LatAm Outlook 2021

Where thethe UKUK meets LatinLatin AmericaAmerican and & IberiaIberia ISBN number: 978-1-9165047-4-5 Edited by Ian Perrin, Cristina Cortes, and Joe Brandon

This report has been compiled and published by Contents Canning House

126 Wigmore Street, Biographies P. 4 London, W1U 3RZ Overview P. 6

Telephone: +44 (0) 207 811 5600 Political Outlook P. 9 Email: [email protected] Regional Trends P. 9 Country Political Outlooks P. 16 Economic Outlook P. 29 Regional Trends P. 29

Country Economic Outlooks P. 32 Health Outlook P. 45 Social Outlook P. 59 Regional Overview P. 59 Perceptions of 2020 P. 60 What worries P. 60 What will happen in 2021? P. 63 Environmental Outlook P. 69 Security & Corruption Outlook P. 79 Regional Trends P. 79

Copyright © 2021, Canning House in all countries. Country Security & Corruption Outlooks P. 82 All rights reserved.

No part of this publication may be reproduced, Conclusions P. 96 stored in a retrieval system, or transmitted, in any form or by any means, electronic, electrical, chem- ical, mechanical, optical, photocopying, recording or otherwise, without the prior written permission of the publishers. Page 2 - LatAm Outlook 2021 Page 3 - LatAm Outlook 2021 Biographies

Cristina Cortes, CEO, Canning House Dr Clare Wenham, Assistant Professor of Global Health Policy, London School of Economics Cristina Cortes is an Oxford and LSE politics and economics graduate. Having worked in government, Clare Wenham is Assistant Professor of Global Health Policy at London School of Economics banking and energy across a variety of commercial, and Political Science (LSE). She specialises in global health security and the politics and policy business development and government relations roles of pandemic preparedness and outbreak response, through analysis of influenza, Ebola in London, Houston, Venezuela, , and Zika. Her work considers global health governance, role of WHO, national priorities and and , in 2015 she joined Canning House, the UK’s innovative financing for pandemic control, particularly in Latin America. More recently she leading forum for Latin America and Iberia. She took has been analysing the downstream effects of global health security policy on women, with a over as CEO in 2018. forthcoming OUP book offering a feminist critique of the Zika outbreak. Her work features in The Lancet, BMJ, Security Dialogue, International Affairs, BMJ Global Health and Third World Quarterly. She previously worked at the London School of Hygiene and Tropical Medicine, Michael Stott, Latin America Editor, delivering projects relating to surveillance and transmission of infectious disease. Financial Times

Michael Stott is the Latin America editor of the Financial Jean-Christophe Salles, CEO Latin America, Ipsos Times based in London and has reported from more than 60 countries in more than three decades as a Jean-Christophe Salles is CEO of Ipsos Latin America, based in Santiago, . He has over foreign correspondent and news executive. Michael 25 years’ experience in the market research sector, having previously worked at GfK, a global reported from Latin America between 1990-1998, living German market research company, in both Latin America and his native France. He holds in Brazil, Colombia and Mexico. Michael graduated a PhD in social sciences from the University of Paris/HEC business school, and a master’s from Cambridge University with an MA in Modern degree in Marketing from Paris Arts et Métiers. Jean-Christophe has given lectures in various Languages and is a regular speaker and moderator at French universities and business schools, and has also published various papers in Marketing conferences on Latin America. magazines as well as participating as a speaker in various events throughout Latin America and . João Pedro Bumachar Resende, Senior Latin America Economist, Itaú Unibanco Oliver Wack, Partner and General Manager Colombia and Andean Region, Control Risks João Pedro Bumachar Resende is responsible for covering Latin American economies at Itaú Unibanco. Oliver Wack is the General Manager for Colombia and the Andean Region for Control He holds a Business Management degree from FGV-SP Risks. Based in Bogotá, Oliver is responsible for supporting the successful execution of our (2003) and a master’s degree in Economics from PUC- clients’ operations and investments in the Andean region. Oliver’s specific areas of expertise RJ (2006). He worked in the economics department of include risk intelligence, issues management, crisis-driven investigations, stakeholder Banco BBM for two years before joining Itaú Unibanco, engagement and corporate reputation risk management, among others. also in the economics department, in October 2008. Dr David Purkey, Latin America Centre Director, Stockholm Environment Institute

David Purkey directs the Stockholm Environment Institute’s regional research centre in Latin America, located in Bogotá, Colombia. This, the newest SEI centre, opened in January 2018. Prior to accepting this position, David led the Water Research Group within SEI’s US Centre for 12 years. In his prior position, David was able to put into practice his academic training in hydrology and water resources management that culminated in a Ph.D. from the University of California, Davis. His primary research interest is the proper use of modeling and analysis within multi-actor, multi-objective negotiations related to the management of shared water resources.

Page 4 - LatAm Outlook 2021 Page 5 - LatAm Outlook 2021 However, the overall objectives have not changed. As before, this second Canning House LatAm The Canning House LatAm Outlook continues Outlook focuses on the six major countries - Brazil, to get beneath superficial headlines to what is Mexico, Argentina, Colombia, Chile and . really going on in Latin America. It addresses Wider Regional developments are considered fundamental questions such as: through the lens of their impact on those countries. Similarly, developments in the wider world – e.g., • What are the forces shaping Latin America’s emanating from the USA or China – are also social, political, economic, and business looked at in terms of their impact on “the big six”. environment? The rationale is that these are the countries that businesses have told us they are predominantly • What are the likely impacts on people, the interested in. No value judgements are implied environment, government policies and as to the intrinsic importance of other countries; economic development, and trade and nor does it imply that there are not perfectly good Overview investment? individual business opportunities to be found elsewhere in LatAm. Cristina Cortes, CEO, Canning House • What are the resulting risks and uncertainties facing the major countries of interest to As previously, most of the focus will be on the businesses, investors and NGOs? next five years. Because there are legislative, Last year, I introduced the Canning House LatAm Outlook with the following statement: presidential and even constitutional elections In the process, the report and its associated events taking place in four of our six majors this year, will seek to address questions such as: against a continued backdrop of considerable Nothing happens in a vacuum. We cannot assess, let alone anticipate, risks uncertainty over the progress of both vaccine unless we have a good understanding of the factors driving them. Business • How will the Region fare in terms of vaccine rollout and economic recovery, looking beyond roll-out – compared to other geographies? the next five years will be exceptionally difficult. conditions are driven by economics which in turn tend to be governed by But, because there are strategic structural issues political forces; the latter are the result of (often not clearly articulated) social • There is much talk in the US and Europe impacting the region which will take more than pressures which, in their turn, are deeply influenced by culture and history. of “building back better” post-Covid-19 – one presidential or congressional term to fix, we If you have a good grip on all these inter-related forces, then very few things addressing climate change and social injustice will continue to dare to look further and consider as they recover. In LatAm is it more a question mega-trends out towards a 10-year horizon. We should come as a complete surprise. of whether the Region recovers at all or will also consider what further forces - or grim whether it faces another “lost decade”? surprises - might knock current trends off-course.

While that statement undoubtedly holds true, We have great continuity and we have also added • might be on the retreat in the the fact remains that our expectations and great value in this 2021 edition of the Canning USA, but what about Argentina and Mexico predictions were, in March 2020, about to be House LatAm Outlook. I am delighted to say that (left-wing populism) and Brazil (right-wing completely upended by Covid-19. Not only has our partners from 2020 are still with us – the FT’s populism)? Could historically conservative the virus changed the Outlook for Latin America Latin America editor Michael Stott, Itau Bank of countries like Chile and Peru turn populist after politically, economically, socially and from a Brazil, Ipsos and Control Risks. And we have added their upcoming elections? security perspective; it also added great impetus to contributors from the LSE’s Global Health Policy Canning House’s objective to progressively expand faculty and from the Stockholm • When it comes to Sustainable Development, the scope of our Canning House LatAm Outlook – Environment Institute. can the Region exorcise its deforestation in this instance to include both health and demons and instead take on a global the environment. leadership role?

Page 6 - LatAm Outlook 2021 Page 7 - LatAm Outlook 2021 Political Outlook Michael Stott, Latin America Editor, Financial Times

Regional Trends

The long difficult road out of the pandemic

The coronavirus pandemic hit Latin America with wealth inequalities and large informal economies. full force when the region was already extremely vulnerable, following a decade of low growth and Analysis of the data one year after the pandemic declining real living standards. began suggests that although governments in the region took widely diverging approaches, the per Latin America has 8.2 % of the world’s population capita death rates in the larger nations were not yet by February 2021, it had recorded more than hugely different. Argentina, which imposed one of 650,000 Covid-19 deaths - more than a quarter the world’s longest lockdowns in 2020, had a death of the world total. The health impact was among rate by early 2021 which was very similar to that the most serious in the developing world, with per of Brazil when adjusted for population size. Only capita deaths far outstripping those in Africa, most smaller nations off the major international travel of Asia or the Middle East. The pandemic exposed routes such as were spared the worst of the region’s inherent weaknesses: low state the health and economic damage. capacity, inadequate public health systems, severe

Page 8 - LatAm Outlook 2021 Page 9 - LatAm Outlook 2021 One year into the pandemic, economists were Who are the populists? By populists, we mean the The problem for the technocratic, investor-friendly estimating that more than a third of the Latin type of leader common in Latin American history governments of the centre or the right in Latin American population had been infected. The major of the latter 20th century and early years of this America is that while they strengthened institutions challenge by early 2021 was to ensure the rapid century: a president who governs with a highly and managed well at a macro-economic level, and comprehensive vaccination of populations. personal style, centralising power and resources, they typically neglected the importance of Campaigns began at the start of the year in diminishing the role of independent institutions and good quality public services such as health and some countries but with continued high infection spending heavily on programmes which deliver education and failed to address adequately citizen rates and supplies of the most effective vaccines a short-term electoral boost but often lack long- concerns that provision of too many public goods constrained by availability or cost, it seemed term coherency and logic, typically social subsidies was left to the private sector. possible that by the time all of the population are favouring his or her support base or public works vaccinated in the worst-hit nations, a majority Cristina Fernández de Kirchner of Argentina, ’s Evo Morales, of dubious benefit. may already have been infected. Goldman Sachs Venezuela’s Nicolás Maduro and of Brazil estimated in early 2021 that nearly half of Mexico’s population had already been infected and more than 40% of Peru’s. Election Cycle - Chile is among the nations with the best supplies Return of the pink tide? of vaccines pre-ordered and made a fast start, meaning it should be able to vaccinate most of The reappearance on the region’s political stage its population during 2021; as of early 2021, Brazil, of some of the leading figures from the “Pink Argentina and Mexico were next in the vaccine Tide” era of leftist rule in the first decade of the race, with Colombia and Peru some way behind. 21st century (pictured above) opens the possibility of a second wave of socialist rule. In Bolivia Evo Economic responses to the pandemic have varied Morales returned triumphant after his socialist widely, with Brazil and Peru among the nations MAS party candidate (and former finance minister) which launched the biggest fiscal responses Luis Arce triumphed by a landslide in October relative to the size of their economies and 2020 elections; and in Argentina, former president Mexico the most parsimonious. The size of the (and current vice-president) Cristina Fernández stimulus packages announced did not necessarily de Kirchner increased her power and influence correspond to the amount of borrowing room: within the government significantly at the expense Brazil, with very high debt to GDP ratios, was of moderate President Alberto Fernández. In among the biggest spenders while Colombia, , Andrés Arauz, the protegé of former which had more space to borrow, spent socialist firebrand president won the significantly less. first round of the 2021 presidential election. Leftist candidates were also polling strongly in Chile and In most of the region, governments held back from Peru ahead of elections later in the year and in ambitious spending of the kind seen in the US or Colombia ahead of the 2022 presidential contest. Europe because of fears of incurring unsustainable Demand for public services - Which model? levels of debt, but most Latin American nations However, while there is clearly a strong voter desire succeeded during 2020 in preserving access to for better public services, greater equality, and a Regionwide social protests started in Chile in both nations are already governed by international capital markets and raising money at better social safety net, economic conditions are October 2019 and convulsed several Andean populist presidents. acceptable rates of interest. The major exception less favourable for a return of “Pink Tide” nations. The common themes were demands for was Argentina, which was shut out of markets to the region. The boost from the commodities better quality, more affordable public services The risk is growing that, amid rising popular following its default in 2020. super cycle was a key ingredient in the original and greater equality of opportunity. With discontent, voters may lose faith with pragmatic, Pink Tide, and while global prices rallied strongly government finances under severe pressure after evidence-led reforming governments which try Since none of the major Latin American nations towards the end of 2020, it is not yet clear whether the pandemic, many countries in the region face to push through difficult but necessary structural can point to a truly effective response to Covid-19, this momentum will be sustained. Governments serious fiscal challenges to find the funds needed changes such as tax reforms and turn instead to it seems likely that the virus’s political legacy will are more heavily indebted and there is less scope to fulfil these demands. populists advocating short-term fixes of dubious be to hurt the standing of most incumbent leaders for the kind of expensive social programmes which merit. This is a particular concern in the Andean and boost the standing of populist outsiders characterised the earlier era. So populist outsiders The pandemic has exposed with particular clarity nations facing the Pacific which have generally challenging the status quo, whether from the right from across the political spectrum are just as the deficiencies of public health systems in Latin outperformed the rest of the region because of a or the left. The pandemic has however boosted likely to win election as classic populist leftists, America, but inadequate pensions and poor better policy mix but where the population is losing popular appetite for higher social spending and while incumbents and conservatives will find it quality or expensive education have also been confidence in the economic model: in Chile, Peru, greater government intervention, limiting the increasingly difficult to win re-election. recurrent themes. Mexico and Brazil have largely and Colombia in particular. The other concern is political space for conservatives. been excepted from this trend, partly because that higher public spending may not translate into

Page 10 - LatAm Outlook 2021 Page 11 - LatAm Outlook 2021 better public services: Argentina spends relatively This risk has been most evident in Mexico, where Regional integration and The Biden presidency marks an important shift in generously on education but its outcomes are poor President Andrés Manuel López Obrador has US attitudes towards Latin America. The Trump by global standards. been explicit in denouncing institutions he believes leadership era was characterised mainly by neglect, with served only the interests of a narrow elite. But it President Trump making only one visit to the region has also surfaced in Argentina under the Peronist The political divisions between left and right for a G20 summit in Argentina. President Biden, by Escaping dependence on oil government, which has been encroaching on which have split the region since the end of the contrast, brings extensive experience from his time judicial independence, and in Central America “Pink Tide” alliance of left-wing leaders have as vice-president, when he made 16 trips to and commodity exports where corruption investigations in and paralysed efforts at building cohesive, functioning Latin America. have been stymied. In Brazil, democratic regional institutions. The return of populism in The region’s continued high dependence on institutions have so far successfully resisted Latin America could complicate this task further, However, given the very serious impact of the commodity exports, including fossil fuels, is President Bolsonaro’s attacks. In particular Brazil’s with the presidents of Mexico and Brazil, the two virus pandemic on the US, as well as the pressing becoming an increasingly urgent problem amid Supreme Court, which has unusually wide power biggest nations, focused mainly on domestic range of international problems demanding his global consensus over the need to move to a zero to intervene on a large range of matters, has held issues. Argentina’s leader has argued for greater attention, President Biden is unlikely to have much carbon economy. Mexico, Colombia, Ecuador, firm in the face of attacks on its judgments and regional unity and has made overtures to Mexico, time to devote to Latin America policy initiatives, Bolivia and Brazil are all exposed to a significant presidential pressure. but the weakness of the Argentine economy particularly in his first year or two in office. He has degree via their dependence on oil or gas exports makes it difficult for him to assume a bigger role. nonetheless picked experienced and respected and need to diversify quickly. Nonetheless, Alberto Fernández seems the most experts in the region for key posts, such as Juan The role of business likely of any of the Latin American leaders to take González as his top White House adviser on Aside from Mexico, no nation in the region has on some kind of regional coordinating mantle, Latin America. built a competitive export-oriented manufacturing As Covid-19 rips through the region, business since he enjoys the respect or support of a number economy and Latin America’s distance from supply elites have found themselves questioned as never of allies, such as Mexico and Bolivia, as well as the President Biden poses a special challenge for chains, major markets and the lack of relevant before. Latin America’s relatively weak tradition ear of some European leaders. the region’s two main populist presidents, Jair specialist skills make it difficult for such a sector to of corporate philanthropy, coupled with severe Bolsonaro and Andrés Manuel López Obrador. develop. More realistic is the aspiration to grow wealth inequalities and oligopolistic practices by Given the historic dominance of Mexico and Brazil Both men forged transactional alliances with business outsourcing operations (such as call companies in some markets, present a serious in regional diplomacy, it would be unrealistic to President Trump which, together with Trump’s lack centres offering technical support, telemarketing challenge to the reputation of business. Well- expect presidents of medium-sized Latin American of interest in corruption and human rights, served or back office services such as accountancy), publicised instances of profiteering and corruption nations to take up the baton of leadership. Even their domestic political ends. As dedicated fossil agribusiness and tech companies. In order to around the procurement of medical supplies if they had the appetite and the ability, the fuel enthusiasts, both are likely to find President maximise these opportunities, governments need during the pandemic have not helped. incumbent leaders of Chile, Colombia and Peru are Biden’s focus on environmental issues awkward. to make quicker progress on improving digital all fighting major domestic crises and struggling infrastructure, particularly in remote rural areas Leading progressive figures in the business with low popularity ahead of elections in which The Biden administration has edged away and poorer suburbs. community have already voiced concerns that none are running for office again. It is therefore from the hardline policies of the Trump era on unless Latin America’s company leaders start to likely that the Biden administration (see below) will Venezuela and Cuba, and in particular has been However, the strength in commodity prices seen throw their weight behind demands for greater encounter greater than usual difficulties in seeking uncomfortable with wide-ranging economic at the end of 2020, if it persists, is likely to make equality of opportunity and a fairer distribution of strong and effective Latin American leaders with sanctions which had a disproportionately severe it even harder for Latin American countries to wealth, and manage their companies according to whom to shape regional initiatives. impact upon ordinary citizens. However, Biden diversify away from raw material production; more socially responsible principles, business in the officials have been equally clear that they see indeed in Brazil voices are already heard region risks being seen as part of the problem. It Venezuela as a and Cuba as a serious complaining that the country “risks being turned remains to be seen whether business people heed Biden presidency abuser of human rights and wish to maintain into a giant farm” because of neglect of the that call; whether they do so will help determine pressure via targeted sanctions on key regime industrial base. the likelihood of political leaders turning figures. Small incremental changes in policy are against business. therefore more likely than bold gestures, unless there are unexpected domestic developments in The challenge to institutions Added to this is a rise in the power of indigenous either country. movements, NGOs and environmental groups. All The revival of populism in the region presents have been vocal in opposing projects which they It is unlikely that the governments of either Cuba a strong challenge to institutions which remain see as harmful; most often this means mining, or Venezuela will respond to overtures from vulnerable to political interference because of their dam or road schemes. International companies Washington with serious moves towards political fragile and relatively brief autonomy. Whether considering such schemes in Latin America need liberalisation or free elections, meaning that any an independent judiciary, a competent and free- to be increasingly attentive to such considerations process of détente is likely to be slow and painful. standing central bank, or a technocratic finance and to the risk of associated legal action. However, the humanitarian relief which is likely to ministry, the risk is that outsiders winning election Joe Biden, pictured in 2016 with then-President of Colombia Juan come under a Biden administration should help blame these institutions for their country’s ills and Manuel Santos to contain the Venezuelan refugee crisis and limit pressure them, marginalise them or even major new outflows of people. dismantle them.

Page 12 - LatAm Outlook 2021 Page 13 - LatAm Outlook 2021 Possible upside and downside scenarios

Given the high degree of uncertainty in the region in the post-pandemic period, and a number of pivotal elections in 2021-22, predictions are more than usually difficult.

An upside scenario could arise from any/all of A downside scenario foresees any or all of the following: the following:

• the pandemic subsides relatively quickly in 2021 • a wave of populist election victories leading through a combination of mass vaccinations to inexperienced, big-spending presidents and immunity acquired via infection who borrow heavily and trigger debt crises, cause political instability and scare off foreign • government and corporate borrowing remains investment. (These risks are more elevated in contained and does not reach dangerous Ecuador, Peru, Chile and Bolivia) levels; continued strong Federal Reserve support for the global financial system provides • rule of law and the quality of liquidity, easing lending to Latin America institutions deteriorate

• stronger global oil and commodity prices help • fresh weakness in global oil and commodity government finances and economies across prices puts pressure on public finances the region and economies

• elections in Andean countries elect • Biden administration policies on the generally pragmatic candidates who make environment, human rights and corruption lead improvements to public services but do not to a conflictive relationship with Latin America fundamentally uproot the economic model • the EU shelves the trade agreement • presidents who are further to the left increase indefinitely because of environmental issues public spending moderately, improving services, reducing inequality and taking the • vaccination delays and lax controls mean the steam out of mass protests coronavirus continues to deal a heavy human China and Russia and economic blow to the region and recovery • private investment remains strong and the from the pandemic is slow and fitful China has used the pandemic to further advance Corp bought the country’s largest independent region avoids picking sides in the battle its diplomatic, trade and investment priorities in renewable energy company Zuma Energia. between the US and China, winning money • old-fashioned leaders with an attachment to Latin America from an already strong position built from both extractive models of development, such as during the commodity boom years. It is already the China’s relatively strong global position in vaccines, fossil fuels, block efforts to move to renewable biggest trading partner for Brazil, Chile, Peru its rapid and powerful economic recovery, its • renewable energy investment remains strong energy. Deforestation continues at high levels, and Argentina. continued international investment drive and its and the region becomes one of the more leading to trade boycotts and disinvestment growing political and diplomatic clout mean it is promising places in the world for solar and Beijing was quick to make well-publicised gifts of likely to continue to gain influence in the region wind power, helping accelerate the trend to • slow economic progress frustrates the protective equipment and ventilators in the early relative to the US and Europe over the green energy population in some countries, who stage months of the pandemic and to offer vaccines coming decade. repeated protests and marches, creating on favourable terms as they became available. • Amazon deforestation is brought under control serious governability challenges Chinese companies took advantage of the 2020 Russia will have outsize influence in Venezuela and international boycotts and slump in Latin America to snap up good quality because of its military support for the Maduro disinvestment avoided. • the region’s internal problems prevent it from assets, particularly in infrastructure, at favourable government and its oil and gas interests, but playing a wider role on the world. prices: China did more M&A deals in Latin America it has generally been unwilling to make major in 2020 than in Europe and North investments in the region, preferring deals which America combined. deliver quick short-term benefits. However, the appearance of the Russian Sputnik vaccine, which In Chile, China’s state grid company paid $3bn to has been eagerly adopted by Mexico, Argentina buy an electricity network company from Spain’s and Venezuela in particular, offers Russia Naturgy. In Mexico, China’s State Power Investment additional leverage.

Page 14 - LatAm Outlook 2021 Page 15 - LatAm Outlook 2021 Country Political Outlooks

Argentina

son Máximo, who heads the Peronist grassroots by early 2021 among the 25 nations globally with organisation La Cámpora and is a key deputy in the highest per capita mortality, despite the heavy the lower house of congress, as the main Peronist economic cost of the long lockdown. Fernández’s presidential candidate for the 2023 election. This reliance on the Russian Sputnik vaccine could would solidify a political dynasty which began increase the government’s vulnerability in the with Cristina’s late husband Néstor Kirchner, who face of the pandemic, or prove to be a winner, governed from 2003-2007. depending on the reliability of supplies and the effectiveness of the vaccine. Despite its internal divisions, the Peronist movement is aware that its hold on power depends Further government intervention is likely to on it maintaining a unified front and is unwilling control prices, regulate the export of agricultural to risk the in-fighting which led to Macri’s narrow commodities and maintain subsidies. A wealth victory in 2015. Although Cristina still has a high tax surcharge imposed last year has triggered

President Alberto Fernández and his vice-president, rejection rate among non-Peronist voters (the the exit of some prominent business figures to Cristina Fernández de Kirchner reason why she ran in 2019 as VP to the much neighbouring Uruguay. The bleak mood among lesser-known Alberto), her hope is that Máximo will Argentine business people is unlikely to change Argentina’s political dynamics and its difficult be seen as a new generation figure. significantly for the remainder of the Fernández economic environment are likely to prove term, given the political dynamics. challenging for investors in the coming years. Argentina’s economic situation, meanwhile, President Alberto Fernández, a moderate Peronist, continues to be challenging. Agreement was Compounding this unease is a government inherited a country deep in foreign debt and mired reached in 2020 with private creditors on a conflict with elements of the judiciary. Whilst the in economic crisis upon taking office in December restructuring of $65 billion of debt, ending its ninth government’s justification for this is the need to 2019 from his business-friendly predecessor, sovereign debt default. Since the deal mainly modernise institutions, political opponents believe . pushed out repayments by several years without the main rationale is to bring judges to heel and significantly reducing the capital owed, it is unlikely prevent any of the multiple corruption cases Fernández is an instinctive pragmatist but lacks to provide a long-term solution to the country’s against Cristina from advancing in the courts. a political base of his own and depends on his debt woes. A deal with the IMF to restructure $44 Argentina slipped 12 places in the Transparency more radical vice-president, Cristina Fernández billion of debt owed is likely to come during 2021, if International annual Corruption Perceptions Index de Kirchner, to govern. Cristina, who was herself only because the amount owed – Argentina is the in 2021. president between 2007-15 and is not related to Fund’s biggest creditor – makes it imperative for Alberto Fernández, controls a sizeable part of the the IMF to do a deal. Despite the government’s problems of Peronist political base and enjoys strong support economic management and its internal political among grassroots organisations and unions. A It is unlikely, however, to bring public finances disagreements, the remains hamstrung key figure in the Pink Tide movement of socialist fully under control and with Argentina still unable by Macri’s insistence on continuing to lead it, leaders earlier this century, she favours greater to access international debt markets as a result despite his 2019 election defeat. Macri’s most state intervention in the economy, has been a of its default in 2020, central bank financing likely successor as opposition leader, Buenos Aires strong critic of the IMF and is resistant to tighter of the deficit is likely to continue with serious mayor Horacio Rodríguez Larreta, as yet lacks controls on public spending. consequences for inflation, which could exceed 50 broad national appeal but could still build a bigger per cent this year. Some relief is likely to come in base and the opposition has few other credible, This difference of approach and political the form of commodities export income, if global well-known figures. philosophy between Alberto and Cristina at the soya prices remain high (Argentina is the world’s heart of the administration is likely to complicate third biggest soybean exporter). Midterm congressional elections in October 2021 government and policy over the remainder could see the Peronists keep their narrow majority of Fernández’s term, which runs to late 2023. The Fernández government’s handling of the in the Senate, where only a third of the seats Cristina’s power and relative influence have been pandemic, which initially appeared promising are being contested; the opposition is fighting to steadily increasing since Alberto and Cristina after a strict early lockdown and relatively low defend its majority of 138 seats out of 257 in the took power and this process is likely to continue; case numbers, deteriorated as time went on with lower house, where half the seats are she is widely believed to be trying to position her infections rising sharply and Argentina featuring being contested.

Page 16 - LatAm Outlook 2021 Page 17 - LatAm Outlook 2021 Brazil

include an overhaul of Brazil’s byzantine tax formed in 2020 to pressure the Brazilian system and of the rules around hiring and firing government through dialogue and several EU of government employees. They also include governments have made clear that a trade deal provision for the automatic triggering of a “fiscal between the EU and the south American trade bloc emergency” with spending curbs imposed when a Mercosur will not be ratified without significant state or municipality exceeds certain thresholds. advances from Brazil in environmental protection.

Progress on these reforms has been very slow Given the rising pressure from the domestic because of a lack of political consensus and the business lobby – powerful agribusiness interests Bolsonaro government’s history of poor relations are concerned about the possible loss of markets in with Congress. They suffered a further blow in Europe and the US – it is likely that the Bolsonaro Brazil’s vice-president Hamilton Mourão meets an indigenous leader February 2021 when Bolsonaro fired the head government will be forced into some kind of during a visit to the Amazon of state-controlled oil company Petrobras for accomodation with Washington and Brussels on cutting fuel subsidies. Implementation is likely environmental issues. Although China is Brazil’s President Trump’s exit from the White House at to slow further as the 2022 election approaches largest trading partner and has traditionally been the start of 2021 robbed Brazilian president Jair and the bulk of the reforms will be left to future far less concerned about environmental issues, the Bolsonaro of a key ally for his brand of right-wing governments. The same is likely to happen EU and US are much bigger sources of investment populism and conservative cultural values as he with major privatisations; state electricity giant and loans, which could be jeopardised by poor approaches a re-election campaign in 2022. The Eletrobras may not be sold off during the rest of environmental performance. timing of the election is awkward for Bolsonaro, Bolsonaro’s term. who had enjoyed a ratings boost in 2020 owing As for Brazil’s political opposition, while the left to heavy spending on monthly pandemic support However, the central bank has been pursuing a remains the biggest force in Brazilian politics, the payments for up to a third of the population. useful programme of microeconomic deregulation, once-dominant Workers Party (PT) remains under green finance and modernisation which does the spell of former president Luiz Inácio “Lula” da Complicating matters is Brazil’s challenging not need legislative approval and this is likely to Silva, who still sees himself as its natural leader. economic situation, with the withdrawal of continue. Central bank independence finally won Lula is now too old (75) and too tainted by his pandemic support slowing the recovery, an approval in congress in early 2021, indicating that association with past corruption scandals – which extremely challenging fiscal position with the reform agenda was not completely dead. he denies - to be a credible candidate in 2022 and government debt levels of around 90 percent of has signalled his support for , GDP and a poor health situation, with recurrent A major concern for business is the growing who failed to win last time against Bolsonaro. If outbreaks of coronavirus in the underfunded risk of trade and investor boycotts of Brazilian the left can unite around a new leader for the northeast of the country a particular worry. For companies and products owing to concerns about 2022 election, it would significantly improve these reasons, it looked likely in early 2021 that the environment, and in particular the destruction its chances. Guilherme Boulos of Sao Paulo, a additional pandemic support would be agreed of the Amazon rainforest. While Brazil has strong youthful and charismatic former Communist who between the government and congress. environmental legislation, enforcement is weak stood unsuccessfully for mayor of the city in 2020, and has become significantly weaker under winning 40.6% of the vote, might be one These factors are likely to hurt Bolsonaro’s Bolsonaro owing to reductions in staffing at such option. popularity during 2021 and increase the likelihood environmental agencies. The premature ending that he pushes for more populist measures and in April of the army’s operations to limit Amazon In the absence of a strong challenge from the left, in particular increased government spending to forest fires will not help. other credible opponents to Bolsonaro in the 2022 try to restore his fortunes ahead of the election in presidential race are likely to include São Paulo October 2022. A number of impeachment requests Bolsonaro’s constant attacks on environmentalists governor João Doria, TV talkshow host Luciano have been filed in Congress but are unlikely to and his support for loggers and ranchers have Huck and former anti-corruption crusader and progress unless there is either a severe economic convinced foreign audiences that Brazil is not justice minister Sérgio Moro. Of these, Doria crisis, a complete collapse in Bolsonaro’s ratings or serious about protecting the Amazon, despite and Huck are likely to be the strongest potential the Covid-19 death toll soars out of control. government protestations to the contrary. They candidates, assuming they make no major have also increased the risk of boycotts and mistakes between now and the election. Of concern to investors and business people is the disinvestment. President Biden has been clear fate of the government’s much-touted programme about his intention to penalise Brazil if it fails to join of structural reforms to the constitution to put his Amazon conservation initiatives. public finances on a more sustainable footing and to improve the business climate. These reforms A large group of international investors was

Page 18 - LatAm Outlook 2021 Page 19 - LatAm Outlook 2021 Chile

protests which followed. Citizens voted in a 2020 opinion poll ratings fell to single digits during elections will be held in November) increases the referendum for a new constitution to be drawn up the worst period of the riots and although his risk of potentially costly decisions being taken by by a specially elected assembly, a process which government offered numerous concessions to the new assembly, such as guaranteeing higher will take until at least 2022 and which has ushered protesters, including a referendum on a new levels of public services in the new constitution. in considerable uncertainty among investors about constitution, Piñera’s ratings had only recovered to Mitigating this risk are two factors: the stipulation the extent of possible changes. levels just above 20 per cent by early 2021. that a two-thirds majority is required for decisions and the need for the entire draft to be voted Chile’s recent decades of moderation in political The moderate left has also suffered from criticism upon by electors before taking effect – something and economic policy have led many to conclude that when in power during the expected in mid-2022. that the country is unlikely to embrace radical presidencies (2006-2010 and 2014-2018) it failed changes to its model. This ignores the high degree to make significant reforms to the system. The The Piñera government has responded to the of citizen dissatisfaction with the current system, main beneficiaries of the discontent in Chile so far coronavirus emergency with a wide-ranging which is seen as having failed to deliver quality have thus been populist outsiders of the left and assistance package, which has minimised Chilean president Sebastián Piñera public services and having favoured the interests the right, and a populist candidate may win the economic damage, and with strong public health of a small political and business elite rather than presidency in the November 2021 election. measures, but the human costs of the pandemic Latin America’s star performer for decades, Chile offering genuinely equal opportunities. have been high, with cumulative per capita death has been submerged in a process of profound With elections for the constituent assembly in rates not far below those of Brazil and Colombia introspection and questioning of its economic President Sebastián Piñera, a billionaire April and the new body convening in May or June, at the start of 2021. Fortunately, the Chilean and political model triggered by the riots of businessman before entering politics, has been the confluence of constitutional reform with the government is among the best prepared in the October 2019 and the months of sometimes violent especially vulnerable in this political climate. His election calendar (presidential and congressional region in terms of vaccine supplies, with more than enough pre-orders to cover the entire population, and made a very fast start to vaccinations.

Of concern to investors have been recent populist economic measures from parliamentarians such as two initiatives in Congress to allow pension savers to withdraw part of their savings prematurely. The Piñera government was unable to stop these measures passing, despite the damage they inflicted on local capital markets and on the pensions industry. Pamela Giles, the deputy who pushed for the early withdrawals, saw her ratings jump as a possible presidential candidate, so the temptation for other politicians to follow the populist path is likely to increase. Other leading contenders include communist Daniel Jadue and centre-right populist Joaquín Lavín, both mayors of Santiago suburbs.

In terms of economic recovery, Chile is relatively well placed. Its low debt levels mean it has much more room to borrow additional funds for coronavirus-related spending than many of its neighbours and its main trading partner China is recovering fast. In addition, Chile is pushing hard into renewable energy and the country has a relatively favourable score on ESG metrics. It remains to be seen, though, whether its reputation as a business and investor friendly destination survives the constitutional reform process: this is the major question facing Chile.

Page 20 - LatAm Outlook 2021 Page 21 - LatAm Outlook 2021 Colombia

The biggest challenges for the Duque of workers, particularly those with skills, and from administration in the remainder of its term, apart a relocation of businesses but has also had to from dealing with the pandemic, are avoiding meet the considerable social and medical costs a fresh upsurge of street protests, advancing of the influx with relatively little international help. a tax reform which will help Colombia keep its Duque’s move to offer the refugees temporary investment grade debt rating by boosting revenues protected status in February 2021 was a generous and accelerating efforts to diversify the economy gesture which merited more international support. away from an excessive dependence on fossil fuel exports. It is far from clear that the tax reform A Petro win in 2022 remains a distinct possibility, will succeed, given the government’s problems in particularly if the pandemic increases popular agreeing an agenda with congress. Some of the discontent. This would spook investors and raise Colombian president Iván Duque region’s worst inequalities of income (Colombia concerns about institutional stability and debt has the second-worst score on the Gini index of sustainability. Most of the other likely candidates In common with its Andean peers, Colombia is inequality among the six countries in this report) would not trigger such concerns and would faced with a dilemma. On the one hand there remain a persistent source of discontent. probably keep Colombia’s well-earned reputation is the relative success of its economic model in for moderation in economic policy. delivering steady growth and investment over the The 2022 presidential election is likely to be an past two decades – the country has been amongst unusually consequential vote, with a clear choice President Duque has attempted to promote the the best performers in Latin America - and on the between the radical left and more moderate creative economy and offshoring as alternative other, the rising discontent of a large segment options. Duque cannot run again. Gustavo Petro, models for economic growth, with some progress. of the population who are dissatisfied with what the former leftist guerrilla who attracted criticism However, in the longer term, Colombia’s success the model has delivered and want better public for poor performance during a term as mayor in diversifying its economy is likely to depend on services and greater equality of opportunity. of Bogotá, was a runner-up to Duque last time whether the country can dramatically improve its and is likely to run again as the main standard- deficiencies in infrastructure, particularly roads, This rising discontent coincides with a period when bearer of the left. In the political centre, former ports and rural broadband, to make its exports strong leadership has been lacking. President Medellin mayor Sergio Fajardo, who was narrowly more competitive internationally. Iván Duque has followed generally pragmatic squeezed out of the 2018 second round run-off, is centre-right policies but has struggled to distance likely to make another attempt but may struggle to himself from his political patron, conservative break through. It will probably not become clear former president Álvaro Uribe, and has not been until near the end of 2021 who will win Uribe’s able to build a strong base in congress with which backing as the main conservative candidate. In to translate his political priorities into action. His an environment dominated by figures from the opinion poll ratings have been relatively low by last election, a fresh political face might attract a regional standards – though higher than those of strong following. incumbents in Chile and Ecuador - and he has not attracted the kind of mass support that Uribe did. The country remains strongly polarised between As a result, he remains vulnerable in the run-up to pro- and anti-Uribe factions and this division is the 2022 presidential election to a renewed wave reflected in disagreements over the fate of the of street protests. peace deal with former Marxist guerrillas, which was signed by Duque’s predecessor Juan Manuel Colombia’s response to the coronavirus pandemic Santos. The Duque government has publicly initially looked promising, with rapid lockdown insisted it is committed to the agreement but in measures and relatively low infection rates. practice has soft-pedalled on implementing it, However, as the lockdown continued through something which has increased social tension in 2020, infection rates began to rise steadily as the most affected areas of the country. A change of compliance fell and by early 2021 the country was policy on the peace process is unlikely during the among the worst affected in the region in terms rest of Duque’s term. of deaths adjusted for population size. Colombia’s pandemic-related economic stimulus was modest, As the country playing host to the largest number with funds limited by a relatively high debt, but the of refugees from neighbouring Venezuela, underlying strength of the economy meant it was Colombia has the biggest direct exposure to the less badly affected than some of its neighbours. Venezuelan crisis. It has benefited from the influx

Page 22 - LatAm Outlook 2021 Page 23 - LatAm Outlook 2021 Mexico

it led to one of the world’s highest death tolls by majorities in both houses of congress which would early 2021 when adjusted for population size. allow constitutional changes. As a result, López Widespread scepticism about the official count Obrador’s response may be to radicalise further means that the true number of deaths could be and appeal over the heads of legislators directly to significantly higher. the people to back his more controversial policies.

The inauguration of President Biden has created Mexico’s strong advantages of geographical fresh challenges for López Obrador. He had proximity to the US and access to its markets via reached an accomodation with President Trump, the USMCA trade pact will mitigate to some extent accepting Trump’s draconian curbs on immigration López Obrador’s perceived hostility to business. as a necessary price for keeping relations and But the president’s unpredictable decision-making trade on track. López Obrador is strongly focused and an increasing tendency to diminish the role of on domestic issues and will therefore want to avoid independent regulatory institutions bode ill for the conflict with Biden. But the US president’s renewed business environment in the longterm. focus on climate change will be unwelcome: as an old-fashioned energy nationalist, López Another major source of concern is López Obrador has made a big bet on fossil fuels via Obrador’s heavy and increasing reliance on the a $8bn investment in a new oil refinery and a Mexican military for everything from policing push to boost oil production at state giant Pemex, duties to infrastructure construction. The price while attacking foreign-owned renewable energy demanded in return became evident when the companies. Biden’s emphasis on human rights US arrested in late 2020 and tried to prosecute a and fighting corruption risk being seen in Mexico former Mexican defence minister and ex-general, as unwarranted interference in domestic affairs; Salvador Cienfuegos for alleged drug trafficking there is plenty which could upset the US-Mexico offences. Heavy pressure from the Mexican relationship over the rest of López Obrador’s term. military led to López Obrador demanding the return of Cienfuegos to Mexico, supposedly to face Midterm legislative elections in June 2021 would investigation but in fact to be exonerated. Mexico Mexican president Andrés Manuel López Obrador normally pose a major challenge for a sitting accused the US of fabricating evidence president facing weak growth and a serious against him. Mexico is undergoing a significant shift from the Obrador’s failure so far to revive the economy or to pandemic. However, López Obrador is likely to broadly free-market approach which prevailed improve security. benefit from the continued severe weakness of The most likely scenario for Mexico over the under successive governments of the centre the opposition, which lacks effective leadership remainder of López Obrador’s term to 2024 is a and the right for the past 40 years. President Despite López Obrador’s stinging criticism of the and is still suffering from its association with past continued steady deterioration in the business and Andrés Manuel López Obrador is aiming for a economic model of the past 40 years for failing corruption scandals. As a result, the president’s investment climate and the rule of law, mitigated “transformation” which will end what he terms the to deliver higher growth rates, particularly in the Morena coalition of left-wing forces is likely somewhat by the commercial opportunities failed decades of and replace them impoverished and backward south of the country, to retain its simple majority in the lower house created by President Biden’s “Buy America” policy with a more interventionist government dedicated his government has presided over a further of congress and pick up a number of state and access to the vast North American market. to greater social justice and fighting corruption. reduction in growth rates even before governorships which are being defended by the coronavirus. the opposition; it is unlikely to win two-thirds Lopez Obrador’s style of government is idiosyncratic and highly personalised. He is a López Obrador’s fiscal (he is a rare very skilled communicator and has maintained left-wing populist in that he is reluctant to jack consistently high opinion poll ratings by up public spending) meant he refused to give emphasising his credentials as a man of the the Mexican economy a significant fiscal boost people living an austere lifestyle in contrast to to combat the consequences of the coronavirus the near-regal trappings which surrounded his pandemic. The president also played down the predecessors. In a country where inequalities significance of the virus, prioritising the economy, of income are rife and corruption rampant, this rejecting strict lockdowns and continuing to travel approach has proved very popular with less around the country, often without a mask. While well-educated voters in particular. It has also this approach reduced the impact of the virus compensated for growing disillusion with López on the economy and played well with his base,

Page 24 - LatAm Outlook 2021 Page 25 - LatAm Outlook 2021 Peru

Complicating the situation further is the fact with the economic model, despite the country that several ex-presidents have been either outperforming the rest of the region in growth over investigated or charged with corruption, and the past two decades. As in Peru, Chile, Ecuador around half the members of congress also face and Colombia, high levels of inequality and poor, probes. This reinforces a popular view that the limited public services have reinforced perceptions political class as a whole is venal and self-serving, of a rigged system which discriminates against the something which poses governability challenges less well-off and favours elites. for any president. Popular anger has increased after the country’s The 2021 presidential and congressional elections poor response to the coronavirus during 2020: in April are unlikely to mark a decisive break a harsh and long lockdown which crippled the Peruvian president with this chronic institutional instability, not least economy but failed to control the spread of because no one candidate or political party infection, leaving Peru with one of the worst For most of the past two decades Peru’s often seemed likely to win a strong enough electoral recessions in the region and one of the worst turbulent domestic politics did not affect the mandate to push through a consistent programme Covid-19 mortality rates in the world. Government country’s sound macroeconomic management or of government for a full term. spending increased sharply during the pandemic its strong growth, which consistently outperformed but was not always well directed and sometimes the rest of the region. However, in November 2020 Populists predominate among the 2021 presidential failed to reach the intended recipients on the front politics intruded in a big way with three different candidates, with an early lead taken by George line in a timely fashion, showing the weaknesses of presidents holding office within the space of just Forsyth, a former soccer player who has governed state capacity. The public health system has long over a week as mass demonstrations convulsed a district of central Lima and made a name by been weak and struggled to perform. the country. cracking down on the informal economy and crime. Forsyth has little government experience As in neighbouring countries, there is a significant While the outcome was in the end broadly and would likely rely heavily on a circle of trusted risk that a strong anti-establishment mood positive – institutions held and an interim advisers to develop economic policy. The fact that could lead the next president to hasty populist administration which had badly bungled its as the leading candidate he struggled to hold measures which threaten business stability and response to massive demonstrations was forced 20 per cent support in early opinion polls and the investment climate. Peru’s next leader might, out by popular pressure after only a few days, then saw his support ebb was a clear indication for example, be tempted to dismantle the private giving way to a credible caretaker administration of just how fragmented the field was prior to the pension system, significantly boost public spending led by technocrat centrist Francisco Sagasti – presidential election. Less than two months before or launch a big and ill-conceived public the problems highlighted by the rapid turnover the elections, nearly half the electorate were still works programme. of presidents are deep-seated and not easy to telling pollsters they were undecided over whom to resolve. A further scandal in February 2021 over vote for. In such a volatile political environment, it is an hundreds of government officials being secretly open question how long the Peruvian economy can vaccinated with “courtesy doses” of a Chinese Of some concern to investors and business people continue to outperform its neighbours and keep up vaccine, ostensibly as part of a trial, threatened to is the fact that disillusionment is growing in Peru its impressive growth record. tarnish the Sagasti administration early on.

One of Peru’s most acute problems is the institutional instability generated by an increasingly populist congress prone to short- term thinking and its perennial conflicts with the president. This is likely to persist because of the idiosyncracies of Peru’s constitution, with a unicameral congress made up of legislators who cannot run again, and the relative ease with which presidents can be forced from office under a broad and poorly defined offence of “moral incapacity”. This is compounded by a very weak and fragmented party system, which makes it all but impossible for a president to win a congressional majority.

Page 26 - LatAm Outlook 2021 Page 27 - LatAm Outlook 2021 Economic Outlook João Pedro Bumachar Resende, Senior Latin America Economist, Itaú Unibanco

Regional Trends

Latin America’s economy entered the pandemic The coronavirus outbreak in 2020 forced under challenging conditions. 2019 was marked governments to implement lockdown measures by social unrest in Chile and Colombia, and it was while providing fiscal and monetary stimuli. also the first year of a new left-wing administration Although GDP posted a sharp decline across in Mexico that signaled a change in economic all countries in the region, the magnitude of the (particularly micro) policy direction. In Peru, impact on activity varied according to two factors: there was an institutional crisis involving constant the strictness of the lockdown measures and the clashes between the legislative and executive size of the stimuli. Of the region’s key economies, powers that eventually led to the dissolution of Brazil was the best relative performer, with an Congress. In Argentina, volatility ahead of the estimated contraction of 4.1%, due to looser presidential election led to another debt crisis mobility restrictions and stronger fiscal stimulus and the reintroduction of exchange rate controls. (despite having a more fragile fiscal situation than Brazil was still struggling with fiscal vulnerabilities, Mexico, Chile, Colombia and Peru). Argentina but a new administration managed to pass the (harsh lockdown measures and macro stimulus constitutional pension reform necessary to put the significantly limited by limited access to financial country’s significant public debt and capital markets), Peru (strong stimulus, but on a sustainable path. strict lockdown) and Mexico (loose lockdown, but little fiscal stimulus) were the worst performing

Page 28 - LatAm Outlook 2021 Page 29 - LatAm Outlook 2021 economies, with a respective GDP loss of 10%, 11.1% should be on policymakers’ agendas in many and 8.2%. As in the developed world, the economic countries. That said, it is important to bear in performance for the year was uneven. The first mind that even Chile – a country known for its half of 2020 was marked by a strong recession, market-friendly economic policy framework – has mainly during the second quarter; the third been growing slowly (though with a higher GDP quarter saw a recovery as the partial reopening per capita than other countries in the region), of the economy and stimulus measures supported highlighting that low human capital plays a internal demand. Most financial assets in the role in the region’s poor growth and lingering region behaved accordingly, with a substantial inequalities. As suggested by the constant social depreciation during the first half of the year, unrest, addressing inequality is crucial for political followed by an appreciation during the second half stability. As a natural-resource-rich region, factors (also favoured by an extremely loose monetary affecting the demand and supply balance of policy in the developed world and recovering commodities also constitute key risks (upside and commodity prices as China came out downside). Use of electric cars (positive for copper, of lockdown). negative for oil) and economic growth in Asia could therefore influence the activity dynamics The pandemic has made the outlook for the in Latin America. A possible harshening of trade region even more uncertain. For this year, we relations between China and the U.S. is important anticipate above-trend growth, although partially because it could affect growth in China (although due to a favorable comparison base (the steep potentially shifting Chinese soft commodity GDP fall observed last year induced by lockdowns). imports from the U.S. to ). Finally, a Higher commodity prices, strong global growth society increasingly concerned with environmental and low interest rates will also support economic preservation will be a key factor (and in some expansion. Still, the risks are high. The second cases a constraint) in the exploitation of natural wave of coronavirus led to the resumption of social resources and infrastructure projects. distancing measures in the region, and potential delays in the rollout of vaccines combined with new strains of the virus (more contagious and potentially resistant to some vaccines) could delay the reopening (or even warrant stricter lockdowns). Brazil, Argentina and Colombia would face considerable fiscal constraints in dealing with such a scenario. Chile, Peru and Mexico would have more room to manoeuvre fiscally, but at the expense of lower sovereign ratings and a higher risk premium. If the world´s largest economies emerge from the Covid-19 crisis much earlier than Latin America, economic growth in the latter could suffer from the withdrawal of stimulus in the former. Furthermore, political uncertainty could also limit growth. This year will see key elections in Chile, Peru, Mexico and Argentina, while the markets in Colombia and Brazil will be closely monitoring the interaction between the Executive and Congress to ensure fiscal sustainability.

Beyond the pandemic and fiscal issues, Latin American policymakers will need to pursue productivity-enhancing reforms to emerge from a low-growth scenario. While Brazil and Argentina can boost growth by addressing the public sector balance sheet, micro reforms to spur productivity would benefit the entire region. A better regulatory framework, less red tape and trade openness

Page 30 - LatAm Outlook 2021 Page 31 - LatAm Outlook 2021 Country Economic Outlooks

Argentina

Overwhelmed by a balance-of-payments crisis and fiscal consolidation plan limits access to international low international reserves, the Macri administration capital and financial markets, sustaining the drain on reintroduced exchange-rate controls late in 2019 and international reserves despite the increasingly tighter unilaterally postponed short-term bond payments restrictions on the purchase of dollars (driving spreads issued under local law. The economy was already in the parallel USD market sky high). The government’s in recession before the pandemic. GDP fell by 2.1% in hesitance to promote a fiscal adjustment also stands 2019, and inflation soared to 53.8% (induced by a sharp in the way of a deal with the IMF, which is necessary to depreciation of the currency). President Macri lost his refinance the scheduled payments to the fund. Controls bid for reelection and the Peronist candidate Alberto on consumer prices (not just regulated prices) also Fernández assumed power in December 2019, with contribute to an adverse economic environment. In former President Cristina Fernández de Kirchner as this context of price repression and GDP contraction, his vice-president. Argentina defaulted on its external inflation fell in 2020 (to a still-high 36%), but inflation public debt in April 2020. expectations for this year remain high due to the unsustainability of the current interventionist policies.

Unbalanced macro policies The economic recovery in 2021 is likely to be constrained by policy-related uncertainties, including 10% 80% exchange-rate controls. Unorthodox attempts to tame 70% 5% inflation risk a high fiscal deficit (through subsidies) and 60% renewed pressure on the FX market. We expect 5.5% 0% 50% growth and 50% inflation this year but inflation risks are tilted upward, given the growing need to realign -5% 40% prices (especially the FX) with fundamentals. Midterm 30% -10% elections are scheduled for October 24. The ruling 20% coalition will likely maintain its Senate majority and And while congressional elections are important, they reduction and less interventionism would lead to a -15% 10% has a good chance of increasing its participation in the are not necessarily a good predictor of the outcome of better macro scenario. These would allow Argentina to

-20% 0% Lower Chamber, given the opposition’s (Juntos por el the presidential election in October 2023. restore external financing (including FDI) and reduce Cambio) good showing in the 2017 elections, implying exchange rate controls while putting inflation on a 2011 2017 2013 2012 2015 2010 2016 2019 2018 2014 2007 2003 2020 2005 2006 2009 2008 2004 that it will have more seats up for grabs in 2021. The Looking further ahead, we expect growth to remain downtrend, as the government reduces its reliance on economic woes are the main hurdle for the ruling party. weak, based on low business confidence, little access central bank lending. On the other hand, persistent Primary balance (% of GDP) Real interest rate to foreign financing and macro distortions (including controls and interventionist policies would deepen the Spead in the parallel market for dollars (rhs) persistently high inflation). A credible fiscal deficit macro imbalances. Weak growth and high inflation Source: MInistry of Economy, INDEC and BCRA 60% Argentina economic table 50% The new administration reacted quickly to the 40% 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F Covid-19 pandemic, imposing a long and strict 30% GDP % 2.7 -2.1 2.8 -2.6 -2.1 -10.0 5.5 2.5 2.5 2.5 2.5 lockdown that had a severe impact on activity and 20% CPI % 26.9 41.0 24.8 47.6 53.8 36.1 50.0 40.0 30.0 25.0 20.0 fiscal accounts.The lockdowns led to one of the 10% Exchange Rate - ARS/USD (end of period) 13.0 15.9 18.8 37.8 59.9 84.1 125.0 172.0 219.2 268.6 316.1 sharpest declines in activity (-10% estimated for 2020) 0% in the region. The nominal fiscal deficit hit 8.5% of Reference rate - % (end of period) 27.3 24.8 28.8 59.3 55.0 38.0 38.0 30.0 25.0 20.0 15.0 -10% GDP, led by reduced tax collection and increased Current Account Deficit (% of GDP) -2.7 -2.7 -4.9 -5.2 -0.9 1.0 2.0 1.0 1.0 1.0 1.0 -20% social expenditures to assist workers and companies. Nominal Fiscal Balance (% of GDP) -3.9 -5.8 -5.9 -5.2 -3.8 -8.5 -6.0 -5.0 -4.0 -4.0 -4.0 2011 2017 2013 2012 1997 2015 2001 2010 2016 2019 2018 2014 1995 1996 1999 1998 1994 2007 2003 2002 2020

The deficit was mostly financed by the central bank, 2005 2000 2006 2009 2008 2004 Gross Public Debt (% of GDP) 55.5 55.6 58.9 89.8 93.8 107.1 108.9 103.9 105.0 105.0 105.0 given the lack of access to external capital markets and a tiny domestic market. Argentina reached CPI yoy (avg) GDP growth an agreement with private creditors to restructure foreign debt in September, but the lack of a credible Source: MInistry of Economy, INDEC and BCRA

Page 32 - LatAm Outlook 2021 Page 33 - LatAm Outlook 2021 Brazil

Like some of its peers, Brazil was already struggling with low growth Primary balance (% of GDP) in 2021, but impacts could be cushioned in case the and the need for reforms (particularly on the fiscal front) before the government manages, in exchange for the benefit pandemic. In the Brazilian case, a sluggish recovery from the 2014-16 4% extension, to gather support for a broader fiscal reform economic crisis led to a feeble 1.4% GDP growth in 2019 and an 2% aiming to set Brazil closer to a path of fiscal sustainability

unemployment rate of 11.3% by the end of the year, even with the monetary 0% in the medium term. policy rate at a low level of 4.5% (the lowest so far). The outlook for fiscal reforms, however, was improving. By the end of that year, the pension -2% These prospects, however, depend on reining in the reform was approved, and its wide margin of support in Congress brought -4% surge quickly. The pandemic dynamic is the key risk in

optimism about additional economic reforms down the road. A few months -6% the short term, as a prolonged outbreak may lead to later, however, the new coronavirus outbreak combined with a still-fragile renewed mobility restrictions and, therefore, increased fiscal situation and lethargic growth to create a perfect storm. -8% demand for further public spending (read: more -10% emergency income programs) in 2021. Once vaccine deployment becomes widespread, other measures are 2011 2017 2013 2012 2021 2015 2010 2016 2019 2018 2014 2022 2007 2003 2020 2005 2006 2009 2008 GDP Growth in Brazil 1997 - 2020 2004 required to maintain public spending on a downward Each bar = 1 quarter trend, such as control of mandatory public sector Source: National Treasury, Itaú. expenditures. The scenario of low interest rates and 10% faster economic growth may create the conditions to 8% reduce public debt in the short term, but those are 6% The next years in Brazil will reflect many of the events only temporary factors. The control of government 4% that took place in 2020. Once the outbreak has been expenditures is the main way to ensure a reduction in 2% (hopefully) tamed, with the fundamental support of the public sector debt-to-GDP ratio. Long-term, the 0% massive vaccine rollout, it will be important to watch path to solid growth in Brazil is increasing productivity. -2% whether the reform agenda regains momentum, Tax simplification, opening the economy and cutting -4% especially regarding changes (such as the reduction of red tape are measures that may improve the economy’s -6% public payroll expenditure) that may lead the country outlook going forward. Without an efficiency agenda,

-8% back to a path of improvement, albeit gradual, in public it is unlikely that Brazil will ever reach growth rates

-10% accounts. The renewed pressure for a reenactment of the capable of catching up with other

-12% emergency aid may lead to above-ceiling expenditures developed economies. 2011 2017 2013 2012 1997 2015 2010 2001 2016 2019 2018 2014 1999 1998 2007 2003 2002 2020 2005 2000 2006 2009 2008 2004

Source: IBGE, Itaú. Brazil economic table

2015 2016 2017 2018 2019 2020 2021F 2022F 2023F 2024F 2025F

The pandemic arrived with devastating effect.Brazil quickly figured GDP % -3.5 -3.3 1.3 1.8 1.4 -4.1 4.0 2.5 2.5 2.5 2.5 among the worst countries in terms of the intensity of the outbreak, with CPI % 10.7 6.3 2.9 3.7 4.3 4.5 3.8 3.3 3.0 3.0 3.0 the death toll becoming the world’s second highest by early June. As a Exchange Rate - BRL/USD (end of period) 3.96 3.26 3.31 3.88 4.03 5.19 5.00 5.00 4.85 4.85 4.85 response, both fiscal and monetary stimuli were substantial. The Monetary Policy Rate dropped to 2.0% pa, an all-time low that would last until the Monetary Policy Rate - % (end of period) 14.25 13.75 7.00 6.50 4.50 2.00 5.00 5.00 5.00 5.00 5.00 first couple of months of 2021. Several credit and liquidity measures were Current Account Deficit (% of GDP) 3.0 1.3 0.7 2.2 2.7 0.9 -0.2 0.7 0.7 0.8 0.7 deployed to help citizens and businessess bear the worst moments of the Nominal Fiscal Balance (% of GDP) -10.2 -9.0 -7.8 -7.0 -5.8 -13.7 -6.7 -6.0 -4.3 -3.8 -3.5

crisis. On the fiscal front, the spending cap was temporarily suspended, Gross Public Debt (% of GDP) 65.5 69.9 73.7 75.3 74.3 89.2 83.8 83.0 81.9 81.7 80.9 and stimulus reached 7.5% of GDP in terms of impact on the primary result, including direct cash transfers to the most affected population, the so-called emergency income aid programme. While those stimuli indeed contributed to support the economy – Brazil is likely to register one of the mildest GDP drops in Latin America, at -4.1%, in 2020 – the fiscal deterioration was quite severe, bolstering the need for further reforms as a way to guarantee fiscal sustainability ahead.

Page 34 - LatAm Outlook 2021 Page 35 - LatAm Outlook 2021 Chile

Chile was already facing a challenging environment Draining savings process is underway, presidential and legislative administration and congress face an uncertain legal even before the pandemic started. During 2019, the elections will be held on November 21. The opposition framework as, by the time they take office in March 90% 20 Chilean economy was initially hindered by the ongoing aims at capitalising on the low popularity of the 2022, the constitutional convention would only just be trade war between the US and China that slowed down 15 incumbent administration, damaged by the response finalising its session and citizens would not have voted 80% global growth, and negatively affected commodity 5 to the social unrest and the impact of the Covid-19 to ratify a new constitution yet. prices. The improving external outlook at the close 70% 10 Net Debt lockdown. Nevertheless, division on the left and of the year was countered by a sudden outbreak of 0 potential reluctance to coalesce around one candidate To face social challenges, the government will no social unrest that led to further economic damage could leave the door open, much like in 2017, for the longer have the same level of resources. Eventual tax % of GDP % of 60% -5 (both physical and through business and consumer right coalition’s candidate to be successful. Irrespective and pension reforms will have to dedicate a large part -10 confidence). The monetary, fiscal and cross-party 50% of the presidential election outcome, uncertainty of their efforts to replacing lost resources. However, the political response (including the beginning of a process -15 will endure into 2022. Even centre-right candidates constitutional process is an opportunity to build a new to write a new constitution and a sizable fiscal package) 40% -20 acknowledge that traditional free-market policies need political-social pact that generates more solid, reliable was sufficient to stabilise the economy going into 2020, to incorporate more social support aspects to resonate and effective institutions that, along with responding 2012 2010 2016 2018 2014 2020 2002 2000 2006 2008 but heightened uncertainty remained prevalent. Even 2004 with a growing middle class. Meanwhile, the new to the needs of the population, can also support so, President Piñera’s political capital evaporated, AUM Pension system Net public debt1 innovation, entrepreneurship and productivity. Over the complicating the administration’s ability to steer the Scenario excluding withdrawals long term, copper supply from Chile as well as demand political agenda during the remaining years in office. Helped by copper and vaccines for copper may go through structural changes. With Source: Spensiones; Finance Ministry social demands attracting greater fiscal expenditure 400 15% As the economy started to recover during the first (utilising sovereign wealth funds and raising debt), quarter of 2020, the onset of the Covid-19 pandemic after the first quarter of the year.The initiation of an 360 12% vaccinated (1st dose) the flagship state-owned copper producer Codelco during March resulted in a strong shock. Overall, aggressive vaccination rollout plan favours a swift % of population would struggle to find a capital injection needed to the policy response was decisive. The Government economic recovery ahead. While the process began 320 9% modernise its operations. Given that the ore-grade gradually announced policies that mobilised close to slowly, sufficient vaccine doses for the population quality of copper extracted is decreasing, processing USD 30 billion in fiscal resources, providing adequate have been secured, procedural know-how is in place, 280 6% costs would increase, posing a risk to the sustainability funds for the health sector, supporting households and and the government intends to reach 80% of the of the copper-related fiscal revenue. At the same firms, and injecting liquidity into the real economy. population during the first half of 2021. Such a program, (US cent/lb) Copper 240 3% time, private investment in mining may encounter a Tax-related measures supported households and firms, along with surging terms-of-trade and significant more challenging scenario, especially considering while 1.6 million households received cash transfers stimulus measures bodes well for economic recovery 200 0% environmental issues. On the other hand, a meaningful between April and October. Since mid-June and until consolidating later this year. increase of electric car usage and consumption of Jun 20 Jun Feb 21 Feb Jan 20 Jan Nov Nov 20 Sep 20 October, approximately 3 million households received 20 Mar electronics may boost the demand for copper (while a total of around USD 2.8 billion in aid. Meanwhile, But political uncertainty may curb growth. While Copper (US cent/lb) % of population vaccinated (1st dose) lowering demand for oil) and lithium (used in batteries, there were also populist response measures advancing this year was always set to be a busy electoral year an abundant commodity in Chile), lifting Chile’s terms of in Congress that included two early pension fund with congressional and presidential elections, the Source: Bloomberg, Health Ministry trade (besides exporting metals, Chile is an withdrawal requests for around USD 30 billion during new constitutional process gives additional weight to oil importer). the second half of 2020, which acted as a buffer for the calendar. Chileans head to the polls on April 11 to consumption and the exchange rate (as part of the elect the constituent body members that will draft the Chile economic table pension fund assets are abroad). The central bank country’s new charter (a discussion set to begin in Q2 of swiftly took the policy rate to its technical minimum 2021), alongside mayors, local councillors, and regional 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F

(0.5%) and implemented several unconventional governors - the first time these officials will be elected, GDP % 2.3 1.7 1.2 3.9 1.1 -6.0 6.5 3.2 3.0 3.2 3.2 measures to support liquidity and credit. The IMF having previously been appointed. A two-thirds majority CPI % 4.4 2.7 2.3 2.6 3.0 3.0 3.0 3.0 3.0 3.0 3.0 approved the Central Bank’s 2-year precautionary requirement for constitutional provisions to be included flexible credit line for about USD 24 billion. In such a in the new charter law is seen as a deterrent for anti- Exchange Rate - CLP/USD (end of period) 709 670 615 694 753 711 730 730 710 710 710 context, despite local and international developments, market components entering the fray (such as changes Monetary Policy Rate - % (end of period) 3.5 3.5 2.5 2.8 1.8 0.5 0.5 1.3 3.0 4.0 4.0 domestic financial conditions remained stable, with to key economic institutions such as the central bank, Current Account Deficit (% of GDP) -2.4 -2.0 -2.3 -3.6 -3.9 1.0 -1.0 -1.8 -2.0 -2.5 -2.5 long-term interest rates falling, and corporate and or dilution of property rights). Overall, members are Nominal Fiscal Balance (% of GDP) -2.1 -2.7 -2.8 -1.6 -2.8 -7.4 -3.4 -3.3 -2.6 -1.5 -1.0 bank spreads narrowing. By the end of 2020, mobility likely to try expanding the social safety net - placing restrictions were reintroduced as new coronavirus more weight on the role of the state in the provision of Gross Public Debt (% of GDP) 17.3 21.0 23.6 25.6 27.9 33.0 34.9 38.7 42.0 43.0 43.0 cases accelerated. social services and rights, from healthcare to pensions and securing water rights - that could be seen to In the short term, tighter mobility restrictions address some of the recent social discontent. The during the onset of the second Covid-19 wave mean new constitution then faces an obligatory ratification activity should slow down before regaining pace referendum during 2022. While the constitutional

Page 36 - LatAm Outlook 2021 Page 37 - LatAm Outlook 2021 Colombia

The Colombian economy grew at a solid pace in 2019 (above 3%), population. According to the Health Ministry, the bulk shape the political landscape ahead, making populist exceeding peers in the region prior to the pandemic. The dynamic of vaccinations will take place between the end of 2Q candidates more attractive (as is happening in some performance in all major components of domestic demand was and 3Q of 2021. Despite the expected recovery, the other countries of the region). On the other hand, an driven by several factors, including a cyclical recovery following the still-large output gap, exchange-rate strengthening orderly integration of Venezuelan immigrants into the 2014 oil shock, a high rate of execution in public works, and fiscal and favourable inertia support well-behaved inflation economy constitutes an upside risk. The long-term policy incentives that primarily stimulated investment in machinery and stable rates at a low 1.75% pa for a prolonged challenges include export diversification, labour-market and equipment. Meanwhile, low interest rates (in a historical context) period. Meanwhile, the focus this year will also be formalisation and infrastructure advancement. Proven and favourable credit conditions, together with surging growth in on a politically unpopular tax reform. A tax reform oil reserves (less than 10 years of current production) remittances, supported consumer spending. Nevertheless, during aiming to increase revenue collection by 2% of GDP are low, so export diversification and increasing oil the final quarter of the year, national strikes, a spillover from events will likely be unveiled during first half of 2021. In order reserves are crucial. Meanwhile, informality plays in other Latin American countries, slowed the economy. During 2019, to reach the ambitious 2%-of-GDP target (recent against productivity growth in addition to its adverse the Constitutional Court ruled that the 2018 tax reform did not meet reforms envisaged less than 1%), the elimination of VAT effect on tax collection. Finally, poor infrastructure the required procedural steps, which invalidated the entire proposal. exemptions is key. On the other hand, the government (mainly related to transportation) will continue to be on Nevertheless, Congress approved a new version that became ruled out the privatisation of state-owned companies, the government agenda in the long term. effective at the start of 2020. Even so, the increase of public debt but it is open to selling a stake in an energy company remained a concern even before the coronavirus outbreak hit. to Ecopetrol (which has part of its capital held by the private sector, but is state-controlled). A structural tax Macro fundamentals are weakening With the onset of the Covid-19 pandemic, the Colombian economy reform is necessary to stave off the loss of the country’s 60% faced an unprecedented shock due to the dual nature of mobility investment-grade rating. The government’s low political restrictions and the global oil price decline. The intensity of the capital, the economic struggles prevalent amid the 50% recession was due to the retention of one of the most stringent ongoing pandemic and the approaching elections in and long-lasting nationwide quarantines (through to August). 2022 will likely deter representatives from supporting 40% The implications for the labour market were substantial. Given the politically unpopular measures (such as eliminating monetary and fiscal policy framework of the Colombian economy, certain VAT exemptions). As a result, a watered-down 30%

a quick response against the shocks unfolded, although not on the reform is more likely than a more comprehensive one. GDP % of same magnitude as others in the region given fiscal constraints 20% and a wide current account deficit. The central bank responded by Risks for the Colombian economic outlook include the lowering interest rates by 250bps to a historic low of 1.75%, providing domestic political scenario, Venezuela’s crisis, and 10% liquidity to avoid disruptions in the payment systems and contribute external financial conditions.The troubled political 0% to credit supply by financial institutions and helping to stabilise the environment makes fiscal consolidation difficult, putting 2012

FX market (through REPOs, an NDF and FX swaps program). Thanks 2010 2016 2018

upward pressure on public debt, increasing credit risk 2014 2002 2000 2006 2008 2004 to the central bank’s credibility, inflation expectations remained close premium and reducing potential growth. A further 2020F to the 3% target. Colombia improved its external liquidity through increase in the flow of Venezuelans to the country Net external debt (public & private) the increase of the Flexible Credit Line (FCL) with the IMF to USD may put additional pressure on fiscal accounts. Also, Net central Government debt 17.2 billion. The Colombian fiscal authorities drew a portion of the given wide twin deficits, the Colombian economy is augmented FCL for budgetary support (around USD 5.3 billion). vulnerable to changes in external financial conditions. Source: Central Bank, Finance Ministry The fiscal response package during the pandemic was around 4% While general elections are still far off (to take place of GDP, including cash transfers to the most vulnerable parts of the in 2022), the development of the economy could population, VAT rebates for the poor, subsidising part of workers’ pay and delaying income tax payments. Credit guarantees for working capital, payrolls, independent workers and microfinance totalled Colombia economic table between 5% and 6% of GDP. During the second half of 2020, as mobility restrictions were eased, and stimulus measures took hold, the 2015 2016 2017 2018 2019 2020 2021F 2022F 2023F 2024F 2025F

economy showed a significant recovery. GDP % 3.0 2.1 1.4 2.6 3.3 -6.8 5.0 3.5 3.4 3.2 3.2

CPI % 6.8 5.8 4.1 3.2 3.8 1.6 2.8 3.0 3.0 3.0 3.0 The second Covid-19 wave at the close of 2020 led to record-high new cases and a retightening of mobility restrictions at the start of Exchange Rate - COP/USD (end of period) 3175 3002 2932 3254 3287 3428 3450 3550 3450 3350 3250 2021. As a result, the recovery process is set to slow before regaining Monetary Policy Rate - % (end of period) 5.8 7.5 4.8 4.3 4.3 1.8 1.8 3.5 4.5 4.5 4.5 pace later in the year amid a more benign global environment Current Account Deficit (% of GDP) -6.3 -4.3 -3.3 -3.9 -4.3 -3.3 -3.4 -3.4 -3.3 -3.2 -2.7

(including higher oil prices) and favorable developments on the Nominal Fiscal Balance (% of GDP) -3.0 -4.0 -3.6 -3.1 -2.5 -7.8 -8.6 -4.0 -2.5 -1.8 -1.5 Covid-19 vaccine front. Colombia has secured deals that would vaccinate around 35 million people, covering nearly 70% of the total Gross Public Debt (% of GDP) 44.6 45.6 46.4 49.4 50.2 64.8 66.2 65.2 63.7 62.2 60.7

Page 38 - LatAm Outlook 2021 Page 39 - LatAm Outlook 2021 Mexico

Mexico’s economy was already growing at a weak to-GDP ratio in Mexico means that the impact on pace before the outbreak erupted, partly reflecting activity was more limited than in other LatAm markets. uncertainty emerging from policy direction. The left- Furthermore, the level of real interest rates stood above wing President Andrés Manuel López Obrador took those of Mexico’s peers as inflation took longer office in December 2018 and started implementing to moderate. several micro policies in 2019 that, in addition to the renegotiation of the trade treaty with the U.S. (USMCA), The ruling party, Morena, will face its first important generated uncertainty and affected business sentiment electoral challenge in 2021, a year in which we expect in Mexico. The policies implemented included the the economy to recover, boosted by the U.S. economy. cancellation of an airport project using a dubious On June 6, the lower chamber (where Morena & referendum, strengthening energy state monopolies allies currently have a qualified majority) and 15 at the expense of the private sector (suspension of oil governorships (14 currently ruled by the opposition) will auctions, limitations on renewable energy), and large be renewed. AMLO’s resilient approval rating (around increases in the minimum wage. In this context, Mexico’s 60%), likely explained by his critical stance of corruption GDP was -0.1% in 2019” (contrasting with a potential scandals in past administrations (run by PRI and PAN) GDP growth of around 2%), with private investment and despite his handling of the health and economic being one of the main drags as it fell by 3.4%, while crisis, increases the odds of his party keeping its seats. private consumption grew at a soft pace (0.6%). In this context, AMLO will likely maintain control of most of the legislative agenda, as his party and allies are expected (according to several polls) to keep at Exports soften GDP collapse least a simple majority in the lower chamber (and Senate). In the local elections, Morena could increase 10% its presence and strengthen its political base for the 5% presidential election in 2024. On the economic front, we 0% expect GDP to grow 6% this year, driven mainly by the -5% external demand (U.S. economic activity) and assuming -10% vaccine rollout is enough to allow for a reopening of -15% the economy soon (around 2% of the population has -20% been inoculated already). Despite this, prevailing Upside risks to our outlook are related to the current On the other hand, the lack of a structural reform -25% uncertainties over domestic policy direction and more administration becoming more pragmatic with micro agenda to increase productivity and a credible policy -30% prolonged lockdowns than expected could curb policies, which would reduce uncertainty. In particular, to tackle insecurity are key challenges to the Mexican yoy seasonally-adjusted yoy -35% the recovery. allowing private participation in the energy sector economy. Low productivity is associated with a still- -40% again would reduce the need for fiscal resources for the high informality rate (55.8%), low credit penetration and state oil company (PEMEX) and send a reconciliation weak rule of law. Moreover, the presence of organised 1Q19 3Q19 4Q18 1Q20 2Q19 4Q19 3Q20 2Q20 4Q20 Energy sector faces challenges signal to the private sector. In the long term, Mexico crime hinders business sentiment. Finally, clashes with could benefit from a more consumption-intensive the Biden administration over labour and environmental 3.3 900 Manufacturing exports Domestic demand1 Chinese economy as it would erode its competitiveness issues should be monitored. 3.1 800 GDP as a manufacturing exporter, helping Mexico’s 2.9 700 manufacturing sector. Source: INEGI 1Itaú’s forecast for 4Q20. 2.7 600

2.5 500 bps The Covid-19 outbreak sharply affected the economy 2.3 400 Mexico economic table in 2020 amid a limited fiscal policy response. The 2.1 300 1.9 200 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F contraction - larger than in most countries of the region a day barrels Million

- is due to a mild fiscal stimulus (less than 1% of GDP), as 1.7 100 GDP % 3.3 2.6 2.1 2.2 -0.1 -8.2 6.0 3.0 2.0 2.0 2.0 policy makers placed more importance on keeping solid 1.5 0 CPI % 2.1 3.4 6.8 4.8 2.8 3.2 3.5 3.3 3.3 3.3 3.3 fiscal accounts (even so, gross public debt increased Exchange Rate - MXN/USD (end of period) 17.2 20.7 19.7 19.7 18.9 19.9 19.0 19.5 9.4 19.5 19.4 Jun 17 Jun Jun 10 Jun Dec 13 Dec Dec 06 Dec to 53.8% of GDP, from 46.8% of GDP by the end of 2019 20 Dec due to a lower GDP base). In contrast, the central Monetary Policy Rate - % (end of period) 3.25 5.75 7.25 8.25 7.25 4.25 3.75 3.75 5.00 5.50 5.50 bank stepped in by cutting the policy rate by 300 bps PEMEX CDS 5-year (rhs) Oil production Current Account Deficit (% of GDP) -2.7 -2.3 -1.8 -2.1 -0.3 2.4 1.8 0.6 -0.3 -1.0 -1.5 since March 2020 (currently at 4.00%) and announcing Nominal Fiscal Balance (% of GDP) -3.4 -2.5 -1.1 -2.1 -1.6 -3.0 -2.9 -2.1 -2.6 -2.8 -2.9 several liquidity measures. Although the relaxation of Source: INEGI monetary conditions was significant, the low credit- Gross Public Debt (% of GDP) 45.4 49.4 46.9 46.8 46.8 53.8 53.2 51.7 50.7 50.5 50.5

Page 40 - LatAm Outlook 2021 Page 41 - LatAm Outlook 2021 Peru

The Peruvian economy slowed down in 2019 amid over Vizcarra’s impeachment and was replaced by the A more flexible labour market and further dollarisation of the banking system has fallen, it is still political confrontation between Congress and the new Congress head Francisco Sagasti, who will remain de-dollarisation of the financial system are key significant, at 32.8% of deposits and 20.7% of credit as of executive power. GDP growth in 2019 stood at 2.2% in office until July 2021, when the new president challenges for the Peruvian economy. Current hiring January 2021. Structural shifts in the demand for copper (from 4.0% in 2018) in a context of lower commodity takes office. and firing practices incentivise informality. Structural (linked to the electric car industry) is an upside risk, but prices. In addition, internal demand was affected by reforms associated with reducing firing costs would protests against mining projects are a risk in the opposite a delay of public capital expenditure execution at the hamper informality, improving productivity. While the direction. local and regional level due to the lack of experience Strong macro fundamentals to face in most of the newly elected government officials, with political crisis public investment falling by 1.4% in 2019 (from 5.6%). The Peru economic table year 2019 was marked by a persistent clash between 40% 120 the President and the legislative power, associated 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F 35% with differences in political reforms and the emergence 100 GDP % 3.3 4.4 2.1 4.0 2.2 -11.1 10.7 4.5 3.5 3.5 3.5 30% of corruption scandals, which ended up with the CPI % 80 4.4 3.2 1.4 2.2 1.9 2.0 2.5 2.3 2.5 2.5 2.5 dissolution of Congress after President Vizcarra asked 25% bps Exchange Rate - PEN/USD (end of period) 3.4 3.4 3.2 3.4 3.3 3.6 3.5 3.6 3.6 3.6 3.5 the legislative body to hold a vote of confidence to 20% 60 Monetary Policy Rate - % (end of period) 3.75 4.25 3.25 2.75 2.25 0.25 0.25 1.00 2.25 4.25 4.25 halt the congressional selection of six supreme court GDP % of 15% judges, which the legislators disregarded. Legislative 40 Current Account Deficit (% of GDP) -5.0 -2.6 -1.3 -1.7 -1.5 0.5 1.0 0.1 -0.5 -0.8 -1.4 10% elections were held in January 2020 which resulted in a 20 Nominal Fiscal Balance (% of GDP) -1.9 -2.3 -3.0 -2.3 -1.6 -8.9 -5.9 -3.7 -1.8 -1.1 -1.0 5% fragmented Congress. Gross Public Debt (% of GDP) 23.3 23.8 24.9 25.8 26.8 35.0 36.4 36.5 35.6 33.3 32.0 0% 0 Peru was one of the Latin American economies hardest 4Q17 4Q16 4Q19 4Q18 hit by the Covid-19 outbreak during the first half of 4Q20 2020, despite stringent social distancing measures. Reserves Net public debt1 SYR CDS (rhs) The economy fell by 26.3% quarter over quarter in the 2Q of 2020 but started to recover in the following Source: BCRP, INEI. 1Itaú’s forecast for 4Q20 quarters as distancing measures were eased in tandem with a containment of the outbreak (we estimate GDP fell 11.1% in 2020). The recovery was also supported by Political turmoil is unlikely to settle with the general a large fiscal and monetary stimulus. The total stimulus elections in 2021, but we expect the economy to amounted to around 20% of GDP: tax relief measures recover supported by better terms of trade and an (2.3% of GDP); liquidity measures (13% of GDP) and expansionary monetary policy stance. The context expenditure programs (4.6% of GDP). While fiscal in which elections take place is likely to boost the accounts deteriorated due to the fiscal stimulus, Peru competitiveness of anti-establishment candidates. The entered the outbreak with ample fiscal space (gross persistent political turmoil and corruption scandals of debt stood at 35% of GDP in 2020, from 26.8% of GDP the past decade have likely increased the distrust of the in 2019). Finally, the central bank also implemented an population in the mainstream political class, while the expansionary monetary policy, cutting the policy rate to negative effect of the health and economic crises 0.25% (200-bps since March 2020), an all-time low. increases the attractiveness of populist proposals. On the other hand, Congress is likely to remain fragmented Political risk also intensified in the middle of the public (as recent polls indicate), which will make governability health crisis, while Congress pushed for populist challenging. While the election of an anti-establishment measures. Legislators consistently pushed for populist candidate does not necessarily imply that the executive measures in a bid to improve voting intentions for their power will pursue market-unfriendly policies (including parties in the upcoming Presidential and Congress an overly lax fiscal policy), congressional fragmentation elections, despite protests by the executive power. and incentives for lawmakers to continue to push for For instance, Congress approved an initiative to allow populist measures are a key risk. In this context, we early withdrawals from private pension funds and expect GDP growth of 10.7% for 2021. However, political an initiative allowing the central bank to set a cap for uncertainty and a slow vaccination process could curb the interest rate paid on loans. Martin Vizcarra was the recovery. impeached by Congress on November 11 on corruption allegations and Congress head assumed the role of interim president. However, Merino resigned a few days later, pressured by social protests

Page 42 - LatAm Outlook 2021 Page 43 - LatAm Outlook 2021 Health Outlook Dr Clare Wenham, Assistant Professor of Global Health Policy, London School of Economics

Introduction

In the last 20 years, routine health outcomes non-communicable diseases, including diabetes, across Latin America have improved. Life and cancers. expectancy has risen by 4 years, infant mortality has fallen by 35% and maternal mortality by 36%. Health spending has increased 3% year on year The epidemiological transition has been well since 2000, averaging 1000 USD per capita. established and 82% of all deaths were due to Yet much of this is lost in bureaucratic systems cancers and cardiovascular disease. These are and doesn’t go to direct costs of healthcare linked to the increasing epidemic of obesity across utilisation. Moreover, 34% of spending is out-of- the region: 61% of women and 53% of men. Whilst pocket payments (where individuals have to pay the drivers of obesity are multifaceted, the influx partial or all direct costs for health, rather than of fast food and sugary drinks, directly related to through state provision or insurance mechanisms), the North American Free Trade Agreement (NAFTA) with up to 2% of the regional population facing and availability of produce, has compounded the catastrophic poverty as a consequence of health condition. This is amid a context of increasing other care expenditure.

Page 44 - LatAm Outlook 2021 Page 45 - LatAm Outlook 2021 Coronavirus

The major health story for the next 5 years will be the continuation of Covid-19, susceptible and natural immunity may not introduced to respond to the virus, including vaccination roll out and the downstream effects of the outbreak on health systems, prevent reinfection. absorbing the additional care work as healthcare whereby the focus on Covid-19 for the last year has meant that other health workers, additional domestic labour due to school The role of the fake news and conspiracy theories, and workplace closures, greater risk of job loss conditions have gone undiagnosed and/or health services have ceased provision dubbed the “infodemic” should also not be (owing either to domestic responsibilities, or of non-urgent healthcare. underestimated. This is correlated with those employment in sectors most affected by lockdown places which have had particularly bad rates of e.g. tourism, hospitality, retail), reduced access Covid-19, including Brazil, Peru and Ecuador, even to sexual and reproductive health services, and Incidence being state sponsored in some places, such as increased risk of domestic violence. Bolsonaro’s denialism of the outbreak. The risk of Latin America has 8.2% of the world’s population, not converted into better management of Covid-19. this isn’t just increased transmission, cases and yet as of the end of 2020, Brazil, Mexico, Colombia, This is at odds with those in Southeast Asia who death, but this lack of trust in government and/or Chile, Peru and Argentina had recorded 16.5% of have learned lessons from previous outbreaks. science can spill over into vaccine hesitancy global cases. Brazil, Mexico, Argentina, Colombia, Whilst public health capacity in both cases has going forward. and Peru have the highest death rate in the region. been strengthened in the wake of previous crises, Brazil has the second highest death toll worldwide, different governments have shown the role that and Peru has the highest deaths per capita in political leadership and prioritisation has in the Social determinants the region, followed by Argentina, Mexico, Brazil, trajectory of the epidemic. For example, decisive and Chile. One forecast suggests deaths in Latin action in the early stages of the epidemic has As with global trends, Covid-I9 exposes the America and the Caribbean could reach more than led to Uruguay not suffering anywhere near the faultlines across society, disproportionately 646,000 by April 1, 2021. Yet, many raise concerns number of cases or deaths as their neighbours in infecting and affecting the most marginalised of widespread underreporting, owing to limited Argentina and Brazil, which even after accounting across society. It is no coincidence that Latin surveillance and testing capacity. for differences in health care systems come down America is suffering from some of the highest to the willingness of the government to take the rates of Covid-19 infection, and also some of the Governments across the region have launched a threat of Covid-19 seriously. This is a contrast to staunchest inequalities. 75% of the population live wide-ranging response to the crisis, with different the Bolsonaro administration, dubbing Covid-19 on low wages while 30% live below the poverty countries launching different mechanisms and a “little flu” and failing to implement any federal line. Poverty has increased across 2020 as a non-pharmaceutical interventions to mitigate the control measures to combat the spread of consequence of Covid-19 infection and associated spread of the virus. This has been supplemented infection, with the result of the highest death toll in public health interventions, such as lockdown, by emergency funding from Mercosur, Andean the region. social distancing, closure of civic spaces etc: 231 Community, PAHO and SICA. The responses have million people in the region are living in poverty varied from strict quarantine and border control, Manaus (Brazil) and Iquitos (Peru) are two of the as of the start of 2021. What’s more 50% of the as seen by the Bukele government in , cities worst hit globally, and have been the focus of population work in the informal sector, which not to Brazil where Bolsonaro’s federal government much scientific research. As remote communities only exposes them to poorer health outcomes has refused to adopt national measures to with limited public health provision and/or hospital owing to the social determinants of health, but the manage Covid-19, leaving a disconnect between capacity, many thought these cities reached lack of social protection or employment security the federal, state and municipal response to the quasi herd-immunity during the first wave of the means that these people will continue to work even crisis, ultimately leading to the highest incidence in pandemic, as there had been limited interventions if infected with Covid-19 and/or at risk of infection the continent. Many in the region are particularly by government to limit infection spread. Thus, as they cannot afford to isolate. To compound this, concerned about the outbreak in Venezuela, noting these locations were a natural experiment as to the pandemic will exacerbate inequalities and the collapse of the public health system prior to the spread of infection. Community level analysis increase health concerns associated with poverty, the pandemic. in July 2020 demonstrated 71% infection in Iquitos which in turn threatens the capacity of state and 76% in Manaus. However, the impact of healthcare systems, which they will be ultimately Whilst for some states this was the first time that the pandemic in Manaus in the second wave unable to manage. governments had faced such pathological threats (December and January 2020/21) demonstrates in recent time, Brazil and Mexico both had recent that herd immunity has not been reached, and It is also increasingly apparent that whilst experiences with public health emergencies of indeed reinfection is a serious concern. This will be men suffer from worse health outcomes of the international concern; with H1N1 in Mexico in 2009 of concern to many governments in the region who Covid-19 pandemic, being more likely to have and Zika in Brazil in 2016. Whilst both governments will be bracing themselves for continued waves of severe symptoms, and increased likelihood of ICU were widely praised for their management of these the pandemic in the coming years, if despite high admission and death, women disproportionately previous health emergencies, this experience has case numbers, much of the population remains experience the secondary effects of the policies

Page 46 - LatAm Outlook 2021 Page 47 - LatAm Outlook 2021 America. One option in public debate would be Total Confirmed Doses by Country and to permit generic production of the vaccines Vaccine Candidate elsewhere at lower cost, such as in pharmaceutical production plants in low and middle income settings, as occurs with other off-patent medicines. Brazil Whilst intellectual property of the vaccine is Mexico

protected by patents, in the case of public health Chile emergencies there is a waiver under the Trade Related Aspects of Intellectual Property (TRIPS) of Peru the World Trade Organisation which allows for this, Argentina

as was used for the production of antiretroviral Colombia drugs in for distribution to South Africa

during the height of the HIV/AIDS crisis. This will 0 50m 100m 150m 200m 250m likely remain a point of contention for many years, particularly when more is known about how long Oxford/AstraZeneca Pfizer/BioTech vaccines confer immunity, and whether individuals Janssen (J&J) Moderna would need to take regular vaccines to create Sinovac Gamaleya Research Institute the antibody response, such as for Other Manufacturer influenza vaccination. Other manufacturers: Sanofi-GSK, Novavax, CureVac, Sinopharm, Valneva, Medicago, CanSino Biologics, Bharat Biotech, Arcturus How access to the vaccine varies Therapeutics throughout the region Source: Global Health Innovation Center, Duke University Vaccines

The first vaccine in the region arrived in Mexico created, or are in the process of creating, on 23rd December 2020. Argentina, Brazil, expedited regulatory pathways to approve Colombia, Chile Mexico and Peru all participated vaccine use, as well as having established in vaccine clinical trials or storage in exchange national taskforces reviewing evidence for vaccine for access to the products when developed. introduction, which includes agreeing on the target Vaccines have been procured through bilateral groups for the vaccine rollout. All countries in Latin agreements with pharmaceutical firms, and America have signed up to COVAX, a mechanism through the WHO coordinated COVAX scheme for for accessing vaccines through a global pooled equitable distribution. Yet, on analysing the volume mechanism leveraged by WHO to ensure equitable purchased and production timelines, alongside distribution and access to global vaccine supply. purchasing power, population size, delivery Whilst systems have been set up to procure and infrastructure (cold chain supply, administrative regulate the vaccine candidates, the area of systems, trained vaccinators) and political will, concern is in implementation: large swathes of the it’s likely that it will take a number of years for region lack the capacity and resources to deliver widespread vaccination at population level. the vaccine, including training for healthcare staff, Current analysis suggests that Brazil, Argentina administrative and logistical capacity, and cold and Chile should have widespread vaccination chain requirements. rolled out by mid-2022. Colombia should manage this by end 2022, and Peru would be 2023 Access to vaccines in Latin America is limited by onwards. In the meantime, it is important to assess production scalability. Many high income countries which groups are being given priority access to moved early to agree advance price agreements Eligible for preferential access via COVAX vaccination in the region. For the most part, those with pharmaceutical firms whilst the vaccines were No bilateral purchases being vaccinated first are frontline healthcare in early clinical trials. Whilst these contracts are Less than 1 dose per capita via purchases outside of COVAX workers, people considered to be most vulnerable confidential and subject to legal precedent, it is More than 1 dose per capita or 2 per capita to severe Covid-19 if infected, those aged over 75, thought they might include clauses for preferential and others with underlying health conditions. and priority access. Moreover, many high income Source: Duke Global Health Innovation Center data set, as of 4 settings have ordered more doses than they need, January 2020. The map does not include other negotiations in progress, and the data per capita does not include acquisitions that There is a mixed picture of readiness for vaccine and as supply is limited by manufacturing capacity, are made via COVAX. delivery. Most countries in Latin America have this has a knock on effect on availability for Latin

Page 48 - LatAm Outlook 2021 Page 49 - LatAm Outlook 2021 A further variable in the vaccine story is a real education and younger people less likely to accept including for breast and cervical cancers. This will consideration of which vaccines have been a vaccine. This is actively linked to being exposed be hugely costly, and will place a continued strain procured by each of the countries and how to anti-vax messaging on social media. Many on health systems, requiring increased financing. effective these may be in the real world (compared governments under-estimate the importance of PAHO has stated that this is the priority for them to in clinical trials), and/or whether new strains this in their exit strategies (if these exist), but this in supporting countries in Latin America in 2021, to emerge for which different vaccines have different may prove a weakness prolonging the crisis. restore quality clinical management for those with efficacy. For example, Brazil has purchased Oxford NCDs whose needs have gone unmet during the Astra-Zeneca, Gamaleya (Russia) and Sinovac Covid-19 will remain an important issue for pandemic. Governments will also need to re-focus (China) whereas Mexico has Astra-Zeneca, Pfizer, health in Latin America until such point as there on prevention efforts to reduce greater burden of Gamaleya and CanSino, and such variability is widespread vaccination and low community NCDs, prevention programmes which have gone continues. At present, we know that different transmission. With only one of those in place, such unfunded or unstaffed in several locations. This vaccines have different % success at preventing as currently in Uruguay, travel restrictions and will include tobacco, alcohol and sugary food and severe outcomes of infection: the Pfizer vaccine is point of entry controls will remain in force. This will drink prevention. This is in stark contrast to the 95% effective after 2 doses, compared to the Astra have a knock on effect on a return to social, civil further challenge of food insecurity which many Zeneca vaccine at 70%. This means that those and economic life, as continued social distancing people in Latin America are experiencing as a countries reliant on the Astra Zeneca vaccine may continues to impact trade patterns, regional consequence of livelihoods lost and supply continue to experience populations with severe travel, and disruption to routine production and chain disruption. Covid-19 symptoms, and thus continue to suffer the distribution of goods. burden of the virus on health systems. Mental health for many has been devastated during the pandemic, with fear of the pathogen, Moreover, until community transmission is driven Health system impact economic insecurity for some (such as those in down, it is likely that new variants will continue to lowest socio-economic groups) and social isolation emerge. This has been recently seen with the UK, Beyond the direct effects of Covid-19 infections (for those who can afford to isolate). Mental health Brazilian and South African variants, questioning and the impact this is having on populations concerns have risen during the pandemic across whether the current vaccination regime will be and the capacity of health systems to be able to Latin America, and are acutely affecting younger sufficient to provide protection against these manage the outbreak, there will be a number of populations and adolescents, and women more strains. This illustrates why vaccination must be indirect effects of the pandemic on individuals’ than men. For the health system this is a concern part of a broader Covid-19 strategy which includes health which will also be important to monitor and as one survey showed 3 out of every 4 young reduction of community transmission through mitigate in coming years. The distortion of health persons felt the need to reach out for support with effective track, trace, isolate and support systems; systems to cope with the demand of the pandemic their physical or mental health during 2020, but strict border control and travel restrictions to has meant that in many locations, health systems only 40% asked for help. prevent reintroduction of the virus or new strains; have moved some services online or via phone, or and at the same time vaccination of those most at have postponed / cancelled other health inventions At the same time, many governments will seek risk of severe illness. and activity. 89% of healthcare professionals in the to strengthen capacities to prevent, detect and region were reassigned during the pandemic to respond to future outbreaks, in order to prevent A further key concern across Latin America is frontline or emergency activity. a repeat of Covid-19. Financing will need to vaccine hesitancy. However, MIT have recently come from public budgets for this, with increased estimated that 75 % of Brazilians, 64% of This has particularly affected care for non- borrowing a likely mechanism for capitalisation, as Argentinians, 65% of Colombians, 61% of Chileans, communicable diseases (NCDs) (which were the taxes are unlikely to be increased during financial 70% of Mexicans, and 71% of Peruvians say they highest burden of mortality and morbidity in the pressures for most households during Covid-19. would get vaccinated. Although, this is significantly region prior to Covid-19) and outpatient care – 18 A key part of this will be workforce development, below the level of herd immunity required countries in the Pan American Health Organisation ensuring that recruitment of healthcare workers, (approximately 85% coverage) for vaccine rollout (PAHO), the regional body of the World Health high level training and standardisation across the to be the only intervention used by governments, Organisation which represents the Americas have region will take place. Given the direction of global trust in vaccines has been improving in partially suspended outpatient activities, and policy change in relation to prevention of future recent months. As such, it is likely that other two have completely halted such provision. Once epidemics, it is likely that governments may have public health measures will be needed, including the pandemic is managed, the mammoth task to strengthen protocols such as the International continued social distancing and work at home will start to move through the backlog of health Health Regulations, or be required to have external orders. What’s more, we do not yet have accurate concerns which were delayed. Ultimately, this will evaluation of current capacity to respond to data as to whether vaccine reduces transmission have led to some people missing treatment and/ outbreaks on a regular basis to improve of disease or only severe illness. Research into or not getting diagnosed with conditions in the global compliance. vaccine hesitancy in the region has shown that this early stages, ultimately leading to more costly is most likely to affect low socio-economic groups, care, and preventable deaths. For example, 43% indigenous and black communities, those with less of routine screening programmes were halted,

Page 50 - LatAm Outlook 2021 Page 51 - LatAm Outlook 2021 Mosquito Borne Disease Sexual and Reproductive Health

A further area which will suffer be considered a public health without adequate physical Argentina made global headlines in 2020 as the and cultural barriers prohibit many women from the prioritisation of health emergency of international infrastructure or screens to Senate and House voted to legalise abortion up seeking safe care. It is estimated that almost half sector activities for Covid-19 is concern. prevent mosquitos entering the to 14 weeks of pregnancy, the first country in the unintended pregnancies in Latin America end in disease control for arboviruses homes and creating reservoirs of region to have done so since Uruguay in 2012. clandestine abortion, of which this contributes 10% “(mosquito borne diseases) Alarming trends have emerged eggs, and poor civic sanitation Yet the remaining governments in the region still of the region’s maternal mortality. Contraceptive across the region. The largest during 2020 of cessation or activity, which in turn facilitates have strict regulatory regimes over reproductive access is equally patchy across much of the arbovirus epidemic, that of reduction of mosquito control the spread of arboviruses. The rights. It is estimated that 24 million women want region, with supply and distribution challenges, Dengue Fever started in Latin programmes across Brazil, ability to understand the impact to avoid pregnancy, but do not have access to conservative and religious social values which America in 2018. In 2019 there Peru, Colombia and Argentina of dengue currently across the modern contraceptive methods to do so. Between prohibit its use, and many women still needing were 3.1m Dengue infections, as resources were diverted region is also hampered by a 2015-2019, 32 out of every 1000 women in Latin to pay for provision, despite it theoretically being followed by 2.2m in 2020 (these to Covid-19 control. This is of reduction in testing in several America sought an abortion, compared with 11 out free at point of access within many Latin American are the highest rates recorded particular concern in areas of countries as a consequence of of 1000 in high income settings (e.g. Europe) where health systems. This is likely to be even more acute in the region to date). Moreover, acute risk for arbovirus infection: Covid-19 prioritisation, with the abortion is legal. in the wake of Covid-19 whereby there has been it is thought that the cases in 25% of the region’s population result that this silent epidemic widespread supply chain disruption and many 2020 are widely under-reported does not have access to water, is likely spreading much more Whether the Argentinian case will lead to broader women have preferred not to visit health centres owning to the lack of health and this rises to up to 81% in rapidly across the region reform in the region remains to be seen, but it to access services for fear of disease transmission. system capacity and community some urban and suburban undiagnosed. has certainly galvanised activist energy that This must be understood in the context where healthcare worker availability areas, and in poor housing change may be possible. This comes alongside increased rape and domestic violence is occurring during the pandemic period. high profile cases, such as in Brazil in 2020 where during the pandemic, and as a result we are Over half the cases have been a 10-year-old was harassed during her legally seeing increasing rates of unwanted pregnancies in Brazil, followed by , Reported dengue cases and proportion of severe cases, obtained procedure, facing civil prosecution and across the region. Domestic violence is notoriously Mexico, Bolivia, Colombia, Peru Americas region, 1999-2020 conscientious objection in her home city, and hard to quantify, given significant under reporting, and Argentina. Whilst mortality having to fly over 2000 kilometres from Espírito but proxy metrics such as femicide and calls is low for Dengue, the impact is Santo to Recife to access safe termination. In to domestic violence hotlines go part way to 3.5m 4 on morbidity, and the long-term the wake of this case the government amended highlighting the scale of the problem. In Argentina,

3m 3.5 Proportion of severe symptoms and complications dengue cases (%) guidance in the case of termination on grounds a woman was killed at the hands of a partner 3 that some people suffer. This 2.5m of rape, incest or anencephaly (where a baby is every 29 hours in 2020. In Colombia calls to 2.5 impacts their ability to work or 2m growing without a brain) to require that anyone domestic violence hotlines increased by 150% in remain in education, and poses a 2 seeking permitted abortion to be reported to the 2020 compared to 2019. 1.5m burden to the health system. 1.5 police – criminalising legal behaviour, and to offer 1m

Number of cases of Number 1 ultrasound screening. At the same time, activists in This comes on the back of the 500k 0.5 the region will likely use the Argentine precedent Zika crisis in 2016, the first known 0 0 to push for liberalisation of abortion elsewhere, outbreaks of Chikungunya in such as Brazil, Peru, Chile and Mexico where 2011 2017 2013 2012 2015 2001 2010 2016 2019 2018 2014 1999 2007 2003 2002 2020 2005 2000 2006 2009 2008 the region, and a resurgence 2004 abortion is illegal. Yet, this must be understood of Yellow Fever across Latin Year of report amid the conservative wave across many Latin America with 200,000 cases American states, where conservative values annually and up to 30,000 dominate political parties, the policy community, deaths. This was serious Total of dengue cases Proportion of severe dengue cases thought leaders which influence policy, and enough for the WHO to discuss many healthcare workers. Even where abortion whether Yellow Fever should Source: Health Information Platform for the Americas (PLISA, PAHO/WHO) is legal, such as Colombia, significant structural

Page 52 - LatAm Outlook 2021 Page 53 - LatAm Outlook 2021 Migration Anti-Microbial Resistance

The health impact of the Venezuelan crises and Whilst multidrug resistant organisms are a major the continued caravans through Central America concern globally, this is particularly true in Latin should not be underestimated. This is continent- America. It is estimated that these cause more wide, but particularly felt by Colombia and than 50% of hospital associated infections in Brazil, Mexico. In Colombia it is estimated that there are Bolivia and Peru. The impact of this resistance can an additional 6 million people putting pressure be valued at up to 1.6% GDP as governments have on the health system, many of whom have had to manage the spread of resistance through a no access to healthcare or preventative services range of public health measures, and the knock on given the deterioration of the health system in effect on prices of animal trade if they are thought Venezuela. This pressure is particularly felt in to have resistant infection. sexual and reproductive health services (with many women coming across the border pregnant, There are no systematic surveillance programmes or seeking abortion), mosquito-borne disease across the region to track the spread of AMR, but it (with increased incidence of Dengue and Malaria is likely much more widespread than anticipated. amongst Venezuelan migrants), mental health, AMR is caused not only by over prescription of malnutrition and vaccine preventable disease. For antibiotics by physicians, which becomes a cultural example, migrant populations have experienced practice, alongside over the counter purchasing of increased rates of measles, diphtheria and HIV/ antibiotics without prescription. The larger culprit AIDS in the last 5 years, compared to non-migrant of AMR in the region is agricultural production populations. These convert into financial pressure practices which feed antibiotics to livestock to too. Both Mexico and Colombia provide healthcare encourage growth and maintain healthy stock to access to migrants, albeit by different fiscal facilitate sales. means, and yet this is a significant cost to the health budget.

Number of foreigners that received healthcare in Colombia

400k 352023 350k

300k 828 259463 250k

200k 185879

150k 131958

100k

50k 34944 4258 1475 0 4258 0 0 2015 2016 2017 2018 2019p*

ER All Services

Source: Ministry of Health and Social Protection of Colombia

Page 54 - LatAm Outlook 2021 Page 55 - LatAm Outlook 2021 Health system reform

As a consequence of the above, Brazil and Cuba which provide by public financing, as given and poorly funded public health all health care free at the point the large proportion of those and preventative healthcare of access, other locations such employed in the informal sector, systems, many countries in as Mexico rely on social health insurance mechanisms become Latin America are experiencing insurance mechanisms whereby unsustainable for widespread rising healthcare costs driven employers and citizens co-pay coverage, meaning out of pocket by: technological advances, for coverage, which in turn costs become more catastrophic inefficiencies in resource gets reimbursed to healthcare when needed. Indeed, the lowest allocation, epidemiological providers when required, socio-economic groups, and transition from infectious to combined with a private sector. most marginalised communities chronic diseases and labour In both of the latter systems, are put at greatest risk of costs rising faster than individuals are required to being unable to access health productivity. make initial payments up until services, in a model whereby a certain threshold. This “Out private provision or provision via Total expenditure on health of pocket (OOP)” expenditure employment dictates access to ranges from 5% to 9% of GDP, has importantly decreased in healthcare. These marginalised but for most countries in the Argentina, Chile, Costa Rica and groups are thus left to state Financing health systems is Number of Doctors and Nurses per 1000 population region, publicly funded health Mexico in recent years, but has facilities, which notoriously offer only one part of reforms which expenditure stands closer to increased in Colombia, Ecuador, lesser quality services, or suffer are taking place across health 16 2.2% GDP. This is well below , Peru and Uruguay. from significant delays. Prior systems in Latin America. the guidance of the WHO as Total health expenditure has to the pandemic, discussion of The last decades have been 14 to what governments should increased over the last 15 healthcare resource allocation characterised by different invest in health systems, and years and is likely to increase and rationing have generated approaches to healthcare 12 approximately 21% of what OECD in the next 5 years as health deep distrust of policy makers’ organisation; including countries invest in their health systems need to recover from motives across the vast sectors of greater decentralisation of 10 systems . This gap between Covid-19, whilst simultaneously society accustomed to politicians’ systems and greater efforts total and public spending strengthening the capacity exploitation of governmental to move to universal health 8 is filled with social/private of systems for future crises. power structures to obtain coverage (UHC): access to insurance mechanisms and out For broader coverage and to benefits that are generally quality health services, with 6 of pocket costs. Whilst all states reduce the broader impact of inaccessible to the majority. financial protection. PAHO has provide some state provision crises on health systems, greater committed to working with states 4 of healthcare, ranging from investment will be required to strengthen essential public health functions: increasing 2 capacities for production of 0 Health Expenditure (% of GDP) essential medicines and health technologies; addressing Peru Haiti

Ecuador 2015 Chile Cuba Brazil Public health expenditure Belize Ecuador 2005 structural weaknesses in health Bolivia Mexico Guyana Jamaica Ecuador Panama

Brazil 2015 Uruguay Suriname Private health expenditure Colombia Honduras

systems and reducing barriers to Paraguay Brazil 2005 Argentina Venezuela Nicaragua Costa Rica Costa Guatemala Uruguay 2015 OOP health expenditure user participation; and building El Salvador Uruguay 2005

Chile 2015 External health expenditure resilience into the system to Average OECD Chile 2005 Costa Rica 2015 combat emerging threats. Much

Costa Rica 2005 Republic Dominican Panama 2015 Source: LSE, based on World Bank data 2018 will likely be made of the 2021

Panama 2005 Average America Latin Mexico 2015 Year of the Health and Care Mexico 2005 Worker to encourage recognition Doctors Nurses Argentina 2015 Argentina 2005 of the hard work of healthcare Colombia 2015 Colombia 2005 workers during the Covid-19 Source: OECD Health Statistics 2019; WHO Global Health Observatory Data Repository Peru 2015 Peru 2005 pandemic, and to promote recruitment into this area of France 2015 France 2005 work. There are currently 2.0 Spain 2015 Spain 2005 doctors per 1000 population United Kingdom 2015 United Kingdom 2005 in the region (OECD average 3.5) and < 3 nurses per 1000 0% 2% 4% 6% 8% 10% 12% 14% population (OECD average of 9).

Page 56 - LatAm Outlook 2021 Page 57 - LatAm Outlook 2021 Social Outlook Jean-Christophe Salles, CEO, Ipsos Latin America

Regional Overview After a 2020 that was rated as the worst year But the pandemic has NOT changed everything. for some time, people across Latin America are Although people’s behaviours may have changed generally looking forward to 2021 for their country, as a result of the pandemic, attitudinal ones their families and themselves. However, worries remain relatively stable. Attitudes along with about the long-term impact of Covid-19 are parameters such as values & lifestyle, formed prevalent, and concerns about the economy, socio- over time through individual experiences, group political instability and less tolerance of others contacts and cultural norms about what is have been reinforced. important or right, appear resistant to change.

A return to normal feels further away and many This chapter provides insight into Latin American citizens have put their plans for the future on citizens’ feelings, perceptions and comments which hold. 2021 has brought with it continued feelings could be different to real facts, but may be more of frustration and scepticism, with many people important owing to their potential socio-political blaming their governments for the handling of the impact. Measuring what people believe to be true Covid-19 crisis and their inadequate response, with can provide clues to what they are most worried three-quarters of Latin Americans believing their about. It can help uncover why people believe country is on the wrong track. what they do, and which biases are having the biggest influence on them.

Page 58 - LatAm Outlook 2021 Page 59 - LatAm Outlook 2021 Perceptions of 2020 Was this a bad year for me and my family? lower- most surprising given What worries you the most? % of respondents that agreed the continent’s biodiversity and 50% As in most places around the world, 9 in 10 people vulnerability to extreme 40% across Latin America believe that 2020 was a bad 100% weather patterns. year for their country. However, the increase on the 90% 30% previous year was not as acute in Latin America as it 80% Looking closer at concerns on 20% was elsewhere around the world. This can be attributed 70% a country by country basis, we 60% 10% to the fact that in 2019, a large proportion of Latin 50% can see that in Peru, there is Americans were already reporting that their country 40% great worry regarding Financial/ 0% was having a bad year, particularly in Chile and Brazil 30% Political Corruption, perhaps where societal issues were coming to the fore, long 20% related to the fact that 2020 before the impact of Covid-19 started to be felt. 10% saw three different Presidents 0% take office in the country. For Mexico, Unemployment ranked Was this a bad year for my country? as high as Crime and Violence, % of respondents that agreed while in Brazil, Healthcare was LatAm Average World Average 2020 2019 the second most important

100% worry behind Covid-19. Chile Source: Ipsos Global Advisor - What worries the world - January 2021 90% Source: Ipsos Global Advisor - 2021 Predictions - December 2020 has comparatively low levels of 80% Crime and Violence compared 70% with elsewhere in Latin America, 60% What worries you the most? What worries Latin Americans? but that has not stopped it being 50% Breakdown by country 40% a major concern for Chileans 30% It perhaps comes as no surprise that in 2020 the in 2020, along with worries 60% 20% majority of Latin Americans were most concerned around Poverty/Social Inequality. 10% about Covid-19, closely followed by Crime and Looking at Argentina, Covid-19 0% 50% Violence, then Unemployment, Financial/Political was ranked as the sixth most

Corruption, Poverty and Social Inequality, and pressing concern for Argentines, 40% Education. The majority of concerns held by most with Inflation being their greatest

Latin Americans tend to focus more on short-term worry, emblematic of the many 30% 2020 2019 issues that impact day-to-day life, as opposed to years of economic uncertainty

more long-term issues. they have faced. 20% Source: Ipsos Global Advisor - 2021 Predictions - December 2020

Despite Latin America being disproportionality Looking at how the trends 10% Furthermore, the crisis caused by Covid-19 on top affected by the Covid-19 outbreak, Latin Americans developed over the course of of existing challenges facing Latin Americans had a did not perceive the pandemic to be as big a 2020 is quite revealing. January 0% significant impact at a personal level, with 75% of Latin concern when compared to the global average. 2020 started with concerns Peru Mexico Brazil Chile Argentina Americas considering 2020 a bad year for themselves Given historic and ongoing security issues across over six key items: Crime and and their families, up from 62% in 2019. The increase Latin America, it is no surprise to see that Crime Violence (48%); Financial/Political Covid-19 Crime and violence Unemployment was particularly large in Peru, up 22% on the previous and Violence is ranked almost as highly as Corruption (38%) Poverty/Social Financial/Political Corruption Poverty/Social Inequality Education year, and Mexico, up 24% on 2019. However, as in the Covid-19 as a concern for Latin Americans. Beyond Inequity (38%); Unemployment Healthcare Inflation Taxes preceding graph, the increase across Latin America on this, there are various other fears that on average (36%); Education (31%) and Immigration Control the previous year was not as acute as it was elsewhere worry Latin Americans more than elsewhere Healthcare (23%). Although by around the world, suggesting that by and large, Latin around the world. For example, Financial/Political this time Covid-19 was already Source: Ipsos Global Advisor - What worries the world - January 2021 Americans already felt that 2019 was a bad year for Corruption scored 7pts higher, Poverty/Social being talked about globally, it themselves and their families, much more so than Inequality scored 4pts higher, and Education was not yet deemed a concern in crime meaning people regarding Covid-19 had waned other respondents around the world. scored 10pts higher. for Latin Americans. However, were less concerned about it. significantly, possibly as a by April 2020 it had become far By July 2020, as the knock-on result of the effectiveness that Conversely, Taxes, Immigration Control, and and away the most important effects of the pandemic were global lockdown measures had Healthcare are all seen as being less important in worry for the region, whilst being felt, concerns regarding in stymieing the spread of the Latin America compared to other regions around concerns about Crime and Unemployment started to first wave of Covid-19, whilst the world. Interestingly, Latin Americans deemed Violence dropped dramatically, increase across the region, worries over Crime and Violence Climate Change to be much less a concern when as strict lockdown measures reaching levels never seen in had crept back up to near pre- compared to the global average, scoring 8pts resulted in a temporary decrease the past. By November, concern pandemic levels.

Page 60 - LatAm Outlook 2021 Page 61 - LatAm Outlook 2021 However, by January 2021 concerns regarding Is your country heading in the right or Respondents who believe their country is 39% of Latin Americans also feel that the world Covid-19 had once again started to increase, wrong direction? on the right track will change for the better because of the Covid-19 possibly owing to fears of a second wave of the Changing perceptions throughout 2020 crisis, much greater than the global average of virus spreading globally, new variants, and the 30%. However, within Latin America itself, there was 80% time taken to develop an effective vaccine that will Mexico a large difference between countries, with only 21% be widely available across the region. Brazil 70% of Brazilians believing the world will be a better place because of the Covid-19 crisis, compared to 60% One year after the pandemic, concern surrounding Argentina 51% of Peruvians. Covid-19 remains high, whilst other issues that are Chile 50% perceived to impact on the day-to-day lives of Peru 40%

Latin Americans remain almost as high as pre- LatAm Average Will the world change for better because pandemic levels. 30% World Average of the Covid-19 crisis? 20% % of respondents that agreed 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 10% What worries you the most? 60% Changing perceptions throughout 2020 Right Wrong 0% Jan-20 April 20 Sep-20 Jan-21 50%

Source: Ipsos Global Advisor - What worries the world - January 2021 Mexico Brazil Argentina 40% 60% Chile Peru LatAm Average 30% 50% Furthermore, Latin Americans are much less World Average assured about the future now, than they were a 20% 40% Source: Ipsos Global Advisor - What worries the world - January 2021 few months ago. When looking at fluctuations in 10% 30% the number of respondents who said they thought their country was on the right track over the past 0% 20% year, there was a huge peak in April 2020. This is What will happen in 2021?

10% most likely because at that time, Covid-19 had not yet spread across Latin America in the same way In all Latin American countries, a large majority 0% it was doing in Europe and the USA. In particular, say they are optimistic that 2021 will be better Jan-20 April 20 July 20 Nov-20 Jan-21 75% of Peruvians and 60% of Argentines believed than 2020, with 87% agreeing, 3 pts greater than Source: Ipsos Global Advisor - 2021 Predictions - December 2020 Covid-19 Unemployment that their country was on the right track in April in previous years and much higher than the global Poverty/Social Inequality Financial/Political Corruption 2020, most likely owing to the strict lockdown average of 77%. Latin American men are also more optimistic than Healthcare Crime and violence measures that were implemented in both countries women in the region, scoring 10 pts higher Education early on during the outbreak, that both countries on average. were praised for. Will next year be better than the last? Source: Ipsos Global Advisor - What worries the world - January 2021 % of respondents that agreed However, as Covid-19 cases across the continent Covid-19 – Trust in vaccines When asked more generally whether Latin started to creep up, by September the number of 100% 90% improving but concerns remain Americans thought their county was on the right Latin Americans who thought their country was on 80% track, or whether it was heading in the wrong the right track had fallen dramatically, especially in 70% over access direction, responses were not particularly positive, Peru and Argentina, where incidences of Covid-19 60% with 74% of Latin Americans believing that their had started to rise dramatically. In Peru this sharp 50% On average Latin Americans are fractionally country was on the wrong track, compared with drop in confidence might also have had something 40% more optimistic than the global average that a 62% of people globally. This was particularly acute to do with political wrangling, which resulted in 30% successful vaccine against Covid-19 will become 20% in Peru (83%), Chile (77%), and Argentina (75%). Peru having three different Presidents in 2020. 10% available in their countries, with 61% of Latin 0% Americans believing it will, compared with the By January 2021, confidence in all countries global average of 60%. surveyed was at the lowest level it had been, with Peru crashing spectacularly as only 17% of Peruvians thought that their country was moving in the right direction, the lowest of all countries 2020 2019 2018 surveyed around the world. Source: Ipsos Global Advisor - 2021 Predictions - December 2020

Note: The answers given by respondents in the year stated refer to the following year. E.g. Respondents asked in 2020 whether the following year will be better than the last are referring to the year 2021.

Page 62 - LatAm Outlook 2021 Page 63 - LatAm Outlook 2021 Will a succesful vaccine for Covid-19 % of population that ‘strongly agree’ they Societal and Cultural Expectations Will my country’s economy fully recover become widely available in my country? would get a Covid-19 vaccine if it – No change, but new challenges from the effects of the Covid-19 pandemic % of respondents that agreed were available. posed by Covid-19 in 2021? % of respondents that agreed 64% Brazil In general, Latin Americans expect no major 45% 62% Mexico socio-economic changes to the status quo in 2021 40% 60% World Average compared with previous years. 68% expect income

inequality in their country to increase over the next 35% 58% 0% 10% 20% 30% 40% 50% 60% 70% 80% year, slightly higher than the global average of 30% 56% Source: Ipsos Global Advisor - 2021 Predictions - December 2020 66%. Argentina is the most pessimistic of all Latin American countries, with 74% of all respondents 25% 54% believing that income inequality will increase 20% 52% % of population that would choose to during 2021. ‘immediately’ get a Covid-19 vaccine if it 15% were available. Will income inequality in my country

Brazil increase in 2021? Source: Ipsos Global Advisor - 2021 Predictions - December 2020 % of respondents that agreed Mexico Source: Ipsos Global Advisor - 2021 Predictions - December 2020 World Average Until recently, polling suggested that for most Latin 75% Americans uncertainty as to whether or not to 73% When it comes to tolerance amongst society for have the vaccination, when one is available, could 0% 10% 20% 30% 40% 50% 60% 70% 80% 71% ‘others’, the majority of Latin Americans do not become a significant challenge for vaccine rollout. Source: Ipsos Global Advisor - 2021 Predictions - December 2020 69% believe that their countries will become more Citizens reported concerns about the speed at 67% tolerant places in 2021, with only 25% of Latin 65% However, when asked whether they think that life Americans believing it will, compared to 29% which new vaccines have been approved and their 63% globally. Moreover, in Argentina the figures are potential health risks, both immediate and longer- will be back to normal after the pandemic, Latin 61% term. However, the early success of vaccination Americans were more pessimistic than the global 59% particularly telling, as 82% of all respondents drives around the world is building confidence average, with 64% saying that things will not be the 57% believe their country will not become a more among the public to roll up their sleeves. Every same post-pandemic, compared to 59% elsewhere 55% tolerant place in 2021. day of success is building confidence in vaccines around the world. and increasing demand. Recent polling from January 2021 on willingness to get the vaccine Will people in my country become more shows a remarkable increase in the percentage Life in my country will be back to normal tolerant of each other in 2021? of respondents who strongly agree that if a after the Covid-19 pandemic. Source: Ipsos Global Advisor - 2021 Predictions - December 2020 vaccine were available, they would get it. This is Peru particularly true in Brazil and Mexico, which have Only 29% of Latin Americans feel their country’s Mexico the highest intention to get the vaccine out of all Mexico economy will have fully recovered from the effects of the Covid-19 pandemic by the end of 2021, Brazil countries surveyed. 68% of Brazilians and 61% of Brazil Mexicans strongly agree that they would get the compared to the global average of 32%. Pessimism Chile Argentina vaccine if it were available. In Brazil, this figure is on this front is particularly acute in Brazil (25%) and Argentina 16pts higher than in December 2020, and in Mexico Chile Argentina (24%), but less so in Peru, where 39% of LatAm Average this figure is 19pts higher, indicating how trust in Peru respondents believed that the country’s economy vaccines is improving. Among those who agree, will fully recover in 2021. World Average LatAm Average 62% of Brazilians and 58% of Mexican said they 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% would opt to receive it immediately. World Average Agree Disagree 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Agree Disagree Source: Ipsos Global Advisor - 2021 Predictions - December 2020

Source: Ipsos Global Advisor - 2021 Predictions - December 2020

Page 64 - LatAm Outlook 2021 Page 65 - LatAm Outlook 2021 Looking at people’s trust in the police, only 20% 57% of Latin Americans reported working How much have you experienced each of the following as a result of the of Latin Americans believe that police in their unconventional hours as a result of the pandemic, Covid-19 pandemic? country will treat people equally regardless of whilst the global average was much less, coming in their differences, compared to 33% globally. Trust is at 44%. 70% particularly weak in Mexico and Brazil, where only

15% and 19% respectively, believed that the police in On average, 56% of Latin Americans reported 60% their countries treat all people equally. difficulty finding a work-life balance, compared to 50% globally. 50%

40% Do the police in my country treat all 10% more Latin Americans reported stress due to people equally regardless of family pressures than the global average, 55% and 30% 45% respectively. their differences? 20% % of respondents that agreed 51% of all those polled in Latin America believed 10% 35% productivity had diminished during the pandemic, whereas 46% of those polled outside Latin America 0% 30% thought this was the case. Increased anxiety Stress due to Working at Diculty finding Stress due Reduced productivity Diculty getting Feeling lonely around job security changes in work unconventional a work-life balance to family pressures work done at home or isolated when routines and hours (e.g. (e.g. childcare) due to inadequate working from home 25% organisation very late at night) home oce setup In terms of working from home, on average half of

20% all Latin Americans reported difficulty getting work LatAm Average World Average done at home due to an inadequate home office 15% setup, compared to 46% elsewhere around Source: Ipsos Global Advisor: Working Through Pandemic - January 2021 the world. 10% Although the pandemic may have altered people’s Latin Americans believe that it is up to everyone to The only metric where Latin America did not score behaviours, attitudinal ones remain relatively rely on their own principles; around 50% said they as negatively as the global average, was in feeling stable. Attitudes along with parameters such would like to slow down their pace of life; and 50% lonely or isolated when working from home, where as values & lifestyle, formed over time through feel that technical progress is destroying their life. 48% of Latin Americans said they did, compared to individual experiences, group contacts and cultural These figures have remained pretty stable and Source: Ipsos Global Advisor - 2021 Predictions - December 2020 49% globally. norms about what is important or right, appear have not changed much over the past to be resilient to change. Approximately 80% of two decades. These stresses are creating a sense of When looking at the emotional toll that the disengagement, increasing instability and difficulty pandemic has taken on employees, it is fair to say in making projections for the future. This is % of Latin Americans agree with the following that this has been particularly prevalent in Latin particularly true for the youngest and the lowest America, with all employees reporting that they socio-economic classes. 90% have faced some sort of challenge as a result of 80% 2019 the pandemic. These stresses include personal 70% 1999 circumstances such as family pressures, feeling 60% 50% lonely and isolated, and employer-related issues 40% Sources: Ipsos Global Trends survey 1999, 2019. such as job security. These findings are no doubt 30% related to the prolonged intensity of the pandemic 20% and lockdown in the region, with working from 10% 0% home bringing a feeling of loneliness, increased It is up to everyone to rely I wish I could slow down I fear that technical progress boredom, less control, and a risk for health and on their own principles the pace of my life is destroying our lives wellbeing. These concerns were particularly acute in Peru, and in all but one area, Latin Americans Technical note: The Ipsos Global Advisor Survey is conducted every month in 28 countries around the world via the Ipsos Online Panel system, polled higher than the global average. including Argentina, Brazil, Chile, Mexico, Peru and Colombia (on quarterly basis). Approximately 15 000 interviews are made each month, among adults aged 16-74, including 1000 interviews in Brazil and Mexico and 500 interviews in Argentina, Colombia, Peru and Chile. Data is weighted to match the profile of the population. Within the five main Latin American countries, Argentina’s internet penetration is sufficiently 64% of Latin Americans reported an increased high to think of the samples as representative of the wider population within the age ranges covered. The remaining 4 countries surveyed - anxiety about job security, higher than the global Brazil, Chile, Mexico, Peru - have lower levels of internet penetration and so these samples should instead be considered to represent a more affluent, connected population. These are still a vital social group to understand in these countries, representing an important and emerging average of 56%, whilst similar figures were middle class. The Ipsos Global Trends Survey is conducted once a year among adults aged between 16-74 in most markets. 23,007 interviews reported in stress due to change in work routine were conducted between 23rd October and 6th November 2020. For figures 3, 4, 5 – participants were presented with a list of 18 items and were asked to identify the 3 most concerning for them, with the total % reaching 300% per individual. Among the 18 items only the most impor- and organisation, with 63% of Latin Americans tant or most discriminant are presented. responding affirmatively, compared to 55% globally.

Page 66 - LatAm Outlook 2021 Page 67 - LatAm Outlook 2021 Environmental Outlook Dr David Purkey, Latin America Centre Director, Stockholm Environmental Institute

Context The facts and figures related to Latin America’s and often endemic ecosystems define the physical unique biodiversity and ecosystems are well geography of Latin America. known. In the Andes, the region boasts the world’s longest mountain range. The Amazon is the largest As such, it is not surprising that the people of Latin river system in the world by discharge (and the America have constructed cultural practices and 2nd longest), while the Orinoco and Rio de la economic activity upon these rich ecosystems Plata rank 4th and 6th. The rainforest within the and unique geographic features. In terms Amazon River basin is also the largest in the world. of agricultural biodiversity, three of the most The world’s tallest waterfall, Angel Falls, lies in important crops for global food security - corn, the region, as does the Caribbean archipelago, potatoes and beans - were first cultivated in which along with Central America defines the Latin America. Brazil is the fourth largest global limits of the spectacular Caribbean Sea. The producer of timber products. The region is also singular physical geography of the region supports an important source of trade in tropical birds incredible biodiversity, as the region contains six and fish, much of it illegal. The dynamic geology of the top ten most biodiverse countries in the of the region creates important opportunities for world, including four of the top six with Brazil, resource extraction. Chile and Peru rank first and Colombia, Mexico and Peru ranked, respectively, third in terms of global copper production, while first, second, fifth and sixth. Unique, important Peru is the leading global producer of silver. Chile

Page 68 - LatAm Outlook 2021 Page 69 - LatAm Outlook 2021 and Argentina rank second and fourth in terms of on sustainable development, encapsulated in the The drivers of this increase in deforestation include largely responds to the growing global demand the increasingly important production of lithium, specific development objectives approved in 2015 surges in the production of commodities such as for beef. One of the key responses to these drivers with Bolivia also banking on becoming a significant by United Nations member states, the Sustainable tropical hardwoods, soy and palm oil, livestock of deforestation must be transparency in terms global player. In terms of fossil fuels, Colombia is Development Goals within the Agenda 2030, pastureland expansion, and, in some parts of the of the supply chains linking the production of the world’s fifth leading coal exporter, while Brazil increasingly prompts regional debate between the region, the production of illicit crops. It is important commodities and their consumption. Tools such (#13) and Mexico (#15) export significant amounts continued reliance on traditional economic activity to note, however, that beef production is the top as TRASE.EARTH provide visual access to these of crude oil. Exploitation of the region’s geological and the desire to preserve the region’s unique driver of deforestation. The forest conversion it supply chains, showing exactly who exports a and biological riches has been a developmental natural treasures, which, while enormous, are generates more than doubles that generated by commodity like beef from a specific Brazilian pathway pursued by most countries in finite. This forecast, new to the 2021 Canning House the production of soy, palm oil, and wood products State. Completing the chain, the tool visualises the Latin America. LatAm Outlook, seeks to highlight some of the key (the second, third, and fourth largest drivers) specific country destinations of the commodity via dimensions of the environmental and sustainable combined. Obviously, the production of soy also the commercial activity of specific importers. As a result, the interplay between the region’s development discourse in the region. While the geology and biodiversity and cultural and primary focus is on current challenges, the forecast economic activity is a vitally important narrative in also seeks to identify promising opportunities and Latin America. For many years, this interplay tipped find reason to hope that Latin America will forge in favour of resource extraction and use, based new paths towards the sustainable stewardship of to some degree on the enormity of the region’s its enviable natural endowment. The expanding global focus natural endowment.

Deforestation

Perhaps the most emblematic component of environmental and developmental trends in Latin America is deforestation. Given the sheer extent of forests in the region, including the world’s largest rainforest, this should not come as a surprise. After years of declining deforestation in the Amazon basin during the first part of the 21st Century, recent years have shown a dramatic increase. Forests in other parts of the region are under similar pressure. While their areas of primary forest cover are comparatively small, the Caribbean islands, in particular Haiti, are experiencing dramatic forest loss. The same is true in Central America, where deforestation rates in the first decade of the 21st Century were the highest in Latin America.

Annual deforestation in the Brazillian Amazon

TRASE.EARTH employs Sankey diagrams to visualise a commodity supply chain, in this case for beef, from a specific location, in this case Al- 30 tamira, Brazil, to consuming countries via the commercial actors involved in the exportation and importation of the commodity. The platform can simultaneously visualise various data sets related to social and environmental indicators in the location of interest.

25 Obviously understanding the supply chains related much rain as air that has passed over to the drivers of deforestation is vital. Similarly, little vegetation. 20 our collective understanding of the site-specific

2 impacts of these changes must increase. In terms Deforestation in Latin America will remain a of impacts, substantial deforestation causes significant environmental and developmental 15 land degradation and biodiversity loss, which trend in Latin America for years to come. By

1000km accelerates conflicts between producers and their directly connecting the drivers of deforestation 10 neighbours. According to the Brazilian human to its impacts, however, the region’s policy rights watchdog Comissão Pastoral da Terra makers can more carefully balance the economic (CPT), 61 people died due to land and resource benefits associated with productive activity with 5 conflicts in the Amazon in 2016. Deforestation in local, regional, and indeed global impacts. This Latin America also has a substantial impact on knowledge will afford greater opportunity to 0 the global climate systems in terms of reductions participate in emerging global markets related in sequestered carbon and changes in global to green finance, and begin to imagine less climatology. Scientific studies suggest that air destructive economic activity that the region’s

2011 1991

2017 2013 2012

1997 2015

1993 2001 2010 2016 2018 2019 1992 2014

1995 1990 1996 1999 1989 1998 1988 1994

2007 2003 2002 2020

2005

2000 2008 2006 2009 2004 that has passed over extensive vegetation in the forests can support. Source: TerraBrasilis preceding few days produces at least twice as

Page 70 - LatAm Outlook 2021 Page 71 - LatAm Outlook 2021 Extractive industry dependence The reality is that corruption leads to permitted wastewater treatment, dangerously low levels of extractive activity that is not as environmentally safe dissolved oxygen would persist during certain times of Geological conditions in Latin America have historically In addition to the obvious economic vulnerability as current best practice and technology would allow, the year because of the loading of organic material and promoted the development of substantial extractive associated with a heavy dependence on extractive while attempts at more rigorous regulatory compliance chemicals associated with coffee processing. industries in the region. These included both mineral industries, the connections between these industries lead to illegal extractive activity that is even worse. extraction and the extraction of fossil fuels, largely and environmental degradation also pose a risk to the This appears to be a “damned if you do, damned if you conducted in response to global and regional markets region. While more formal extractive industry actors don’t” situation. Still, the dramatic recent decreases in Ranking of polluted rivers in the world as against demand within national borders. For have made progress towards reducing environmental extractive activity in Latin America associated with the example, it is, most recently, the global explosion impacts, their efforts have not resulted in the elimination global economic slowdown caused by the Covid-19 River Continent Ranking of demand for next-generation batteries, and not of land, air and water quality degradation. Part of pandemic may perhaps create a unique opportunity to exclusively local demand, which now drives the growth the issue is transparency, perhaps more correctly the build this sector back to a higher Ganges Asia 1 in regional lithium production. The boom and bust lack thereof, in the permitting of formal extractive environmental standard. Citarum Asia 2 economic cycles characteristic of extractive economic activity in Latin American countries, most of which rank activity, linked to changes in global markets and comparatively low on the Corruption Perceptions Index Yellow Asia 3 the entry of new, more competitive market players, published by Transparency International. Illegal mining Water contamination are common in Latin America. A recent emblematic poses a possibly greater threat. Degradation generated Sarno Europe 4 example is the decision by Prodeco, a wholly owned by smaller informal actors has yet to receive significant Mining activity, if not carefully managed, can produce Buringanga Asia 5 subsidiary of Glencore, to hand back its Colombian coal attention in spite of their substantial cumulative substantial declines in water quality, with profound local mining contracts after a review found restarting the impacts. For example, while Colombia law stipulates a impacts. More pervasive in Latin America is the water Marilao Asia 6 unit’s operations post-Covid-19 pandemic would not maximum level of 2.0 ug/L for use as a domestic water quality degradation associated with the management be economical. supply, mercury concentrations above 3.0 ug/L occur of municipal and industrial wastewater. Only 50% of the Mississippi North America 7 in the drinking water in some Colombian municipalities residents in Latin America discharge their household Jordan Asia 8 where illegal gold mining is prevalent. wastewater into a sewer system while the wastewater from only 30% of those households undergoes any Matanza South America 9 Legal vs illegal gold production treatment prior to discharge to receiving water bodies. The result is a regional tragedy of contaminated rivers Yamuna Asia 10 and streams that have unfortunately become the norm in the minds of many residents of the region. For Source: Conserve Energy Future Peru 2.6 bn USD example, the levels of ETEC – a bacterium that causes severe diarrhoea – were much higher downstream of La The combined impact of domestic wastewater, Paz, Bolivia in the river that receives untreated domestic industrial discharges and poor agricultural practices Mexico 0.5 bn USD wastewater from the city, than upstream of it, including have taken a combined toll on water quality in at a site where the river water is used for the irrigation Latin America, a situation that cannot persist. Still of crops, tainting crops sold into the city’s food supply. there is reason for optimism. Bogotá, another city 0.4 bn USD Brazil without full capacity to treat domestic wastewater, While perhaps less volumetrically expansive than the is nearing completion on the construction of the Colombia 2.0 bn USD challenge posed by discharge of untreated sewage, Salitre Wastewater Treatment Plant as a key step in water contamination is further exacerbated by the decontaminating the Bogotá River. discharge of untreated industrial wastewater as well. Venezuela 0. 7bn USD Metals and solvents contaminate rivers near major industrial centres while rivers located in more rural areas experience spikes in organic matter, nutrients Ecuador 0.4 bn USD and agricultural chemicals during portions of the agricultural calendar. For example, the Matanza River Bolivia 0.1 bn USD in Buenos Aires receives over 90,000 tons of heavy metal every year; such intense loading places this river among the most polluted waterways in the world, owing to some fifteen hundred local businesses—mainly 0 50 100 150 200 250 tanneries, chemical plants, and factories—whose runoff flows directly into the river, contaminating it with Volume produced (tons) arsenic, cadmium, and lead. The impact of agriculture Legal Illegal USD Value of illegal production practices on water quality can also be severe. Studies of the Rio La Vieja, In Colombia’s Eje Cafetera, suggest Source: Global Initiative against Transnational Organised Crime that even if all domestic sewage received proper

Page 72 - LatAm Outlook 2021 Page 73 - LatAm Outlook 2021 Water scarcity production activity, where pumped groundwater is part Air pollution in Latin America and the Caribbean of the process to separate the mineral from brine. This Salvador As a comparatively urbanised region of the world, cities same groundwater system also supports ponds where Curitiba in Latin America confront the challenge of providing significant flamingo populations nest. While there is Buenos Aires Montevideo sufficient potable water for expanding populations. some controversy as to whether lithium mining will lead San Jose Opportunities for improvement exist, Grande Vitória Urban areas across the region increasingly look beyond to long-term groundwater declines and nesting habitat Ribeirão Prieto however, and many cities in the the limits of their own river basins to secure reliable degradation, tensions are high. The need at least to Jundiai region are promoting innovations São Jose dos Campos potable water supplies. Bogotá currently imports 47% of consider the connection between economic activity and Cuenca designed to reduce traffic and water scarcity is real. Araraquara improve air quality. Paradoxically, its water supply via inter-basin transfers. The situation is Viña del Mar similar in Quito (50%) and Mexico City (21%). Many cities Callao Bogotá also has the highest amount Mauá have plans to further extend their water capture zones, The venue for considering these water scarcity, and São Bernardo of reported bicycle trips per day often into more distant, more pristine, and therefore indeed water contamination, issues should be within São Paulo (611,472) in South America, and Campinas more ecologically valuable and vulnerable ecosystems. an integrated watershed planning process where the Quito other cities are following suit, Sorocaba Quito for example has included a project in its current water supply and water quality needs of different water Cali including Mexico City with the 4th master plan to capture water from sensitive paramo users are considered within a comprehensive decision Medellín highest level of bicycle use in the Copiapo ecosystems on the far side of the Antisana Volcano, making process. Until recently, very few countries in Bucaramanga world. More importantly, many Caracas much to the consternation of local conservationists and the region had any formal law pertaining to multi- Kingston cities in Latin America, notably water users. The challenge facing many Latin American actor, multi-objective water resources planning and Rio de Janeiro Santiago, are tying their urban Caldas cities is to manage demand growth and system decision making. Decisions related to water occurred Belo Horizonte transportation planning to efforts Bogotá efficiency in order to avoid the need to construct such across multiple authorities and jurisdictions, leading Guatemala to curb greenhouse gas emission. mega-projects. to uncoordinated and occasionally contradictory Mexico City Many harmful air pollutants, such Tegucigalpa outcomes. Over the past decade, however, Chile, Cochabamba a black carbon and ground level Talcahuano Bolivia, Peru, Ecuador and Colombia have all Puebla ozone, also act as greenhouse Ranking of cities facing water scarcity promulgated planning instruments designed to take an Santiago gases. The argument that efforts Calama integrated approach to water management decision Celaya to fight climate change can and City Continent Ranking making. The jury is still out as to whether these planning La Paz should include efforts to reduce air Toluca instruments can connect to positive changes on the Jalisco pollution are taking hold. The term São Paulo South America 1 Nuevo Leon ground, but steps in the right direction are underway. Lima co-benefits between climate action Juárez and public health is increasing in San Diego North America 2 parlance regionally. 0 20 40 60 80 100 120 140 Las Vegas North America 3 Transportation/air quality Annual mean PM10 concentrations in Latin American cities

San Antonio North America 4 One of the pressing environmental challenges in Latin WHO PM10 standard (20 micrograms) America is air pollution in important urban regions. Beijing Asia 5 While by no means as polluted as Asian cities, studies Source: Riojas-Rodríguez H, Soares da Silva A, Texcalac-Sangrador JL, Moreno-Banda GL, (2016). New Delhi Asia 6 have shown that only one large city in the region, Salvador de Bahia, Brazil, was within the WHO 20 ug/ Mexico City North America 7 m3 recommended standard for PM10 concentrations. Tourism Percentage of US based ecotourism Estimates suggest that cities in the region suffer operators offering products per country Cairo Africa 8 increased mortality and morbidity because of air Owing to the singular natural beauty and biodiversity pollution. The WHO estimates that approximately of Latin America, the region is increasingly popular Costa Rica Tokyo Asia 9 Ecuador (Galapagos) 58,000 deaths per year are attributable to ambient as a tourist destination. Destinations such as Mexico Peru Istanbul Asia 10 air pollution across the region. The primary factor have a longer history of receiving international Mexico Belize driving air pollution in Latin America is the transport tourists; the country received 45 million visitors in 2019. Chile Source: Seametrics sector. Many cities in the region suffer from extreme Among G20 nations, Mexico leads the pack in terms of Argentina Ecuador (not Galapagos) traffic congestion that usually includes vehicles of tourism related economic activity as a percentage of Brazil Urban expansion is not the only cause of water scarcity. older vintage, without benefit of the most modern GDP, at 15.5%. Other countries in the region have also Bolivia experienced dramatic growth. Colombia experienced Caribbean Many extractive industries are located in arid parts of pollution control technology. Latin America includes Guatemala the region, and securing the water necessary to support five of the ten most congested cities in the world, with an astounding 10.7% increase in 2018 international Venezuela mining activity often brings these industries into conflict Bogotá having the inglorious honour as the worst. arrivals over 2017 figures. There is enormous potential Panama Others with other local water users and sensitive aquatic The transportation sector in Latin America poses a for regional tourism growth, much of it related to eco- ecosystems. The situation in Chile’s Salar de Atacama significant environmental challenge. tourism focused marketing. 0% 10% 20% 30% 40% 50% 60% is emblematic of this water scarcity challenge. This extremely dry region is the epicentre of Chile’s lithium Source: Oden, W., A. Mavrogiannis, and E. Horvath (1997).

Page 74 - LatAm Outlook 2021 Page 75 - LatAm Outlook 2021 The growth in tourism, including eco-tourism, however, such as the 2011 flood event that caused an estimate While it would be nice to point to a coordinated regional While these bioeconomy strategies offer potential to poses environmental and developmental risks due US$5 billion in damages. Forest fires often rage response to these risks, the reality is that disaster move the region away from environmentally harmful to the sensitive nature of regional ecosystems. Latin uncontrolled, threatening life, property and ecosystems, risk management is still an emerging government extractive industries, it is by no means certain that America has designated numerous protected areas, such as the 2019 Chiquitinia fire in Bolivia that burned competency in the region. The emerging recognition of they will not precipitate environmental challenges Venezuela ranks 2nd globally with 54.4% of its territory approximately 3.6 million hectares, or almost 10% of the the link between disasters and migration, however, with of their own. These relate to the new transportation designated as such. This gives the impression that Santa Cruz Department. a more sympathetic regional partner now in the White infrastructure required to connect new products to managing tourism is feasible. The reality is that many House, may result in more regional cooperation in terms their primarily inputs and to emerging markets. In of these designations exist primarily as lines on a map. of reducing climate and non-climate related risks. addition, as many of the bioresources at the base of The countries of Latin America have lagged in terms Number of people in Latin America and these emerging bioeconomies require access to land, of developing management plans for their protected the Caribbean affected by natural the long-standing issues pertaining to equitable and areas. Studies of human pressure on protected areas disasters 2010 - 2019 Bioresource based economic sustainable land management (including indigenous worldwide have identified Uruguay, Argentina and land rights) will continue to loom large. That said, given Colombia as having worrisome levels of impact. The 3,000,000 development the vast biodiversity of Latin America, bioresource most emblematic regional case of tourism’s impact 14,000,000 based economic development is a force that could on ecosystems lies in Ecuador. In 2007, the Galapagos An important environmental and developmental be transformative in terms of the economic and were included in the Danger List of the UNESCO World trend in Latin America is the promotion of economic environmental future of the region. Heritage Sites– mainly because of the uncontrolled 53,000,000 development based on the sustainable use of the development of tourism and the failure of various region’s vast biodiversity. This activity includes, but is by institutions and agencies to deal with these threats. no means limited to, traditional agricultural and forest product production systems. Much of the anticipated In the short term, these trends will likely continue, given growth in this sector, however, aligns with the green the proliferation of greenwashing claims of eco-tourism. growth and circular economy strategies proliferating in While there are many tourism operators that take Latin America, where the region follows only progressive seriously the challenge of environmental sustainability, 34,000,000 European countries in terms of green economic activity. there are currently no clear standards defining exactly The theory behind these green growth strategies is that what constitutes eco-tourism, leaving room for all the vast biodiversity and primary productivity in Latin sorts of claims. As with the extractive industry sector, America can support the development of new products, however, the sharp decline in tourism activity in 2020 41,000,000 allowing Latin America to capitalise on both the value of due to the global Covid-19 pandemic may perhaps producing raw materials as well as on the value added create a unique opportunity to build this sector back to Drought Floods Storms transformation processes associated with new products. a higher environmental standard, which seems to be Earthquake Volcanic Activity what a growing portion of travellers demand. Source: United Nations Office for the Coordination of Humanitarian Performance in terms of implementing Affairs (2020). Climate impacts/ green economic activity

Not all of these natural hazards are climate related. 80 natural disasters The expectation, however, is that those that are could become more common and more severe in the future 70

Latin America is a region prone to natural disasters. due to climate change. The Intergovernmental Panel 60 The Caribbean, Mexico and Central America have on Climate Change suggests with high confidence experienced numerous devastating hurricanes over that significant deviations in precipitation (up or down 50 the years. Two Category 4 hurricanes – Eta and Iota — with respect to historic averages) and temperature Score 40 made landfall in Central America in 2020, on November (increasing) have occurred in Central America and 3 and November 17, respectively. In Honduras, the South America with respect to historical long-term 30 storms affected 4 million people, with 2.5 million left averages. The same organisation also states with 20 in serious need. The dynamic geology of the Andes medium confidence that changes in climate variability have led to major earthquakes, volcanic eruptions and and in extreme events have severely affected the 10 devastating landslides. The 2010 earthquake off the region. The prospect is that storms, floods, landslide 0 coast of Chile caused an estimated US$15–30 billion in and droughts could become more harmful in the damage to the national economy. Colombia has been future. These trends will likely exacerbate climate particularly hard hit by natural disasters. The 1985 related hazard risks and damages in the future. Even Nevada de Ruiz eruption killed an estimated 25,000 in the case of non-climate related hazards, sprawling people, while the 2017 Mocoa landslide killed 336. Major patterns of substandard urbanisation in the region will Source: The Global Green Economy Index ™ Measuring National flooding events have caused widespread destruction, put many more in harm’s way. Performance in the Green Economy, 5th Edition, (2016).

Page 76 - LatAm Outlook 2021 Page 77 - LatAm Outlook 2021 Conclusion

The environmental and developmental challenges sphere. Other factors, including trends in the global described in this section do not exist in isolation. market place, are also important. These global trends Security and These trends have an impact on, and are impacted sometimes favour and sometimes disfavour regional by, regional political, economic and security trends. economic activity. For example, the explosion of Perhaps the clearest connection exists with the regional new technology, including electric transport, creates security context. As civil society voices grow stronger, opportunity for regional lithium producers. On the Corruption Outlook conflicts with producers become increasingly common. other hand, the collapse of global fossil fuel markets, These conflicts cut both ways. Incidents of acts of in particular the coal market, during the Covid-19 sabotage and vandalism against productive sectors pandemic places these sectors under increasing Oliver Wack, Partner, Control Risks are common. In parallel, the acts of violence against pressure. These business trends create conditions that human rights and environmental defenders capture can either further exacerbate or offer opportunities to headlines. For example in 2015, 122 murders against alleviate regional environmental and developmental human rights defenders occurred in Latin America, trends. One promising sign, however, is that an 65% of the global total. Similar figures exist in terms of increasing number of global companies are signing violence against environmental defenders with 83 of on to sustainability pledges that could in turn create 164 murders occurring worldwide in 2018 taking place incentives for regional actors within global value chains. in Latin America. Obviously, these cycles of violence and recrimination pose a threat to the overall security What is clear is that in 2021 the close connection situation in Latin America. To improve its security profile between environmental challenges and opportunities the region must reverse these cycles. in Latin America and issues of politics, economics and security will become increasingly clear. While the It is no surprise that the security dynamics of the region regional leadership on transformation towards green have an impact on the political situation. Polarisation growth and circular economies holds promise, the as to where the blame lies for social and environmental legacy of environmentally damaging economic activity conflict is a common recent election theme. This political in Latin America is long and deep. As the region, along dynamic is likely to persist in upcoming election cycles. with the world, emerges from the global Covid-19 pandemic, the promise of building back better will be The influence of security and politics on the regional real. The question is whether this promise will economy are clear, connecting environmental and be realised. developmental trends and issues to the economic

Regional Trends

Impact of the Covid-19 pandemic

Despite notable advances over the last two The Covid-19 pandemic is unlikely to change this decades, several factors continue to make Latin situation. If anything, it is expected to accelerate America the most violent region in the world, some of these factors, not least because most representing one third of homicides globally – Latin American countries were hit hard by the virus with less than a tenth of the global population. and are falling behind in their vaccine rollouts These factors include income inequality, lagging compared to other regions. The full extent of the education standards, outdated criminal justice pandemic’s impact on the security environment systems, widespread impunity, rapidly growing remains to be seen, as it is unclear how such a and oversized metropolitan areas, and the region’s shock will shape organised criminal activity in the strategic place in the drug trade, including a region going forward. That said, two points are global monopoly on cocaine production clear: first, the drop in indicators of common and and supply. violent crime generally seen across the region

Page 78 - LatAm Outlook 2021 Page 79 - LatAm Outlook 2021 was short lived; it was related almost exclusively Organised Crime to mobility restrictions linked to governments’ responses to the pandemic. Second, in the medium The pandemic led to significant spikes in violent crime The rapid digitalisation of companies and economies, of the cyber threat landscape, relatively immature term, it is inevitable that the social, economic, and across Brazil and Chile in 2020 but these seemed to be turbocharged by the pandemic, has also attracted information security practices, and weak cyber-specific political disruption caused by the virus will have a isolated cases. Most countries have reported stable or the interest of criminal minds. We expect cybercrime regulatory environments will exacerbate the situation. significant and lasting nefarious impact on security declining homicide figures for 2020, including significant to become both more prevalent and more impactful, Companies in the finance and insurance as well as IT in the region. reductions in the Northern Triangle of Central America as criminal organisations increasingly expand and telecommunications sectors will remain the most and in Venezuela, which are historically some of Latin their field of action into cyberspace for purposes of exposed across all countries analysed in this report At the same time, the regional picture remains America’s murder hotspots. However, it would be naïve financial gain and extortion. Low general awareness (see Figure 1) rather mixed with national- and local-level policies to interpret these figures as indicators of a weakening being the most critical factors in determining the of organised criminal groups, which proved extremely shape of the security environment in different agile in adapting to the changing circumstances as the Cyber Attacks - Share of the most targeted sectors since January 2020 areas. In addition, despite the persistent societal pandemic unfolded and lockdowns were implemented. (by country, limited to top 10 sectors) and political challenges they present, security Cargo theft, drug trafficking and infiltration of supply risks across the region will remain inherently chains as well as extortive crime will all remain manageable for organisations looking to common features of the operating environment for the Argentina do business. foreseeable future.

Brazil Security risk in Latin America 2021

Chile

Colombia

Mexico

Peru

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Hotels and entertainment Healthare Government and administration Energy and utilities Education and training Oil and gas IT and telecommunications Finance and insurance Aerospace and Defence Manufacturing

Source: Control Risks

Corruption

Governments across the region have been forced to by populist leaders (left and right), while entrenched allocate significant resources to fight the virus and interests have been able to revert advances in judicial mitigate its socioeconomic impact. Mechanisms to independence and undermine the autonomy of control corruption took the backseat as emergency oversight bodies. In some countries, the recent wave expenditures increased, creating a fertile ground for of enforcement did lead to a significant change in corruption, mismanagement, and embezzlement. This behaviours, including the adoption of more robust has been further exacerbated by an even broader governance systems across public institutions and trend: the region-wide wave of anti-corruption companies. However, corruption-related concerns will sentiment that began in the mid- is losing continue to pose significant challenges to the ability of momentum and even receding in some countries. companies to do business. Source: Control Risks The anti-graft agenda has been partially co-opted

Page 80 - LatAm Outlook 2021 Page 81 - LatAm Outlook 2021 Country Security and Corruption Outlooks

Argentina Security Corruption

The overall security outlook for the next three to with the poverty rate surpassing 40% of the Since taking office, President Alberto Fernández’s five years is relatively complex. On one hand, population, means that common crime rates administration has actively worked to increase Argentina will likely remain one of the safest will remain steadily on the rise, especially in the the government’s control over key enforcement countries in Latin America, with relatively low provinces of Buenos Aires, Santa Fé, Mendoza, and agencies, including the appointment of political violent crime rates; on the other hand, the Formosa. The rising fiscal constraints facing the allies to the Anti-Corruption Office, the Financial significant deterioration of the social landscape, government, against the backdrop of the persistent Intelligence Unit, and the tax agency AFIP. Vice- economic recession, mean that increased President Cristina Fernández de Kirchner, who is investments in public security are unlikely. a defendant in multiple corruption investigations, Total homicides in Argentina will likely continue to use the state’s apparatus (Most recent official data available) The presence of organised crime groups (primarily to shield herself and her allies from accusations. drug- and arms-trafficking gangs) will continue to Enforcement of anti-corruption efforts will remain 1250 pose relevant threats to businesses and personnel. poor, with businesses remaining exposed to issues Incidents of cargo theft, including in sectors such related to a lack of judicial independence as well 1200 as food and beverage, electronics, and textiles, as inefficiency. Cooperation at both the domestic 1200 have remained on the rise and there is only limited and international levels will also suffer due to the evidence to suggest significant improvements to lack of communication channels between different 1150 this outlook in the short term. institutions. As anti-corruption efforts continue to take a backseat to the more pressing issues of the 1100 As the social situation remains dire and the Covid-19 pandemic and the economic recession, centre-to-right opposition parties are increasingly the integrity environment will most likely remain 1065 mobilised to lead on anti-government protests, the challenging for businesses across all sectors of 1050 1044 risk of unrest will remain heightened. Occasional the economy. and relatively well-attended demonstrations will 1000 continue to impact the security and operational Fernández will also continue to push for the environments in the main urban centres, including introduction of a highly controversial judicial Buenos Aires. Labour unions remain largely reform. In July 2020, his administration presented 950 independent and powerful and will continue to a bill aiming to restructure the penal system and 2018 2019 2020 stage protests around contentious topics such as create new courts in the provinces, ultimately Source: National System for Crime Statistics corporate restructurings and salary negotiations. allowing the government to appoint over 300 While the risk of widespread violent unrest is low, judges in the next two years. While the bill there remains credible potential for has stalled in the past few months due to an Robbery rate per 100,000 inhabitants short-term escalation. unfavourable political environment in Congress, including staunch opposition from civil society 1200 1049 Low general awareness of the cyber threat movements, the government has not given up on 1000 981 936 landscape, relatively immature information its ambition. The bill’s approval would likely lead 899 828 security practices, and a comparatively weak to an increased politicisation of the judiciary and 800 cyber-specific regulatory environment lead to further limitations on anti-corruption enforcement. increased risk from cyber criminals to companies 600 545 480 477 operating in Argentina. As with the rest of the region, Argentine firms frequently have low 400 cybersecurity maturity and are vulnerable to social

200 engineering (online manipulation) attacks. The most common social engineering attacks include 0 manipulation through Business Email Compromise, 2016 2017 2018 2019 Whaling (targeting executives and leaders), Argentina Buenos Aires Province Phishing (fake emails), and Smishing (fake SMS, WhatApp, etc. messages on mobile devices). Source: National System for Crime Statistics

Page 82 - LatAm Outlook 2021 Page 83 - LatAm Outlook 2021 Brazil Security Corruption

Despite the overall reduction in opportunistic crime High crime rates will remain a chronic issue as The strength of Brazil’s anti-corruption institutions, Additionally, Bolsonaro relies on a coalition in rates amid the Covid-19 pandemic (mostly due to the main drivers of violence are not expected including the Federal Police and the General Congress that may eventually pressure him to government-mandated restrictions on mobility), to change significantly in the three- to five- Prosecutor’s Office (PGR), will continue to be intervene in corruption investigations involving the security environment in Brazil remains year outlook. These drivers consist of income put to the test in the next three to five years. key political bosses. However, despite current challenging. The country also reported an increase inequalities, the increasing availability of firearms Controversies involving President ’s pressures, the autonomy of Brazil’s anti-corruption in violent crime during 2020; the number of (following President Jair Bolsonaro’s moves to relax attempts to intervene in anti-corruption efforts will bodies is the result of decades of institutional homicides in São Paulo state increased for the first restrictions on their possession), the persisting persist as investigations of his sons (who have been improvements that are unlikely to be fully reversed time in seven years. This new trend highlights the influence of drug- and arms-trafficking gangs and accused of corruption and election crimes) unfold. in the immediate future. Similarly, scrutiny of increased frequency of turf wars among organised poor and inefficient policing. Crime will continue contracts involving private companies and the crime groups such as the São Paulo-based First to be concentrated in Brazil’s north and north- public sector will remain high. Capital Command (PCC) over drug markets, which east states; São Paulo- and Rio de Janeiro-based have been impacted by pandemic-related groups have been expanding their territorial mobility restrictions. reach towards the north and north-east, which will continue to trigger clashes with local gangs.

Homicide rates per 100,000 people Although intensified intelligence and coordination in São Paulo, 2010-20 efforts among state and federal officials are likely to prevent violent crime from continuing to 14 increase in a post-Covid-19 pandemic scenario, the absence of a holistic approach towards 11.53 12 10.49 tackling criminality, including a much-needed 10.06 10.5 reform of the penitentiary system, will likely 10 10.08 8.73 prevent structural and long-lasting improvements. 8 8.12 7.54 Businesses operating in Brazil will remain exposed 6.27 6.48 6.7 to incidental threats related to crime dynamics and 6 the presence of organised crime groups. In Rio de

5 Janeiro state, businesses will also remain exposed 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 to extortion risks by militias, paramilitary groups Source: São Paulo State Public Security Secretariat (SSP-SP) frequently comprised of (former and current) police officers, firefighters and military officials who impose “protection fees” on local residents. Robbery rates per 100,000 people Refusal to pay these fees can lead to threats and in São Paulo, 2010-20 physical violence. Cargo theft also remains a significant concern and threat to supply chains. 800 745.58 729.29 The cybercriminal threat in Brazil is likely to 700 714.09 693 grow in the foreseeable future, due in large part 607.66 600 566.44 598.08 576.32 to the technical skills and operational agility 564.96 567.27 demonstrated by Brazilian criminals, the lack 500 490.23 of effective law enforcement and an economy

400 that makes illicit online activity an attractive 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 alternative for a growing number of people. Given the emergent and open nature of the Brazilian Source: São Paulo State Public Security Secretariat (SSP-SP) cybercriminal community, some crossover between low-level criminals and cyber activists is likely to continue. This will likely lead activists to adopt cybercriminal tactics, techniques, and procedures (TTPs) such as ransomware attacks as part of their campaigns against companies.

Page 84 - LatAm Outlook 2021 Page 85 - LatAm Outlook 2021 Chile Security

Chile will remain a relatively safe country by Latin Santiago) as social discontent remains latent. Cyber-related threats in Chile American standards in the three- to five-year Social movements are also likely to mobilise will continue to be largely tied to outlook. Violent crime rates in the country have supporters and stage demonstrations to pressure political activism (“hacktivism”) increased significantly during the pandemic; the Constitutional Assembly to acquiesce to and, to a lesser extent, extortive according to the Ministry of Interior and Public their demands. On 11 April 2021, Chileans will crime. Activists will continue to Security, the number of homicides in 2020 elect Constitutional Assembly members, who rely on unsophisticated tactics, increased by 28.4% compared to 2019. However, will deliberate over and draft a new constitution techniques, and procedures crime rates still remain below the broader regional between July 2021 and July 2022. As a result, (TTPs) in their attacks. These average and the ongoing increase in violent crime moderate levels of protest activity remain a include distributed denial of in Chile is most likely due to score-settling between credible threat. service (DDoS) attacks that local criminal gangs that is fuelled by economic overwhelm websites and disrupt difficulties associated with the pandemic. While The financial, retail, transport, forestry, and their availability as well as we have also observed more frequent and agribusiness sectors (as well as government website defacement attacks. more violent instances of robberies and theft of buildings) are the most vulnerable to violent Breaches of unsecured servers raw materials targeting companies (the latter social unrest given pending reputational issues. through Structured Query especially in the mining areas of northern Chile), Forestry and agribusiness companies will continue Language injection (SQLi) to these dynamics are likely to stabilise and then to be challenged by violent indigenous activism access backend information that gradually improve somewhat as Chile slowly but in southern Chile because indigenous groups was not meant to be displayed surely recovers economically. perceive businesses to have illegitimately exploited (e.g., personally identifiable their ancestral lands. Additionally, anarchist and information) also remain likely. eco-terrorist groups are relatively well organised Homicides rates per 100,000 people, (by Latin American standards) and will remain a 2010-20 threat, particularly in Santiago, where groups have Corruption detonated improvised explosive devices in metro 5 4.6 stations and corporate buildings over the past Despite the uncertainty five years. associated with President 4 3.5 3.5 Sebastián Piñera’s political 3.1 3 3.6 3 weakness and the upcoming 2.9 2.8 2.7 2.9 2.7 Number of indigenous conflict-related drafting of a new Constitution, 2 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 homicides and arson attacks in southern Chile’s anti-corruption Chile, 2018-20 institutions will remain relatively Source: Ministry of Interior and Public Security solid. As a response to the unrest, since 2019, the government 200 has sponsored anti-corruption The most likely security threat to businesses and 172 bills in Congress, including personnel in Chile in 2021 will remain opportunistic 160 measures to avoid collusion and crime, particularly robbery, which is likely to 128 the creation of an anonymous increase as soon as officials lift pandemic-related 121 whistleblowing channel. This is mobility restrictions. The threat of opportunistic 120 an agenda that will likely persist crime is largely concentrated around major urban in the foreseeable future. Public centres. Cargo theft is also a persistent concern, 80 scrutiny of officials will particularly on highways connecting Santiago to remain intense. the coastal cities of San Antonio and Valparaíso (both in the Valparaíso Region). 40

We expect high levels of consensus among political 0 forces regarding increased social spending to 2018 2019 2020 continue, mitigating the risk of a fresh wave of widespread violent protest activity. That said, Source: Multigremial Araucanía (MGA) sporadic demonstrations will continue to affect major urban centres (particularly in downtown

Page 86 - LatAm Outlook 2021 Page 87 - LatAm Outlook 2021 Colombia Security

General security conditions have deteriorated contrast, the intensity and impact of government with attacks frequently taking the form of spear on the back of the increasing threat posed by counter-insurgency operations against the ELN phishing campaigns aimed at infecting target organised armed groups (GAOs) and the National decreased. Captures of ELN members shrunk from systems with malware. Liberation Army (ELN) guerrilla group in rural 821 in 2019 to 353 in 2020, and demobilisations areas of the country, where drug-trafficking and decreased from 348 in 2018 to 222 in 2020. In the five-year outlook, deteriorating social illegal-mining activities are rife. Although President The government of President Iván Duque will conditions because of the pandemic and rampant Iván Duque has claimed the historic reduction in remain committed to the security strategy set illicit economies will further impact security homicide rates in 2020 as a major achievement of out in January 2019, despite meagre results. The conditions. The ELN will continue profiting from his administration (down to 23.9 cases per 100,000 president is eager to consolidate his legacy (he has illegal economies such as drug trafficking and people, from 25.4 in 2019), it is part of a structural only 18 months left in office) while also leveraging illegal mining to continue its campaign against downward trend in homicides that precedes his popular support for the ruling Democratic Centre the government, while dissident groups of the tenure and is likely to continue. In most other (CD) ahead of the 2022 general election. former Revolutionary Armed Forces of Colombia places in the region, this development is also (FARC) will continue to grow in number and scale undeniably linked to the restrictions on mobility because of delays in the implementation of the imposed during Colombia’s extensive Covid-19 GAOs attacks against road infrastructure 2016 peace agreement that led to the group’s pandemic-related lockdowns during much of 2020. 2015-2020 demobilisation. Organised armed group “El Clan del Golfo” will continue to compete for control of 100 illegal economies, resulting in increased violence in 93 Homicides rates per 100,000 people, disputed territories. 2010-20 80

40 60 Corruption 35.3 35.5 35 32.8 40 33.9 Although Duque singled out corruption as a key 30 28.2 issue during his campaign, he has been only 26.9 20 15 25.9 26 25.2 25.4 partially successful in making strides in this regard. 5 5 25 1 1 4 0 3 3 0 0 An anti-corruption referendum in August 2018 23.9 0 20 2015 2016 2017 2018 2019 2020 failed to reach the voting threshold by a narrow margin, leaving the government with a political 15 Attacks against roads Attacks against bridges mandate but no legal obligation to implement 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 the referendum’s key proposals. Furthermore, Source: Ministry of Interior and Public Security Source: Ministry of Defence criminal investigations targeting high-profile corruption have not gained the same traction as in neighbouring Peru and Brazil. Duque is unlikely to On the other hand, mass killings in rural areas As a result, personnel and assets will remain make significant progress in anti-corruption efforts (meaning the killing of three or more people at the exposed to heightened public safety risks in the during the remainder of his term as he will remain same time and place, according to United Nations’ short to medium term. In the absence of a policy focused on handling the challenges of the Covid-19 definition) have been on an upward trend since U-turn, companies in the extractives, agriculture, pandemic. High-level bribery is likely to persist in 2016, and terrorist and insurgent attacks against and infrastructure sectors are most likely to be areas of public contracting at the national level, civilian infrastructure and police outposts have also impacted by the persistent security challenges while small-scale facilitation payments will remain risen sharply during Duque’s watch. Human rights, in rural areas. Companies operating in urban pervasive at the local level. The next government’s labour, and environmental activists and advocates areas (e.g., professional services, retail) will be ability to push a strong anti-corruption agenda will remain highly vulnerable and are frequently less exposed to these dynamics and will instead likely be limited due to a fragmented Congress. the targets of organised criminal violence and see key threats stemming from common crime assassinations. According to the Ministry of and, to a lesser extent, organised crime, including Defence, there were 91 explosive attacks against cybercrime. There was a reduction in theft and national roads and bridges between January and robbery in 2020; however, it was mainly driven by October 2020, compared to five in 2019 and three social-distancing measures as the country was in 2018. Guerrilla attacks and the harassment of under a national quarantine between March and police and military outposts quadrupled in the past September. The financial and government sectors three years, rising from ten in 2018 to 44 in 2020. In will remain the main targets for cyber criminals,

Page 88 - LatAm Outlook 2021 Page 89 - LatAm Outlook 2021 Mexico Security

Mexico saw a modest reduction mobility restrictions imposed Furthermore, OCGs will continue in crime rates in 2020, largely during the first months of the to move away from drug driven by mobility restrictions current pandemic. In the short trafficking and will increasingly to curb the Covid-19 pandemic to medium term, OCG-related venture into different activities as as opposed to a sustained violence in the country will likely they look for additional sources change in criminal activity. continue to move towards the of income. Extortion will remain This was demonstrated when, states of Guanajuato, Jalisco, a lucrative business, with OCGs during the last months of 2020, Michoacán and Colima, where “taxing” legitimate businesses common and opportunistic the Jalisco New Generation and threatening them with crime rates increased again, Cartel (CJNG) is violently fighting violence if they do not comply. almost to pre-pandemic levels. rival organisations over drug- Likewise, OCG involvement in With forecasts pointing to an trafficking routes and fuel theft. cybercrime is likely to grow. economic contraction of around 9% in 2020 (according to the IMF) and a protracted economic Homicides 2005-20 recovery, the outlook for 2021 of the National Guard – a supposedly civilian- his administration there are no tangible inroads and beyond remains challenging. 35,000 led force – to the army. The current strategy will in anti-corruption policy. Realistically, anti- Moreover, those forecasts are prevent meaningful improvements in the security corruption efforts will likely be extremely limited mired in uncertainty given that 30,000 environment during 2021. – as evidenced by the 20% budget cut in 2021 for the pandemic is far from over the National Anti-Corruption System (from USD and questions remain around 25,000 315m in 2020 to USD 288.5m in 2021). Moreover, the government’s ability to % Change in Crime Rates between in 2020 the federal government directly awarded handle vaccine distribution. 20,000 2015 and 2020 the most contracts in any given year in Mexico’s If the vaccination plan does history, instead of following the process of public not make significant strides in 15,000 100% tender as required by law. According to the NGO the early months of 2021, the Mexicans Against Corruption, around 80% of 80% economic shocks of reimposing 10,000 federal government contracts were awarded mobility restrictions are likely 60% directly in 2020. The use and abuse of this form of 5,000 to be replicated and economic 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 contracting continues to be pervasive, favouring recovery pushed farther into the 40% a few companies with ties to the government, and future. This, in turn, will push an Source: National Public Security System (SNSP) will likely remain so during 2021. 20% even greater number of people into unemployment; according The main vulnerabilities in Mexico from a cyber threat perspective 0% Additionally, corruption investigations remain to the Mexican Social Security are a lack of a cyber security culture, poorly configured systems, largely politicised. AMLO’s government will Institute, 647,000 jobs were lost in outdated versions of software and application deficiencies. -20% continue relying on direct decisions by the

2020 due to the pandemic. This Furthermore, the government’s cyber strategy and its defence -40% executive branch, especially through the Financial will likely result in an increase in capabilities have not yet matured, meaning that these vulnerabilities Investigations Unit (UIF), to pursue investigations opportunistic crimes for will persist, making Mexico an attractive target for cyber criminals. centred on fraud and other financial crimes. Kidnap financial gain. Cyber activist groups are present and have participated in attacks Extortion Homicide Recent cases disproportionately focus on AMLO’s Carjacking that have focused on political and social issues. Organisations that Violent theft political rivals, with anecdotal evidence suggesting In terms of organised criminal are perceived to be connected to the government may be targeted, that AMLO himself has a hand in deciding which group (OCG) violence, barring investigations move forward. Moreover, AMLO uses including in conjunction with physical protests. Violent business robbery a fundamental shift in the these cases repeatedly during his daily morning government’s security strategy, Despite the above, President Andrés Manuel López Obrador Source: National Public Security System (SNSP) press conferences to allude to his government’s homicide rates are likely to (AMLO)’s security strategy remains unchanged. Mexico has efforts to tackle corruption. This seems to be more remain relatively stable in the not implemented a comprehensive security strategy aimed at of a public relations strategy with an eye on the five-year outlook. According strengthening police forces at every level. On the contrary, AMLO’s Corruption 6 June 2021 mid-term elections as opposed to a to official data, there were security policy continues to promote a centralised power structure. verifiable anti-corruption effort. Overall, Control 29,736 homicides registered For example, his government removed subsidies to state and The fight against corruption is a flagship goal of Risks does not expect significant improvements in 2020, a mere 2% reduction municipal governments that aimed to strengthen local police AMLO’s administration and remains a key part in the corruption risk environment in the short to compared to 2019, despite the forces in 2021. Additionally, in 2020, he gave operational control of his daily discourse. However, two years into medium term.

Page 90 - LatAm Outlook 2021 Page 91 - LatAm Outlook 2021 Peru Security Corruption

The overall security environment in Peru will attention or otherwise negatively impact Presidential hopefuls for the 11 remain challenging in the five-year outlook. While illicit economies. April 2021 general election are crime rates decreased significantly in 2020, this likely to tailor their campaigns was, as almost everywhere else in the region, Social unrest will remain a key feature of the around corruption, which largely the by-product of Covid-19 pandemic- operating environment over the next five years due most Peruvians believe is one related lockdowns, which were among the most to the public’s growing frustration with the political of the most pressing issues stringent in the region. As such, the very slow but class and corruption. Rising unemployment in the for the country. The transition gradual recovery of the economy will mean that wake of the Covid-19 pandemic is likely to fuel government of President while the longer-term outlook remains positive, in additional episodes of unrest, particularly in rural Francisco Sagasti is unlikely to the short-term criminals will continue to diversify areas. Protests will also be triggered by episodes prioritise anti-corruption reforms tactics and attempt to make up for lost ground of political instability or heightened political over the remainder of his term during the pandemic. Common and petty crime polarisation. Workers in key sectors such as due to limited tenure and fragile will remain a frequent risk to individuals perceived agriculture, healthcare, transport, and mining are governability. A populist and as attractive targets. likely to continue staging demonstrations, causing unruly Congress (with political localised disruptions, and resulting in occasional parties continuing to promote incidents of violence. Meanwhile, environmental populist legislation to appeal Homicide rates 2017-20 concerns will continue to fuel conflicts between to the public, and to challenge businesses (particularly in the extractives) and the administration) will continue 3500 local communities. to represent a major obstacle 3012 3000 to anti-corruption efforts by 2803 any incoming administration. 2500 Number of active socio-environmental Corruption investigations into 2434 conflicts current and former top officials 2000 2065 will continue over the next year,

1500 140 although at a slow pace. Little 131 2017 2018 2019 2020 (Jan-Sept) 129 127 128 122 progress on anti-corruption 120 reforms will leave companies

Source: National Institute of Statistics and Information 111 106 operating in the country exposed 100 95 to persistent corruption risks over 93 91 90 90 80 the next three years, particularly The leftist Shining Path (SL) guerrilla group will regarding public contracting and remain a highly localised but significant terrorist 60 licencing processes involving threat in the country. There is nothing to suggest 40 41 regional authorities. Corruption that the group’s intent and capability to carry out will remain more pervasive at the 20 attacks in urban areas over the next five years will 20 municipal and regional levels, increase, meaning that it will remain present in and 13 where oversight is weaker. 0 focused mainly on remote enclaves in jungle areas. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Business personnel and assets, in general, are As elsewhere in the region, less highly unlikely to be directly targeted by the group Source: National System of Environmental Information mature cyber security practices in the short-to-medium term as such attacks are mean that organisations doing not the group’s modus operandi, excepting critical business in Peru remain likely areas such as the Apurimac River Valley (VRAEM). to face threats from cyber Similarly, organised criminal groups involved with criminals. The fast-growing the large and ever-growing cocaine production online banking and insurance and export economy will remain largely focused sectors remain particularly on their business rather than branching out into vulnerable to business email targeting companies and their employees, even compromise, identity theft, in remote areas. As in neighbouring Colombia, phishing and smishing scams environmental activists and conservationists and other mobile-enabled remain vulnerable to these groups, especially malware attacks. where conservation activities threaten to draw

Page 92 - LatAm Outlook 2021 Page 93 - LatAm Outlook 2021 Conclusions

Security and corruption

The Covid-19 pandemic has done, and will hijacked by populist leaders supportive of only one continue to do, little to alleviate concerns about type of investigation: those targeting their political Latin America’s long-standing security problem. enemies. Meanwhile the Covid-19 pandemic In fact, its socio-economic impacts may well has increased corruption concerns, particularly exacerbate the drivers of violence across the regarding emergency procurement and stimulus region. Organised criminal groups are likely to programmes. Allegations of embezzlement, adapt to changing circumstances by diversifying, internal fraud and opaque public purchasing have venturing into different illicit activities as they emerged from Río Grande to Tierra del Fuego. look for additional sources of income, including in the digital economy. Digital extortion has grown Companies seeking to do business in Latin America significantly and remains on an upward trend, and seize the region’s abundant opportunities including ransomware attacks seeking to extract will be wise to factor both the security and the valuable data from intellectual property and corruption context into business planning and research and development as well as confidential strategy. Doing business in the region remains information about customers and operations. inherently feasible, and potentially tremendously lucrative. However, to overcome the challenges Latin America’s capacity to combat corruption will posed by the operational environment, companies be put to the test in the upcoming years. While wanting to succeed in the region need to engage the region has engaged in an unprecedented in proper planning and preparation, understand wave of enforcement over the last decade, anti- the specific context in which they will operate or corruption momentum seems to be losing force, invest, conduct appropriate levels of due diligence, not least of all because of competing priorities and apply fit-for-purpose strategies to manage brought to the fore by the pandemic. In Brazil their risks. and Mexico, the transparency agenda has been

Page 94 - LatAm Outlook 2021 Page 95 - LatAm Outlook 2021 Conclusions

Just one year ago, the confirmation of Covid-19 Latin America has been especially hard-hit by suggest that climate change appears to be of medical supply chains, and cyber-crime attacks as a pandemic and the subsequent actions Covid-19. It has 8% of the world’s population, but relatively limited concern. Social inequality (by on digitalised companies and economies. At by governments across the globe to seek to over 16% of global cases in the top six countries gender, class and race) has undoubtedly been the same time, as governments battle Covid-19, control its spread by imposing limits on social alone and, except for Chile, the highest number of aggravated by Covid-19 – while restrictions on some of the steam seems to have gone out of the contact and economic activity threw previous deaths. Reasons include poor health infrastructure, public gatherings during the pandemic have various anti-corruption drives which made so projections for growth and prosperity out of the the inability of workers in the informal economy suppressed though not eliminated protest much progress in the region in recent years. At the window. In 2020, GDP fell by 3% globally and 7% to self-isolate, and a lack of decisive coordinated demonstrations about inadequate public services corporate level, all these risks nonetheless remain for LatAm as a whole (7.5% for the 6 countries government action. Despite the critical (health, education, pensions). We anticipate that inherently manageable, given good advice and under the microsope in this report). At the same participation of Brazil in vaccine development, protest movements, demanding a real levelling up precautionary processes. time, the GINI coefficient of inequality, at 0.5 and the best efforts of international programmes and better services for the socially disadvantaged already unacceptably high, as demonstrated by such as WHO’s Covax, the rollout programme is including indigenous peoples, will resurface once Amid all the negative trends that 2020 has brought the protests which broke out in several Andean expected to be slower across LatAm than the US or restrictions in all countries have been eased – on to bear on the Outlook for LatAm, there are a countries in 2019, is expected to have risen further Europe, with widespread coverage only achievable the streets as well as at the ballot box. Chile, the number of strategic positives and potential upsides in LatAm in 2020. by 2023. Even once Covid-19 is under control, poster-child of the region’s economies, will be one that could, if handled adeptly, lead to better LatAm knows better than most how diseases to watch. As its new constitution is put together by scenarios than those reflected in the body of For 2021, as vaccines roll out across the globe, (Zika, H1N1, Dengue, Yellow Fever) and natural its constituent assembly, what balance will it strike this report. economies will begin to recover. Projections are for disasters strike with little warning and often in swift between globalised free trade and 7% GDP growth globally and 5% for LatAm (6.5% for succession. It also has to play catch-up with other wealth distribution? Among the strategic positives, the region the “big 6”). However, these bounce-back rates will serious conditions (cancers, heart disease, obesity) continues to be predominantly democratic. It is not succeed in taking all LatAm economies back which have been neglected during the pandemic. Job losses from health-driven restrictions will still developing its free trade agenda through to their pre-Covid-19 levels in 2021; a full regional undoubtedly push more people into the informal international trade alliances – such as USMCA, recovery will take until at least 2022 and, for some However, when polled, Covid-19 appears to be economies which already account for 50% of GDP. , CPTPP, Mercosur-EU – albeit countries, even 2023. Any resumption of growth only one of several key concerns among its citizens Aggravating traditional factors such as income there is still no pan-regional trade alliance. Most will, of course, take longer. Moreover, the damage – crime and violence and unemployment rank inequality, rapid urbanisation and the drugs trade, countries have still been able to access finance inflicted on the livelihoods and prospects of the almost as highly, followed closely by corruption, this will have implications for security and crime. from international capital markets to underpin most vulnerable sectors of society is expected to poverty and social inequality. Despite the region’s The pandemic has also offered new opportunities their Covid-19 support schemes. And, although take even longer to repair. vulnerability to extreme weather patterns, polls to organised crime – such as infiltration of China’s swift recovery from Covid-19 suggests that

Page 96 - LatAm Outlook 2021 Page 97 - LatAm Outlook 2021 its regional influence is likely to continue to outstrip elections in 2021-24 (Chile, Peru, Colombia, Brazil, that of the USA, changes in the US may create Argentina and finally Mexico) will reinforce the better understanding and support for LatAm from populist trend already in evidence in Mexico and its northern neighbour; though President Biden will Brazil; and whether those elected will be able have plenty of other areas to address and it may to address the inequality and lack of trust that is prove a bumpy ride for Brazil and Mexico (which currently undermining the region’s politics, as well developed a modus vivendi of sorts with as laying some firm foundations for future growth. ex-President Trump). Finally, the region’s continued high dependency Potential upsides include a faster and more on commodity exports, including fossil fuels comprehensive than expected rollout of the and minerals, is becoming an increasingly Covid-19 vaccine, the election of pragmatic urgent problem amid global consensus over politicians who make improvements to public the need to move to a zero carbon economy. services and reduce inequality without Diversification towards higher value-added, more fundamentally uprooting the free market model, environmentally friendly agribusiness and high- and the impact on country finances of a strong tech industries and services will be key to the rise in global commodity and oil prices in recent region’s future sustainable development. months (if this endures). With 60% of all land species living in Latin America As is the case for the rest of the world, and the Caribbean, along with 57% of the world’s governments will play a key role in the recovery primary forests, and 6 of the top 10 most biodiverse from the pandemic. The biggest obstacle to nations (4 of whom are covered by this report), progress in many – and, post the upcoming LatAm looms large in the global environmental elections, potentially most – of the countries and biodiversity agenda. At the moment, in the examined in this Outlook is their all too often developed world, LatAm is mostly attracting bad fragmented politics. Too many parties result headlines – burning forests, tailings dam disasters in unstable coalitions in Congress; and weak – and it is indisputable that these activities must be governments, lacking majorities and without brought under control, if only to avoid international firm mandates, are too often held hostage by boycotts and disinvestment. However, although coalition members with vested interests (Mexico deeply distressing, this is a lopsided story. In part and Argentina are currently exceptions). Policy because of its vulnerability and past experiences, discontinuities are common, partly as a result of LatAm has acquired in climate-related areas short-termism but also because of ‘revolving door’ an expertise that has the potential to be world- Ministers (even, in some cases, Presidents) who leading if given sufficient focus and resources. do not last long enough in post to carry through Developed world institutions have already a programme. Partly because so many Ministers demonstrated their desire to partner with LatAm and Congress members are tainted by corruption entities to combat Covid-19 in the development allegations, there is a high level of distrust between of vaccines; even greater greener collaboration voters and their representatives; and some 75% of opportunities beckon, especially if linked to green Latin Americans think their governments are on finance. Taking full advantage of the global the wrong track. This instability creates a systemic appetite to build back better and greener will vulnerability to populists of the left or right - require strategic vision and regional as well as specifically, leaders who govern with a highly global collaboration. This will require two players personal style, centralising power, diminishing in particular – Brazil and Mexico – to become the role of independent institutions and spending more externally-focused. LatAm has a unique and heavily on subsidies favouring their support base urgent opportunity to take a global leadership role or public works of doubtful long-term benefit. (It in combating climate change. The next few years should be emphasised that these vulnerabilities, will be telling as to whether or not LatAm as a which used to be seen as specifically Latin region can at last take centre stage. American, have in recent times been found in the Anglo-American world too.)

The key uncertainty running through this whole report is whether the outcome of the string of

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