LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Thursday, October 29, 2015

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, October 29, 2015

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Genaro Arriagada How Well Are Latin Nonresident Senior Fellow, ‘Argentina Needs Inter-American Dialogue Change’: Massa Joyce Chang Global Head of Research, American Nations Argentina needs a new direction, JPMorgan Chase & Co. said Sergio Massa, who failed to W. Bowman Cutter advance to Argentina’s presiden- Former Partner, Fighting Poverty? tial runoff but whose supporters E.M. Warburg Pincus are critical to the remaining Dirk Donath candidates in the second round. Senior Partner, Catterton Aimara His statement was seen as a snub Marlene Fernández of the ruling party candidate. Corporate Vice President for Page 3 Government Relations, Arcos Dorados Peter Hakim BUSINESS President Emeritus, Inter-American Dialogue U.S. Fed Clears Donna Hrinak Bci for Purchase President, Boeing Latin America of Florida Bank Jon Huenemann Vice President, U.S. & Int’l Affairs, Bci, the third-largest bank in Chile, Philip Morris International Brazil’s poverty rate has decreased over the past two decades. Above, the Complexo do Alemão favela in Rio de Janeiro is pictured. // File Photo: Nicola Dracoulis via Creative originally requested approval to James R. Jones Commons. buy City National Bank of Florida Co-chair, Manatt Jones in 2013. The deal is valued at Global Strategies LLC The World Bank on Oct. 4 updated the international poverty $883 million. Craig A. Kelly Director, Americas International line to those living on $1.90 per day or less, up from $1.25 Page 2 Gov’t Relations, Exxon Mobil per day or less. The World Bank also projected that Latin John Maisto Q POLITICAL Director, U.S. Education America and the Caribbean’s poverty level would fall to 5.6 Finance Group percent of the population in 2015, as compared to 6.2 percent in 2012. Santos Seeking Nicolás Mariscal Chairman, How will these fi gures change the way the region fi ghts poverty? Which Jan. 1 Truce Grupo Marhnos countries in Latin America are doing the best job of helping lift indi- With FARC Thomas F. McLarty III viduals and families out of poverty? Will raising the poverty line affect President, Colombian President Juan Manuel McLarty Associates the way international development agencies address poverty reduction Santos expressed hopes that the Carlos Paz-Soldan efforts for the region? government and the FARC rebels Partner, could reach agreement on the fi fth DTB Associates, LLP point of their negotiating agenda Beatrice Rangel George Gray Molina, chief economist at the Regional Bureau and begin a bilateral cease-fi re on Director, AMLA Consulting LLC for Latin America and the Caribbean at the United Nations New Year’s Day. Page 2 José Antonio Ríos Development Programme: “The World Bank adjustment Chief Executive Offi cer, Vadium Technology Inc. A refl ects changes in prices between and within countries. The Gustavo Roosen basket of goods and services that cost $1.25 (2005 PPP) a few years Chairman of the Board, Envases Venezolanos ago, now costs $1.90 (2011 PPP). The net effect in Latin America and the Andrés Rozental Caribbean is relatively small. Still, the most successful countries at reduc- President, Rozental & Asociados and Senior ing extreme poverty—as captured by the harmonized SEDLAC data—are Policy Advisor, Chatham House Bolivia, Peru and Ecuador (each, a very different ‘development model’). Shelly Shetty Head, Latin America The larger issue is that more and more countries face ‘last mile’ challeng- Sovereign Ratings, Fitch Inc. es with respect to extreme poverty—they are only getting started with the Roberto Sifon-Arevalo ‘resilience marathon’, both raising and keeping people above a $10/day Managing Director, Americas Sovereign & Public Finance Ratings, vulnerability line. Our own work at UNDP shows that the determinants of Standard & Poor’s ‘sliding-back-into poverty’ are not the same as the determinants of ‘leav- ing poverty.’ The resilience challenge requires assets, labor skills and so- Santos // File Photo: Colombian Government. Continued on page 3

POLITICAL NEWS NEWS BRIEFS Gov’t Fabricated Colombia’s Santos Evidence in López Former Brazilian Soccer Head Agrees to Seeks Jan. 1 Truce Case: Ex-Prosecutor Deportation in FIFA Case

With FARC The Venezuelan government fabricated The former head of Brazilian soccer, who along evidence against Leopoldo López, who was with six other offi cials from soccer’s governing Colombian President Juan Manuel Santos on sentenced to nearly 14 years in prison, because body FIFA, was arrested in May on corruption Wednesday expressed hopes that his gov- the government “feared his leadership,” said charges, has agreed to be deported from Swit- ernment and the Revolutionary Armed Forces a former prosecutor who helped convict the zerland to the United States in order to face of Colombia, or FARC, rebels could begin a opposition leader, CNN reported Wednesday. charges, BBC News reported the Swiss Federal bilateral cease-fi re beginning on New Year’s The former Venezuelan prosecutor, Franklin Offi ce as saying. José Maria Marin is accused Day, EFE reported. The two sides already have Nieves, who was recently fi red by Attorney of taking millions of dollars in bribes in connec- reached agreement on four broad points, and General Luisa Ortega, fl ed the country and is tion to marketing rights at Copa America and seeking asylum in the United States. He said Copa do Brasil tournaments, though he denies The FARC has “100 percent of the investigation was fabricat- the charges. ed,” in which López was convicted in Septem- been observing a ber of inciting violence amid anti-government unilateral cease-fi re. protests. Nieves told CNN that “after examining More Interest Rate each and every piece of evidence, it was shown Hikes Necessary: that this person had at no point made even a Santos said enough progress could be made single call to violence.” Video footage of the Chile Central Bank Chief over the next two months to call a truce. “Let’s protests show the opposition leader “always In order to bring Chile’s infl ation rate to the tar- make that effort so that between now and Dec. geted 2-4 percent range, the central bank will 31 we can, for example, fi nish point fi ve, the need to increase the interest rate, bank Presi- end of the confl ict, and thus be able to declare dent Rodrigo Vergara said Wednesday, Reuters a bilateral, internationally verifi ed cease-fi re reported. Policymakers raised the interest rate starting Jan. 1,” Santos told a meeting of the to 3.25 percent on Oct. 15, and said more rate National Commission on Competitiveness, hikes were on the way as the central bank tries Science, Technology and Innovation. Since the to control infl ation. This year, Chile’s peso has peace talks began three years ago in Havana, depreciated 12 percent against the dollar, and Colombia’s government and the FARC have fell 13 percent last year against the dollar. reached agreements on the issues of land López // File Photo: Instagram site of Leopoldo López. reform, the rebels’ political participation, the illegal drug trade and transitional justice. Now, calling on his supporters to remain calm,” said only one major point remains—the FARC’s Nieves. When asked why he did not speak out U.S. Federal Reserve disarmament and demobilization. In July, the sooner, Nieves said that he was pressured to Clears Chile’s Bci to FARC called a unilateral cease-fi re, leading the stay quiet. He said the pressure fi ltered down Purchase Florida Bank government to suspend aerial attacks on rebel from President Nicolás Maduro and National The U.S. Federal Reserve has given its approval camps. Santos has consistently refused to halt Assembly President Diosdado Cabello through to Chilean bank Bci to buy City National Bank all attacks as the rebels in the past have used Ortega. Nieves said López’s case is not unique of Florida, a unit of Spain-based Bankia, Bci breaks in government raids to re-arm, Reuters in Venezuela. “There are innumerable cases in said Wednesday, Reuters reported. Bci, the reported. Last month, the two sides reached which people were investigated and innocent third-largest bank in the South American coun- what they called a breakthrough in the negotia- people detained,” he said. Ortega dismissed try, originally requested approval for the $883 tions and set a six-month deadline for reaching Nieves’ claims on Monday, saying “at the state million purchase in 2013. Spanish and Chilean a fi nal peace accord. Any accord would have to prosecutor’s offi ce we don’t pressure anyone.” banking authorities already have approved the pass Colombia’s Congress and voters in order She also said that Nieves has succumbed to purchase. The transaction should be fi nalized to be implemented. [Editor’s note: See Q&A on “pressures from foreign and domestic ele- within 30 days, Bci said in a statement. whether peace is fi nally within reach in Colom- ments,” though she did not specify what those bia in the Sept. 30 issue of the Advisor.] pressures were, BBC News reported. Venezue-

COPYRIGHT © 2015, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Thursday, October 29, 2015 la’s Ministry of Communications and Informa- FEATURED Q&A / Continued from page 1 tion has not responded to CNN’s requests for comment. cial protection to keep all boats afl oat. This rate will yield more pesos or reais per PPP upgrading is a generational challenge that dollar. In Latin American countries, $1.90 in will not be achieved by any single govern- PPP dollars is worth more than one would Argentina Needs ment, nor for any single political mandate. presume. Second, the $1.90 per day in PPP New Path: Massa does not imply a higher international poverty line. The previous international poverty line The resilience was $1.25 in PPP dollars per day. However, Sergio Massa, the third-place candidate who challenge requires it was measured using 2005 PPP exchange failed to advance past the fi rst round of Sun- a basket of assets, rates, which were constructed using prices day’s presidential election in Argentina, said for similar goods around the world collected Wednesday that the country needs a new path labor skills and social that year. The current line of $1.90 uses PPP forward, a statement seen as a snub of ruling protection to keep generated from prices collected in 2011. party candidate Daniel Scioli, The Wall Street all boats afl oat.” Thus, the new line is not really higher in the Journal reported. Massa, whose supporters are — George Gray Molina sense that $1.90 in PPP 2011 is supposed crucial as Scioli faces off against opposition to buy the same goods and services as the candidate Mauricio Macri in the Nov. 22 runoff, At a moment when the region as a whole is $1.25 in PPP 2005. Third, this new inter- has not offi cially endorsed either of the remain- at zero GDP growth, it is important to regain national poverty line is not really relevant ing candidates. However, he said the country broad-based growth while also strengthen- for middle-income Latin America (no Latin needs a new direction. “Argentina needs ing resilience and addressing the hardest American country is among the benchmark change,” he said. A poll released Wednesday exclusions of the decade. This is a tall order. countries). The lowest poverty lines in most shows that Macri has 48 percent support, while It will require using short-run politics to cre- countries in the region are closer to twice Scioli trails with 37 percent. Scioli was the top ate precious policy space, and using policy as much or $4 per day in PPP 2011. Fourth, fi nisher in Sunday’s fi rst round, but beat Macri space to achieve long run impact.” extreme poverty in the region is still going by only three percentage points—37 percent to be excessive in the sense that, given the to 34 percent—an unexpectedly close margin. Nora Lustig, Samuel Z. Stone countries’ average incomes, poverty should Massa fi nished with 21 percent. [Editor’s note: professor of Latin American have been much lower than what it actually See Q&A on Argentina’s election in Tuesday’s economics at Tulane Univer- is. Excessive poverty is the consequence of Advisor.] A sity and nonresident fellow excessive inequality. In spite of its decline in at the Center for Global Development and the past decade, inequality in Latin America the Inter-American Dialogue: “There are is still the highest in the world. Reducing ECONOMIC NEWS four important factors to note. First, the inequality should remain a priority.” new World Bank international line of $1.90 Gulf Countries per day is measured in purchasing parity Sergei Soares, visiting fellow at dollars of 2011 (PPP). The PPP exchange the Center for Global Develop- Against Oil Price rate is the exchange rate from dollars into ment: “What changes in poverty Summit local currency that would give the same A measurement with the new pov- purchasing power in both the United States erty line? The answer is: in theory, nothing; in and the country in which poverty is being practice, very little. Conceptually, the World Persian Gulf countries oppose Venezuela’s measured. Since prices for many goods Bank’s extreme poverty line has not changed proposal for an oil-price summit with heads of and services in Latin America are cheaper since 1990, when Martin Ravallion defi ned it member and non-member OPEC countries, The than in the United States, the PPP exchange as the average of the national poverty lines Wall Street Journal reported Wednesday. Offi - cials from Saudi Arabia, the United Arab Emir- Continued on page 4 ates, Qatar and Kuwait do not think a summit what Venezuela’s oil minister, Eulogio del Pino, worst recession of any country in the world this could garner adequate commitment for cutting calls an “equilibrium price” of $88 per barrel. At year, according to the International Monetary oil production to the level needed in order to the meeting in Vienna last week, OPEC and fi ve Fund, which expects Venezuela’s GDP to raise oil prices. Last week, Venezuela called non-OPEC members discussed the price of oil, contract 10 percent because of low oil prices for an oil-price summit to raise the price of oil though they reached no agreements. Venezu- and a lack of savings to get Venezuela through from its current low of less than $44 a barrel to ela’s economy is in danger of experiencing the periods of fl uctuation in market prices.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2015 of the poorest countries on the planet, made necessary, and urgent, to have a state inter- comparable using purchasing power parity vention in order to face extreme poverty and Erik Brand (PPP) currency conversion rates. Updated its perverse effects on the wellbeing of the Publisher [email protected] PPPs have led to updated poverty lines in population. Starting with Fernando Henrique 2001 (1993 PPPs), 2008 (2005 PPPs) and Cardoso’s government and in a broader, Gene Kuleta Editor this year (2011 PPPs). It is important to [email protected] remember that new lines never come alone; No government will Nicole Wasson they always come hand-in-hand with new Reporter, Assistant Editor PPPs. In practice, relative prices change be sustainable if it [email protected] among countries from one PPP exercise to does not include the the next. This means that although world- reduction of social wide the $1.90/day + 2011 PPPs combina- inequality as priority Michael Shifter, President tion counts about 28 million fewer very poor on their agenda.” people for 2011 than the previous meth- Genaro Arriagada, Nonresident Senior Fellow — Jacqueline Pitanguy odology ($1.25/day+2005 PPPs), in Latin Sergio Bitar, Nonresident Senior Fellow America it counts almost eight million more Joan Caivano, Director, Special Projects people. This is due to changes in relative deeper and faster pace with Lula da Silva’s Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program prices between Latin America and the rest of and Dilma Rousseff’s governments, two Maria Darie, Director, Finance & Administration the world. However, none of this changes the main programs aimed at decreasing poverty Ramón Espinasa, Nonresident Senior Fellow fact that Latin America has done very well in and social inequality have been success- Ariel Fiszbein, Director, Education Program reducing extreme poverty. Chile, Costa Rica fully implemented: Bolsa Familia and Brasil Alejandro Ganimian, Nonresident Fellow and Uruguay have extreme poverty rates sem Miséria. The recent World Bank report Peter Hakim, President Emeritus that are negligible, and Brazil, Colombia, shows that in Brazil, the number of people Claudio Loser, Senior Fellow Peru and Mexico have slashed their extreme in extreme poverty fell, between 2001 and Nora Lustig, Nonresident Senior Fellow poverty rates by a factor of two or three over 2013, from 13.6 percent to 4.9 percent of Margaret Myers, Director, China and the last 10 years. Impressive achievements, the population. The report also recognizes Latin America Program whatever the line.” that the decline in extreme poverty in Brazil Manuel Orozco, Senior Fellow was more signifi cant than in any other Latin Jeffrey Puryear, Senior Fellow Jacqueline Pitanguy, sociolo- American country. This good news will not Lisa Viscidi, Director, Energy Program gist and executive director of be highlighted in the media, which will focus Latin America Advisor is published every Citizenship, Study, Research, on the negative effects of the crisis on these business day, except for major U.S. holidays, A Information, and Action (CEPIA) gains. Brazil is undergoing a political, moral by the Inter-American Dialogue at: in Brazil: “In view of the historically high and economic crisis and a collective feeling 1211 Connecticut Avenue NW, Suite 510 Washington, DC 20036 levels of social inequality prevailing in Brazil of discredit in the country. Certainly poverty Phone: 202-822-9002 in spite of periods of strong economic reduction might be compromised by the Fax: 202-822-9553 growth, the challenge of promoting social crisis but will not collapse. Safety networks, www.thedialogue.org justice and recognizing the interrelation investment in education, public health and ISSN 2163-7962 between human rights, social welfare and housing play a key role in protecting the Subscription Inquiries are welcomed at social development could not be postponed most vulnerable population. No government [email protected] much longer after the democratization of will be sustainable if it does not include the The opinions expressed by the members of the Board of the country and the promulgation in 1988 of reduction of social inequality as priority on Advisors and by guest commentators do not necessarily a new Constitution. Even if some conserva- their agenda.” represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily tive sectors still defended the theory that represent the views of their respective employers or fi rms. economic growth and GDP increase would The Advisor welcomes comments on its Q&A The information in this report has been obtained from lead to the reduction of social inequality, section. Readers can write editor Gene Kuleta reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are the prevailing perspective was that it was at [email protected]. guaranteed. If you have any questions relating to the contents of this publication, contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher.