Qformer Brazilian President

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, April 16, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Has Brazil’s Oil Tensions Over Cargill Joyce Chang Venezuela Flare Global Head of Research, Sector Gotten at Lima Summit JPMorgan Chase & Co. Dirk Donath The eighth Summit of the Amer- Senior Partner, icas wrapped up this weekend Catterton Aimara Back on Track? with strong statements critical Marlene Fernández of Venezuela’s President, Nicolás Corporate Vice President for Maduro, from the United States Government Relations, Arcos Dorados and its allies that were met with rebukes from Cuba and Bolivia. Peter Hakim President Emeritus, Page 2 Inter-American Dialogue Donna Hrinak ECONOMIC President, Boeing Latin America Jon Huenemann Argentina, U.S. Vice President, U.S. & Int’l Affairs, Philip Morris International Reach Deal on James R. Jones Pork Imports Chairman, Monarch Global Strategies The deal will allow U.S. pork to be Craig A. Kelly imported into Argentina for the Director, Americas International Last month Petrobras, led by CEO Pedro Parente (R) posted a $136 million loss for 2017, its fi rst time since 1992. Agriculture Gov’t Relations, Exxon Mobil smallest annual decline in the last four years. // File Photo: Government of Brazil. offi cials in Argentina had cited John Maisto health concerns over trichinosis, Director, U.S. Education Saddled with at least $85 billion in debt, Brazilian state a parasitic disease caused by Finance Group oil company Petrobras faces a diffi cult path ahead, Fitch roundworms, in keeping the ban. Nicolás Mariscal Chairman, Ratings said last month, as it downgraded the company’s Page 3 Grupo Marhnos Q debt ratings further into junk territory, to BB- from BB. Thomas F. McLarty III POLITICAL Chairman, Meanwhile, Geraldo Alckmin, the governor of São Paulo State and a McLarty Associates presidential hopeful in this October’s national election, said last month Brazil’s Bolsonaro Carl Meacham Associate VP for Latin America he was open to privatizing Petrobras, which already has semi-public Charged With Int’l Advocacy Division, PhRMA ownership aspects. What are the biggest challenges shaping the outlook Hate Speech Carlos Paz-Soldan Partner, for Petrobras? What does Petrobras have working in its favor? How well Brazil’s attorney general on Friday DTB Associates, LLP has the company dealt with a multi-year corruption scandal and related charged Jair Bolsonaro, who has Beatrice Rangel governance changes? been polling strongly in voter Director, surveys ahead of this October’s AMLA Consulting LLC election, with inciting hatred. Gustavo Roosen Page 2 Chairman of the Board, Larry B. Pascal, co-chair of the International Law Section of Envases Venezolanos Haynes and Boone, and Andre Berzins, Rio de Janeiro-based Andrés Rozental President, Rozental & attorney: “Petrobras faces a litany of challenges in its efforts Asociados and Senior to recover from numerous setbacks and obstacles, including Policy Advisor, Chatham House A billions in debt. Its lowered debt rating will mean higher borrowing costs. Roberto Sifon-Arevalo Managing Director, Americas Although it has put in place an ambitious divestiture program, laid off Sovereign & Public Finance Ratings, Standard & Poor’s thousands of employees and contractors totaling more than 185,000 workers, and recently settled a class-action suit in the United States for approximately $3 billion, it still faces numerous challenges. Its large layoffs have hurt worker morale, and the divestiture program has seen certain sales (such as the Liquigas sale) blocked by the local Brazilian competition authorities. Its international reputation has also been dam- Bolsonaro // File Photo: Fábio Ro- aged by the Lava Jato scandal, although the company insists it was the drigues Pozzebom, Agência Brasil. Continued on page 4

POLITICAL NEWS ees signed “The Lima Commitment,” a 56-point NEWS BRIEFS document that outlines anti-corruption efforts Tensions Over such as more cross-border cooperation and Citigroup Q1 Profi t tightening of anti-graft laws. But that too gener- Increases on Higher Venezuela Flare ated some pushback. Bolivia’s President, Evo Morales, suggested that a “war on corruption,” Latin America Revenue at Lima Summit like the war on drugs and war on terror, could New York-based Citigroup on April 13 reported be used by the United States and others as an net income for the fi rst quarter of $4.6 billion The eighth Summit of the Americas wrapped excuse to “topple legitimate governments.” on revenues of $18.9 billion. The results sur- up this weekend in Lima with strong state- Some Caribbean leaders worried about the passed market analysts’ expectations. In the ments critical of Venezuela’s President, Nicolás costs and bureaucracy that would be involved company’s Latin America consumer banking Maduro, from the United States and its allies in complying with the accord. Economic ties segment, net income increased 15 percent as that were met with rebukes from Cuba and also garnered headlines. On trade, the delega- compared to the year before, to $1.3 billion. In Bolivia, the Miami Herald reported. U.S. Vice tion from the United States insisted it had not constant dollars, revenues increased 8 percent President Mike Pence, who was fi lling in for turned its back on Latin America, the Financial and retail banking revenues grew 7 percent President Donald Trump, said the United States Times reported. Commerce Secretary Wilbur in the region year-over-year. Card revenues in would not stand by as Venezuela devolved into Ross said the U.S. might be willing to re-en- Latin America increased 13 percent, driven by a dictatorship, calling on the region to ramp gage with the Trans-Pacifi c Partnership, which continued growth in purchase sales and full up sanctions against the Maduro regime. “The Trump abandoned his fi rst month in offi ce. rate revolving loans, the bank said. United States believes now is the time to do more, much more,” he said. The Venezuelan Brazil’s Bolsonaro leader had been disinvited by Peru from attend- Ecuador Police Detain ing the summit amid concerns over unfair elec- Charged With Nine in Killing of Hate Speech Journalists More than 500 police offi cers in Ecuador Brazil’s attorney general on Friday charged raided homes and villages near Mataje along Jair Bolsonaro, the controversial right-wing the border with Colombia over the weekend in presidential candidate who has been running their hunt for members of a gang that killed near the front in polls ahead of this October’s two journalists from El Comercio and their election, with inciting hatred and discrimination driver. The group is led by Walter Artízala, also against blacks, indigenous communities, wom- known as Guacho, a former guerrilla with the en and gays, the New York Times reported. At- Peruvian President Martín Vizcarra hosted the summit. // Revolutionary Armed Forces of Colombia, who torney General Raquel Dodge cited incendiary Photo: Peruvian Government. has now taken over much of the drug trade remarks by Bolsonaro, a congressman, alleging along the border with Colombia, authorities tions and an economic crisis. Pence’s speech they constituted hate speech. If convicted, he say. Interior Minister César Navas said Sunday drew an angry response from Cuban Foreign could face up to three years in prison and a that nine people, including Guacho’s nephew, Minister Bruno Rodríguez, who argued that it $117,000 fi ne. The charges, which Bolsonaro’s are being held, El Comercio reported. was “completely undemocratic” to attack Mad- campaign called “groundless,” came as debate uro when he’d been excluded from the meeting continues in Brazil over the judiciary’s role in and couldn’t defend himself. The United States’ deciding who can run in elections. Earlier this “moral vacuum cannot be, is not, a reference month, the front-runner in the race, former Generali Sells Businesses for Latin America and the Caribbean,” Rodrí- President Luiz Inácio Lula da Silva, lost a court in Panama, Colombia guez said as the U.S. delegation walked out. appeal and began serving a 12-year sentence Italian insurer Assicurazioni Generali an- Pence highlighted an additional $16 million in for corruption. The status of Lula’s candidacy nounced today it had sold its businesses in U.S. funding to help Venezuelans who have fl ed remains uncertain, however, despite his being Panama and Colombia for about $210 million. to neighboring countries but did not offer spe- imprisoned. The fi rst major poll taken since The operations in Panama were sold to ASSA cifi c plans for further action against Maduro’s Lula was jailed, released by Folha de S.Paulo Compañía de Seguros, while the business in government, the Washington Post reported. on Saturday, showed environmentalist Marina Colombia was sold to Talanx Group. In South The summit’s offi cial theme was corruption and Silva technically tied with Bolsonaro in the America, Generali remains active in Brazil, democratic governance. On Saturday, attend- race, Bloomberg News reported. The Datafolha Argentina and Ecuador.

COPYRIGHT © 2018, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Monday, April 16, 2018 poll showed Bolsonaro with 17 percent of vote intentions and Silva with 15 to 16 percent. THE DIALOGUE CONTINUES The polling scenario did not include Lula. Ciro Gomes, the leftist former governor of Ceará State who was expected to draw Lula voters, What Does Jailing Lula Mean for Brazil? slipped to 9 percent from 12 percent in the poll taken in January, Reuters reported. Support Former Brazilian President Brazilians were willing to tolerate a certain for São Paulo Governor Geraldo Alckmin, who Luiz Inácio Lula da Silva, who amount of corruption, so long as it went some analysts say has the strongest party Q has been the front-runner hand in hand with economic prosperity. But apparatus behind him, is polling stagnantly in Brazil’s presidential race, now frustration is so great, that political con- at between 7 and 8 percent support. The surrendered to authorities on Saturday to cerns have almost overwhelmed economic ruling Brazilian Democratic Movement party’s begin serving his 12-year prison sentence ones. Though he remains popular with the hopefuls fared poorly in the poll, with President after being convicted on corruption charges poor, Lula can no longer hide behind his leg- Michel Temer garnering between 1 percent and losing on appeal. Meantime, deeply acy of achievement. Brazilians feel alienat- and 2 percent, while former Finance Minister unpopular President Michel Temer fl oated ed, and are fed up with high unemployment, Henrique Meirelles has not cleared 1 percent. the idea that he may run again, while his concerns over security, a fragmented polity, Datafolha surveyed 4,194 adults across Brazil fi nance minister, Henrique Meirelles, has and traditional political structures of patron- between April 11-13. also reportedly been considering a run for age and clientelism. Today, uncertainty is president as the candidate of the ruling Bra- the overriding sentiment in Brazil. But the zilian Democratic Movement Party. Will the ECONOMIC NEWS imprisonment of the still-popular Lula lead Brazilians to question the race’s legitimacy? Lula can no longer Argentina, U.S. Reach Which candidate has the edge ahead of Bra- zil’s October presidential election? To what hide behind his legacy Deal on Pork Imports can right-wing candidate Jair Bolsonaro, of achievement.” who has been running behind Lula in the — Peter Sufrin Argentina and the United States announced polls, attribute his support? Which factors Friday they had reached a deal that will allow between now and October have the most U.S. pork to be imported into Argentina for the potential to affect the race? fi rst time since 1992. Agriculture offi cials in symbol of Lula does reveal that democratic Argentina had cited health concerns over trich- Peter Sufrin, independent institutions and ideals can indeed prosper. Washington-based analyst: Moro’s progress with Lava Jato serves to ”Lula’s imprisonment represents affi rm that no one is above the law. With A nothing less than a watershed Brazil at a crossroads, politicians must in modern Brazilian political history. The fi nally respond to the fundamental need for fi rst president to be jailed since the end of transparency demanded by the Brazilian the dictatorship, Lula serves as a powerful people.” symbol for Brazil’s past and present political and economic successes and failures. The traditional nostalgia for the Lula administra- EDITOR’S NOTE: The above is a continua- tion, linked to the commodities boom, the Perdue // File Photo: U.S. Government. tion of the Q&A in the April 10 issue of the rise of the middle class, and the success Advisor. inosis, a parasitic disease caused by round- of programs like Bolsa Família, reveals that worms, in keeping the ban. “This is a great day for our agriculture community and an example trade surplus with Argentina of more than $10 prices lower, Reuters reported. Last May, of how the Trump Administration is committed billion in 2016, according to data from the U.S. Argentina and the United States agreed to end to supporting our producers by opening new Trade Representative. Last week, China, the a high-profi le trade dispute that blocked the markets for their products,” U.S. Secretary of top global pork consumer, reacted to President South American country from exporting lemons Agriculture Sonny Perdue said in a statement, Donald Trump’s threat to levy billions of dollars north, but shipments have not yet begun amid adding that Argentina could import up to $10 in new tariffs on its products by imposing a 25 continued appeals from the California citrus million in U.S. pork products annually. In all, percent tariff on imports of U.S. pork, sending industry, the Los Angeles Times reported. the United States had a goods and services

FEATURED Q&A / Continued from page 1 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2018 victim of offi cial corruption. However, it does and private companies are opposites when retain important advantages. It has seen one compares fi nancial performance with Erik Brand four years of increased production. More- developmental goals. It is diffi cult to have Publisher [email protected] over, the government has adopted rules to both. Thus, if Petrobras follows the path that make its operations more fl exible, including markets expect it to follow, its social and Gene Kuleta Editor Decree No. 9,041/2017 which has granted economic infl uence in Brazil’s economy will [email protected] it more fl exibility for its participation in the be substantially lower.” pre-salt area, as well as new rules designed to enhance transparency in procurement. Jeremy Martin, vice president Michael Shifter, President It recently won various new fi elds as part for energy and sustainability at Genaro Arriagada, Nonresident Senior Fellow of the most recent upstream bid round. It the Institute of the Americas: “It Sergio Bitar, Nonresident Senior Fellow remains a dominant actor in the Brazilian remains to be seen if God is Bra- A Joan Caivano, Director, Special Projects market and holds many valuable assets zilian, and with Neymar’s latest injury, predict Michael Camilleri, Director, Peter D. Bell Rule of Law including the deepwater pre-salt fi elds. a Brazil World Cup victory at your own peril. Program Petrobras has ample challenges as it works But what does seem to be humming along Kevin Casas-Zamora, Nonresident Senior Fellow to restore its fi nancial and operational luster is Brazil’s oil sector and Petrobras’ recovery. Ariel Fiszbein, Director, Education Program that it previously enjoyed.” It clearly is not back to the Petrobras of the Alejandro Ganimian, Nonresident Fellow heady early pre-salt days, but the company Peter Hakim, President Emeritus Francisco Ebeling Barros, inde- deserves some of the more positive plaudits Claudio Loser, Senior Fellow pendent Rio de Janeiro-based it has garnered of late. Long linked to the Nora Lustig, Nonresident Senior Fellow energy consultant: “Fitch’s horrifi c corruption wracking Brazil, the Margaret Myers, Director, China and Latin America Program downgrade of Petrobras was company and its current leadership have A Manuel Orozco, Director, Migration, indeed a big blow for a company that is at- staked out a strategic plan that confronts Remittances & Development tempting to re-couple with fi nancial markets. its debt challenges, liquidity issues and a Jeffrey Puryear, Senior Fellow In January, Petrobras agreed to settle a U.S. needed reset in terms of its procurement, as Tamar Solnik, Director, Finance & Administration class-action corruption lawsuit for $2.95 well as cost-reduction efforts. Despite its Lisa Viscidi, Director, Energy Program billion, a sum that actually was more than credit downgrade, some of its international Denisse Yanovich, Director of Development and Brazilian courts claimed that the Car Wash debt offerings have been oversubscribed. External Relations corruption scandal had cost the company. Indeed, several market analysts have begun Latin America Advisor is published every With Fitch’s downgrade, Petrobras is learning to highlight the company’s upside. In addi- business day, except for major U.S. holidays, the hard way that regaining the markets’ tion to navigating the company through the by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 trust in order to reduce its debt (such as detritus and out of the ashes that is the Car Washington, DC 20005 through capitalizing itself) is much more Wash scandal, Petrobras has increasingly www.thedialogue.org complicated than it had initially expected. been able to ride the tailwinds derived from ISSN 2163-7962 What does the Fitch downgrade show us? a global oil price rally. But Petrobras would Subscription inquiries are welcomed at King oil is not dead, and it will not be dead not be able to take advantage of the price [email protected] for many decades to come. Also, the ratings rally as consequentially if the pre-salt geol- The opinions expressed by the members of the Board of agency is signalizing to investors, with all ogy had not begun to prove itself so prolifi c. Advisors and by guest commentators do not necessarily other things held constant, that the compa- Brazil’s pre-salt wells are pumping more represent those of the publisher. The analysis is the sole nies that succeeded in the second and third than 1.7 million barrels of oil equivalent per view of each commentator and does not necessarily represent the views of their respective employers or fi rms. pre-salt bidding rounds—such as Statoil day. Moreover, one of Petrobras’ signature The information in this report has been obtained from and Shell—are also strong competitors partnerships and projects in the pre-salt, the reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have for investors’ attention. It also shows that Libra fi eld, has declared a breakeven price of any questions relating to the contents of this publication, markets want the whole package, and this $35, with the company’s CEO arguing that its contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a probably includes the companies’ privatiza- cost reduction plans will reap a $29 breakev- retrieval system, or transmitted without prior written permis- tion. It is possible that, by following that line, en price. For those arguing that is wishful sion from the publisher. Petrobras will markedly improve its fi nancial thinking, it bears noting that Shell has said situation. It is an established fact in the it is confi dent that it can meet a breakeven petroleum industry that state oil companies price target of $40 in the pre-salt.”