FINANCIAL SERVICES ADVISOR a PUBLICATION of the DIALOGUE June 3-16, 2021

LATIN AMERICA ADVISOR FINANCIAL SERVICES ADVISOR A PUBLICATION OF THE DIALOGUE www.thedialogue.org June 3-16, 2021

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Ernesto Armenteros Vice Chairman of the Board, BANKING Banco de Ahorro y Crédito Unión How Could Leftists Cuba to Pablo Barahona President & COO, Temporarily Stop Global Retail Markets West, Liberty Mutual Group Change Chile’s Allowing U.S. Cash Felipe Carvallo Bank Deposits Vice President - Analyst Latin America Banking Pension System? Cuba’s government said it would Moody’s Investors Service temporarily stop allowing cash Richard Child bank deposits in U.S. dollars, CEO, though it said it would continue Mattrix Group allowing money transfers. Michael Diaz Jr. Page 2 Partner, Diaz, Reus & Targ FINANCIAL TECHNOLOGY Ernesto Fernández Holmann Chairman of the Board, Brazil’s Nubank Ayucus Rich Fogarty Raises $750 Mn Managing Director, in Funding Round Alvarez and Marsal Brazilian digital bank Nubank Desiree Green Protesters, including the ones pictured from 2019, for years have demanded changes to Chile’s announced it raised $750 million Vice President, pension system. The rewrite of the country’s constitution may include such changes. // File International Government Affairs, Photo: Contramet. in its latest investment round, Prudential Financial which was led by U.S. business Laura Güemes Cambras Among the major changes that could emerge from a new magnate Warren Buffett’s Berk- Transactions Attorney, constitution in Chile is a reform of the country’s pension shire Hathaway. Holland & Knight Page 2 system. The current constitution gives the private sector a Earl Jarrett Chief Executive Officer, Q central role in managing pensions for millions of Chileans. REMITTANCES The Jamaica National Group What will the relatively high number of independents and leftists elected Thomas Morante to the constitutional assembly mean for the country’s pension system? Remittance Firms Attorney Carlton Fields What are the main problems with Chile’s current pension system, and Cautious on Manuel Orozco what changes are most needed to make it function better for retirees? Digital Currencies Senior Fellow, At President Nayib Bukele’s Inter-American Dialogue What role should the private sector have in the reform process? urging, El Salvador’s Legislative Adalberto Palma-Gomez Assembly made Bitcoin a legal Senior Partner, Proxy, Gobernanza Corporativa Alfonso De Urresti, member of the Chilean Senate: “Undoubt- tender, but remittance firms are reportedly cautious about offering Rodolfo Pittaluga edly, the pension system will be one of the issues that the services in cryptocurrencies. Adjunct Professor, Constitutional Convention will discuss. The main problems Florida International University Page 2 College of Law A have more to do with the fact that it is a forced savings Fabian Saide system that has been used as a permanent source for the capital market, Founder, CEO and President, rather than simply a social security system. As socialist senators have Paykii been proposing since 2018, we believe that what is needed is a new Roberto Teixeira da Costa Founder & Board Member Emeritus mixed pension system, with an incentive to save, but framed in a social CEBRI security scheme. This would initiate a transition to a pension system Mario Trujillo CEO, transforming the current individual capitalization system into one made DolEx Dollar Express up of four pillars: a basic solidarity pillar, a collective solidarity capitalization pillar, an individual capitalization pillar and a voluntary savings pillar, all with intergenerational solidarity. The political conformation of the Constitutional Convention should not be a problem for the substantive discussion that allows moving toward a new system, which will undoubt- edly have a state component, in which it is feasible to contemplate some Bukele // File Photo: Salvadoran Government. Continued on page 3

BANKING NEWS FINANCIAL TECHNOLOGY NEWS NEWS BRIEFS

Cuba to Temporarily Brazil’s Nubank Brazil’s BTG Pactual Acquires Minority Stop Allowing U.S. Raises $750 Million Stake in Perfin Cash Bank Deposits in Latest Round Brazil’s Banco BTG Pactual has acquired a minority stake in Perfin, an asset manager and The Cuban government said June 10 that it Brazilian digital bank Nubank announced June wealth management platform, Reuters reported would temporarily stop allowing cash bank 8 it raised $750 million in its latest investment June 14. Perfin has 21 billion reais ($4.11 deposits in U.S. dollars while still accepting round, led by U.S. business magnate Warren billion) under custody and is likely to enhance transfers, Reuters reported. It was unclear Buffett’s Berkshire Hathaway, Folha de S.Paulo BTG’s investment platform. BTG Pactual did how long the suspension will last, the Miami reported. Berkshire Hathaway invested $500 not disclose the size of the stake nor the Herald reported. The announcement came just million in the Brazilian fintech in the round, amount it paid for it. before Cuba’s government was due to present which was an extension of Nubank’s $400 its annual resolution to end the longtime U.S. million Series G round announced in January, Forbes reported. A second extension totaled $250 million and was led by Sands Capital, with Mastercard Temporarily several other funds including Invest, Sunley Drops Branding From Some Cuba analysts saw House Capital, CPP Investments, MSA Capital, Copa América Games the move as an attempt to Tarsadia Capital and Chinese tech company Mastercard has decided to temporarily drop its Tencent participating, as well as Brazil’s control the black-market branding from the Copa América soccer tourna- Absoluto Partners and Verde Asset Manage- price of the dollar. ment, which is taking place in Brazil, over con- ment. With both extensions, Nubank’s eighth cerns about Covid-19 in the South American fundraising round reached $1.15 billion, the country, Reuters reported. Mastercard said in largest ever raised by a technology company a statement that it decided not to “activate” its embargo on the Caribbean nation at the United in Latin America, Forbes reported. The latest sponsorship, though it remains a sponsor, as it Nations General Assembly. In announcing investments give the bank a valuation of $30 has been since 1992, the wire service reported. the move, the Cuban central bank shifted the billion, up from $25 billion at the time of its Earlier this month, the tournament’s organizers blame to U.S. sanctions, saying they restricted previous fundraising, Reuters reported, citing unexpectedly relocated the tournament to Bra- the country’s ability to use dollars abroad. “It an unnamed source familiar with the situation. zil, despite the country’s struggle with one of is ever more difficult for Cuba to find interna- That figure would make Nubank worth just the world’s worst rates of Covid-19 cases and tional banking or financing institutions willing slightly less than Banco Santander Brasil, the deaths. Co-hosts Colombia and Argentina were to receive, convert or process U.S. currency South American nation’s third-largest lender dropped because of civil unrest and a surge in in cash,” the bank said in a statement dissem- with more than 2,000 branches. The valuation Covid-19 cases, respectively. inated by state-run news media. Some Cuba also puts Nubank on par with technology analysts saw the move as an attempt to control start-ups such as California-based Robinhood the black-market price of the dollar, which has Markets and China’s Lufax, although it still lags spiraled to more than twice the official ex- Chinese company Ant Group, Reuters reported. Mexican Fintech Clip change rate since the Communist-run country Receives $250 Million began opening stores selling hard currency in Capital Investments and stopped selling dollars due to a lack of REMITTANCES NEWS cash available, Reuters reported. More than 20 Clip, a payments financial technology start-up, banks have stopped processing transactions has received $250 million in capital invest- involving Cuba since former U.S. President Remittance Firms ment from SoftBank’s Latin American Fund Donald Trump tightened sanctions on the coun- Reportedly Cautious and Viking Global Investors, Bloomberg News try, said central bank Vice President Yamile reported June 10, citing the company’s founder Berra Cires. Cuban and foreign bank account on Crypto Services and chief executive officer, Adolfo Babatz. The holders on the island will have until June 21 investments give the start-up a valuation of to deposit dollars in their accounts, the Miami Despite El Salvador’s move to make Bitcoin $2 billion, the news service reported. “We are Herald reported. a legal tender, remittance firms are being planning to grow aggressively and hire about 320 people in the next 18 months,” said Babatz.

cautious about offering services related to FEATURED Q&A / Continued from page 1 cryptocurrencies, Reuters reported June 11. Salvadoran President Nayib Bukele has touted type of private participation, but with a to the role of private versus public providers Bitcoin’s use as a currency for remittance different framework and objectives. The fact in pensions, although the majority wants transfers to the Central American nation. that the most conservative political forces to maintain ownership of the accumulated However, just a few money-transfer companies have become more underrepresented than funds in the current system. We don’t know are dabbling in the digital currency, the wire they had expected will prevent them from the final solution to this impasse, but it is un- service reported. “For Western Union and some making a corporate defense of institutions likely to emanate from the new constitution.” of the other remittance providers keep in mind such as the AFPs and having to undertake a that most of the volume in the remittance debate that makes it possible to have a sys- Olivia S. Mitchell, director of industry is going from developed markets to tem that establishes truly decent pensions the Boettner Center for Pen- emerging markets primarily to people—families for workers.” sions and Retirement Research and friends—that operate in cash,” Kenneth A at the Wharton School of the Suchoski, U.S. payments and fintech analyst Alejandra Cox Edwards, pres- University of Pennsylvania: “Chile is the at Autonomous Research, told Reuters. “To the ident of the AFP Association fastest-aging country in Latin America: by extent that Bitcoin isn’t adopted and there’s of Chile: “Chile’s constitution 2030, almost one quarter of the population not widespread acceptance, these remittance A establishes the right to social will be over age 60. Moreover, Chileans live providers are still going to be relevant for the security, and the state has the responsi- long after age 60, requiring them to work lon- years to come.” Western Union had tested the bility to regulate the provision of benefits ger and save much more to be able to care use of Bitcoin and other digital currencies in through public or private institutions, with for themselves for decades in retirement. the past but has not found a good “use case” the possibility of mandating contributions There needs to be a common retirement age that significantly saved costs, Suchoski added. toward such provisions. The pension system for both men and women, and the retirement Less than 1 percent of global remittance established by law mandates contributions age will have to rise—70 will soon become transfers are in Bitcoin, he estimated. However, toward pensions, giving individuals the the norm in a number of countries around cryptocurrencies are expected to account for a right to choose the administrator of these the world, and work to age 75 or 80 is likely growing share of remittances, which total more contributions. The administrators are to become necessary for many people who than $500 billion annually. Among the com- private and highly regulated by the pension have failed to make provisions for their own panies that do offer services related to digital authority. Pensions are determined by the old age. I served on the last Pension Reform currencies is MoneyGram International, which sum of two benefits: one resulting from Commission in Chile in 2014-2015, and announced last month that it would allow its individually accumulated contributions even then it was clear that there was a deep customers to use cash to buy and sell Bitcoin (mandated and voluntary) and their returns; divide between those who wanted to reform at 12,000 retail locations in the United States, and the solidarity pension provided by the existing system (I was in that group), and Reuters reported. MoneyGram is offering the the state. Currently, the vast majority of another group who wanted to eliminate the service in partnership with Coinme, the largest individuals arrive to pension age with fewer AFP system. Some of the members wished licensed crypto cash exchange in the United than 30 years of contributions, which cannot to destroy it quickly, and others sought States. “We’ve built a bridge to connect bitcoin generate a complete pension. In the last four to kill it slowly, but their push was to end and other digital currencies to local fiat curren- years, 72 percent of women and 44 percent funded pensions and move to a complete cy,” MoneyGram told the wire service in a state- of men have retired with fewer than 20 years pay-as-you-go program. The problem then ment. “As crypto and digital currencies rise in of contributions. In addition, the solidarity was, and it is worse now, that Chile’s aging prominence, a core barrier to further growth is pillar has proven to be insufficient as it work force cannot sustain such a program. the on/off ramps to local fiat currencies.” West- covers only the poorest 60 percent. Chile There are simply too few young people ern Union and other money-transfer companies has just elected a Constitutional Convention entering the work force to be able to bear including Wise, WorldRemit, Remitly, Xoom and with important representation of indepen- the kinds of taxes that would be required to Ria Money Transfer did not respond to the wire dents and the extreme left. The convention keep all the older people financially secure. service’s requests for comment. El Salvador on will likely examine the reasons behind the Moreover, imposing such high taxes on the June 9 became the first country in the world to long delay in reaching a political agreement young would be an important disincentive make Bitcoin a legal tender. Bukele had called on pensions, a policy area where citizens for the young to keep working. Unfortu- for the move, and the country’s Legislative have demanded changes. There are deep nately, there have been no new ideas since Assembly approved the measure with 62 out ideological differences among citizens and that time. Instead, the anti-AFP group has of a possible 84 votes. “It will bring financial among members of Congress with respect grown stronger, and it appears to have won inclusion, investment, tourism, innovation and Continued on page 6

COPYRIGHT © 2021, INTER-AMERICAN DIALOGUE PAGE 3 FINANCIAL SERVICES ADVISOR June 3-16, 2021 economic development for our country,” Bukele said before the vote, CBS News reported. The THE DIALOGUE CONTINUES same day, Bukele said in a tweet that he had instructed the head of the state-owned geo- thermal company to put together a plan to use Would Reversing U.S. Remittance volcanic energy for mining Bitcoin. Rules Help Cubans?

White House officials have said migrants to send money home to their loved POLITICAL NEWS the administration of U.S. Pres- ones. The volume of remittances to Cuba ident Joe Biden will lift Trump- might have dropped, and the cost of sending Q era restrictions on the amount has increased. When the restrictions are Nicaraguan Police of remittances that Cuban-Americans can lifted, compliant companies will come back Arrest Another send to relatives on the island. The admin- online and begin, once more, to build their istration is also expected to allow Western customers’ trust. And the industry will again Opposition Politician Union to restart remittance services to begin to strive for transparency. Every coun- Cuba, which the Trump government had try benefits from receiving remittances, and Police in Nicaragua have arrested another blocked, the Los Angeles Times reported Cuba is no different. Most of the very small opposition politician, bringing to 13 the number earlier this year. What has been the result private businesses that have been allowed in of opposition members detained since the of the previous administration’s restric- Cuba have started, and are being maintained beginning of June in an expanding crackdown tions on remittances to Cuba? What would by relatives living abroad, through remittanc- on foes of President Daniel Ortega, the Asso- come from the lifting of those restrictions? es. As to opposed to other Latin American ciated Press reported June 14. In the latest How much do Cuban citizens benefit from governments that allow banks to control arrest, 10 agents in plainclothes and wearing remittances, and to what extent does Cuba’s the distribution of remittances, Cuba does it hoods seized Víctor Hugo Tinoco, the leader of government gain from them? through government-controlled institutions. political movement Unamos and a former Nica- For remittance-dependent families, it is a Hugo Cuevas-Mohr, director matter of having a better life; for countries, of Mohr World Consulting and it is a matter of getting access to cheaper The crackdown comes IMTC Conferences: “The result dollars from remittances to improve their of the Trump administration’s balance of payments. In the end, remittanc- ahead of Nicaragua’s pres- A restrictions on remittances to Cuba was to es should be a human right.” idential election, which is stop larger, more U.S.-dependent compa- scheduled for Nov. 7. nies from sending money to Cuba. They also pushed remittances to the island to EDITOR’S NOTE: The comment above is alternative channels—relatives are now a continuation of the Q&A published in sending money through other countries and the May 20-June 2 issue of the Financial raguan foreign minister and ambassador to the an array of informal pathways. This has Services Advisor. United Nations, the wire service reported. Ti- always been the case when governments noco was detained late June 13 at a shopping try to stop remittances or make it harder for mall. Tinoco’s arrest brought to six the number of opposition members detained that weekend. ed National Assembly passed in December election, which is scheduled for Nov. 7. Ortega, Another Unamos party leader, Suyen Barahona, that gives Ortega’s government the power to who has been in office since 2007, is seeking was seized earlier on June 13. Unamos activist unilaterally declare citizens “terrorists” and to extend his rule. In a statement June 13, Tamara Dávila was also arrested, as were “traitors to the homeland” and prohibit them Nicaragua’s government characterized the ex-Sandinista dissidents Dora María Téllez and from running as candidates, the AP reported. arrests as legitimate. “The only thing that this Hugo Torres and another opposition member, The law also allows for punishing people “who group of opposition usurpers share in common Ana Margarita Vijil. Former Sandinistas who lead or finance a coup ... encourage foreign is their allegiance to the government of the have criticized Ortega for nepotism and auto- interference, ask for military intervention ... United States of America and the fact that they cratic ways as well as continual re-elections propose or plan economic blockades, applaud have directly or through their respective NGOs, formed Unamos. Nicaraguan police said they and champion the imposition of sanctions received millions of dollars in U.S. taxpayer arrested the opposition members on charges against Nicaragua or its citizens.” The crack- money through USAID, NED, IRI and other agen- related to a law that the ruling-party dominat- down comes ahead of Nicaragua’s presidential cies, aimed at overthrowing the elected govern-

NEWS BRIEFS ment of President Comandante Daniel Ortega Alvarado said on June 14 in an appearance Saavedra,” Nicaragua’s government said in a on Facebook Live. “This type of behavior is Colombia’s Duque statement. The U.S. government has criticized absolutely unacceptable,” he added. the crackdown. “The United States condemns Taps Pinzón as this ongoing campaign of terror in the most Ambassador to U.S. unequivocal terms and considers President ECONOMIC NEWS Colombian President Iván Duque on June 14 Ortega, Vice President Murillo, and those tapped Juan Carlos Pinzón, a former defense complicit in these actions responsible” for the Economic Impact of minister, to be the country’s new ambassador safety of those arrested, a State Department to the United States, the Associated Press spokesperson told The Wall Street Journal. Lockdowns Will Be reported. Pinzón, 49, is expected to take over the embassy in August. He had previously held Authorities in Costa Mild: Chile’s Marcel the post between 2015 and 2017, when Co- lombia’s government signed a peace deal with Rica Make Arrests in The economic impact of continued coro- the Revolutionary Armed Forces of Colombia, navirus-related lockdowns in Chile will be or FARC. Pinzón later became a critic of the Large Graft Probe mild, central bank President Mario Marcel peace agreement, saying its terms were too told Bloomberg TV in an interview broadcast lenient on the top commanders of the former Costa Rican authorities on June 14 carried out June 11. He said the country’s economy is rebel group, the AP reported. dozens of searches and arrests in connection more resilient to lockdowns than it was last with a massive public corruption investigation year. Chile’s output gap is closing faster than related to the awarding of road construction expected, and it is experiencing inflationary No Evidence of Serious and maintenance contracts, the Associated pressure from oil and transportation costs, Press reported. The probe is one of the most Marcel said in the interview. In this context, the Irregularities in Peru impactful public corruption investigations in central bank board is evaluating the possibility Presidential Election: OAS the country, according to the director of the of raising interest rates over the next several The Organization of American States has said Judicial Investigation Organization, Walter meetings. His comments came as President it found no evidence of serious irregularities in Espinoza. The case allegedly involves a series Sebastián Piñera recently announced sprawling Peru’s presidential runoff, but it also called on of bribes, from cars to properties, cash and new restrictions in Santiago amid a surge in candidates “not to be proclaimed winners until personals favors, by a group of private firms cases of Covid-19 despite the Andean nation all the challenges have been resolved,” BBC to public officials in exchange for securing having nearly 60 percent of the population fully News reported. Results from Peru’s election government contracts, Espinoza said, the AP vaccinated, BBC News reported. on June 6 are not yet final, though socialist reported. He added that the scheme caused Pedro Castillo has held on to a razor-thin lead a $127 million deficit in the budget for road Colombia to Propose of about 60,000 votes when ballot counting works from 2018 to 2020, Reuters reported. was finalized. Right-wing Keiko Fujimori has Authorities executed 57 searches, 14 of them ‘Consensus’ Tax claimed fraud without providing evidence. of public institutions, including the offices of the president. Eighteen officials and 11 Reform: Restrepo businessmen were arrested, and Espinoza said dozens more were under investigation. One of Colombia’s government will submit a “consen- Grynspan Approved the judicial orders was for the arrest of one of sus” tax reform plan to Congress in the coming as Head of U.N. Trade President Carlos Alvarado’s closest advisors, weeks, new Finance Minister José Manuel & Development Body Camilo Saldarriaga, who resigned from his Restrepo said June 10, Reuters reported. Pres- post on June 14, Reuters reported. Saldarriaga, ident Iván Duque’s administration in April had The U.N. General Assembly on June 11 29, advised the president on infrastructure presented a proposal that sparked massive and approved the nomination of Costa Rican econ- matters. He is under investigation for allegedly sometimes deadly demonstrations, pushing omist Rebecca Grynspan to be the secretary participating in the scheme in exchange for it to withdraw its initial reform plan. However, general of the United Nations Conference on money, cars and sexual services. Saldarriaga there are less than two weeks until the current Trade and Development, or UNCTAD, the Asso- has denied wrongdoing and said he was resign- legislative session is set to end. Senator Carlos ciated Press reported. Grynspan, a former vice ing to focus on his defense. “I feel enormous Abraham, who accompanied Restrepo during president of Costa Rica, is the first woman and indignation, frustration and anger at the acts the announcement, said the proposal is unlikely Central American to head the Geneva-based of corruption in the public works contracts,” to be debated this session. trade and development agency.

FEATURED Q&A / Continued from page 3 FINANCIAL SERVICES ADVISOR iis published biweekly by the Inter-American Dialogue ISSN 2163-7962 now that people have been allowed to take years. Additionally, the political class has three withdrawals from their accounts. The responded with too little too late to address Erik Brand Publisher damage may be irreparable.” the aforementioned issues, as well as to [email protected] changing demographics including much Gene Kuleta Kathleen C. Barclay, former longer life expectancy in Chile. The new con- Editor president of the American stitution is expected to increase the state’s [email protected] Chamber of Commerce in role in social issues including pensions. This Anastasia Chacón González Chile: “In July, Chile will begin Reporter & Associate Editor A [email protected] to develop a new constitution through a democratically elected constitutional con- The private AFP vention representing broad diversity, rather system will most than traditional political branding of left or likely continue in right. The process represents the institu- some form but with Michael Shifter, President tional channeling of civil unrest and offers the state playing a Rebecca Bill Chavez, Nonresident Senior Fellow an opportunity to establish a legitimate and more central role.” Bruno Binetti, Nonresident Fellow sustainable social compact going forward. Sergio Bitar, Nonresident Senior Fellow — Kathleen C. Barclay A critical topic in the discussion will be the Joan Caivano, Senior Advisor role of the state, including with respect to Kevin Casas-Zamora, Nonresident Senior Fellow pensions. Currently in Chile, the pension will probably mean a redistribution of funds Julia Dias Leite, Nonresident Senior Fellow system is composed of private obligatory within and among generations. The private Ariel Fiszbein, Director, Education Program savings (AFPs), a solidarity pillar for 60 AFP system will most likely continue in Sandra García Jaramillo, Nonresident Senior Fellow percent of the most vulnerable population some form but with the state playing a more Selina Ho, Nonresident Senior Fellow and military pensions. To date, these pro- central role. The exact operation of that will Edison Lanza, Nonresident Senior Fellow grams have been unable to deliver adequate require implementing legislation once a new Nora Lustig, Nonresident Senior Fellow Margaret Myers, Director, Asia Program pensions to a significant proportion of the constitution is approved. It is expected that Manuel Orozco, Senior Fellow population due to: 1.) large numbers of the topic will be actively under evaluation Xiaoyu Pu, Nonresident Senior Fellow informal workers and independent workers over the next several years.” Jeffrey Puryear, Senior Fellow who do not save; 2.) the low level of pen- Tamar Solnik, Director, Finance & Administration sions for those in the solidarity pillar; and 3.) The Advisor welcomes comments on its Q&A Lisa Viscidi, Director, Energy Program gaps in savings, for example, in the case of section. Readers can write editor Gene Kuleta Denisse Yanovich, Director of Development women who do not work during child-bearing at [email protected]. Financial Services Advisor is published biweekly, with the exception of major holidays, by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 Washington, DC 20005 www.thedialogue.org Subscription inquiries are welcomed at [email protected]

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