized supervisors at its said Tuesday that his government’s cease-fi re several leaks this year on vandalism, and Baertl Los Pelambres mine, Reuters reported. The with the Revolutionary Armed Forces, or FARC, on Monday said the oil company will ask local company said in a statement that the contract rebels will end on Oct. 31, as the two sides communities to help protect the pipeline from “meets the expectations of both parties, as struggle to determine the next steps following further damage as the company works to repair it addresses our supervisors’ main concerns voters’ narrow rejection of the country’s peace it. He added that local residents may have cut and is within the long-term possibilities of Los accord on Sunday. “Time is very important. We the pipeline with the goal of bringing cleanup Pelambres.” The terms of the agreement were can’t prolong this process and this dialogue jobs to more remote towns often neglected by not given. for a long time because we’re in a gray zone, a authorities. In order to prevent further damage,

FEATURED Q&A / Continued from page 1 Petroperú needs to improve relations with local communities, especially those through which any serious international group to invest. De- elsewhere, but Bolivia could do much more the pipeline runs, Baetrl said. spite having the world’s largest deposits of to attract FDI. Without hydrocarbons and lithium in Uyuni, no serious investment there mining investments—especially in the area has materialized so far. Russian, Iranian, of exploration—the prospects for continued Citi Investing $1 Bn Chinese and other ‘non-traditional’ investors growth in Bolivia are obvious. Both state oil More in Mexican Unit periodically announce interest in investing, company YPFB and state mining company but many have already pulled out. Bolivia Comibol lack enough resources and human Citigroup is investing an additional $1 billion in in the previous year lost almost half of its capital to get the job done. The fact that its Mexican unit and renaming it Citibanamex, export revenues and has kept public expen- Bolivia still does not have a comprehensive Reuters reported Tuesday. The investments diture at four times the level of 10 years ago, new hydrocarbons law clearly befuddles will be completed by 2020 and will improve the while keeping the exchange rate capriciously the investment community. Without the ap- bank’s branches, ATMs and digital tools, the pegged to the dollar. Not good signs for po- propriate juridical protections and transpar- company said. The move to increase invest- tential foreign investors who have witnessed ency, as well as a robust and favorable tax ment and rename the unit formerly known as the defeat of the president in a referendum scheme, especially in relation to royalties, Banamex was seen as a strong sign that Citi aimed at allowing him to be re-elected for it is unfathomable to contemplate serious intends to keep the operation in the long run, yet another term, which the Constitution FDI. Companies such as Repsol, Gazprom, the wire service reported. The money comes prohibits. On the other hand, the single Petrobras and BG have all announced future from a commitment that Citi made in 2014 to most important FDI in hydrocarbons, the multi-million-dollar investments in explora- invest in the unit. “These investments in Citi- Incahuasi gas fi eld by Total and others, has tion. The only one that has already signed on banamex reaffi rm our commitment to Mexico fi nancial and operational problems, with one the dotted line and is moving ahead is Total. of the partners and subcontractors running The government has taken few measures into insolvency and leaving workers unpaid. to attract FDI in a solid manner, with the ex- Bolivia’s current legal system is severely ception of a few cosmetic initiatives such as discredited, and the absence of the rule of major international FDI road shows in New law makes FDI highly unpredictable. The Bo- York and London, which have led to investor livian government’s stated policy is to move curiosity but nothing substantive. Interest- the country toward socialism. Indeed, that is ingly enough, the electricity sector, including the name of the government’s political party, generation, transmission and distribution, the Movement for Socialism, or MAS. The has shown upswings in investments, primari- Corbat // File Photo: Citigroup. government is openly anti-capitalist, and anti ly due to much greater consumer demand.” ‘neo-liberalism.’ ” and our confi dence in its prospects,” Citigroup’s Jaime Aparicio-Otero, former chief executive offi cer, Mike Corbat, said in the Iván Rebolledo, managing Bolivian ambassador to the announcement. Some analysts and investors partner at TerraNova Strategic United States: “Basic features have called on Citigroup to explore a possible Partners LLC and president of to promote private investment A sale of Banamex, particularly amid statements the Bolivian-American Chamber are: a strong, transparent and predictable A by U.S. presidential candidate Donald Trump to of Commerce: “According to the Bolivian regulatory system, skilled human capital, restrict trade with Mexico. The unit accounts central bank’s latest periodic review of modern infrastructure, and above all, the for approximately 15 percent of the global monetary policies, foreign direct investment rule of law. The decline in FDI in Bolivia is consumer revenue of Citigroup, a higher per- in hydrocarbons was approximately $131 the result of an economic model of statism, centage than any other market for Citi, except million, or $78 million less than in 2014. which promotes state intervention in the for the United States. The Mexican unit also More alarming is that investments in the most diverse areas, regardless of economic has 1,500 branch offi ces in Mexico, more than mining sector between January and March rationality, and with the deliberate effect of any other country including the United States, only reached $5 million, while last year crowding out the private sector or reducing where it has 700.The Banamex unit also has investors disbursed $32 million in the sale of it to a minimum. It is also the reason why earned a return on shareholder equity of about minerals. It is clear that the prevailing lack public investment is at record highs, and it is 15 percent, higher than the 10 percent goal that of demand for the commodities affects over- the current critical variable for the stability Corbat set for all of Citigroup. all foreign direct investment in Bolivia and of the economy. According to the Fraser 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 © 2016 Institute, Bolivia has the ‘most substantial Brazil and Argentina, and a severe drought barriers to investment in the crude petro- affecting the agriculture sector. Because Erik Brand leum and natural gas sector among 54 Bolivia’s FDI and export revenues are Publisher [email protected] worldwide countries, and Bolivia as a desir- dropping and the trade defi cit is growing, able destination for investment by private the country’s international reserves are also Gene Kuleta Editor companies in the mining sector was 66th dropping. The government has been trying [email protected] out of 71 worldwide jurisdictions.’ A chain of Nicole Wasson actions (nationalizations, expropriations, the Reporter, Assistant Editor unilateral termination of contracts, the lack The decline in FDI [email protected] of arbitration agreements, corruption and in Bolivia is the the subjugation of justice to political power), result of an economic have eroded investor confi dence in govern- model of statism.” Michael Shifter, President ment policies. In 2007, Bolivia became the — Jaime Aparicio-Otero fi rst country to withdraw from the convention Genaro Arriagada, Nonresident Senior Fellow establishing the International Centre for Sergio Bitar, Nonresident Senior Fellow Settlement of Investment Disputes (ICSID). Joan Caivano, Director, Special Projects To make things worse, from 2014 to the fi rst to encourage investments with very little Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program half of this year, the export price of natural result. It doesn’t help that according to the Ramón Espinasa, Nonresident Senior Fellow gas to Brazil has fallen by 62 percent and World Bank’s Doing Business project, Bolivia Ariel Fiszbein, Director, Education Program to Argentina by 65 percent. The Bolivian ranks 157th out of 185 countries in terms Alejandro Ganimian, Nonresident Fellow economy has been hit by a very adverse in- of ease of doing business. The government Peter Hakim, President Emeritus vestment climate while the government has is now resorting to spending international Claudio Loser, Senior Fellow to face the end of a decade-long commodity reserves in the form of low-interest loans Nora Lustig, Nonresident Senior Fellow boom. Compared with the situation in other to state-owned companies. Most of these Margaret Myers, Director, China and neighboring countries, the prevailing percep- companies provide public services on a Latin America Program tion cannot be more deplorable. Reversing non-profi t basis, and these funds will not be Manuel Orozco, Director, Migration, Remittances & Development the loss of a climate and culture of growth repaid. The government is also increasing its Jeffrey Puryear, Senior Fellow is not an easy task, but is essential to revive borrowings from China, now the last-resort Tamar Solnik, Director, Finance & Administration investment fl ows. The restoration of the rule lender to countries left with no other options, Lisa Viscidi, Director, Energy Program of law and legal certainty for investment because they don’t want to change their would lead to the recovery of confi dence.” ways. Bolivia is on a bad trend overall, with Latin America Advisor is published every increasing diffi culty in fi nancing imports and business day, except for major U.S. holidays, by the Inter-American Dialogue at Jose L. Valera, partner at public spending. The government’s actions 1211 Connecticut Avenue NW, Suite 510 Mayer Brown in Houston: “FDI show that it is not interested in changing Washington, DC 20036 in Bolivia is at its lowest level policies to reactivate its economy by giving www.thedialogue.org A since 2010. FDI’s downward a safe space to the private sector or better ISSN 2163-7962 trend in Bolivia is due to several factors: fi rst confronting external factors.” Subscription inquiries are welcomed at [email protected] and foremost is that the state monopolizes

large sectors of the economy, including Editor’s note: The Advisor invited the The opinions expressed by the members of the Board of hydrocarbons, electricity, telecommunica- Bolivian Embassy in Washington to submit Advisors and by guest commentators do not necessarily tions and public services. Second, there a commentary for this issue, but did not represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily has been a contraction in Bolivia’s domestic receive a response. represent the views of their respective employers or ﬁ rms. economy, caused by the sharp reduction in The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, the value of Bolivia’s main exports, natural The Advisor welcomes comments on its Q&A nor the opinions based thereon, are guaranteed. If you have gas and minerals, a recession in Bolivia’s section. Readers can write editor Gene Kuleta any questions relating to the contents of this publication, contact the editorial ofﬁ ces of the Inter-American Dialogue. main export markets, which in 2015 were at [email protected]. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permis- sion from the publisher.