LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, April 3, 2017

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, April 3, 2017

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Has Argentina’s Moreno Claims Cargill Ecuador Victory, Joyce Chang Global Head of Research, Economy Started a Lasso Cries Foul JPMorgan Chase & Co. With more than 96 percent of W. Bowman Cutter Former Partner, Stronger Recovery? votes counted, ruling party E.M. Warburg Pincus candidate Lenin Moreno had Dirk Donath secured 51.1 percent of the votes Senior Partner, compared with conservative Catterton Aimara challenger Guillermo Lasso’s 48.9 Barry Featherman percent. Senior Director, Page 2 International Government Affairs, Gilead Sciences

Marlene Fernández POLITICAL Corporate Vice President for Government Relations, Venezuela Court Arcos Dorados Peter Hakim Reverses Move to President Emeritus, Inter-American Dialogue Dissolve Congress Donna Hrinak Opposition leaders in Venezuela’s Argentine President Mauricio Macri has focused on implementing market-friendly economic President, Boeing Latin America policies since taking offi ce more than a year ago. // File Photo: Argentine Government. National Assembly said Sunday Jon Huenemann they will begin the process of re- Vice President, U.S. & Int’l Affairs, moving judges from the polarized Showing signs of recovery, Argentina’s economy grew 0.5 Philip Morris International nation’s Supreme Court. James R. Jones percent in last year’s fourth quarter as compared to the third, Page 3 Chairman, ManattJones Global Strategies Q the country’s statistics agency said March 21. The farm- Craig A. Kelly ing, energy and construction sectors are seeing increased POLITICAL Director, Americas International output, the agency said. Has Argentina’s economy reached bottom Gov’t Relations, Exxon Mobil Paraguay Closes John Maisto and started to turn around? Are President Mauricio Macri’s economic Congress in Wake Director, U.S. Education policies the reason for recent gains, and will they be sustained? Will Finance Group of Fire, Shooting Nicolás Mariscal the economic gains be enough for Macri’s Cambiemos coalition to be President Horacio Cartes on Chairman, rewarded in the October midterm elections, or will the election spell Grupo Marhnos Saturday fi red his interior minister trouble for the president’s allies in Congress? Thomas F. McLarty III and chief of police and appealed Chairman, for calm after protests erupted Fri- McLarty Associates day over news of a secret Senate Carlos Paz-Soldan Claudio Loser, visiting senior fellow at the Inter-American vote that would enable him to run Partner, Dialogue, president of Centennial Group Latin America and for offi ce again in 2018. DTB Associates, LLP Page 2 Beatrice Rangel former head of the Western Hemisphere Department of Director, the International Monetary Fund: “Life is complicated for AMLA Consulting LLC A Cambiemos and President Macri ahead of the October elections. First, Gustavo Roosen Chairman of the Board, the economic facts: GDP is expected to grow by 2.7 percent this year, Envases Venezolanos indicating an increase in per-capita income, after a three-year average Andrés Rozental President, Rozental & annual decline; infl ation remains high at about 30 percent a year, but Asociados and Senior Policy Advisor, Chatham House is declining and still refl ects the one-time effects of the unavoidable Shelly Shetty adjustments in energy prices; the external accounts are strengthening, Head, Latin America with foreign reserves having grown by more than $17 billion since the end Sovereign Ratings, Fitch Inc. Roberto Sifon-Arevalo of 2015, to the highest level recorded since 2011. Still, poverty, at about Managing Director, Americas 30 percent, remains high; real salaries have declined as unsustainable Sovereign & Public Finance Ratings, Standard & Poor’s subsides were reduced; public fi nances are very weak and dependent on foreign fi nancing; and the peso is overvalued, except for traditional Cartes // Photo: Government of Paraguay. Continued on page 3

POLITICAL NEWS remove from Ecuador’s London embassy within NEWS BRIEFS 30 days if he won the runoff, Reuters reported. Moreno Claims Assange taunted Lasso over Twitter after the Mudslides in Colombia vote, suggesting that the businessman leave Kill 254 People Victory in Ecuador, Ecuador within 30 days instead. Colombian President Juan Manuel Santos said Lasso Cries Foul Sunday there are no more people offi cially Paraguay Congress missing after mudslides killed at least 254 Ruling party candidate and former vice presi- Closed in Wake of over the weekend in Putumayo province, dent Lenín Moreno claimed victory in Ecuador’s CNN reported. More than fi ve inches of rain presidential vote on Sunday, as supporters Fire, Lethal Shooting Friday night caused three rivers surrounding of conservative challenger Guillermo Las- the southern city of Mocoa to overfl ow and so clashed with riot police in major cities, Paraguay’s Congress remained closed and bury the town of 25,000 inhabitants in mud accusing authorities of permitting fraud in the guarded by armed police Sunday as investi- and debris. Santos said 170 victims had been election, the Associated Press reported. Sev- gators gathered evidence surrounding events identifi ed thus far, with 43 children among the eral thousand Lasso supporters were gathered Friday evening that led to the burning of the dead with 22 more hospitalized. A further 203 outside the electoral council headquarters in Senate building and death of an opposition people were injured, many severely. Quito as of midnight to protest in relative calm, youth leader at the hands of police, ABC Color according to the report. With more than 96 reported. President Horacio Cartes on Saturday percent of votes counted, Moreno had secured fi red his interior minister and chief of police Latin America Will Need 51.1 percent of the votes compared with and appealed for calm after protests erupted $350 Billion in New Friday over news of a secret Senate vote that would enable him to run for offi ce again in Aircraft by 2035: Report 2018, something the constitution has barred Latin America will require 2,570 new passenger since 1992 in the wake of a 35-year dicta- and freighter aircraft worth $350 billion be- torship. While the streets were for the most tween last year and 2035, Aerospace Technol- part subdued this weekend, small groups of ogy reported today, citing a new Airbus Global protesters were collecting signatures demand- Market Forecast report. The region’s growing ing the withdrawal the proposed amendment. middle class will double the size of Latin Cartes, a wealthy businessman who leads the America’s existing in-service fl eet of 3,000 pas- Moreno addresses supporters Sunday. // Image: TeleCiu- conservative Colorado Party, offered his “most senger and freighter planes over the next two dadano. sincere condolences” to the family of Rodrigo decades, the report predicts, a rate on par with Lasso’s 48.9 percent, according to the electoral Quintana, 25, the leader of the opposition Lib- the world’s annual average of 4.5 percent. council. The difference of more than 200,000 eral Party’s youth branch who was reportedly votes was called into question by Lasso sup- shot in the back by police with live ammunition porters, who cited exit polls indicating an oppo- Saturday as they raided party offi ces following site result. Lasso, 61, has called for a recount the riots on congress, adding that “the perpe- Japan Leads Investment in every province of the nation, but the electoral trators of this horrendous episode will face in $317 Million IDB Fund council’s head, Juan Pablo Pozo, has appealed justice and pay for their actions,” the Guardian Japan and a group of Latin American and to the opposition to recognise the results. reported. About 30 people were injured in the Caribbean countries will lead a $317 million International observers had been watching raid, including three lawmakers, while police capital replenishment of the Inter-American Sunday’s race for indications the “pink tide” said 211 people, some of them minors, were Development Bank’s Multilateral Investment of left-leaning governments that swept across arrested over the weekend, according to Fund, or MIF. Latin American and Caribbean Latin America during the natural resource Agence France-Presse. Paraguay’s lower house countries will provide $166.8 million to the boom of the last decade had receded further, could vote on the re-election proposal as soon MIF, with Japan donating $85 million, and the following conservative candidate gains recent- as Tuesday, when leaders are scheduled to set balance provided by Spain, Canada, China, and ly in Argentina and Brazil. Leftist leaders in the chamber’s agenda. However, fi remen have fi ve other European countries. Israel is also Venezuela and Bolivia were quick on Sunday to warned the Congress building may be at risk becoming a donor to the MIF, which historically congratulate Moreno on his victory. A Moreno of collapsing as a result of the fi re, potentially had received most of its funding from the win would also come as a relief for WikiLeaks delaying legislative sessions for some time to United States aimed at poverty reduction, the founder Julian Assange, who Lasso vowed to come, Reuters reported. IDB said in a statement Sunday.

FEATURED Q&A / Continued from page 1 Venezuela Court exporters. Even considering these negative traordinary earnings. Therefore, sectors that factors, there is a positive tendency in the were already healthy are now even stronger. Reverses Decision economy, mostly a consequence of the These statistics do not allow us to envision to Dissolve Congress government policies. However, the Peronist a favorable scenario for Macri’s government opposition, even if disjointed, is in control in the October midterm elections.” Opposition leaders in Venezuela’ National As- of Congress and ahead of the elections, the sembly said Sunday they will begin the process Kirchnerista movement, together with more Juan Cruz Díaz, managing of removing judges from the polarized nation’s extreme groups, are making life very diffi cult director of Cefeidas Group in Supreme Court and urged supporters to take for the Argentine population through strikes, Buenos Aires: “Economic data to the streets on Tuesday to back the move, El demonstrations and day-to-day disruptions, A shows mixed results. Many indi- Universal reported. National Assembly fi rst vice ahead of the elections. Because of the cuts cators are still lagging, despite some signs president Freddy Guevara told supporters that in subsidies, the middle class is upset, and of recovery (the country has offi cially exited the Constitutional Chamber of the Supreme may express its unhappiness through a recession, according to statistics agency Court of Justice, or TSJ, had broken the law protest vote. This clouds the prospects of INDEC). The economic situation, in partic- last week in dissolving the already weakened Cambiemos. However, in response to the ular infl ation and the consequent salary Assembly. “These judges that gave a coup Kirchnerista actions, and the fresh memory negotiations, is on the minds of voters and d’etat cannot go unpunished,” said Guevara. of their widespread corruption and abuse of will be an important factor in the outcome Even the country’s attorney general, Luisa power, a vote of support for Macri, of course of the midterms. A sense that the economy Ortega, a longtime government ally, had broken subject to the government’s frequent tactical is improving would boost the government’s ranks and declared the decision a “breach of mistakes, may result.” prospects of picking up seats. However, constitutional order” in a rare public rebuke, there are still several months until the elec- Felipe Yapur, journalist at Radio tion, and in most scenarios, the government Nacional and Tiempo Argentino: will come out better than it was before. Even “The Argentine economy has in a scenario where the opposition wins the The rupture of the A not stopped falling, and worse, symbolically important Buenos Aires prov- constitutional order it has not yet reached bottom. Data provided ince and more seats overall, this would not continues.” by INDEC, which relies on the government, necessarily represent a resounding defeat — Juan Matheus says that industrial production, which for the government, given that opposition contributes the largest number of registered legislators elected this year are likely to be workers, accumulated a drop of 3.5 percent less antagonistic. The majority of seats up Reuters reported. On Saturday, at the request in this year’s fi rst quarter. The main reasons for grabs were the ones elected in the 2013 of Maduro’s government, the Supreme Court for this economic, social and political crisis midterms, at a time when former President eliminated the most contentious part of its are the measures that President Mauricio Cristina Fernández de Kirchner was enjoying ruling, but not before international condemna- Macri has taken since he took offi ce in De- strong support and had signifi cant infl uence tion further eroded President Nicolás Maduro’s cember 2015. The severe devaluation of the in picking the candidates. Opposition actors shaky standing as the leader of a democracy. peso, the indiscriminate opening to imports elected this year are more likely to be cho- Despite the TSJ’s reversal, “the rupture of the and a signifi cant increase in electricity, water sen by the provincial party structure, mean- constitutional order continues,” opposition law- and gas rates have triggered an infl ationary ing governors will exercise more infl uence maker Juan Matheus told supporters Sunday. spiral that has caused an increase in unem- over their behavior. The Macri administration The Organization of American States is due to ployment and closings of small- and medi- has established a good working relationship meet today to debate the situation in Venezue- um-sized businesses that drive labor growth. with many opposition governors, which has la, the Associated Press reported. In practical In addition, the food industry declined by 4.2 been important in moving legislation through terms, the threat to remove judges is unlikely to percent year-over-year in February. The drop Congress. An important unknown variable come to pass, analysts say. However, the threat in consumption did not take long. The only is if CFK will run in Buenos Aires province. of street violence continues to mount. Riot sectors that have benefi tted are banking, A CFK candidacy could split the opposition police fi ring tear gas faced down small street agriculture and mining. These not only have Peronist vote and would also play into the protests in Caracas and other cities across the relatively small workforces, but they also government’s electoral strategy which, in country over the weekend, according to media do not pay additional income taxes on ex- the absence of concrete economic results reports. Continued on page 4

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2017 to tout, has focused on making the election framework or try to recover economic activ- a referendum on the legacy of the Kirch- ity and domestic consumption. If changes Erik Brand ners, especially allegations of corruption. aren’t made, the Cambiemos coalition will Publisher [email protected] However, the symbolism of a win by CFK in surely have a weak performance in the this scenario would be a major blow to the upcoming elections.” Gene Kuleta Editor government.” [email protected] Carlos Fara, president of Carlos Nicole Wasson Juan Santarcángelo, senior Fara & Asociados in Buenos Reporter, Assistant Editor researcher at the Consejo Aires: “There are indeed signs of [email protected] Nacional de Investigaciones A economic recovery, although it is A Económicas y Técnicas (CON- early to say whether that means the country ICET) and the Universidad Nacional de has already emerged from the recession. Quilmes in Buenos Aires: “Although Argenti- Considering that this year’s infl ation will be Michael Shifter, President na’s economic activity grew by 0.5 percent in lower and exports will grow somewhat, the Genaro Arriagada, Nonresident Senior Fellow the fourth quarter, it’s a phenomenon of such recovery is without a doubt more sustain- Sergio Bitar, Nonresident Senior Fellow small magnitude that it is still far from being able than in the time of Cristina Kirchner. Joan Caivano, Director, Special Projects consolidated. This meager growth can be ex- The business climate is different, and the Kevin Casas-Zamora, Nonresident Senior Fellow plained by the growth that has been concen- Ariel Fiszbein, Director, Education Program Alejandro Ganimian, Nonresident Fellow trated in specifi c sectors, like agriculture; but Peter Hakim, President Emeritus many of Argentina’s sectors are not only fail- The recovery is Claudio Loser, Senior Fellow ing to experience growth, they are continuing without a doubt more Nora Lustig, Nonresident Senior Fellow to decline. One of the most important cases sustainable than Margaret Myers, Director, China and is that of manufacturing, which, according to Latin America Program in the time of the Foundation for Latin American Economic Manuel Orozco, Director, Migration, Research, or FIEL, contracted by 9.5 percent Cristina Kirchner.” Remittances & Development in February year-over-year. Likewise, it’s been — Carlos Fara Jeffrey Puryear, Senior Fellow verifi ed that investment is not increasing, Tamar Solnik, Director, Finance & Administration and that industry is operating at 60 percent Lisa Viscidi, Director, Energy Program capacity. In this context, it’s diffi cult to imag- Latin America Advisor is published every ine that the economy is making a comeback. measures taken by the national government business day, except for major U.S. holidays, The Macri administration has signifi cantly have collaborated with indicators of eco- by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 increased Argentina’s debt levels. Under the nomic improvement. However, the feeling Washington, DC 20005 administration’s management, infl ation has of the people in the street is different, since www.thedialogue.org risen to its highest rate in recent years, the optimism has been wearing away, especially ISSN 2163-7962 level of activity and consumption has col- over the last two months. By the time of Subscription inquiries are welcomed at lapsed, industry continues to fall, there have the elections, the economy will register its [email protected] been budget cuts in science and technology, greatest growth of 2017, so that will have unemployment continues to rise and the some positive impact on voters. However, The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily government has permitted the dispropor- the recovery may not be deep enough to give represent those of the publisher. The analysis is the sole tionate increase of taxes and tariffs, among the government a forceful triumph. It may view of each commentator and does not necessarily represent the views of their respective employers or fi rms. other measures. In no way do these policies win in the province of Buenos Aires, which The information in this report has been obtained from help drive economic growth, much less represents 38 percent of the electorate. If reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have development, so unless there is some inkling that happens, it will be prominent in media any questions relating to the contents of this publication, of radical change being made to economic headlines, even if the overall national result contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a policy, the situation will continue to deteri- is not the same.” retrieval system, or transmitted without prior written permis- orate. The electoral scenario is a dilemma sion from the publisher. for Cambiemos in terms of economic policy, The Advisor welcomes comments on its Q&A because the coalition has to decide whether section. Readers can write editor Gene Kuleta to maintain its current economic policy at [email protected].