LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, January 27, 2020

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, January 27, 2020

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk How Critical Is Bolivia’s Áñez CEO, DevryBV Sustainable Strategies to Run in May Joyce Chang Global Head of Research, China’s Support Presidential Vote JPMorgan Chase & Co. Interim Bolivian President Jeanine Paula Cifuentes Áñez reversed course, announcing Director of Economic & Fiscal Affairs, for Venezuela? that she will be a candidate for Latin America & Canada, Philip Morris International president in the country’s May 3 Marlene Fernández election. Corporate Vice President for Page 2 Government Relations, Arcos Dorados Peter Hakim BUSINESS President Emeritus, Inter-American Dialogue Banco do Brasil Donna Hrinak Eyes Reforms President, Boeing Latin America The state-controlled lender is Jon E. Huenemann Former Corporate and reportedly looking to implement Government Senior Executive reforms after Brazilian President James R. Jones Jair Bolsonaro intervened in the Chairman, China’s government recently said it would slow some cooperation with Venezuela. Venezuelan bank’s plans to fully privatize it. Monarch Global Strategies President Nicolás Maduro and his Chinese counterpart, Xi Jinping, are pictured in 2018 in Banco do Brasil is seeking to bet- Beijing. // File Photo: Venezuelan Government. Craig A. Kelly ter compete with rivals, according Director, Americas International China’s foreign ministry said this month that it and Venezu- to a report. Gov’t Relations, Exxon Mobil Page 3 John Maisto ela are “slowing down” some of their cooperation initiatives Director, U.S. Education because of “sanctions and other factors.” At the same time, Finance Group Q Venezuelan opposition leader Juan Guaidó has urged the POLITICAL Nicolás Mariscal Chairman, European Union to label as “blood gold” the precious metal that is infor- Peruvian Voters Grupo Marhnos mally mined in Venezuelan jungles and brings in revenue for President Thomas F. McLarty III Elect Fractured Chairman, Nicolás Maduro’s government. To what extent are China and other allies, Congress McLarty Associates such as Russia, propping up Venezuela’s economy? How important is the Carlos Paz-Soldan Peruvian voters on Sunday ap- Partner, gold trade for Venezuela’s economy? Will its economy get any better in peared to elect a Congress made DTB Associates, LLP the coming year, or will it only worsen? up of mostly centrist parties in a Beatrice Rangel special election after President Director, Martín Vizcarra dissolved the AMLA Consulting LLC Luis Vicente León, president of Datanalisis in Caracas: “The body in a controversial move last Jaana Remes September. Partner, general oil and financial sanctions have not achieved the Page 2 McKinsey Global Institute objective for which they were imposed: effecting political Ernesto Revilla Head of Latin American change in Venezuela. It is not a surprise, given the poor track Economics, Citi A record of this strategy in world political history. However, these sanctions Gustavo Roosen Chairman of the Board, have had a relevant impact on the development of Venezuela’s internal Envases Venezolanos economy and its income profile. On the one hand, sanctions have limited Andrés Rozental the operations of the Venezuelan government, not only with the United President, Rozental & Asociados States, but also with some markets that are in line with the revolution, Shelly Shetty such as China, which has been forced to review its public and private Head of Sovereign Ratings, Latin America, Fitch commercial relations, given the risk of sanctions’ secondary effects. However, we could say that the most relevant impact after the contrac- tion of oil revenues has been the diversification and increase of dividend revenue from nontraditional sources. These can be legal or illegal sources that are mostly exempt from sanctions or which are able to evade them, Vizcarra // File Photo: Peruvian Government. Continued on page 3

POLITICAL NEWS last Sept. 30, saying the move was needed to NEWS BRIEFS break a long-running political impasse with the body, which continually blocked his attempts to At Least 46 Killed in Brazil Peruvians Elect push through anti-corruption reforms. Fractured Congress Flooding, Landslides At least 46 people have been killed in Brazil in Legislative Vote Bolivia’s Interim as a result of flooding and landslides follow- President to Run ing record rainfall in some parts of the South Peruvians on Sunday appeared to elect a American country, The Independent reported fractured Congress made up of mostly centrist in May Election Sunday. At least 37 people died in Minas Gerais parties in a special legislative election to state and nine others in Espírito Santo state, reconstitute the body after President Martín Interim Bolivian President Jeanine Áñez on according to local disaster officials, who also Vizcarra dissolved it last September, the Asso- Friday announced that she will be running said 28 people are missing. Minas Gerais ciated Press reported. Early counts from Peru’s for president in the country’s upcoming May Governor Romeu Zema has declared a state National Office of Electoral Processes and 3 election, which will serve as a re-run of of emergency in more than 47 cities. Nearly a flash poll by the Ipsos polling firm showed October’s disputed voted that brought protests 20,000 people have been evacuated. that no party appeared to be emerging as a and prompted former leader Evo Morales to clear winner in the election, in which 22 parties resign, El Diario reported. Áñez had previ- ously suggested she would not run, saying it Thousands Rally in would not be correct for her to do so, Reuters This is the start Madrid in Support of reported. However, Áñez said Friday that she of a change.” had changed her mind. “The dispersed vote Venezuela’s Guaidó — Lima Mayor Jorge Muñoz and candidates who fail to bring Bolivians Thousands of supporters, some holding signs together has led me to make this decision,” demanding democracy, came out to support competed. Early returns showed the rebranded Venezuelan opposition leader Juan Guaidó Popular Action party and the new Purple Party in Madrid on Saturday, Reuters reported. in the lead, but each with less than 15 percent Guaidó, whom dozens of countries recognize of the vote. The once-powerful Popular Force, as Venezuela’s legitimate president, was in the party led by opposition leader Keiko Fuji- Spain for the last leg of his European tour. mori, appeared to have lost substantial ground. Guaidó did not meet with socialist Spanish It appeared to garner fewer than 10 percent of Prime Minister Pedro Sánchez, but he met with the legislative seats, Reuters reported. “This Foreign Minister Arancha González as well as is the start of a change,” Lima Mayor Jorge Madrid’s mayor and regional president, both of Muñoz of the Popular Action party said Sunday Áñez // File Photo: Bolivian Government. the conservative People’s Party. in a tweet. The new Congress gives Vizcarra a new opportunity to push his legislative reforms, she said in announcing her candidacy at an including anti-corruption reforms that he says event of her social democratic party in La the country needs. However, it could also mean Paz. “We respect the decision of those who Argentine Economy gridlock. Vizcarra will need to build alliances have yet to join, I extend a hand to them and Minister to Meet With IMF, with several factions in order to advance his assure them the door remains open to join this U.S. Treasury Officials agenda. “We think, on balance, that incoming broad and diverse front that seeks to work for Argentine Economy Minister Martín Guzmán lawmakers are more likely to work with the all,” she added. Morales, who is barred from plans to meet today with officials of the Inter- executive on a common agenda,” Abhijit Surya, running in the May election, a week ago named national Monetary Fund and the U.S. Treasury a Peru analyst at The Economist Intelligence his former economy minister, Luis Arce, as during a visit to New York, MercoPress report- Unit, told the AP. It was unclear when the full the presidential candidate of his Movement ed. Guzmán is scheduled to meet with Luis count with official results would be released. to Socialism party. Former Presidents Jorge Cubeddu, the head of Argentina’s IMF mission. The 130 legislators elected on Sunday will Quiroga and Carlos Mesa have also announced He also plans to meet with investors and serve only until next year’s scheduled presiden- their candidacies, as has former civic leader analysts. Argentina is facing difficult negotia- tial and congressional elections and will not Luis Fernando Camacho, América Economía tions over some $100 billion in sovereign debt, be eligible to run for re-election. Vizcarra took reported. On Sunday, Áñez also announced that including with the IMF. the controversial action of dissolving Congress she had asked all of her cabinet ministers to

COPYRIGHT © 2020, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Monday, January 27, 2020 resign, El Diario reported. Áñez said the action FEATURED Q&A / Continued from page 1 was a normal step, given her candidacy and the upcoming election. [Editor’s note: See related such as remittances, repatriation of savings, on those doing business with PDVSA or Q&A in the Jan. 13 issue of the Advisor.] nontraditional exports, border smuggling, with targeted sectors of the Venezuelan drug trafficking and—making up 35 percent economy—have made it much harder for of total nontraditional income—the legal Venezuela’s diplomatic allies to provide BUSINESS NEWS and illegal exploitation of gold. Estimated to economic support. As a result, Chinese oil total about $3 billion, this exploitation is in companies have ceased direct purchases of full expansion and has served the Venezue- Venezuelan oil, forcing Venezuela to increas- Banco do Brasil Eyes lan government as a means to obtain cash, ingly rely on dealings with Russian oil giant Reforms to Better give financial autonomy to some regional Rosneft and on the shadow mining of other governments and strengthen its ties with resources (gold, coltan and diamonds) in the Compete With Rivals some allied countries, such as Turkey. The Venezuelan Amazon. For China, the ‘slowing evolution toward non-oil revenues is clearly down’ with Venezuela has even broader Brazilian state-controlled bank Banco do Brasil positive, allowing the financing of some implications. It is a rare, tacit acknowledge- is seeking to implement reforms in a bid to bet- internal activities, which show a certain level ment from China that time is overdue for it ter compete with private rivals after President of economic recovery and feed the massive to rethink its natural resource lending and Jair Bolsonaro intervened in management’s use of foreign exchange in commercial investment relations with other resource-rich plans to fully privatize the lender, Reuters transactions, thereby giving the government developing countries, particularly those reported today, citing four people familiar some breathing room. Shortly, Venezuela will within the Belt and Road Initiative. For with the matter. Changes include modifying be a country with oil, but not an oil-based Venezuela, the picture appears grim. Due to employment rules to make it easier for the country.” ongoing international sanctions and internal strife, Venezuela’s economy will not likely Xingjian Zhao, partner and improve in the coming year. In fact, it could Changes reportedly head of the China practice, and worsen if the government is unable to find include modifying Javier Coronado, Bogotá-based a way to restore infrastructure and address employment rules A associate attorney, both at Diaz, the ongoing humanitarian and environmental Reus & Targ: “At the tail end of the Chávez crises—especially outside Caracas. The and lifting some regime, Venezuela, from all appearances, economy can further deteriorate from an on- pay restrictions. was China’s archetypal South American coming ‘perfect storm,’ if the United States partner. The largest global net importer moves forward with its highly anticipated of crude, China was thirsty for oil—lots of sanctions against Rosneft, to be imposed bank to hire and fire workers and remove some it—while Venezuela maintained the world’s under the Venezuelan sanctions program, or pay restrictions, according to the sources, who largest petroleum reserves. Of course, a if the E.U. Council expands its sanctions on declined to be identified because the plan is transcontinental economic alliance with an Venezuela.” not yet public. Calls for the bank to maintain its ascendant socialist power also fit neatly dividend payout ratio, even as it expects asset into the Bolivarian revolutionary agenda and Steve Ellner, associate man- sale proceeds to add to profits in the coming into the narrative of reducing Venezuela’s aging editor of Latin Ameri- months, are also part of the plan, the sources U.S. dependence. More than buying oil from can Perspectives and retired said. It also includes forming partnerships Venezuela, the China Development Bank A professor of the Universidad de with financial technology and other start-ups. financed more than $60 billion in ‘loans-for- Oriente in Venezuela: “The Chinese Foreign Two sources added that the plan was already oil’ deals—loans that the current Venezuelan Ministry’s statement regarding the ‘slowing approved by the bank’s board late last year. government has not come close to repaying. down’ of cooperation ventures with Venezu- The lender would still need approval from the A drastic drop in oil production caused by ela should not be surprising, given the suc- government to move ahead with the reform Venezuela’s domestic turmoil (including cess of U.S. secondary sanctions in isolating plans. Some elements could face resistance allegations of economic mismanagement that nation economically from the rest of the and become politically tricky, such as weaker and systemic corruption) has made oil world. A year ago, for instance, Russian bank job protections for the bank’s nearly 94,000 more expensive, and with it, China’s costs Gazprombank announced it would halt trans- employees. Sources said talks with the econo- for importing the resource. U.S. economic actions with Venezuelan state oil company my ministry were already underway. Banco do sanctions—including secondary sanctions PDVSA, in spite of the close relations be- Brasil declined Reuters’ request for comment. 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 tween Moscow and the Maduro government. tinued to shrink along with complementary Nevertheless, even though the Chinese development opportunities. Second, Madu- Erik Brand government’s foreign investment decisions ro’s turn to Russia’s Rosneft to manage some Publisher [email protected] are guided by commercial criteria, leaders oil refining operations must have seemed in Beijing are far from apolitical when it like one-upmanship. But while that hasn’t Gene Kuleta Editor comes to economic ties abroad. Indeed, done much to boost production, it does [email protected] the same statement by the Foreign Ministry make some petroleum available to China Anastasia Chacón González noted that the ‘sanctions are the root cause Reporter & Associate Editor behind the deterioration of the Venezuelan [email protected] people’s daily lives’ and went on to insist on Even if oil may not the lifting of ‘unilateral sanctions against be the cash cow it

Venezuela.’ The Chinese are well aware once was, gold Michael Shifter, President that the Trump administration’s discourse now helps keep Rebecca Bill Chavez, Nonresident Senior Fellow toward Latin America has been aggressively the regime going.” Sergio Bitar, Nonresident Senior Fellow anti-Chinese—an attitude that has found a — Stephen Johnson Joan Caivano, Director, Special Projects receptive ear in Brazil with Jair Bolsona- Michael Camilleri, Director, Rule of Law Program ro—and that their most reliable allies have Kevin Casas-Zamora, Nonresident Senior Fellow been the ‘Pink Tide’ governments, including and world markets through as-yet unsanc- Héctor Castro Vizcarra, Nonresident Senior Fellow that of Venezuela. Juan Guaidó’s efforts to tioned Russian channels. And third, Chinese Julia Dias Leite, Nonresident Senior Fellow block what he calls Venezuelan ‘blood gold’ leaders may believe that the appearance Ariel Fiszbein, Director, Education Program is based on a correct assessment of the of a pause might be well-viewed at a time Peter Hakim, President Emeritus importance that this source of revenue has when Sino-U.S. trade relations seem to be Nora Lustig, Nonresident Senior Fellow assumed for the Venezuelan economy. What on the mend. Looks aside, China still has an Margaret Myers, Director, Asia and Guaidó doesn’t consider, however, is that his ongoing commercial satellite program with Latin America Program ongoing effort to topple Maduro with foreign Venezuela, an ID card/social control project Manuel Orozco, Director, Migration, Remittances & Development help has backfired. Many Venezuelans and mineral exploitation agreements waiting Xiaoyu Pu, Nonresident Senior Fellow resent such blatant U.S. interference. This to pay out, depending on circumstances. Jeffrey Puryear, Senior Fellow is one reason why Guaidó’s popularity has Russia has its own investment in oil and Mateo Samper, Nonresident Senior Fellow declined precipitously and why a new group loan-based arms sales. Further, its support Tamar Solnik, Director, Finance & Administration of opposition ‘dissidents’ have emerged for Venezuela is payback for growing U.S. Lisa Viscidi, Director, Energy Program who favor negotiations with the government influence in Eastern Europe. And even if oil Denisse Yanovich, Director of Development and to solve immediate problems rather than may not be the cash cow it once was, gold External Relations harping on regime change.” now helps keep the regime going. Highly portable, it can be smuggled like drugs Latin America Advisor is published every business day, except for major U.S. holidays, Stephen Johnson, senior advi- (another source of revenue). Controlled by the Inter-American Dialogue at sor for Latin America and the largely by Maduro’s son and inner circle, it 1155 15th Street NW, Suite 800 Washington, DC 20005 Caribbean at the International is mined and moved through Venezuela by www.thedialogue.org Republican Institute and former criminal bands, Colombian guerrillas and A ISSN 2163-7962 U.S. deputy assistant secretary of defense the Venezuelan military. Not only does gold Subscription inquiries are welcomed at (from 2007-2009): “For geopolitical and extraction involve violence in controlling [email protected] strategic commercial reasons, China and extraction zones but the country is pretty The opinions expressed by the members of the Board of Russia are still key players in keeping the much ‘bleeding’ precious ore—hence Interim Advisors and by guest commentators do not necessarily Maduro regime afloat. However, there may President Juan Guaidó’s term ‘blood gold.’ ” represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily be a practical rationale behind China’s reluc- represent the views of their respective employers or firms. tance to pull back on loans and cooperative The Advisor welcomes comments on its Q&A The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, initiatives. First, the possibility of obtaining a section. Readers can write editor Gene Kuleta nor the opinions based thereon, are guaranteed. If you have profitable return on prior investments is dim at [email protected]. any questions relating to the contents of this publication, as Venezuela’s commercial sector has con- 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.