LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, January 9, 2018

Home , Alberto Fujimori, Vicente Zeballos

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, January 9, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Will PPK Be Able More Crews, Cargill Joyce Chang Supplies Headed Global Head of Research, to Complete His to Puerto Rico for JPMorgan Chase & Co. Dirk Donath Recovery Effort Senior Partner, More work crews and supplies are Catterton Aimara Term in Peru? due to arrive in the coming weeks Barry Featherman in Puerto Rico, which was battered Senior Director, International Government Affairs, by Hurricane Maria in September, Gilead Sciences U.S. officials said. Much of the Marlene Fernández island remains without power Corporate Vice President for nearly four months after the storm Government Relations, struck. Arcos Dorados Page 2 Peter Hakim President Emeritus, Inter-American Dialogue BUSINESS Donna Hrinak President, Boeing Latin America Walmex Reports Jon Huenemann Slower Sales Vice President, U.S. & Int’l Affairs, Peruvian President Pedro Pablo Kuczynski last month survived an impeachment attempt and Philip Morris International then controversially pardoned former President Alberto Fujimori. // File Photo: Peruvian Growth for 2017 James R. Jones Government. Walmex reported sales growth of Chairman, Monarch Global Strategies Several public officials in Peru have resigned in the wake of 7.7 percent last year, its slowest rise since 2014. The year’s sales Craig A. Kelly President Pedro Pablo Kuczynski’s near-impeachment and Director, Americas International totaled $29.6 billion Gov’t Relations, Exxon Mobil his subsequent pardoning of former President Alberto Fuji- Page 3 John Maisto Q mori, who was serving a 25-year prison sentence for abuse Director, U.S. Education Finance Group of power and human rights violations. The pardon led to street protests, POLITICAL Nicolás Mariscal leaving Kuczynski’s presidency on shaky ground despite surviving the Ecuador to Audit Chairman, impeachment vote in December. Will Kuczynski be able to complete Grupo Marhnos Debt Incurred his five-year term? How can he regain public confidence and political Thomas F. McLarty III Under Correa Chairman, influence? Will Peru’s fractured politics throttle back investment and McLarty Associates economic growth this year? Ecuador’s comptroller’s office Carl Meacham said it would audit debt incurred Associate VP for Latin America Int’l Advocacy Division, PhRMA during the last five years of former President Rafael Correa’s term to Carlos Paz-Soldan Cynthia McClintock, professor of political science and inter- determine its legality. Partner, national affairs at The George Washington University: “The DTB Associates, LLP Page 2 Beatrice Rangel odds are against President Pedro Pablo Kuczynski (PPK)’s Director, completion of his term. PPK is dangerously isolated. Not only AMLA Consulting LLC A did he incorrectly deny dealings with Odebrecht, provoking the impeach- Gustavo Roosen Chairman of the Board, ment vote, but most Peruvians believe that he traded his survival of the Envases Venezolanos impeachment vote for the pardon of former President Alberto Fujimori. Andrés Rozental President, Rozental & Many Peruvians voted for PPK in the 2016 runoff because he was not in Asociados and Senior Policy Advisor, Chatham House bed with fujimorismo, and they now feel betrayed. PPK has lost three of Shelly Shetty his best ministers and three of his party’s 18 legislators. Although PPK Head, Latin America Sovereign Ratings, Fitch Inc. has promised a cabinet of ‘reconciliation,’ recruitment among members Roberto Sifon-Arevalo of small parties, grassroots politicians and progressive intellectuals—to Managing Director, Americas whom PPK should have turned more at the start—will be difficult. The Sovereign & Public Finance Ratings, Standard & Poor’s largest sector of fujimorismo, led by Alberto’s daughter Keiko, has con- sistently interpreted PPK’s efforts at accommodation as weakness and Correa // File Photo: Ecuadorean Government. Continued on page 3

POLITICAL NEWS ECONOMIC NEWS NEWS BRIEFS

Ecuador to Audit More Crews, Supplies Brazilian Police Seek to Question Temer Over Debt Incurred Under Headed to Puerto Port Regulation Decree Ex-President Correa Rico for Repair Effort Brazilian police have requested that President Michel Temer respond to 50 questions posed Ecuador’s comptroller’s office on Monday said Efforts to repair Puerto Rico’s energy infra- as part of an investigation into whether he took it would be auditing any debt contracted in structure and restore power to the U.S. territory bribes in exchange for influencing a decree that the last five years of former President Rafael in the wake of Hurricane Maria will be getting regulates the country’s ports, a government Correa’s term in order to determine if the oper- a boost in the coming weeks with more work spokesperson said, MercoPress reported to- ations and use of the funds were legal, Reuters crews and supplies due to arrive at the island, day. Police are investigating a scheme in which reported. The announcement followed a report federal officials said, the Associated Press Temer allegedly accepted bribes in exchange by the comptroller’s office that revealed that reported Monday. The U.S. Army Corps of Engi- for guiding the creation of a decree that would some of the documentation related to debt neers said it would be acquiring its own barge have favorable terms for logistics firm Rodri- operations had been kept secret, and that to ship needed materials that it requested mar. The allegations are the latest to come months ago to rebuild infrastructure. Col. John out against Temer, who has so far managed to Lloyd, who is overseeing the efforts to restore avoid a trial over corruption allegations. Temer power, said officials over the weekend discov- has denied any involvement in corruption. ered some needed equipment in a previously overlooked warehouse owned by the island’s public utility, the Puerto Rico Electric Power Authority (PREPA). “We’re doing everything we Chile’s Bachelet Meets can to increase [PREPA’s] ability to do this as With Castro in Havana fast as possible for the people of Puerto Rico,” Outgoing Chilean President Michelle Bachelet Lloyd said. Certain materials, including trans- Moreno // File Photo: Ecuadorean Government. met Monday in Havana with Cuban President formers, splices and hundreds of necessary Raúl Castro and vowed to strengthen economic some of the government’s official reports on smaller pieces, had delayed the energizing of and commercial ties between the two coun- public debt during the Correa administration certain power lines. He said that his agency is tries, China’s state-owned news agency Xinhua had excluded certain debt operations. Since still waiting for the shipment of hundreds of reported. During the visit, Bachelet highlighted his election last year, President Lenín Moreno, thousands of poles, transformers, fuses, tow- joint projects with Cuba in the health sector who had been a protégé of Correa and was a ers, insulators, bolts and other pieces, as well. as well as an iron exploration partnership. member of the former president’s political par- More than 40 percent of PREPA’s customers Bachelet’s term is set to end March 11, when ty, has criticized his predecessor’s handling of remain without power nearly four months after Sebastián Piñera returns to Chile’s presidency. the economy and has made efforts to roll back the hurricane battered the commonwealth, kill- certain reforms enacted by Correa. The former ing dozens of people and causing an estimated president has said Moreno’s efforts amounted $95 billion in damages. to a “coup” against him. The audit will be car- Andorra’s Andbank ried out by a team of economists, lawyers and Mexico’s Vehicle Eyes Expansion in Region businessmen, who will analyze debt operations Andorran private bank Andbank is looking to from January 2012 to May 2017, and are set to Exports to U.S. grow its Latin America operations by entering present recommendations to the government Argentina, as well as by growing its operations this April. Comptroller Pablo Celi said Correa Reach Record High in Mexico and Brazil, said Carlos Moreno, and former officials from the Finance Ministry Andbank’s managing director and its head have been notified of the investigation. Correa Mexico’s vehicle exports to the United States for the Americas, Bloomberg News reported took to Twitter to condemn the investigation, reached a record high in 2017, CNBC reported today. Andbank is Andorra’s largest bank, with which he said was headed by several “haters” Monday, citing data from the country’s auto 25 billion euros, or $30 billion, under manage- of his political movement. In a later speech, the industry. Mexico exported 2.33 million vehicles ment. The bank is seeking to obtain a license former president said the probe amounted to to its northern neighbor over the past year, to operate as a global investment advisor in “persecution.” a 9.4 percent increase over 2016. Also, 75 Argentina, Moreno said.

COPYRIGHT © 2018, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Tuesday, January 9, 2018 percent of the vehicles that were exported from FEATURED Q&A / Continued from page 1 Mexico in 2017 were then sold in the United States, far ahead of the total in Canada, which intensified its belligerence. Only the sector Congress tries and succeeds in organizing received just over 8 percent of Mexico’s vehicle of fujimorismo led by Alberto’s son Kenji, another impeachment process or because exports. The increase came amid renegotia- who spearheaded the pardon effort, appears of continuing street demonstrations. The tions of NAFTA. open to collaboration with PPK. Perhaps worst-case scenario may be avoided, due to most problematic for PPK is that the inves- a deeper fragmentation of political parties. tigation of his dealings with Odebrecht is Most notable is Fuerza Popular, led by BUSINESS NEWS proceeding (as it does for Keiko and former Keiko Fujimori, who now cannot ignore the President Alan García). Investment delays opinions or pressures from her father, the due to the Odebrecht scandal and political ‘historic leader,’ and Kenji, her younger broth- Walmex Reports instability are estimated to have cost Peru er, who organized the pardoning agreement. Slower Sales approximately 1 percent of GDP growth in But also, the APRA party, which has lost 2017 and, although mineral prices are up, its traditional discipline to vote along party Growth for 2017 the cost could be higher in 2018. Ironically, lines, will be a factor. Luckily for Kuczynski, PPK’s resignation might be the best way for the economy has good prospects, mostly Wal-Mart de México, or Walmex, as Mexico’s him to restore Peruvians’ trust. If PPK and due to rising mineral prices and a few large largest retailer is known, on Monday reported his two vice presidents were to resign, new copper investment projects (Michiquillay, sales growth of 7.7 percent to 569.4 billion elections would be called—the outcome Quellaveco). The question that no one can pesos ($29.6 billion), The Wall Street Journal preferred by most Peruvians. Peru’s current answer yet is whether political infighting will reported. The rise in sales growth was the plight is in part the legacy of the 2016 elec- neutralize the positive effect of better terms smallest since 2014 and came as a weaker tion, in which a surging centrist presidential of trade; whether Kuczynski remains weak, Mexican currency against the U.S. dollar, as candidate was unfairly disqualified and the but viable, thanks to the ‘peace agreement’ well as a rise in gasoline prices, contributed fujimorista party, with less than 40 percent with Alberto/Kenji’s fujimorista faction that to pushing inflation to its highest level since of the legislative vote, won 55 percent of the steals the absolute majority Keiko had in 2001. The rise in inflation over the past year seats.” Congress and thanks to the weakening of prompted the country’s central bank to hike mass demonstrations; or if Peru is now in interest rates, and consumer credit slowed. Francisco Durand, professor of the eye of a perfect storm. All heavens will The higher rate of inflation also lessened the political science at the Catholic break loose, and both the political class and impact of rising wages and partially offset the University of Peru: “Kuczynski the business class will become increasingly economic benefits of a higher level of employ- A is safe, for now. No political isolated once the Odebrecht corruption ment. In the 12 months through November, analyst can predict if he will finish his term scandal enters a new phase of damaging Mexico’s economy added 820,000 formal jobs in office. The ‘political pardoning’ of former revelations that affect former Presidents in the private sector. The economy is expect- President Alberto Fujimori on dubious Toledo, García, Humala, Keiko Fujimori and ed to have expanded 2.1 percent in 2017 as arguments (a tit for tat to get 10 votes from Kuczynski.” compared to 2.9 percent in 2016. Walmex said a fujimorista faction loyal to Alberto and Monday that its same-store sales increased 6.7 avoid vacancy for ‘moral incapacity’) caused Carlos Arata, partner in the percent in Mexico in December, while same- a storm; cabinet resignations, congressional corporate practice at Rubio store sales grew 4.9 percent in Central America losses in his own party, international con- Leguía Normand in Lima: “For last month. The retailer said an additional demnation and mass mobilizations with a A sure, Kuczynski will finish out Sunday in December and Christmas Day falling strong participation of young people. Anoth- his term, even if some political factions seek on a Monday rather than on a Sunday likely er consequence, more serious, is the presi- his ouster again, due to the pardoning of boosted traffic in its stores in December. In dent now looks as he really is: a transnation- Alberto Fujimori. I don’t expect such efforts addition, Grupo Financiero Banorte said in a al businessman willing to make deals with to be successful. Fujimori’s recent freedom note that pay days in Mexico occurred closer to the devil. The universal condemnation of the has split Fujimori’s party, Fuerza Popular, in the weekends than they had in December 2016, ‘lobbyist president’ has further weakened his such a way that it no longer has an absolute helping to spur sales. Walmex, which had 2,356 already weak position. The consequences majority in Congress. Also, the party has lost stores in Mexico and 778 in Central America as of the perception that the emperor has no a recurrent subject in Peru’s political world of the end of 2017, is scheduled to report its clothes are unpredictable and may deter- for the last 15 years: Fujimori’s freedom. It full financial results for the fourth quarter on mine his chances to remain, either because now needs to get closer to the government, Feb. 15. 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 © 2018 which is closer than any other party to its congressional representation (Gino Costa, political views. Otherwise, the population Vicente Zeballos and Alberto de Belaunde) Erik Brand will confirm it as an obstructionist. The quit the party. Nuevo Perú, the left-wing Publisher [email protected] government needs to get things done, and party that abstained in the impeachment Kuczynski in particular needs to clarify his vote, feels betrayed. Prominent supporters Gene Kuleta Editor situation regarding the Odebrecht corruption like Mario Vargas Llosa have voiced their [email protected] scandal. With the latter, he will get a burden deep disappointment. There is a sense that Nicole Wasson off his back. Regarding getting things done, PPK is not the above-board technocrat that Reporter, Assistant Editor there are many things that need to be done many believed, and some wonder if he is [email protected] and on many fronts. One major task is the trying to protect himself from further revela- reconstruction of the north of the country tions related to the Odebrecht scandal. His and the awarding of major infrastructure projects; a year has passed, and the north Michael Shifter, President hasn’t seen any major work done. The pre- Genaro Arriagada, Nonresident Senior Fellow carious living conditions are still there. Also, There is a sense that Sergio Bitar, Nonresident Senior Fellow Joan Caivano, Director, Special Projects no major public-private partnership projects PPK is not the above- Michael Camilleri, Director, Peter D. Bell Rule of Law have been awarded, and the country still has board technocrat Program a huge infrastructure gap. Another important that many believed...” Kevin Casas-Zamora, Nonresident Senior Fellow front is the Odebrecht scandal. So far, no big — Julio Carrión Ariel Fiszbein, Director, Education Program fish have been imprisoned; Alejandro Toledo Alejandro Ganimian, Nonresident Fellow is still hiding in the United States. Once the Peter Hakim, President Emeritus government starts with new projects and the Claudio Loser, Senior Fellow reconstruction, the opposition will have few Nora Lustig, Nonresident Senior Fellow options but to support Kuczynski.” credibility has been irreparably damaged. It Margaret Myers, Director, China and is painfully clear that the continuation of his Latin America Program Julio Carrión, associate pro- presidency relies now entirely on the willing- Manuel Orozco, Director, Migration, Remittances & Development fessor of political science and ness of the fujimoristas to keep him there. Jeffrey Puryear, Senior Fellow international relations at the PPK will likely offer the fujimoristas an even Tamar Solnik, Director, Finance & Administration University of Delaware: “PPK’s greater share of the institutional power they A Lisa Viscidi, Director, Energy Program move to pardon Fujimori salvaged his presi- already have in exchange for keeping him Denisse Yanovich, Director of Development and dency in the short-term but has severely de- in office. This is not the outcome that those External Relations bilitated his overall position. He was already who voted for PPK in 2016 wanted. He could a weak president, with a tiny congressional have refused to use the pardon as a bargain- Latin America Advisor is published every business day, except for major U.S. holidays, representation (18 seats in the 130-seat uni- ing chip and then allowed his vice president by the Inter-American Dialogue at cameral Congress) and a runoff victory with to take office. Instead, he chose to save his 1155 15th Street NW, Suite 800 Washington, DC 20005 the smallest of margins in Peru’s electoral presidency by striking a pact that makes not www.thedialogue.org history. The clumsy way in which the pardon only his presidency—but also Peru’s democ- ISSN 2163-7962 was handled incensed his allies and many racy—a hostage to the fujimoristas’ political Subscription inquiries are welcomed at of his voters, who believed his promises that calculations.” [email protected] he would not pardon the former president. He lost two able operators in his cabinet The Advisor welcomes comments on its Q&A The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily (Carlos Basombrío and Jorge Nieto), and section. Readers can write editor Gene Kuleta represent those of the publisher. 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