LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, December 21, 2015

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, December 21, 2015

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Genaro Arriagada How Aggressive Nonresident Senior Fellow, Costa Rica to Inter-American Dialogue Suspend Cuban Joyce Chang Global Head of Research, Will Venezuela’s Migrants’ Visas JPMorgan Chase & Co. President Luis Guillermo Solís W. Bowman Cutter Former Partner, New Assembly Be? said the government would not E.M. Warburg Pincus allow any more Cuban migrants Dirk Donath heading to the United States to Senior Partner, enter its territory. The announce- Catterton Aimara ment came after Central American Marlene Fernández leaders met but failed to fi nd a Corporate Vice President for solution to the migration crisis. Government Relations, Arcos Dorados Page 2 Peter Hakim President Emeritus, BUSINESS Inter-American Dialogue Donna Hrinak U.S. Authorities President, Boeing Latin America Arrest Jon Huenemann Vice President, U.S. & Int’l Affairs, Businessman Philip Morris International After winning control of Venezuela’s National Assembly earlier this month, members of the opposition vowed to free imprisoned opposition leaders, including Leopoldo López, who has With PDVSA Ties James R. Jones been jailed for nearly two years. // File Photo: Facebook page of Leopoldo López. Co-chair, Manatt Jones Roberto Rincón was arrested in Global Strategies LLC Venezuela’s opposition won a two-thirds “supermajority” in Houston on charges including Craig A. Kelly money laundering. Director, Americas International the country’s legislative vote on Dec. 6, reaching a level that Page 3 Gov’t Relations, Exxon Mobil will empower opposition members to make sweeping chang- John Maisto Q es in Venezuela’s political and economic landscape, though Director, U.S. Education ECONOMIC Finance Group President Nicolás Maduro has vowed to block many of the opposition’s Nicolás Mariscal Brazilian Chairman, proposals. How will the supermajority approach legislating in a divided Grupo Marhnos government? Does the opposition coalition risk making too many chang- President Sacks Thomas F. McLarty III es too quickly, and thus risking the ire of voters? Will Maduro be able to Finance Minister President, McLarty Associates effectively impede the opposition’s attempts to make drastic changes? Brazilian President DIlma Rous- Carlos Paz-Soldan What economic changes are expected for Venezuela in the year ahead? seff replaced Finance Minister Partner, Joaquim Levy, who was named to DTB Associates, LLP What political changes will be made? the post just over a year ago, and Beatrice Rangel replaced him with her planning Director, minister, Nelson Barbosa. AMLA Consulting LLC Michael Shifter, president of the Inter-American Dialogue: Page 2 José Antonio Ríos “With a supermajority in the new legislature, the opposition Chief Executive Offi cer, Vadium Technology Inc. has considerable powers and for the fi rst time in 17 years Gustavo Roosen can serve as a check on the executive. At the same time, Chairman of the Board, A Envases Venezolanos the new context poses tough dilemmas for an opposition that benefi ted Andrés Rozental from widespread anger with the dismal economic performance of the President, Rozental & Asociados and Senior Maduro government. It has to weigh possible trade-offs and decide to Policy Advisor, Chatham House what extent, and at what pace, it will pursue political measures or, rather, Shelly Shetty Head, Latin America focus on enacting laws that can provide some economic relief, which for Sovereign Ratings, Fitch Inc. most Venezuelans is of utmost concern. The opposition can, of course, Roberto Sifon-Arevalo decide to do both, but some real options—such as gathering signatures Managing Director, Americas Sovereign & Public Finance Ratings, for a recall referendum against Maduro (which would have to take place Standard & Poor’s in 2016)—carry risks, and would make less likely any negotiation or cooperation between the assembly and executive on an economic agenda Levy // File Photo: Brazilian Government. Continued on page 3

ECONOMIC NEWS ment last year. Barbosa, who now replaces NEWS BRIEFS Levy, is viewed as a close Rousseff ally and Brazilian President worked under former Brazilian Finance Minister Chilean Airport Guido Mantega. Rousseff named Barbosa the Workers End Strike Replaces Finance country’s planning minister earlier this year. On Friday, Barbosa told reporters that his top More than 3,000 Chilean airport workers have Minister priority is bringing fi scal balance to Brazil. “The ended a four-day strike and gone back to work, Brazilian government ... has all the instruments the Civil Aviation Directorate announced Sun- Brazilian President Dilma Rousseff on Friday to solve the problems we face,” said Barbosa, day afternoon, La Tercera reported. Thousands replaced her fi nance minister, Joaquim Levy, the AP reported. “I have complete confi dence of holiday travelers were inconvenienced by the and named Planning Minister Nelson Barbosa that Brazil has all it takes to overcome the labor action in recent days, which has yet to be to the post. Levy’s ouster came just more current diffi culties.” fully resolved as union negotiators continue to than a year after he was appointed as fi nance seek military-grade benefi ts for the workers. minister. During that year, Latin America’s Chilean Defense Minister José Antonio Gómez largest economy has deteriorated markedly as POLITICAL NEWS called the strike “irrational” and “unfortunate,” GDP has shrunk for three consecutive quarters, noting some strikers resorted to “aggression” two of the three major ratings agencies have Costa Rica to and may be fi ned. I come to the end of Suspend Cuban 2015 worrying about Migrants’ Visas U.S., Mexico the situation of the Sign Airline Treaty country, particularly Costa Rican President Luis Guillermo Solís The United States and Mexico on Friday signed the economy.” announced Friday that his government was an air treaty that seeks to liberalize the air — Joaquim Levy suspending the visas of any Cuban migrants travel market, making it possible for airlines who attempt to enter the Central American on both sides of the border to set their own downgraded the country’s debt to junk status, country in an effort to head north toward the prices and fl y any routes they choose, The Wall annual infl ation has risen past 10 percent, a United States, the Associated Press reported. Street Journal reported. The treaty still must be massive corruption scandal has widened at “Please do not come to Costa Rican territory. If ratifi ed by the Mexican Senate in order to take state-run oil company Petrobras and Rousseff you do, you will be deported,” Solís said. There effect. While both U.S. and Mexican airlines is facing an impeachment attempt. Levy’s time are approximately 6,000 Cuban migrants stuck hailed the accord, some smaller carriers fear as fi nance minister was rocky and included in limbo in Costa Rica after Nicaragua’s govern- that planned alliances among industry heavy- frequent clashes with the president and repeat- ment last month refused to allow them to tran- weights could give the largest carriers an upper ed economic proposals that failed to make hand. Another hurdle is the lack of infrastruc- it through Congress, the Associated Press ture at some airports, which would limit the reported. In her announcement about Levy’s de- capacity to add new fl ights, even though new parture, Rousseff expressed her thanks for his rules would permit them. service and wished him future success but did not elaborate. In a separate statement issued before the president’s, Levy expressed con- Chile’s Colbun Buys cerns about the state of Latin America’s largest economy. “I come to the end of 2015 worrying Fenix Power Perú about the situation of the country, particularly for $171 Million Solís // File Photo: Costa Rican Government. the economy,” said Levy, the AP reported. “But I Chilean electric utility Colbun said Friday it has keep great confi dence in our economy’s ability sit through its territory. The Cubans are headed purchased power generator Fenix Power Perú to recover and its potential to grow.” Levy, who north amid fears that the U.S.-Cuba thaw will for $171.4 million, Reuters reported. Fenix was educated at the University of Chicago mean an end to the Washington’s policy that Power’s net assets, principally a 570-megawatt and spent time as a top executive at Brazilian allows Cubans to stay if they reach dry land. thermoelectric natural gas plant as well as net bank Bradesco, faced suspicion by the more Solís’ statement came after Central American debt of $614.6 million, are valued at $786 mil- leftist members of the ruling Workers’ Party, leaders met in El Salvador but failed to come lion. Fenix Power says it produces 10 percent some of whom openly opposed his appoint- up with a solution to the migration crisis. of the electricity consumed in Peru today.

FEATURED Q&A / Continued from page 1 BUSINESS NEWS

(for example, devaluation of the bolívar). from further increases in the prices of basic Yet, although Chavismo may see an amnesty goods. The opposition has the potential to U.S. Authorities law as similarly confrontational, it is hard to further consolidate, but only if they take into Arrest Businessman imagine how the opposition can fail to try and free the country’s political prisoners— With Ties to PDVSA most prominently, Leopoldo López—when it The opposition has the power to do so. Divided government has the potential to Venezuelan businessman Roberto Rincón was could give both sides the political cover further consolidate, arrested in Houston on Friday by U.S. author- they need to carry out diffi cult yet necessary but only if they take ities on charges including money laundering reforms. But choices made by the opposition into account the en- related to state oil company PDVSA, The and the Maduro government can also lead to during popularity Miami Herald reported. Citing sources close greater political strife and chaos. Chavismo of Chavismo.” to the operation, the charges also link Rincón, has already signaled that it will attempt to a business magnate who has made a fortune — Alexander Main resist through its control of state institu- selling oil services under contract to Venezu- tions, particularly the judiciary.” ela’s socialist regime over the past 10 years, account the enduring popularity of Chavismo to former Venezuela intelligence chief Hugo Alexander Main, senior asso- and realize that their political gains will rap- Carvajal, who last year was unsuccessfully ciate for international policy at idly dissolve if they adopt a confrontational targeted for extradition by U.S. authorities the Center for Economic and approach and attempt to undo many of the over drug traffi cking charges. Authorities also A Policy Research: “Within days government’s signature policies.” arrested two other people in connection with of its decisive victory in the Dec. 6 elections, the case, the Herald reported. In October, U.S. the Venezuelan opposition unveiled an ambi- John Maisto, member of the authorities launched a series of investigations tious legislative agenda aimed at reshaping Advisor board, director of U.S. into whether Venezuela’s political leaders key government policies. Opposition leaders Education Finance Group and were using PDVSA to leach billions of dollars warned that if President Nicolás Maduro A former U.S. ambassador to the through kickbacks and other schemes, The attempted to block this agenda, they would OAS: “Venezuela’s surprising new hopeful Wall Street Journal reported. The probes seek to unseat him through a revocatory reality, a result of record voter turnout on also sought to determine whether PDVSA referendum or other means. But it would be Dec. 6 and a unifi ed opposition, has created and its foreign bank accounts were used for a mistake for the opposition to think that the huge challenges for President Maduro and other illegal purposes, including black-market electorate has given them a blank check to the incoming majority opposition legislature. currency schemes and laundering drug money, follow this aggressive strategy. Polling data The turnout is vindication that only the Ven- according to the Journal. As much as $3 billion suggests that many Venezuelans who voted ezuelans, in their time and way, can resolve of the $15 billion in services and equipment for opposition candidates are supportive of their problems; the victory, a vindication for that PDVSA contracted for annually repre- the late President Hugo Chávez’s legacy of smart opposition leadership. The new po- sented overcharges that fl owed back to top social inclusion and participatory politics. litical landscape happens amid a polarized company executives, government offi cials and They voted the way they did primarily political climate and a wrecked economy. businessmen as kickbacks, people knowledge- because of their deep frustration with the The opposition won and the Chavistas able about the alleged crimes told the Journal. current economic diffi culties they face on a lost because Chavista economic policies Venezuelan offi cials have routinely dismissed daily basis and not because they reject the and governance failed miserably, causing allegations of offi cial corruption. Meanwhile, Chavista political project backed by Maduro hardship even to their heretofore solid lower the state oil company has been suffering from and his allies. Maduro still has the potential socio-economic constituency: a ‘punishment low oil prices and faces potential dire times to recover politically, but only if he takes vote.’ Both the government and the opposi- ahead, Fitch Ratings said in a report released bold steps to address economic ills. He tion must respond by reviving the economy last week. “PDVSA’s ‘CCC’ rating suggests a urgently needs to fi x the country’s dysfunc- and resolving issues affecting peoples’ real possibility of default,” the New York-based tional currency exchange system—one of the daily lives: distribution of basic necessities ratings agency said, adding that if a restructur- main causes of widespread scarcities and in a normal market system, stimulating ing occurs, the average recovery for PDVSA’s soaring infl ation—while taking effective mea- production, attracting investment, reducing bondholders would be 31 percent to 50 percent sures to shield the poor and middle class infl ation, effi cient public services, citizen of face value, a fi gure that now stands “likely Continued on page 4 closer to the lower end of the range.”

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2015 security and decentralizing the police force. policies. As the economic crisis continues People are angry and expectant. Vexing next year, the executive can play the part of Erik Brand political questions penetrate everything: Can the victim by allowing the National Assembly Publisher [email protected] government leaders lower the rhetoric and to function and even approving controversial negotiate? Can they free all the political pris- law reforms, and then claim that a reckless Gene Kuleta Editor oners and do amnesty legislation—measures ‘bourgeois’ National Assembly is in cahoots [email protected] that could affect Chavista loyalists down the with conspiratorial external powers and is Nicole Wasson road? Can the opposition maintain unity and responsible for the crisis.” Reporter, Assistant Editor a razor-thin two-thirds majority in the Nation- [email protected] al Assembly, which provides constitutional Howard M. Glicken, chairman and impeachment options? Will it launch of the board of The Americas any? Will the government pack the Supreme Group: “I believe the search Court? What could/would the Congress do? A for leadership and a unifi ed Michael Shifter, President Practical Chavistas and a united opposition, agenda will take a considerable amount Genaro Arriagada, Nonresident Senior Fellow with intelligence, tolerance and political will, of time, during which National Assembly Sergio Bitar, Nonresident Senior Fellow can begin to fi nd credible solutions. Local members will be subject to intense personal Joan Caivano, Director, Special Projects elections late next year will measure suc- pressure from the Maduro regime, delaying Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program cess or failure for both camps. But anything Maria Darie, Director, Finance & Administration can happen between now and then.” Ramón Espinasa, Nonresident Senior Fellow I don’t believe Ariel Fiszbein, Director, Education Program Hugo Pérez Hernáiz, associate there will be much Alejandro Ganimian, Nonresident Fellow professor of sociology at the progress in making Peter Hakim, President Emeritus Universidad Central de Venezu- Claudio Loser, Senior Fellow economic changes A ela: “To say that the opposition Nora Lustig, Nonresident Senior Fellow is now empowered to make sweeping chang- in the year ahead.” Margaret Myers, Director, China and es in the political and economic landscape — Howard M. Glicken Latin America Program is inexact. On paper, a ‘supermajority’ does Manuel Orozco, Director, Migration, Remittances & Development give the opposition far-reaching powers, Jeffrey Puryear, Senior Fellow but in practice the executive maintains fi rm Lisa Viscidi, Director, Energy Program control over the Supreme Court, which can any meaningful legislation. In addition, the interpret any law approved by the National Maduro government will attempt to bribe key Latin America Advisor is published every Assembly as unconstitutional. In any case, assembly members to help disrupt their abil- business day, except for major U.S. holidays, by the Inter-American Dialogue at: the executive has enough power to play a ity to seriously interfere with the status quo. 1211 Connecticut Avenue NW, Suite 510 game of ‘we accept but don’t comply’ with Therefore I don’t believe there will be much Washington, DC 20036 laws approved by the assembly that might progress making economic changes in the Phone: 202-822-9002 pass the hurdles of the presidential veto year ahead, and this probable lack of prog- Fax: 202-822-9553 and Supreme Court interpretations. In at ress could cause a change of government www.thedialogue.org least a discursive sense, an opposition-dom- and continued frustration for the country.” ISSN 2163-7962 inated assembly could be of benefi t for Subscription Inquiries are welcomed at [email protected] the government. The government can now The Advisor welcomes comments on its Q&A

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