FINANCIAL SERVICES ADVISOR a PUBLICATION of the DIALOGUE September 24-October 7, 2020

LATIN AMERICA ADVISOR FINANCIAL SERVICES ADVISOR A PUBLICATION OF THE DIALOGUE www.thedialogue.org September 24-October 7, 2020

BOARD OF ADVISORS FEATURED Q&A TOP NEWS Ernesto Armenteros Vice Chairman of the Board, BANKING Banco de Ahorro y Crédito Unión Is Peru’s Congress Mexico’s Financial Pablo Barahona President & COO, System Is Stable, Global Retail Markets West, Liberty Mutual Group About to Break the Liquid: Council Felipe Carvallo Mexico’s banking system has Vice President - Analyst enough capital and liquidity to Latin America Banking Pension System? Moody’s Investors Service face the economic crisis stemming from the coronavirus pan- Richard Child demic, said the country’s Financial CEO, Mattrix Group System Stability Council. Page 2 Michael Diaz Jr. Partner, Diaz, Reus & Targ MONEY LAUNDERING Ernesto Fernández Holmann Chairman of the Board, U.S. Company Ayucus Fined for Bribes Rich Fogarty Managing Director, in South America Alvarez and Marsal U.S. asphalt company Sargeant Desiree Green Peru’s Congress, pictured above, may allow pension account holders to withdraw 100 percent Marine has agreed to pay $16.6 Vice President, of their contributions. Supporters say the measure is needed to alleviate economic pressure million in fines after pleading International Government Affairs, amid the coronavirus pandemic. // File Photo: Peruvian Congress. guilty to bribery charges involving Prudential Financial officials in several Latin American The economy commission of Peru’s Congress in Septem- Laura Güemes Cambras countries. Transactions Attorney, ber began discussion on a proposal to allow Peruvians to Page 3 Holland & Knight withdraw 100 percent of their contributions into the private Earl Jarrett Chief Executive Officer, Q pension system with the aim of alleviating the economic REMITTANCES The Jamaica National Group stress wrought by the Covid-19 pandemic. What is the likelihood of such U.S. Adds Cuban Thomas Morante a proposal being approved by Peru’s Congress and enacted by President Attorney Remittances Firm Carlton Fields Martín Vizcarra? What would be the most significant consequences for to Sanctions List Manuel Orozco pensioners and the country’s economy? Which other countries in the Senior Fellow, The U.S. State Department has region are likely to follow suit with similar pension withdrawal measures, Inter-American Dialogue added debit card service provider Adalberto Palma-Gomez and what would be the long-term effects of such actions? American International Services to Senior Partner, its list of sanctioned companies. Proxy, Gobernanza Corporativa Secretary of State Mike Pompeo Rodolfo Pittaluga Luis Miguel Castilla, former Peruvian finance minister: said the company is controlled by Adjunct Professor, “In the context of its ongoing populist stance, the Peruvi- Cuba’s military. Florida International University Page 2 College of Law an Congress is likely to approve a modified version of the Fabian Saide proposed bill to, supposedly, alleviate the economic crisis Founder, CEO and President, A that many citizens are currently experiencing. However, this will happen Paykii while the economy is starting to recover and without adequately targeting Roberto Teixeira da Costa Founder & Board Member Emeritus the withdrawal to benefit the most affected households. The government CEBRI is likely to veto this bill (or not formally enact it) in line with the Finance Mario Trujillo CEO, Ministry’s, central bank’s and regulator’s unfavorable opinion regarding DolEx Dollar Express this proposal. Allowing for pension fund withdrawals is a harmful policy because those affiliates who decide not to tap into their funds will experience a fall in the value of their portfolios due to the massive liquidation of assets that will need to be undertaken in a relatively very brief timespan. On the other hand, those affiliates who decide to withdraw their outstand- ing balances will not have the possibility to claim a pension in the future Pompeo // File Photo: U.S. State Department. Continued on page 6

BANKING NEWS temporary rules that are aimed at avoiding NEWS BRIEFS defaults and losses of collateral. Herrera said Mexico’s Financial the extension recognizes that the Mexican Salvadoran Court Reduces economy will remain fragile for some time. “It’s Ex-President Saca’s System Has Adequate no longer a horizon of a few weeks,” Herrera said, “but a few months.” Among the measures Sentence by Two Years Liquidity: Council are relaxing liquidity requirements until next A Salvadoran court on Sept. 28 reduced former March, furthering a capital buffer through the Salvadoran President Elías Antonio “Tony” Mexico’s banking system is stable, with high end of 2021 as well as a 19-month relief for Saca’s 12-year prison sentence by two years, ju- levels of capital and enough liquidity to face farming credits. dicial authorities announced, Reuters reported. the crisis brought by the coronavirus pandem- Saca, 55, in 2018 admitted to embezzling and ic, the country’s Financial System Stability laundering as much as $300 million from the Council, or CESF, said Sept. 29 in a statement. REMITTANCES NEWS treasury, for which he was sentenced to 10 “The Mexican financial system remains in a years in prison. In 2019, two years were added solid position. In particular, the analysis on U.S. Gov’t Adds Cuba to his sentence for bribery. Upon review of his the risks for the Mexican banking system,” the case, the prison surveillance court ruled that CESF said. The council is headed by Finance Remittances Firm the former president, who led El Salvador from 2004 to 2009, had already served the two years to Restricted List of the sentence related to the second case during preventive detention. The U.S. State Department on Sept. 28 said it is adding a debit card service provider, American International Services (AIS), to its Moody’s Lowers Outlook sanctioned Cuba Restricted List. “AIS is a financial institution controlled by the Cuban military for Peru’s Banking System that processes remittances sent to the Cuban Moody’s on Sept. 28 lowered its outlook for people,” Secretary of State Mike Pompeo said Herrera // File Photo: Mexican Government. Peru’s banking system to negative from pos- in a statement. The U.S. government alleges itive, citing lower profitability in a higher risk Minister Arturo Herrera, and its members that AIS, under its parent company FINCIMEX, of credit deterioration due to the coronavirus include representatives from the central bank, pandemic. The ratings agency said the Andean banking regulators and insurance companies, nation’s banking system was working in a “chal- Reuters reported. The council also said in the The profits earned lenging” environment, which has had an impact statement that the sector is facing substantial from these operations on the sector’s gains during the first half of the challenges, especially regarding the operation disproportionately year and creates volatility for the rest of the of the market, credit flow, containment of benefit the Cuban year and even 2021, Reuters reported. liquidity problems and adequate risk manage- military...” ment. “Some institutions must continue efforts — Mike Pompeo toward diversifying their sources of financing,” the CESF said, adding that, while there are Brazil’s FitBank Plans to “elements of strength” in intermediaries such manipulates the remittance and foreign cur- Expand to More Latin as brokerage houses, entities in the insurance rency market. “The profits earned from these American Nations, U.S. and surety sectors, retirement savings and operations disproportionately benefit the Cu- Brazilian fintech FitBank Pagamentos Eletrôni- investment funds, other financial companies ban military, furthering repression of the Cuban cos plans to open an office in the United and credit unions show “a profile of higher people and funding Cuba’s meddling in Venezu- States in the first half of 2021, as well as start credit risk.” The statement came days after ela,” Pompeo said. “We urge anyone who sends operations in Colombia, Mexico and Peru next Mexico’s finance ministry and banking regula- remittances to family in Cuba to use means year, Bloomberg News reported Sept. 22. In tor announced the extension of tools to allow other than Cuban government-controlled remit- an interview with the news outlet, FitBank banks and financial intermediaries to restruc- tance entities,” he added. FINCIMEX is a Cuban chief executive Otavio Farah said he expects ture loans and other credits to clients, Reuters state company that processes remittances headcount to reach 200 employees next year. reported Sept. 23. As part of the measures, the and issues the American International Services In July, JPMorgan acquired a minority stake in government will extend until next year several card. The government began accepting it in the company.

July amid the Covid-19 pandemic, which has worsened food shortages on the island and sparked long lines for goods, the Associated SUBSCRIBER NOTICE Press reported. FINCIMEX temporarily stopped accepting applications in mid-August due to Laura Güemes Cambras Joins the Financial its popularity, but it resumed them this month. Services Advisor Board In Cuba, the volume of remittances has been decreasing this year, and it is expected to con- We are pleased to announce that Laura Güemes Cambras tinue to drop, despite gains in other countries has joined the Financial Services Advisor’s board of advi- of Latin America, in part due to U.S. sanctions, sors. Denisse Delgado, a scholar at the University of Massachusetts in Boston, wrote recently in She is a transactions attorney at Holland & Knight’s office a blog posted by the Inter-American Dialogue. in New York and a member of the firm’s financial services [Editor’s note: See also the Advisor’s video in- team. terview with Marta Colomar-Garcia, an attorney at Diaz Reus in Miami, on the outlook for U.S. Güemes focuses her finance practice on cross-border sanctions related to Cuba.] financing transactions, regularly advising corporate Güemes borrowers, a wide range of lenders, project sponsors and Mexico’s Remittances developers on syndicated lending as well as project finance in the United States and Latin America. She also has substantial M&A experience covering a Hit Second-Highest wide range of industries.

Level on Record Prior to joining Holland & Knight, Güemes practiced at another international law firm in New York and before that worked with a firm in Spain. The amount of remittances sent to Mexico hit $3.57 billion in August, their second-highest She holds an LL.M degree from Fordham University’s School of Law, with a focus on corpo- level on record, the country’s central bank said rate, banking and finance law, as well as J.D. and B.S. degrees from Universidad Carlos III de Oct. 1. The money transfers to Mexico rose Madrid. 5.3 percent that month as compared to August 2019, the central bank said. The amount for at Goldman Sachs. “The sharp contraction of statement. Between 2010 and 2018, Sargeant August was higher than any other month on activity and employment in the U.S. have not Marine paid millions of dollars in bribes to record, going back to 1995, except for March impacted in a visible way the flow of remittanc- officials in Brazil, Venezuela and Ecuador in of this year, when Mexico’s remittances totaled es to Mexico,” Ramos said in the note. [Editor’s order to obtain contracts or sell asphalt to $4.04 billion. In August, Mexico recorded 10.4 note: See related Q&A in the Aug. 13-26 issue state-owned or state-controlled companies million remittance transactions, the third-high- of the Financial Services Advisor.] in those countries, the company has admit- est number of transactions on record. The average transfer was $343, the central bank said. That average amount was the same as ANTI-MONEY LAUNDERING NEWS the average reported in August 2019. For the Sargeant Marine has ad- first eight months of the year, the total amount mitted to paying millions of money sent to Mexico in remittances U.S. Asphalt Firm was $26.4 billion, a 9.4 percent increase as of dollars in bribes to offi- compared to the first eight months of 2019. Fined for Bribes cials in several countries. Factoring in the 11.9 percent depreciation of the Mexican peso as compared to the U.S. in South America dollar between August 2019 and August 2020, ted, according to the Justice Department. remittances grew 19.6 percent year-on-year in A U.S.-based asphalt company has agreed Sargeant Marine, which is based in Florida, August of this year, or 14.9 percent year-on- to pay $16.6 million in fines after pleading acknowledged that it bribed officials at Brazil’s year in real local currency terms, according to guilty to bribery charges stemming from its Petrobras, Venezuela’s PDVSA and Ecuador’s a note by Alberto Ramos, managing director business in three South American countries, Petroecuador, the Justice Department said. and head of Latin America economic research the U.S. Justice Department said Sept. 22 in a

ECONOMIC NEWS ADVISOR Q&A British Court Rules in Maduro’s Favor in What’s Driving New U.S. Dispute Over Gold Restrictions on Cuba Activity?

A British appeals court on Oct. 5 sided with U.S. President Donald Trump moved from the restricted list, a hotel could Venezuelan President Nicolás Maduro’s recently announced new be sold to foreign investors thus transferring government in a dispute over the control of restrictions that will prohibit title away from the Cuban government and $1.8 billion worth of Venezuelan gold stored Q U.S. travelers from staying at becoming available to U.S. travelers. Also, at the Bank of England, The Guardian report- properties owned by the Cuban government, rentals of private rooms and residences ed. In July, a British court found that Britain’s as well as block the import of Cuban cigars would see an increase in activity and have recognition of opposition leader Juan Guaidó and liquor. What motivated the Trump a beneficial effect on the growing class of as Venezuela’s legitimate president meant that administration to draw up the new rules, self-employed in Cuba. Coupled with further the gold could not be released to Maduro’s and how significant are they? In what ways restrictions on remittances, it is clear that government. Venezuela’s central bank had sued will they affect Cuba’s economy, its citizens the president has no concern for the Cuban the Bank of England in May, seeking to gain and the Communist government’s hold on people or Cuban-Americans who aid their power? Will Trump’s clampdown on Cuba, families in Cuba. The pandemic, coupled the latest in a string of reversals over the with U.S. sanctions, has been particularly past four years of the Obama-era loosening hard on the Cuban people, creating food of restrictions related to the island, help shortages and other challenges, the effects achieve U.S. goals with the country and in of which have been partially mitigated by the region more broadly? Cuban-Americans and U.S. humanitarian organizations engaged in Cuba. Limiting Angela Mariana Freyre, prin- this assistance only hurts the Cuban people. cipal at Squire Patton Boggs These new policies are a continuation of and former special advisor for the failed strategy pursued by U.S. admin- Maduro // File Photo: @NicolasMaduro via Twitter. A Cuba policy at the U.S. National istrations for decades and condemned by control of the gold, which the central bank has Security Council: “The new measures are the global community. President Obama said it will sell solely in order to pay for Vene- the continuation of an electoral strategy to changed the course of that policy when he zuela’s response to the coronavirus pandemic. win Florida, which the president won by a normalized relations with Cuba and allowed The decision by the appeals court overturns very narrow 1.2 percent margin in the last Americans and Cuban-Americans to engage the July court decision and sends the issue election and where he is currently trailing with the Cuban people and create a new fu- to be examined by a British commercial court, Vice President Biden in the polls. Given that ture of U.S.-Cuba relations based on mutual The Guardian reported. The appeals court also there is no travel to Cuba during this pan- respect and benefit. We need to return to suggested that Britain’s Foreign Office clarify demic, the significance of the hotel/rum/ci- those principles swiftly.” the issues including whether the British govern- gar/travel prohibitions is primarily symbolic ment recognizes Guaidó “for all purposes and and calculated for domestic political effect. therefore does not recognize Mr. Maduro as In a post-pandemic Cuba, the prohibitions EDITOR’S NOTE: More commentary on president for any purpose.” If the Foreign Office will have some negative impact on Cuba’s this topic appears in the Oct. 1 issue of the does not clarify the issue, then the commercial economy, people and government as a result Latin America Advisor. court must decide on the gold dispute on its of the lack of revenue. That said, to be re- own. Though Britain recognizes Guaidó as Ven- ezuela’s president, it also still has diplomatic in Caracas. In the Oct. 5 ruling, Judge Stephen Guaidó named as his ambassador to Britain, ties with Maduro’s government, The Associated Males said Britain’s support of Guaidó and its played down the appeals court ruling, saying Press reported. Britain’s government recogniz- continued diplomatic relations with Maduro’s the court was asking for clarification from a es Maduro’s ambassador, who has control of government are “to my mind ambiguous, or judge that has already ruled in Guaidó’s favor, the Venezuelan Embassy in London. And the at any rate less than unequivocal,” Bloomberg the AP reported. “What remains clear is that British ambassador to Venezuela is still posted News reported. Vanessa Neumann, whom the British court is not yet going to hand over

NEWS BRIEFS the gold that belongs to Venezuelans to the and then goes on to name five of Mexico’s six Maduro regime,” Neumann told reporters in a living ex-presidents. López Obrador proposed Hurricane Delta call. the referendum for June 6, 2021, the date of midterm congressional elections that are key Takes Aim at Mexico’s for maintaining the ruling party’s majority in Yucatán Peninsula Colombia’s Mining Congress. With some notable exceptions, the Hurricane Delta strengthened to a Category 2 Future Is Metals, Oil legacies of Mexico’s former presidents, and hurricane early Oct. 6 as it pushed toward Mex- many of their cabinet ministers, over the past ico’s Yucatán peninsula, where it is expected Still Crucial: Mesa to make landfall by Oct. 7, CNN reported. The storm could intensify further, strengthening to Colombia’s mining future lies in metals and not a Category 4 hurricane before it hits land, said coal, though developing oil and gas projects, CNN meteorologist Michael Guy. From there, including nonconventional deposits, will con- Delta could turn toward the U.S. Golf Coast. tinue to be key, said Mines and Energy Minister As of 8 a.m. Eastern Time on Oct. 6, the storm Diego Mesa, Reuters reported Oct. 2. Mesa was located about 370 miles east-southeast said the coronavirus pandemic has intensified of the Mexican island of Cozumel, heading problems with the coal sector, forcing Colom- bia, the world’s fifth-largest coal exporter, to west-northwest at 15 miles an hour, with López Obrador // File Photo: Mexican Government. maximum sustained winds of 110 miles an evaluate ways in which it can quickly boost its hour, according to the U.S. National Hurricane mining industry. “Metals are the big opportunity several decades have been tainted by accusa- Center. for Colombia because they’re the mineral with tions of corruption and using their offices for the greatest demand,” Mesa said, adding that personal enrichment. In August, Mexico’s polit- the Andean nation is “practically unexplored” in ical establishment was shaken by claims that Chilean Authorities Detain terms of gold, copper and nickel mining. three former Mexican presidents, as well as ministers and high-profile lawmakers and aides Officer Suspected of were involved in alleged acts of corruption. Pushing Teen Off Bridge POLITICAL NEWS Chilean authorities have detained a police Nicaragua Eying officer suspected of attempted murder after he Mexico’s Supreme allegedly pushed a teenage demonstrator off Legislation to Clamp a bridge during recent protests, the country’s Court Allows Vote on Prosecutor’s Office said, CNN reported Oct. Down on Journalists 5. Videos of the incident in Santiago on Oct. Former Presidents 2 have gone viral in Chile, sparking anger and Nicaragua’s National Assembly is considering more demonstrations in the following days. Mexico’s Supreme Court ruled Oct. 1 that legislation that would place new restrictions on The video appears to show a brawl between President Andrés Manuel López Obrador could journalists, The Washington Post reported Oct. the police officer and the boy, who then falls proceed with a referendum on prosecuting 4. One measure would require journalists who headfirst over the side of the bridge. ex-presidents, the Associated Press reported. work for foreign media companies to register The court ruled in a 6-5 vote that the measure with Nicaragua’s government as foreign agents was constitutional, but it said the wording of and refrain from “intervening in questions, the question to appear on ballots should be activities or matters of internal politics,” Chilean President Aims to modified. Opponents had claimed it violated the newspaper reported. Another piece of Increase Public Spending the precept that the decision to prosecute legislation would set jail sentences of as long by 9.5 Percent Next Year should be made by prosecutors, not voters or as four years for people using a computer to politicians, as well as the presumption of inno- spread “false and/or misrepresented informa- Chilean President Sebastián Piñera on Sept. cence. López Obrador’s proposed referendum tion which causes alarm.” Opponents of the 29 introduced a budget that includes a 9.5 question asks: “Do you agree or not that the measures say the government of President percent year-on-year increase in public spend- relevant authorities should, in accordance with Daniel Ortega, whose party holds a majority in ing, Reuters reported. In a televised speech, the applicable laws and procedures, investi- the National Assembly, could use the measures the conservative called the spending “very gate and if appropriate punish, the presumed to target anyone writing anything unfavorable austere” in light of the coronavirus pandemic crimes committed by former presidents?” to the government. and demands for economic recovery.

FEATURED Q&A / Continued from page 1 FINANCIAL SERVICES ADVISOR is published biweekly by the Inter-American Dialogue, Copyright © 2020 and will lose their disability and survival Bolivia eliminated their individual pension insurance coverage. If this legislative initia- account systems well before the pandemic. Erik Brand tive is approved, 50 percent of the private Uruguay seems to be the only exception. Publisher [email protected] pension fund will have been squandered in The measures have a real chance of being the last five years as a result of lawmakers’ approved despite the opposition of President Gene Kuleta Editor decision to channel private pension savings Vizcarra, as the Peruvian Congress has dealt [email protected] to meet objectives different from ensuring a him several defeats, and the country is in a Anastasia Chacón González pension during retirement. Similar policies troubled political situation. This scenario Reporter & Associate Editor are already being pursued in other countries, related to pension funds repeats, in many [email protected] such as Chile, with the end result being that ways, what happened in several western of stressing public finances even further in a European countries in the 1930s during the

context in which they have severely deterio- Great Depression.” Michael Shifter, President rated amid the recession that the pandemic Rebecca Bill Chavez, Nonresident Senior Fellow has caused.” Olivia S. Mitchell, executive di- Sergio Bitar, Nonresident Senior Fellow rector of the Pension Research Joan Caivano, Senior Advisor Milko Matijascic, researcher Council and director of the Michael Camilleri, Director, Rule of Law Program at the Institute of Applied A Boettner Center for Pensions Kevin Casas-Zamora, Nonresident Senior Fellow Economic Research (IPEA) and Retirement Research at the Univer- Héctor Castro Vizcarra, Nonresident Senior Fellow A in Brasília: “The Peruvian sity of Pennsylvania: “Allowing Peruvians Julia Dias Leite, Nonresident Senior Fellow Congress’ proposal is tied to the Covid-19 to withdraw 100 percent of their pension Ariel Fiszbein, Director, Education Program crisis as the country’s GDP may contract by savings due to the pandemic is short-sighted Peter Hakim, President Emeritus 12.5 percent this year. This measure may policy. It will result in a bankrupt funded Nora Lustig, Nonresident Senior Fellow ease families’ budgets in the short term, pension system, and population aging trends Margaret Myers, Director, Asia and Latin America Program stimulating economic activity via consump- in Peru will make it impossible to establish Manuel Orozco, Senior Fellow tion, at the expense of the deterioration or Xiaoyu Pu, Nonresident Senior Fellow even loss of social security protection in Jeffrey Puryear, Senior Fellow old age. In addition, such a movement of Such an act could Mateo Samper, Nonresident Senior Fellow funds in such a short time may introduce erode growth and eco- Tamar Solnik, Director, Finance & Administration strong instability in local financial markets. nomic development...” Lisa Viscidi, Director, Energy Program This scenario should generate pressure to — Olivia S. Mitchell Denisse Yanovich, Director of Development, strengthen the pay-as-you-go system, in- External Relations & Special Projects creasing public spending and also requiring an increase in the contribution fees for the a reasonable pay-as-you-go or ‘reparto’ Financial Services Advisor is published biweekly, with the exception of major holidays, insured and their employers. If this measure system. It will also erode peoples’ trust in by the Inter-American Dialogue at is not taken or replaced by compensatory their political leaders and the economy. Such 1155 15th Street NW, Suite 800 Washington, DC 20005 social spending, there will be a strong an act could erode growth and economic www.thedialogue.org impoverishment of the elderly population development, and Peruvians today and in the ISSN 2163-7962 in Peru and an increased dependence on future will live to regret destroying the coun- Subscription inquiries are welcomed at pensioners’ children and/or on philanthropy. try’s funded retirement program necessary [email protected] International analysts consider that the for better financial security in old age.” Peruvian case has been followed, in many The opinions expressed by the members of the Board of ways, by Chile, and is being debated in all The Advisor welcomes comments on its Q&A Advisors and by guest commentators do not necessarily represent those of the publisher. The analysis is the sole Latin American countries that have adopted section. Readers can write editor Gene Kuleta view of each commentator and does not necessarily paradigmatic (structural) pension reforms. at [email protected]. represent the views of their respective employers or firms. The information in this report has been obtained from It is worth recalling that Argentina and 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 offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permis- sion from the publisher.