LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Wednesday, June 15, 2016

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Wednesday, June 15, 2016

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk How Strong Is Senior Policy Advisor Ex-Argentine Akin Gump Strauss Hauer & Feld, LLP Gov’t Minister Joyce Chang Global Head of Research, Temer’s Grip on Arrested, Allegedly JPMorgan Chase & Co. After Hiding Cash W. Bowman Cutter Former Partner, Power in Brazil? José López, who served as public E.M. Warburg Pincus works minister in the government Dirk Donath of former President Cristina Senior Partner, Fernández de Kirchner, was Catterton Aimara arrested after he was allegedly Marlene Fernández Corporate Vice President for seen throwing bags stuffed with Government Relations, millions of dollars over the wall of Arcos Dorados a monastery. Peter Hakim Page 2 President Emeritus, Inter-American Dialogue Donna Hrinak POLITICAL President, Boeing Latin America Brazil’s High Jon Huenemann Vice President, U.S. & Int’l Affairs, Court Rejects Philip Morris International In his fi rst month in offi ce as Brazil’s interim president, Michel Temer lost cabinet members James R. Jones following the release of secret audio recordings. // File Photo: Brazilian Government. Requests for Top Co-chair, Manatt Jones Politicians’ Arrests Global Strategies LLC Interim Brazilian President Michel Temer’s transparency Craig A. Kelly Justice Teori Zavascki rejected Director, Americas International and planning ministers resigned in recent weeks following the request to arrest Senate Gov’t Relations, Exxon Mobil the release of secretly recorded audio tapes in which the President Renan Calheiros, Sen. John Maisto Q Romero Jucá and former Presi- Director, U.S. Education offi cials are alleged to have discussed derailing the corrup- dent José Sarney. Finance Group tion probe at state-run oil company Petrobras, allegations they deny. At Page 2 Nicolás Mariscal Chairman, the same time, while Temer had a 34 percent personal approval rating, Grupo Marhnos according to a June 2-5 MDA poll, only 2 percent of Brazilians said in POLITICAL Thomas F. McLarty III a Datafolha poll in April that they would vote for him. How strong is the Chairman, U.S., Venezuela McLarty Associates movement against Temer, and how fi rm of a grip does the interim presi- to Enter High- Carlos Paz-Soldan dent have on power? How is the cabinet controversy affecting his ability Partner, Level Talks DTB Associates, LLP to drive the economic reform agenda? What are the likeliest scenarios Veteran diplomat Thomas Beatrice Rangel for the outcome and aftermath of the impeachment proceedings against Director, Shannon will lead the talks on the AMLA Consulting LLC suspended President Dilma Rousseff now underway in the Senate? U.S. side. José Antonio Ríos Page 2 Chief Executive Offi cer, Vadium Technology Inc. Riordan Roett, director of the Latin American Studies pro- Gustavo Roosen gram at the Johns Hopkins University’s School of Advanced Chairman of the Board, Envases Venezolanos International Studies: “The soap opera continues. Eduardo Andrés Rozental Cunha’s wife is now implicated in the ongoing corruption President, Rozental & A Asociados and Senior inquiry. Calheiros, Jucá and Sarney may be next. It is not clear who will Policy Advisor, Chatham House follow. Given Temer’s low approval ratings, he clearly does not have very Shelly Shetty Head, Latin America much popular support for moving his agenda forward. The impeachment Sovereign Ratings, Fitch Inc. process will dominate Brazilian politics for the foreseeable future. There Roberto Sifon-Arevalo are three possible scenarios. The fi rst is that the Senate actually fi nds the Managing Director, Americas Sovereign & Public Finance Ratings, votes to remove Dilma from offi ce. Then, a weak Temer stumbles toward Standard & Poor’s 2018. The second is that the Senate refuses to impeach and Dilma walks the ramp and returns to the presidency as a lame duck with little, if any, Shannon // File Photo: U.S. State Department. Continued on page 3

POLITICAL NEWS “It’s almost out of a movie,” said Argentine NEWS BRIEFS President Mauricio Macri’s cabinet chief, Mar- Ex-Argentine Gov’t cos Peña. “We’re shocked because it’s not a Brazilian Supreme Court minor offi cial. He led public works... where we Rejects Requests for Minister Arrested, saw so much daily corruption.” During a public event on Tuesday, Macri called the situation Top Politicians’ Arrests Allegedly Hid Cash “shameful,” adding, “We are all surprised. We Brazil’s Supreme Court on Tuesday rejected a at Monastery are clearly changing and it’s good that we shed request by the country’s chief prosecutor to light on the types of practices that we want to arrest three powerful members of interim Presi- eradicate in Argentina.” dent Michel Temer’s party, The Wall Street Jour- A former Argentine cabinet member was nal reported. Justice Teori Zavascki rejected arrested Tuesday after he was allegedly seen the request by Rodrigo Janot to arrest Senate throwing bags stuffed with millions of dollars U.S., Venezuela to President Renan Calheiros, Sen. Romero Jucá in cash over the wall of a monastery west of and former President José Sarney. Janot Buenos Aires, BBC News reported. José López Enter High-Level alleged that the men had tried to interfere with was public works minister in the government Talks to Ease Crisis the corruption scandal at state-run oil company of former President Cristina Fernández de Petrobras, allegations they deny. Zavascki Kirchner. Police arrived at the Our Lady of the U.S. Secretary of State John Kerry on Tuesday said they had not been caught committing any announced at a meeting of the Organization crime. Also Tuesday, a congressional ethics of American States that the United States and panel voted to strip suspended House Speaker, Venezuela would launch high-level diplomatic and ruling party member, Eduardo Cunha from talks to ease tensions between the ruling party his seat, saying he lied to his peers about hid- and the opposition, the Financial Times report- ing money overseas. He denies wrongdoing. ed. He said the talks would begin “as soon as possible,” and that the United States is looking for ways to provide assistance. The talks will Argentina to Release be led on the U.S. side by Thomas Shannon, López // Photo: Argentine Government. one of the State Department’s leading offi cials First Infl ation Statistics and a veteran diplomat to Latin America. Ven- Since Macri Took Offi ce Rosary of Fatima monastery, 35 miles west of ezuelan President Nicolás Maduro welcomed the capital, after nuns reported seeing a man Argentina will release its fi rst set of offi cial the talks, saying from Caracas, “Let’s start throwing plastic bags over a wall. Police fi rst infl ation fi gures since President Mauricio Macri this high-level encounter, I agree.” He add- detained López at the monastery for alleged took offi ce late last year, BBC News reported ed, “I propose to John Kerry ‘let’s designate illegal possession of a .22 caliber rifl e. Offi cers today. Since 2013, the International Monetary ambassadors.’ I am ready. They have ambassa- later discovered the bags of cash, in several Fund has said that Argentina’s offi cial infl ation dors in Beijing, Vietnam and Havana, and they currencies, in addition to wristwatches inside index has been inaccurate, accusing the gov- don’t have one in Caracas.” Kerry also called the bags. Police recovered approximately $7 ernment of underreporting economic problems. for the South American country to release million worth of currency, according to local Analysts believe prices rose by 4 percent last political prisoners and permit a recall referen- media. Police found more cash inside the car month, and that infl ation may reach 40 percent dum against Maduro, The Wall Street Journal in which López had been traveling. “He was this year. reported. At the general assembly session in caught red-handed with six bags, a suitcase, the Dominican Republic, Kerry said the Maduro a weapon and he was later identifi ed as a administration must address critical shortages public works minister, Jose López, from the of food, medicine and other basic goods. His Conoco, Chile’s ENAP to previous government,” said Cristian Ritondo, comments elicited a harsh response from Explore for Gas Deposits Buenos Aires’ provincial security chief, BBC Venezuelan foreign minister Delcy Rodríguez, News reported. “This person was arrested, in in Magallanes Region who said her country is a victim of “internation- principle, for carrying a weapon. Now he is be- al bullying from the right,” and accused OAS Chilean state oil company ENAP has signed a ing detained for possible money laundering or Secretary General Luis Almagro of being “on deal with Houston-based multinational energy suspected money laundering.” López was later the payroll of Washington to intervene in the corporation ConocoPhillips to begin explo- seen wearing a bulletproof vest and helmet affairs of Venezuela.” In the past few weeks, Al- ration and eventually exploit gas deposits in when he was escorted out of a Buenos Aires magro has criticized Maduro’s government and Chile’s southern Magallanes region, a source police station where he had been questioned. familiar with the agreement told Reuters.

FEATURED Q&A / Continued from page 1 has invoked the OAS’ Democratic Charter in order to discuss the possibility of suspending possibility of moving any agenda forward. what their objectives are. Some want to hold Venezuela from the OAS. The OAS is expected And, fi nally, the option that fl oats above the a general strike against Temer, but many to discuss Almagro’s 132-page report on Vene- crime scene, new national elections, which believe they do not have the strength to be zuela in a meeting on June 23. even Dilma appears to support. The protests successful. Rousseff has proposed giving over the ‘coup’ will continue and could up the rest of her term if she is acquitted become increasingly violent as the impeach- by the Senate in order to call for immediate BUSINESS NEWS ment vote is scheduled and the Olympics new elections (which is the desire of the open. The possibility of parallel if unrelated security issues given the apparent failure of PDVSA Sees Largest the pacifi cation program in the Rio favelas, Monthly Oil Output and the return of gang rule, will—or should— The opposition to preoccupy the Planalto. Local elections later Temer seems very Slide Since 2006 this year will provide some insight into the divided internally” growing resentment of the average Brazilian — Carlos Eduardo Lins da Silva Venezuela’s oil production fell by 120,000 and offer some early warning signals about barrels per day to 2.37 million barrels per day 2018. These issues will preoccupy Temer in May, marking the country’s biggest monthly and his cabinet, and given the ongoing bad oil-production decline in a decade, The Wall news about infl ation, unemployment and Street Journal reported late Monday. The Orga- no growth, there is little room to maneuver majority of Brazilians according to all polls). nization of the Petroleum Exporting Countries keeping in mind the animosity of much of But the proposal would require a diffi cult on Monday released data confi rming the steep the PT in Congress to any PMDB initiatives.” approval of three-fi fths in both chambers of drop, which could signal more trouble for Vene- Congress—too ambitious a goal for Rousseff zuela’s economy as the government continues Carlos Eduardo Lins da Silva, or anyone else. It is important to stress that to struggle with high debt, a lack of cash and global fellow at the Woodrow all demonstrations have been happening in infl ation. The decrease in production may Wilson International Center a mostly peaceful and orderly way and that indicate that Venezuela is unable to maintain A for Scholars: “Demonstrations in almost three years of frequent street pro- its oil industry investments. In recent months, against interim President Temer were held tests in Brazil staged by all political groups, major oil producers such as Halliburton and last Friday in the most important cities of sometimes with hundreds of thousands of Schlumberger have said they are decreasing all Brazilian states, plus the capital, Brasília. attendees, no fatal or even serious casualty production in Venezuela as the government The number of attendees was not as big as has been registered.” struggles to pay multibillion-dollar debts to the of those in favor of suspended President companies. Some experts are pointing to dollar Rousseff on the days immediately before David Fleischer, emeritus shortages as being Venezuela’s biggest obsta- the impeachment admissibility vote in the professor at the University of cle to keeping its oil industry running smoothly. Senate on May 11. But, added to dozens of Brasília and editor of Brazil “If you want to point to the biggest problem, it protests staged in many cities since Temer A Focus: “The interim government is cash fl ow, which for PDVSA now looks worse took over, they show that an expressive of Michel Temer has encountered some than we had imagined,” said Francisco Monaldi, number of Brazilians do not want him as diffi culties in the month since President a Latin American energy policy fellow at Rice president. A public-opinion poll released last Dilma Rousseff was suspended for 180 days University. The last time oil output fell by this week shows that his approval rate is at 11.3 pending the fi nalization of the impeachment much was in 2006. Some experts believe the percent, almost the same level as Rousseff’s process with the Senate sitting as a jury. drop-off may give oil-fi eld services companies in the last poll by the same institute that as- First, he appointed 23 cabinet ministers—all some leverage in negotiations over debt with sessed her popularity when she was in offi ce white men—indicated by the 10 parties that the OPEC country. “There’s an urgency there (it was 11.4 percent). All previous public are part of his support coalition. No less now that wasn’t there before this happened, opinion polls showed Temer and Rousseff than 15 of these appointees had some kind because of the lost production,” said Gary with very similar (and low) evaluations by of accusations against them, either at the Ross, the head of global oil at PIRE Energy most Brazilians. However, the opposition Supreme Court or other judicial levels. He Group. The break-even price for Venezuelan to Temer seems very divided internally. Its was forced to oust his minister of planning, oil is around $21 a barrel, and Orinoco crude main leaders are far from consensus on Sen. Romero Jucá (PMDB) and the minister requires a price of $28 a barrel for PDVSA and Continued on page 4 its partners to turn a profi t.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2016 for transparency Fabiano Silveira, and is other scandals, or by voting for budgets under pressure to sack his general counsel that vastly overextended the federal budget. Erik Brand (AGU) Fabio Medina Osório. One of the Union members and the PT have taken to the Publisher [email protected] women he appointed to a second-echelon streets to protest spending cuts proposed by position, former Deputy Fátima Pelaes interim President Michel Temer that would Gene Kuleta Editor (PMDB) is accused of appropriating some [email protected] 4 million reais in ‘tourism allocations’ for Nicole Wasson her own re-election campaign in 2014. On Reporter, Assistant Editor June 7, it was revealed that the chief federal The impeachment [email protected] prosecutor had requested that the Supreme outcome may depend Court issue arrest warrants for four major on whose skin is most PMDB leaders—Jucá, Senate President implicated in scandal.” Michael Shifter, President Renan Calheiros, Deputy Eduardo Cunha and — Margaret Daly Hayes former President and ex-Sen. José Sarney. Genaro Arriagada, Nonresident Senior Fellow Temer has gotten approval for some mea- Sergio Bitar, Nonresident Senior Fellow sures in Congress but his reform proposals Joan Caivano, Director, Special Projects (social security and labor legislation) face Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program strong opposition. On June 8, a CNT/MDA reform the labor code affecting job tenure Ramón Espinasa, Nonresident Senior Fellow poll showed that the approval rating for and pensions, and to show support for their Ariel Fiszbein, Director, Education Program Temer’s government was only 11.3 percent — party. Temer’s proposed reform measures Alejandro Ganimian, Nonresident Fellow not much different from that for the Dilma are generally agreed to be necessary, but Peter Hakim, President Emeritus government (11.4 percent) in February. The scandals involving his cabinet appoint- Claudio Loser, Senior Fellow approval of Temer’s personal performance ments are undermining any confi dence Nora Lustig, Nonresident Senior Fellow as president was higher (33.8 percent) ver- the public might have in his government. Margaret Myers, Director, China and sus 21.8 percent for Dilma in February. The Plea bargaining in the ongoing Petrobras Latin America Program street protest movements are in response investigation continues to reveal complicity Manuel Orozco, Director, Migration, Remittances & Development to Dilma’s description of impeachment as among politicians, corporations and poor Jeffrey Puryear, Senior Fellow a ‘coup,’ but so far the labor union centrals management decisions by Petrobras. Temer Tamar Solnik, Director, Finance & Administration have not joined these movements.” is losing support, but Dilma doesn’t enjoy Lisa Viscidi, Director, Energy Program much sympathy, and there would be little joy Margaret Daly Hayes, principal over her return to offi ce. The impeachment Latin America Advisor is published every at Evidence Based Research Inc. outcome may depend on whose skin is most business day, except for major U.S. holidays, by the Inter-American Dialogue at: in Vienna, Va., and professor of implicated in scandal. Brazil needs political 1211 Connecticut Avenue NW, Suite 510 A security studies at Georgetown reform, but no strong voice has emerged in Washington, DC 20036 University: “As in many other countries support of party reform, campaign fi nance Phone: 202-822-9002 in the region, Brazilians are ‘mad as hell’ reform and fi nancial transparency for public Fax: 202-822-9553 about the corruption being revealed in their fi gures. Brazilians might look to the ‘three www.thedialogue.org political system, the self-serving actions of of three’ initiative in Mexico, which would re- ISSN 2163-7962 politicians, the deepening economic reces- quire declaration of assets, fi nances and tax Subscription Inquiries are welcomed at [email protected] sion and even the measures being taken to payments, as well as guidelines for public

right the economy. Politicians are acting to conduct for all public offi cials.” The opinions expressed by the members of the Board of save their own skins, whether by supporting Advisors and by guest commentators do not necessarily represent those of the publisher. The analysis is the sole an impeachment vote against President The Advisor welcomes comments on its Q&A view of each commentator and does not necessarily Dilma Rousseff to perhaps escape scrutiny section. Readers can write editor Gene Kuleta represent the views of their respective employers or fi rms. of their own complicity in the Petrobras and at [email protected]. The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are 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.