LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Thursday, September 27, 2018

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, September 27, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs How Are Trade IMF Increases Cargill Joyce Chang Size of Argentina Global Head of Research, Tensions Affecting Loan Package JPMorgan Chase & Co. The International Monetary Fund Dirk Donath Senior Partner, agreed to increase the size of its Catterton Aimara Latin America? loan package for Argentina by Marlene Fernández nearly 15 percent to $57.1 billion. Corporate Vice President for Page 2 Government Relations, Arcos Dorados Peter Hakim BUSINESS President Emeritus, Inter-American Dialogue Petroperú to Sell Donna Hrinak $600 Mn in Bonds President, Boeing Latin America Jon Huenemann for Refinery Work Vice President, U.S. & Int’l Affairs, The Peruvian state energy Philip Morris International company is issuing the bonds to James R. Jones Chairman, pay for modernization of its Talara refinery in order to expand its Monarch Global Strategies International Monetary Fund Managing Director Christine Lagarde warned recently about Craig A. Kelly threats facing emerging markets due to trade tensions between the United States and China. production capacity. Director, Americas International // File Photo: International Monetary Fund. Page 3 Gov’t Relations, Exxon Mobil The International Monetary Fund’s managing director, John Maisto Director, U.S. Education Christine Lagarde, warned this month in an interview with POLITICAL Finance Group the Financial Times that emerging markets could suffer a Venezuela’s Nicolás Mariscal Chairman, Q “shock” due to the escalating trade war between the United Maduro Blasts U.S. Grupo Marhnos States and China. While Lagarde said her staff does not yet see wide- Thomas F. McLarty III in Speech to U.N. Chairman, spread contagion, developing countries are facing threats due to rising General Assembly McLarty Associates “uncertainty” and a “lack of confidence,” she added. How are trade Carl Meacham Venezuelan President Nicolás Associate VP for Latin America tensions between the United States and China affecting Latin American Maduro unexpectedly appeared Int’l Advocacy Division, PhRMA countries? Which countries and industries stand to gain or lose the at the U.N. General Assembly Carlos Paz-Soldan most? How should countries in the region protect themselves against meeting, where he delivered a Partner, 50-minute speech, largely blasting DTB Associates, LLP the fallout from external factors such as friction over trade? the United States. It was Maduro’s Beatrice Rangel first appearance at the gathering Director, of world leaders since 2015. AMLA Consulting LLC Miguel Braun, trade minister of Argentina: “It is clear that Page 2 Ernesto Revilla Head of Latin American the current trade tensions generate uncertainty, and emerging Economics, Citi markets generally suffer more in times of uncertainty. At Gustavo Roosen the same time, and although it is important to follow events Chairman of the Board, Envases Venezolanos A closely, the current situation is not as dire as others faced in the past. Andrés Rozental Despite the current tensions, the world seems to continue to support the President, Rozental & Asociados and Senior integration process. Trade now represents more than half of global GDP, Policy Advisor, Chatham House there are close to 300 trade agreements in place today when they only Shelly Shetty Head of Sovereigns Ratings, numbered 25 in 1990 and many countries continue to negotiate agree- Latin America, Fitch ments, as we’ve seen between Japan and the European Union, for exam- Roberto Sifon-Arevalo Managing Director, Americas ple. In this context, Argentina continues in its course toward stronger Sovereign & Public Finance Ratings, integration, negotiating through Mercosur with the European Union, the Standard & Poor’s European Free Trade Association, Canada, Korea and Singapore, and bilat- erally with Chile, Colombia and Mexico, and advancing in intra-Mercosur Maduro // Photo: United Nations. Continued on page 3

POLITICAL NEWS countries, including Argentina, Chile, Colom- NEWS BRIEFS bia, Paraguay and Peru, was seen as a strong Venezuela’s Maduro rebuke of Maduro. “To remain indifferent or U.S. Plans to Release Text speculative in front of this reality could be per- of Trade Deal With Mexico Blasts U.S. in Speech ceived as being complicit with the regime. We are not going to be complicit,” said Paraguay’s as Early as Friday: Report at United Nations foreign minister, Andrés Rodríguez Pedotti, the U.S. Trade Representative Robert Lighthizer is AP reported. Nearby countries have become planning to release the text of a bilateral trade Venezuelan President Nicolás Maduro increasingly overwhelmed by the exodus of deal with Mexico as early as Friday, CNBC unexpectedly showed up Wednesday at the Venezuelans fleeing economic devastation in reported, citing two unnamed sources with U.N. General Assembly, where he delivered a Venezuela, which includes hyperinflation that knowledge of the matter. The deal resulted 50-minute speech, mainly blasting U.S. policy, the International Monetary Fund has estimated from trade talks to revamp the North American the Associated Press reported. Maduro’s sur- will reach one million percent by the end of the Free Trade Agreement, or NAFTA, which also in- prise appearance came after he had threatened year. Some 2.3 million Venezuelans have left cludes Canada. One source said the text allows to skip the gathering, saying he feared that he their home country since 2014, according to Canada to be added to the deal at a later date. might be assassinated. In his address to the the United Nations. global audience, Maduro spoke for well over his allotted time and accused the United States of wanting “to continue giving orders as though ECONOMIC NEWS Mexico’s López Obrador the world were its own property.” He referred Reportedly to Tap Heath to U.S. President Donald Trump’s speech a day for Central Bank Board before in which Trump described a unilateral IMF Agrees to Boost Mexican President-elect Andrés Manuel “America-first” policy. Maduro responded, Size of Argentina López Obrador is set to nominate independent saying, “From this very rostrum a threat was economist Jonathan Heath to the board of the issued yesterday to governments of the world Loan Package country’s central bank, according to unnamed that orders should be obeyed and the U.S. sources, The Wall Street Journal reported policy should be followed or else those coun- The International Monetary Fund agreed to Wednesday. Heath would be the first person tries would suffer from the consequences.” increase the size of the loan package signed from the private sector to be named to Bank of During his speech, Maduro also reiterated his with Argentina in June to $57.1 billion, Mexico’s board in almost 10 years. He would allegation that the United States and Colombia Argentine Finance Minister Nicolás Dujovne replace deputy governor Manuel Ramos Fran- were behind the Aug. 4 incident in which a pair and IMF Managing Director Christine Lagarde cia, whose term ends this year, after approval of aerial drones exploded near a stage where announced Wednesday, Clarín reported. The in the Senate. he was speaking during a military parade in Caracas, the Miami Herald reported. Maduro’s government has called the incident an assas- The Fund remains sination attempt, and Maduro said Wednesday fully committed to Former Veracruz State that 28 people had been convicted in connec- helping Argentina Governor Duarte tion with the explosions and that an investiga- tackle the problems Sentenced to Nine Years tion revealed that the attack was planned and that it faces.” financed in the United States and Colombia. A former Mexican state governor from the —Christine Lagarde Both countries have denied involvement. Both ruling Institutional Revolutionary Party, or PRI, Maduro and Trump said this week that they was sentenced on Wednesday to nine years in would be willing to meet with each other, but IMF will boost its bailout package by 15 per- prison on money laundering charges and links the White House said there was no immediate cent, providing an additional $19 billion to the to organized crime, Reuters reported. Javier plan for a meeting, the Miami Herald reported. Argentine government through next year, when Duarte, who governed Veracruz State, pleaded Maduro arrived in New York the same day that President Mauricio Mari’s term ends. “The Fund guilty to heading a criminal organization the leaders of five Latin American nations and remains fully committed to helping Argentina between 2011 and 2016. Mexican auditor ASF Canada met there to sign a complaint with the tackle the problems that it faces,” Lagarde said said in 2016 that the financial irregularities in International Criminal Court, urging it to inves- during a joint press conference with Dujovne the state’s public funds under Duarte were the tigate Maduro’s government on allegations of in New York, The Wall Street Journal reported. highest amount ever seen, the wire service human rights abuses. The action by the six The announcement came a day after Argenti- reported.

COPYRIGHT © 2018, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Thursday, September 27, 2018 na’s central bank president, Luis Caputo, unex- FEATURED Q&A / Continued from page 1 pectedly resigned less than four months in the position amid reports of disputes with the IMF issues. Argentina firmly believes in the need grand bargain and the progressive deterio- over the country’s exchange-rate policy. The to strengthen the multilateral trading rules- ration of multilateral governance. In all of new deal requires Argentina to maintain a float- based system and is doing its part toward them, Latin America stands to lose from a ing exchange-rate regime without intervention. that end from the presidency of the G20. In return to a trading system in which power The IMF’s board still needs to approve the deal that sense, we are pleased that both the G20 and politics, rather than market competition, for it to take effect. Guido Sandleris, the top ministerial meeting on investment and trade Finance Ministry official who replaced Caputo, and the Global Steel Forum recently arrived on Tuesday said the central bank’s main goal at consensus reports.” For Latin America, is to reduce the country’s inflation, currently at the prospects are 34 percent, The Wall Street Journal reported. Anabel González, former senior troubling, given the Argentina’s economy contracted 2.7 percent director at the World Bank region’s high trade in July compared to the same month a year ear- and former minister of foreign dependence on lier as the currency crisis hit consumer demand A trade of Costa Rica: “Trade both the United and a drought earlier this year cut agricultural frictions are undermining confidence and States and China...” output, according to Indec, the country’s statis- threaten to derail economic recovery and — Anabel González tics agency. [Editor’s Note: See related Q&A in depress medium-term growth prospects. the Sept. 12 issue of the Advisor.] Rising protectionism and uncertainty are already taking a toll on investors, markets allocate resources and inform business and supply chains, while eroding the rules- decisions. Be it through increased volatil- BUSINESS NEWS based global trading system. While the ity and uncertainty in the first case, trade United States and China are at the center diverting and negative terms of trade effects of this escalating confrontation, underlying in the second or just plain weakening of the Petroperú to Sell systemic issues risk a broader impact. For rules and confidence erosion, the conditions Bonds for Refinery Latin America, the prospects are troubling, would not be conducive to increased growth given the region’s high trade dependence in the region.” Modernization on both the United States and China, which collectively account for over half of its total Andrés Rebolledo, former direc- Peruvian state energy company Petroperú will trade. There is a view that Brazil, Argentina tor of Chile’s general director- sell $600 million in bonds next year to pay for and other countries could benefit from the ate of international economic the modernization of its Talara refinery, James mounting trade standoff, with increased A relations and former minister Atkins, the company’s president, said Wednes- or new opportunities to reroute trade and of energy of Chile: “Every week, we have day, Reuters reported. Atkins told reporters supply the Chinese market—and maybe the new episodes of the trade war. A long saga, the issuance would take place in New York. U.S. market—and increased prices for some which could be defined as the ‘new cold war,’ Petroperú has been working on $5 billion of commodities such as soybeans. Similarly, starring China and the United States awaits, upgrades at Talara to expand its production some firms in the electronics sector may one that reflects the reshuffle of and fight capacity. Also on Wednesday, the company consider shifting production from China to for technological, economic and political posted a job listing of 127 open positions at other locations, including Mexico—though hegemony. In this context, Latin America the refinery, which processes between 30,000 the outcome of the NAFTA renegotiation could be seriously affected if protectionism and 45,000 barrels of oil per day, Gestión would certainly weigh on this. It is not that is installed as the new norm in international reported. Last year, Petroperú sold $2 billion clear, though, how this will play out. Not only markets. The skirmishes arrived in a good in 30-year corporate bonds. Atkins added that is the impact of tariffs on a given industry period for the global economy, during which several companies, including Spanish energy dependent on the microeconomics of the central economies were growing togeth- company Cepsa and Argentina’s Pluspetrol, specific product and supply chain, but more er, as forecasts for 2018 showed before have expressed interest in operating Block 192, importantly, it is not evident what the dura- tariffs and retaliatory measures introduced the country’s largest oil block, when Cana- tion or outcome of this ongoing U.S.-Chinese uncertainty into the economic recovery. The da-based petroleum company Frontera Energy’s trade confrontation will be. There are at least Trump administration’s unilateral imposition contract ends in September of next year, Reu- three possible trade scenarios to consider: of tariffs, which seeks to rebalance its trade ters reported. [Editor’s Note: See related Q&A a full-fledged trade war, a managed-trade deficit with China and other partners, is not in the Sept. 18 issue of the Advisor.] 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 © 2018 only mercantilist, but also reflects internal would be an even greater risk if the conflict economic unbalances that could potentially expands to the European Union, which has Erik Brand have an impact on the global economy. If the been successful in mitigating the effects Publisher [email protected] United States’ goal is to fix its trade balance, of Trump’s steel and aluminum tariffs. then its task is complex and potentially very Any analysis on the global trade war must Gene Kuleta Editor disruptive given that it currently has a trade consider the underlying factor behind, which [email protected] deficit with around 100 other countries. The Anastasia Chacón González main effect will be the weakening of global Reporter trade rules and the WTO, and thus, growing [email protected] uncertainty in trade and investment, which There would be an will especially affect smaller countries like even greater risk if the conflict those of Latin America. This could slow the Michael Shifter, President global economy, drive down demand for our expands to the Genaro Arriagada, Nonresident Senior Fellow exports and in turn negatively affect the European Union...” Sergio Bitar, Nonresident Senior Fellow prices of commodities that many regional — Ignacio Bartesaghi Joan Caivano, Director, Special Projects countries rely on. Latin America will have Michael Camilleri, Director, Peter D. Bell Rule of Law to improve its integration with regional and Program global markets. It must deepen negotiations, Kevin Casas-Zamora, Nonresident Senior Fellow particularly with Asia. Trade deals now Ariel Fiszbein, Director, Education Program operate as a sort of insurance as markets is far from being the United States’ trade Alejandro Ganimian, Nonresident Fellow close. This the case with Chile, which has deficit. Definitively, it is a bid for internation- Peter Hakim, President Emeritus maintained its preferential access in China, al leadership, with the Asian power evidently Claudio Loser, Senior Fellow the European Union, India and Turkey, thanks posing a threat. This component, more Nora Lustig, Nonresident Senior Fellow to existing FTAs. In sum, in this era of geopolitical than commercial, in addition to Margaret Myers, Director, Asia and Latin America Program weakened multilateralism and more regional the aggressive and unpredictable policies Manuel Orozco, Director, Migration, deals: those who don’t negotiate, will lose.” of the Trump administration, complicate any Remittances & Development predictions of the impact or extent of trade Jeffrey Puryear, Senior Fellow Ignacio Bartesaghi, dean of the tensions in the coming months. Although Tamar Solnik, Director, Finance & Administration business studies department we have reached a new phase in the conflict, Lisa Viscidi, Director, Energy Program at the Catholic University of in which the United States will impose new Denisse Yanovich, Director of Development and A Uruguay: “Trade tensions be- tariffs and China will respond accordingly, External Relations tween China and the United States will have internal pressures by American producers Latin America Advisor is published every systemic effects on international trade by af- and consumers will progressively set limits business day, except for major U.S. holidays, fecting economic growth as well as business to Trump’s actions and will open the way for by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 uncertainty, which has already been reflected dialogue between the two countries. In any Washington, DC 20005 in stock markets and investors’ decisions. case, it is likely that we are facing a new www.thedialogue.org Likewise, and this might be the greatest stage of international trade rules, which will ISSN 2163-7962 threat, it will affect the current multilateral have unclear results.” Subscription inquiries are welcomed at trade system as the Trump administration [email protected] imposes a new paradigm that could change The Advisor welcomes comments on its Q&A The opinions expressed by the members of the Board of the trade rules that have governed interna- section. Readers can write editor Gene Kuleta Advisors and by guest commentators do not necessarily tional trade over the past 60 years. There at [email protected]. represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily represent the views of their respective employers or firms. 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