LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Wednesday, May 6, 2020

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Wednesday, May 6, 2020

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Is López Obrador Trump Denies CEO, DevryBV Sustainable Strategies Involvement in Joyce Chang Global Head of Research, Eroding Mexico’s Venezuela Incident JPMorgan Chase & Co. U.S. President Donald Trump said Paula Cifuentes his administration had nothing Director of Economic & Fiscal Affairs, Business Climate? to do with an apparent botched Latin America & Canada, Philip Morris International incursion in Venezuela that left Marlene Fernández two U.S. citizens behind bars. Corporate Vice President for Page 2 Government Relations, Arcos Dorados Peter Hakim BUSINESS President Emeritus, Inter-American Dialogue MercadoLibre to Donna Hrinak Invest $717 Million President, Boeing Latin America Jon E. Huenemann in Brazil This Year Former Corporate and The e-commerce marketplace Government Senior Executive plans to invest 4 billion reais James R. Jones ($717 million) in Brazil this year. Chairman, Some of Mexican President Andrés Manuel López Obrador’s policies have unnerved investors. Monarch Global Strategies // File Photo: Mexican Government. The site saw a jump in sales as consumers turned to online shop- Craig A. Kelly ping amid stay-at-home orders. Director, Americas International The coronavirus pandemic is expected to hit Mexico’s Gov’t Relations, Exxon Mobil Page 3 John Maisto economy, which was already in recession when the year Director, U.S. Education began, with brutal force. President Andrés Manuel López Finance Group POLITICAL Q Obrador has been criticized for doing too little to help Nicolás Mariscal Moro Testifies Chairman, businesses, many of which are faced with insolvency as revenues from Grupo Marhnos trade, tourism, remittances and oil exports have dried up. Since taking That Bolsonaro Thomas F. McLarty III Chairman, office, López Obrador has also unnerved investors by taking actions Tried to Control McLarty Associates that include scrapping plans for a new Mexico City airport and halting a Rio’s Police Carlos Paz-Soldan Partner, $1 billion brewery project. How are López Obrador’s policies affecting Sérgio Moro, who resigned last DTB Associates, LLP Mexican companies and foreign investors’ appetite for putting money month as Brazil’s justice minister, Beatrice Rangel testified that President Jair Director, into the country’s businesses? How much confidence can foreigners Bolsonaro pressured him to allow AMLA Consulting LLC have that they can seek relief through Mexican courts or arbitration if Bolsonaro to control the police in Jaana Remes disputes arise involving their investments in Mexico? How important is Rio de Janeiro. Partner, Page 2 McKinsey Global Institute investor confidence to Mexico’s economy, and what should the govern- Ernesto Revilla ment do to support it? Head of Latin American Economics, Citi Gustavo Roosen Chairman of the Board, Adrián Magallanes, partner at Von Wobeser y Sierra: “Mex- Envases Venezolanos ico’s foreign investment environment can be characterized Andrés Rozental by at least two themes. On the one hand, President López President, Rozental & Asociados Obrador’s administration has intervened in existing public Shelly Shetty A works and private construction projects. Prior to his 2018 inauguration, Managing Director, Sovereigns Fitch Ratings he pledged to hold regular plebiscites on such projects. Many have ques- tioned the constitutionality of these plebiscites, and the number of voting participants in them has been very limited. However, these plebiscites have already led to the cancellation of the new Mexico City airport project and the halting of Constellation Brands’ $1.4 billion brewery project in Moro // File Photo: Brazilian Government. Continued on page 3

POLITICAL NEWS former soldiers of U.S. Special Operations, NEWS BRIEFS were “confessing without any reservations” Moro Testifies That after security forces arrested them during an El Salvador’s Bukele apparent botched invasion launched by sea Announces New Bolsonaro Tried to on Sunday. “Whatever it is, we’ll let you know,” Trump told reporters Tuesday in Washington, Restrictions on Movement Control Rio’s Police the Associated Press reported. “But it has Salvadoran President Nayib Bukele on Tuesday nothing to do with our government.” Venezue- rolled out tougher measures to combat the Brazilian President Jair Bolsonaro sought to lan authorities identified the two men as Luke spread of the coronavirus, among them limiting control the police in Rio de Janeiro, where his Denman and Airan Berry, who both have ties to shopping trips to twice a week and prohibiting sons are under investigation, and in March told Florida-based private security firm Silvercorp the crossing of municipal boundaries, even to then-Justice Minister Sérgio Moro to allow him USA. The company’s founder, Jordan Goudreau, buy food or medicine, Reuters reported. The that oversight, according to testimony by Moro, a retired U.S. Green Beret, claimed responsibil- new measures take effect for 15 days starting which was made public Tuesday, The Wall ity for “Operation Gideon,” which was launched on Thursday. The Central American nation has Street Journal reported. “You have 27 police Sunday morning with an attempted beach registered 587 cases of the coronavirus and 14 districts, I just want one, Rio de Janeiro,” the landing from a speedboat. Venezuelan officials related deaths. Bukele’s government has imple- president allegedly told Moro in a Whatsapp said six of the purported attackers were killed, mented one of the region’s strictest lockdowns. message. Moro, who resigned last month after revising the number down from the previously [Editor’s note: See related Q&A in the April 30 accusing Bolsonaro of political intervention in reported eight. On Tuesday, the U.S. State issue of the Advisor.] police investigations, on Saturday testified for Department reiterated Trump’s denial of any about eight hours to prosecutors looking into involvement, accusing Venezuelan President the matter. The popular former justice minister Nicolás Maduro of engaging in a “disinforma- provided details of his relationship with the tion campaign” to serve as a distraction from Chilean Police Arrest president, recordings of conversations with incidents including a prison riot in Venezuela’s Nine in Connection him and Whatsapp messages, Folha de S.Paulo Portuguesa state that left at least 46 people With $15 Million Heist reported. Bolsonaro has denied meddling in dead. “Nothing should be taken at face value Chilean police have arrested nine suspects police investigations. “I didn’t interfere with when we see the distorting of facts,” a State involved in one of the country’s largest heists, anything,” he told reporters outside the presi- Department spokesman said in a statement, the theft of $15 million in cash from the Santi- dential residence on Tuesday, The Wall Street the AP reported. “What is clear is that the for- ago airport in March, Interior Minister Gonzalo Journal reported. “It’s exhausting for me. My mer regime is using the event to justify an in- Blumel said Tuesday, Agence France-Presse family is suffering,” he added. Bolsonaro’s three creased level of repression.” The United States reported. Police also recovered about $122,000 sons, all of whom are public officials, are under is among dozens of countries that recognize of the stolen money. The detainees include investigation in Rio de Janeiro for suspected opposition leader Juan Guaidó, not Maduro, as a gang leader, and most of them were career malfeasance. All have denied wrongdoing. On Venezuela’s legitimate president. criminals, according to Héctor Espinosa, Tuesday, the president said that his newly ap- the head of Chile’s investigative police, AFP pointed federal police chief, Rolando Alexandre reported. de Souza, planned to name a new police chief ECONOMIC NEWS in Rio de Janeiro. Colombia’s Coal Trump Denies European Commission Exports Decline Adding Panama, Bahamas Involvement in 17 Percent in March to Money Laundering List Venezuela Incursion The European Commission is adding several Colombia exported 5.9 million metric tons countries, including ones in Latin America and U.S. President Donald Trump on Tuesday de- of coal in March, a 17 percent decline from the Caribbean, to its list of nations that pose a nied involvement in an apparent incursion last February, S&P Global Platts reported Tuesday, financial risk to Europe because of shortfalls weekend in Venezuela that landed two U.S. cit- citing government statistics agency DANE. in fighting money laundering and the financing izens behind bars in the South American coun- However, the country’s coal exports rose 6.5 of terrorism, Reuters reported. The document, try, The Washington Post reported. Venezuela’s percent in March as compared to the same expected to be published on Thursday, includes foreign minister said two Americans, both month last year. Due to the sharp drop in coal Panama, the Bahamas, Barbados, Jamaica and Nicaragua.

COPYRIGHT © 2020, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Wednesday, May 6, 2020 prices, Colombia’s receipts for March exports FEATURED Q&A / Continued from page 1 of the commodity amounted to $322.59 million, a decline of 30.6 percent as compared to Mexicali. Further, his administration has also worth repeating that AMLO does not operate March of last year. Receipts in March of this brought claims alleging the ‘immorality’ of according to an economic logic—questions year were 30 percent lower than the amount contracts for the construction of pipelines of investment profile, country risk, certainty, billed in February. that the Federal Electricity Commission profitability and efficiency come a distant entered into with TransCanada and other second to his concerns over political mat- investors, causing their renegotiation and ters, especially cementing his hold over the BUSINESS NEWS subsequent modification. These measures country’s politics. The irony is that, by failing will likely deter foreign investment in to take care of the former issues, he is likely Mexico. However, in a converse manner, FDI to be severely weakened in terms of gov- MercadoLibre to in Mexico grew by 4.2 percent in 2019, and ernance and public opinion. The divisions Invest $717 Million the president last year announced that his within his own party are becoming painfully government was considering as much as apparent, and his approval rating is slipping in Brazil This Year $400 billion of infrastructure investment. fast in the eyes of the public. A critical date Additionally, Mexico has historically been, will be next summer’s mid-term elections: Latin American e-commerce firm MercadoLi- and continues to be, active in agreeing an acid test for the president and his party. bre will move forward with plans to invest 4 and ratifying international treaties for the An even more crucial vote will take place in billion reais ($717 million) in Brazil this year, protection of foreign investment, which has March 2022 when the president submits his an executive told Reuters on Tuesday. As many recently included Mexico’s ratification of the own presidency to a referendum.” other companies across the region and the ICSID Convention and the entry into force world scale back spending as the coronavirus of the USMCA this coming July, including Salvador Fonseca, partner spreads, MercadoLibre saw a jump in sales in its Chapter 14. Finally, Mexico has consis- at Holland & Knight México: April as a growing number of consumers turn tently respected all arbitral awards rendered “Uncertainty is bad for business, to online shopping while social-distancing mea- against it in the investor-state dispute A and it is difficult for a country sures are in place. “We might have to redirect settlement system, and it is important that such as Mexico to attract investment when some spending to logistics due to the rise in this does not change.” there are so many unsettling signals from its e-commerce demand, but for now the idea is federal government. But not all is bad news. to keep capital expenditure,” said MercadoLi- Duncan Wood, director of the Despite its shortcomings and missteps, bre’s vice president for Latin America, Stelleo Mexico Institute at the Woodrow Mexico is currently a party to 35 bilateral Tolda. He said the stay-at-home measures had Wilson International Center investment protection treaties (BITs), has prompted a larger number of small vendors to A for Scholars: “It is clear that concluded another 18 treaties with invest- seek digital platforms such as MercadoLibre investor relations are hardly a priority for ment protection provisions (TIPs), includ- in order to continue selling their products AMLO—he has repeatedly shown that he is ing the CPTPP and the recently approved during the lockdowns. The Argentina-based not concerned about companies investing USMCA, and in 2018 it finally joined ICSID. e-commerce marketplace, the region’s largest, their money elsewhere and is quite content All of this provides a good protection safety registered 1.7 million new customers between to focus on his pet infrastructure and energy net for foreign investors in Mexico in case Feb. 23 and March 22, up 28 percent from the projects and on concentrating political their rights under the applicable BITs or TIPs same period a year earlier, Bloomberg News power rather than trying to stabilize the are violated. There are many things that reported. The company has hired 200 direct economy and boost economic growth. What the Mexican government could do to foster employees and 2,500 third-party contractors is stunning about the Constellation Brands both national and foreign investment but, since the second half of March to strengthen debacle is that there will be a heavy price in my view, the most important aspects are its logistics team and manage a higher volume to pay in terms of legal action against the to guarantee the rule of law and to realize of deliveries. MercadoLibre’s first-quarter net Mexican government, at exactly the time that the private sector is the actual motor of revenue grew by 37.6 percent as compared to when AMLO should be focusing on attracting the economy and, therefore, promoting and the same period a year ago, to $652 million. money into Mexico to aid with the economic protecting it is the best bet the government Tolda expects many new customers and crisis and recovery. The recent news on can make. Interestingly enough, neither of vendors to continue using digital channels even Pemex’s stunning first-quarter losses only these ideas contradict the government’s after lockdowns are over, according to the wire exacerbate the feeling of impending crisis calling and interest in implementing policies service. and doom. It has been said before, but it is and programs to protect the less privileged Continued on page 4

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2020 and to equalize the enormous differences years in a row in the lower quartile, among that exist in Mexican society. Quite the the countries with the weakest adherence to Erik Brand contrary, the jobs created and the taxes paid the rule of law. Moreover, if we take a look Publisher [email protected] by entrepreneurs of all sizes (and not oil at subnational data, the regulatory enforce- revenues, which are hitting record lows) are ment component of the index indicates that Gene Kuleta Editor the fuel that will enable the government to this year most Mexican states remain in the [email protected] continue operating and bringing about its same position. Therefore, data suggests Anastasia Chacón González social policies.” that irrespective of the change in govern- Reporter & Associate Editor ment, people perceived no difference in [email protected] Leonardo Beltrán, nonresident how government regulations are effectively fellow at the Institute of the enforced. According to the latest Kearney

Americas and former Mexican Foreign Direct Investment (FDI) Confidence Michael Shifter, President A deputy secretary of energy for Index, Mexico lost eight positions to rank in Rebecca Bill Chavez, Nonresident Senior Fellow planning and energy transition: “Accord- the top 25 among countries likely to attract Sergio Bitar, Nonresident Senior Fellow ing to the latest Global Index of Economic the most investment in the next three years. Joan Caivano, Director, Special Projects Activity released in February, Mexico’s man- In fact, over the last two decades, Mexico Michael Camilleri, Director, Rule of Law Program ufacturing and industrial activity contracted has seen $578 billion of FDI, 48.7 percent in Kevin Casas-Zamora, Nonresident Senior Fellow 3.5 percent and overall economic activity manufacturing and more than half coming Héctor Castro Vizcarra, Nonresident Senior Fellow 1.6 percent in annual terms. This result from the United States (47.2 percent) and Julia Dias Leite, Nonresident Senior Fellow feeds into a negative outlook. In February, Canada (7.1 percent). Therefore, to speed Ariel Fiszbein, Director, Education Program companies in the manufacturing sector were up the recovery process, with an already Peter Hakim, President Emeritus expecting an annual decline in production approved USMCA, President López Obrador Nora Lustig, Nonresident Senior Fellow (6.8 percent), domestic consumption can propose the creation of the North Amer- Margaret Myers, Director, Asia and (8.5 percent) and exports (6.9 percent), ican platform for Development (NA4develop- Latin America Program Manuel Orozco, Director, Migration, compounded by a 5.8 percent annual drop ment) to coordinate efforts.” Remittances & Development in business confidence and a fall of 10.3 Xiaoyu Pu, Nonresident Senior Fellow percent in investment sentiment. According The Advisor welcomes comments on its Q&A Jeffrey Puryear, Senior Fellow to the latest World Justice Project’s Rule section. Readers can write editor Gene Kuleta Mateo Samper, Nonresident Senior Fellow of Law Index, Mexico has been ranked five at [email protected]. Tamar Solnik, Director, Finance & Administration Lisa Viscidi, Director, Energy Program Denisse Yanovich, Director of Development and External Relations

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Food Insecurity in Latin America & The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily the Caribbean Amid Covid-19 represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily A Latin America Advisor interview with represent the views of their respective employers or firms. Devry Boughner Vorwerk, chief executive officer The information in this report has been obtained from of DevryBV Sustainable Strategies. 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 permission from the publisher.