LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, October 27, 2015

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, October 27, 2015

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Genaro Arriagada What Does Sunday’s Nonresident Senior Fellow, Venezuela Fires Inter-American Dialogue López Trial Joyce Chang Global Head of Research, Election Say About Prosecutor JPMorgan Chase & Co. Venezuela’s attorney general fi red W. Bowman Cutter Former Partner, Argentina’s Politics? the prosecutor who was part of E.M. Warburg Pincus the trial of opposition leader Leop- Dirk Donath oldo López. The prosecutor later Senior Partner, fl ed the country and called the Catterton Aimara trial a “farce.” Marlene Fernández Page 2 Corporate Vice President for Government Relations, Arcos Dorados BUSINESS Peter Hakim President Emeritus, Chile’s Codelco Inter-American Dialogue Cuts Investment Donna Hrinak President, Boeing Latin America Plan Jon Huenemann The state-owned copper company Vice President, U.S. & Int’l Affairs, Philip Morris International is cutting its investments amid the global slump in metals prices, James R. Jones Mauricio Macri celebrated with supporters Sunday night after forcing ruling party candidate Co-chair, Manatt Jones Daniel Scioli into a runoff. // Photo: Macri Campaign. said CEO Nelson Pizarro. Global Strategies LLC Page 2 Craig A. Kelly Director, Americas International Center-right Buenos Aires Mayor Mauricio Macri won POLITICAL Gov’t Relations, Exxon Mobil enough votes on Sunday in the fi rst round of Argentina’s John Maisto Attack by ELN Director, U.S. Education presidential election to trigger a runoff against the top Finance Group Q vote-getter, ruling party candidate Daniel Scioli. To what can Rebels Kills 12 Nicolás Mariscal Chairman, Macri attribute his unexpectedly strong showing? What factors between in Colombia Grupo Marhnos now and the runoff on Nov. 22 will decide who is elected in the second Rebels killed 12 members of Thomas F. McLarty III round? Which of the two candidates will receive the bulk of third-place Colombia’s security forces as they President, escorted poll workers and ballots McLarty Associates fi nisher Sergio Massa’s supporters? What other races in Sunday’s elec- to be counted in Boyacá depart- Carlos Paz-Soldan tion in Argentina had most signifi cance? ment. President Juan Manuel Partner, DTB Associates, LLP Santos responded by ordering the military to step up attacks against Beatrice Rangel Claudio Loser, visiting senior fellow at the Inter-American Director, the ELN. AMLA Consulting LLC Dialogue, president of Centennial Group Latin America and Page 2 José Antonio Ríos former head of the Western Hemisphere Department of the Chief Executive Offi cer, Vadium Technology Inc. A International Monetary Fund: “Daniel Scioli won credibly in Gustavo Roosen the fi rst round of elections in Argentina on Sunday. However, this has Chairman of the Board, Envases Venezolanos become the worst defeat for the ruling Peronist Frente para la Victoria Andrés Rozental (FPV), and the pollsters who predicted either an outright victory, or a large President, Rozental & Asociados and Senior difference in the electoral vote. The two percent difference between the Policy Advisor, Chatham House candidates shows a competitive run for the second round. The marginal Shelly Shetty Head, Latin America presidential win and the inconceivable gubernatorial loss in Buenos Aires Sovereign Ratings, Fitch Inc. province (40 percent of the electorate) suggest an end to the FPV reign. Roberto Sifon-Arevalo This is further supported by their loss in the next four largest districts Managing Director, Americas Sovereign & Public Finance Ratings, plus the eighth, with a share of about 30 percent of the electorate. Fur- Standard & Poor’s thermore, the FPV lost control of the lower house of Congress. However, Santos // Photo: Colombian Gov- the fi ght ahead is tough. In particular, the followers of the neo-Peronist ernment. Continued on page 2

POLITICAL NEWS an unoffi cial cease-fi re in recent months and NEWS BRIEFS recently announced a breakthrough in their Colombian Rebels three-year peace talks. The government and Venezuela Fires López the FARC last month set a March deadline for Trial Prosecutor Kill 12 in Ambush a fi nal peace deal. The FARC has called for the ELN to participate in the peace talks, and Venezuela’s attorney general announced Monday that she has fi red prosecutor Franklin National Liberation Army, or ELN, rebels on speculation has risen recently that Santos Nieves who participated in the case against Monday killed 12 members of Colombia’s secu- was close to engaging in talks with the ELN, opposition leader Leopoldo López. The prose- rity forces in an ambush as they were escorting the newspaper reported. However, Monday’s cutor then fl ed the country and called the trial poll workers and ballots to be counted after ambush appears to have put an end to that a “farce,” BBC News reported. Nieves posted a local elections the previous day, said Defense speculation, at least temporarily. “For the ELN video online in which he apologized for his role Minister Luis Carlos Villegas, BBC News re- and all of those who don’t accept the path to in the case. Attorney General Luisa Ortega Diaz ported. The attack resulted in the deaths of 11 peace, the message is clear,” said Santos. “We denied that offi cials were pressured to provide soldiers and one police offi cer, said Villegas. will confront them with the full weight and false evidence against López. Six others, including poll workers and a local power of our armed forces.” guide, were missing, the defense minister added. The ambush happened just after the group left an indigenous reservation near the BUSINESS NEWS Regulator Considering town of Güicán, in Boyacá department. “This Sanctions Against attack shows that ELN does not understand LetterOne Investing OHL Mexico that this is a time for peace, not a time for war,” Colombian President Juan Manuel Santos said $4 Bn in Brazil’s Oi Mexico’s stock regulator (CNBV) is studying in a statement Monday night, The Washington possible sanctions against a unit of Spanish Post reported. “If the ELN thinks that these Russian billionaire and head of investment fi rm construction group OHL after videos were actions will help raise its political profi le and LetterOne, Mikhail Fridman, has pledged to released in May that show top OHL Mexico strengthen its bargaining position, it is totally invest $4 billion in Brazilian telecommunication executives discussing overcharging on a gov- mistaken.” Santos added that he has ordered company Oi, pending a merger between Oi ernment contract, Reuters reported Monday. the military to step up strikes against the ELN and Tim Participações, a local unit of Telecom CNVB alleges that OHL Mexico did not follow in response to the attack. The attack put an Italia, MarketWatch reported Monday. Despite proper accounting and securities rules and did end to a period of relative calm in Colombia as Brazil’s market being marred by a recession, not report updated traffi c levels for its highway the government and the Revolutionary Armed infl ation and a weakening currency, the mobile concessions. OHL has already responded to Forces of Colombia, or FARC, have observed phone market is booming, and smartphone some of the allegations, and denied involve- ment. The company said the recordings had FEATURED Q&A / Continued from page 1 been manipulated.

Massa are diffi cult to predict. The mostly Alberto Bernal, head of re- self-infl icted poor economic performance, search at Bulltick Capital Mar- the aggressive use of raw power and clien- kets in Miami: “The impressive Codelco Cuts Five-Year telism, and the allegations of corruption and A performance showed by PRO Investment Plan drug dealing are rejected by the Argentine candidate Mauricio Macri on Sunday will go Codelco, Chile’s state-owned copper mining middle-class. But Peronists are attracted by down in history as one of the most benevo- company, cut its fi ve-year investment plan amid power, and they will go for the one candidate lent surprises ever recorded in Argentina. All a slump in global copper prices, Bloomberg who promises the most credible access of the polls were showing that the uncer- News reported Monday, citing CEO Nelson to it. Kirchnerism is not credible in this tainty over the race was not whether Daniel Pizarro. Changes to the company’s invest- regard, and Macri, while a coalition person, Scioli would win the election, but rather if he ment plan, which had been designed to avoid may seem too far removed from Peronist would receive enough support to win in the a slump in production, are mostly technical. populism. But the economy or scandals may fi rst round. No one was expecting to see a Codelco will still request the same amount of worsen, and that will certainly move more competitive race, which is exactly what we funding from the Chilean government, although people to Macri’s camp. However, a clear got on Sunday. The strong showing of Macri the government has requested more infor- case cannot be made until the dust of this is likely a function of the materialization mation before deciding on funding, Finance storm settles.” of a democratic reaction to the ‘need for Minister Rodrigo Valdés said. Continued on page 4

COPYRIGHT © 2015, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Tuesday, October 27, 2015 penetration is expected to grow by at least 10 percent this year in Brazil, according to COMINGS & GOINGS Bloomberg News. “Having substantial funds to invest, LetterOne is interested in large markets where opportunities for consolidation exist,” Argentine Cabinet Chief Loses Gubernatorial Race said Sergey Libin, an analyst at ZAO Raiffeisen- Argentine Cabinet Chief Aníbal Fernández on Monday acknowledged defeat to María Eugenia bank. “Emerging markets like Brazil better fi t Vidal in the race to become governor of the infl uential province of Buenos Aires, Clarín report- this goal, while developed markets may be ed. A powerful fi gure in the country’s national more diffi cult to enter.” Oi is valued at $650 government, Fernández captured 35 percent million, while Tim is valued at about $5 billion. of the vote compared to Vidal’s 39 percent. Oi also carries a large sum of debt, which has Fernández told local media Monday he impeded its attempts to consolidate in past planned to disclose “some issues” that will years. In 2014, Oi had said that it was consid- “put the record straight” about his unexpect- ering the possibility of merging with another ed defeat, saying that he intended to shed telecommunications company in Brazil such as light on negative news reports that linked Tim, and that it hired Brazilian investment bank him to drug traffi cking. “Don’t make me be BTG Pactual to look into the feasibility of said so explicit to give names and last names,” merger, MarketWatch reported. Tim said in a fi l- Fernández // File Photo: Argentine Government. Fernández said, the Buenos Aires Herald ing that it is not in talks with Oi and LetterOne, reported. “I want to address Ms. Vidal, with a lot of respect and I want to acknowledge the de- Bloomberg News reported. feat; at the same time, I want to congratulate her for the victory,” he added. Vidal, 42, has been serving as vice mayor of the city under Mauricio Macri, who is now running for president. Banco do Brasil Eyes Debt Deal With Sete Mercer Moves from Astellas to India’s Lupin Brazilian government-run Banco do Brasil is Mumbai-based drug maker Lupin on Monday appointed Martin Mercer as president of its expecting to reach a deal with Sete Brasil, a Latin America business, The Economic Times reported. Mercer assumes responsibility for manufacturer and lessor of drillships, by the the company’s Latin American business including the overall strategy for its generics and end of the year, the bank’s CEO said Monday, specialty business in Brazil, Mexico, Venezuela, Colombia and Argentina, the company said. In Reuters reported. Sete Brasil owes some $3.6 May, Lupin entered the Brazilian market with its acquisition of 100 percent stake in Medquími- billion to Banco do Brasil, Caixa Econômica ca Indústria Farmacêutica, and in 2014 it acquired Mexico’s Laboratorios Grin. Mercer, who will be based in Naples, Fla., joins Lupin from Astellas Pharma where he was the head of Latin America, based in the company’s Illinois offi ces. Prior to that, he held management positions at Valeant and GlaxoSmithKline.

Diaz Reus Hires Javier Ruiz in Mexico City Diaz, Reus & Targ has hired Javier Ruiz as an associate in its Mexico City offi ce, the Mi- ami-based fi rm said Oct. 12. He will focus on corporate fi nance, mergers and acquisitions, Abreu // Photo: Brazilian Government. international contracts, and corporate governance matters for companies in Mexico and throughout Latin America, according to the fi rm. Ruiz graduated summa cum laude from the Federal, Itaú Unibanco Holding, Banco Santand- Universidad Nacional Autónoma de México’s law school. er Brasil and Banco Bradesco, the wire service reported. Banco do Brasil CEO Alexandre Abreu told reporters. The bank is also planning to through the process, in which utilities would said that although he expects to reach an restart a loan program for Petrobras’ suppliers take over the expired licenses for more than agreement this year with Sete Brasil, debt re- and is eyeing a plan to help fi nance companies two dozen hydroelectric dams. “It is a good payments under the deal would likely start next that plan to bid next month for hydroelectric deal, because there are no construction risks year. “We have a positive expectation for an concessions in Brazil, Abreu added. Through and 70 percent of the energy will be contracted agreement this year. We want to reach a deal the bidding, Brazil’s government is expecting to for concessions running 30 years,” Abreu said, that will allow us to restructure the debt,” Abreu raise as much as 17 billion reais ($4.38 billion) Reuters reported.

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2015 change’ that the Argentine population seems Fernández, while Macri did a much better to be cherishing after so many years of the election than the opinion polls had anticipat- Erik Brand Kirchners being the sole political force of ed and he now appears to be the front-runner Publisher [email protected] the country (many Argentines associate in the runoff with Daniel Scioli on Nov. 22. that regime with incessant corruption). The big question at the moment is whether Gene Kuleta Editor Macri will be able to capture a big part of [email protected] the opposition vote (mainly from Massa who We think that if Nicole Wasson obtained 21 percent of the popular vote), Reporter, Assistant Editor Massa supports with whom Cambiemos seems to have more [email protected] Macri, it will prove elements in common. Markets reacted posi- very hard for Scioli tively to the news, as there was a strong rally to win the election.” in stocks and bonds. Macri is clearly favored Michael Shifter, President — Alberto Bernal by the markets as he seems to be the candidate who is more likely to move the country Genaro Arriagada, Nonresident Senior Fellow toward a normalization of the relationship Sergio Bitar, Nonresident Senior Fellow with international fi nancial markets and the Joan Caivano, Director, Special Projects Our guess is that the soon to be published creation of a better business climate that Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program polls will show that Mauricio Macri will be encourages investment with clear and stable Maria Darie, Director, Finance & Administration carrying a commanding lead going into the rules of the game. Nevertheless, if Macri Ramón Espinasa, Nonresident Senior Fellow second round (because his campaign will be wins, he will face important challenges on Ariel Fiszbein, Director, Education Program carrying huge momentum). Candidate Sergio the macroeconomic front as he will take over Alejandro Ganimian, Nonresident Fellow Massa will most likely not ignore the polls, Peter Hakim, President Emeritus hence we suspect that he will decide in favor Claudio Loser, Senior Fellow of supporting Macri going into the ballotage. While Macri is Nora Lustig, Nonresident Senior Fellow We think that if Massa supports Macri, it will the front-runner, Margaret Myers, Director, China and prove very hard for Scioli to win the election. the election is not Latin America Program Manuel Orozco, Senior Fellow If Macri wins the election later this year, a done deal.” there will be fi reworks in the fi nancial mar- Jeffrey Puryear, Senior Fellow — Miguel Kiguel kets and the economy in general, because Lisa Viscidi, Director, Energy Program Macri’s economic program is very friendly Latin America Advisor is published every toward investment. The other impressive business day, except for major U.S. holidays, surprise coming out of the elections was the by the Inter-American Dialogue at: triumph of Margarita Vidal in the Province a country with large macroeconomic imbal- 1211 Connecticut Avenue NW, Suite 510 Washington, DC 20036 of Buenos Aires gubernatorial race. Ms. ances, as the fi scal defi cit exceeds 7 percent Phone: 202-822-9002 Vidal defeated Aníbal Fernández, a staunch of GDP, reserves are very low, the currency is Fax: 202-822-9553 supporter of president Cristina Fernández grossly overvalued and the country remains www.thedialogue.org de Kirchner. Ms. Vidal is a key member of in default. While Macri is the front-runner, ISSN 2163-7962 the PRO, Macri’s party. The ruling party’s the election is not a done deal. Scioli still Subscription Inquiries are welcomed at loss of control of Argentina’s most populous has room to make a comeback, though he [email protected] province implies a huge political blow for the probably will need to change his strategy The opinions expressed by the members of the Board of president.” and separate himself from Cristina and from Advisors and by guest commentators do not necessarily the more radical views in order to capture represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily Miguel Kiguel, executive centrist voters. Two debates will help set the represent the views of their respective employers or fi rms. director of EconViews in Buenos stage for the runoff. These will be four very The information in this report has been obtained from Aires: “Cambiemos was the big exciting weeks in Argentina.” reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are A winner in the elections as María guaranteed. If you have any questions relating to the con- Eugenia Vidal became the new governor The Advisor welcomes comments on its Q&A tents of this publication, contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be of the province of Buenos Aires with her section. Readers can write editor Gene Kuleta reproduced, stored in a retrieval system, defeat of the offi cial FPV candidate, Aníbal at [email protected]. or transmitted without prior written permission from the publisher.