LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, July 29, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, July 29, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs What Factors U.S., Guatemala Cargill Sign ‘Safe Third Joyce Chang Global Head of Research, Are Weighing on Country’ Deal JPMorgan Chase & Co. The controversial agreement Marlene Fernández would require migrants passing Corporate Vice President for Mexico’s Economy? Government Relations, through Guatemala to apply for Arcos Dorados asylum there first instead of con- Peter Hakim tinuing to the United States. President Emeritus, Page 2 Inter-American Dialogue Donna Hrinak President, Boeing Latin America ECONOMIC Jon Huenemann Retired VP, U.S. & Int’l Affairs, Mexico to Help Philip Morris International Honduras Create James R. Jones Chairman, 20,000 Jobs Monarch Global Strategies Mexico pledged to help the Cen- Craig A. Kelly tral American nation create 20,000 Director, Americas International Gov’t Relations, Exxon Mobil jobs by December. Mexico is also vowing to help coffee farmers John Maisto Mexican President Andrés Manuel López Obrador’s administration is facing a softening econo- Director, U.S. Education my. // File Photo: Mexican Government. who have been hurt by low prices Finance Group for the crop. Nicolás Mariscal Page 2 Chairman, Mexico’s industrial output declined 2.1 percent in May as Grupo Marhnos compared to April, the country’s National Statistics Institute POLITICAL Thomas F. McLarty III said July 12. The sharpest drop in industrial output in a Chairman, Ecuador to McLarty Associates Q decade, the statistic was among recent data that suggest Carlos Paz-Soldan Require Visas Partner, the country’s economy slipped into a recession in the second quarter, DTB Associates, LLP following a 0.2 percent contraction in the first three months of the year. of Venezuelans Beatrice Rangel What factors are most weighing on Mexico’s economy? What does Mex- Ecuadorean President Lenín More- Director, no signed a decree requiring Ven- AMLA Consulting LLC ico need in order to return the country to growth? How well is President ezuelans to have visas in order Jaana Remes Andrés Manuel López Obrador managing the economy, and how would a to enter the country. More than Partner, McKinsey Global Institute recession affect his agenda? four million Venezuelans have fled their home country’s political and Ernesto Revilla Head of Latin American economic crises, the U.N. refugee Economics, Citi Charles Seville, senior director for Americas sovereigns agency said last month. Gustavo Roosen at Fitch Ratings: “Mexico’s overall output has stalled, as Page 2 Chairman of the Board, Envases Venezolanos shown by the economic activity indicator for May. As ever, the Andrés Rozental data present a mixed picture. Households are continuing to President, Rozental & A Asociados and Senior spend, and manufacturing and exports (7 percent higher year-on-year in Policy Advisor, Chatham House May) are holding up. U.S. growth remains supportive. Investment is the Shelly Shetty Head of Sovereign Ratings, main weak spot. Part of this may relate to global trade uncertainty, but Latin America, Fitch domestic policy considerations are also weighing on sentiment. Business Roberto Sifon-Arevalo Managing Director, Americas confidence is still in positive territory but has weakened. Microeconom- Sovereign & Public Finance Ratings, ic policy interventions by the government have increased uncertainty Standard & Poor’s in some areas. Actions to tackle some of the weaknesses in Mexico’s business environment and reduce corruption will take time to pay off. Moreover, monetary and fiscal policy are also tight. Real interest rates Moreno // File Photo: Ecuadorean are among the highest in the region, yet core inflation is still higher than Government. Continued on page 2

POLITICAL NEWS signing such a deal with the United States. In a NEWS BRIEFS tweet, Trump had threatened to impose tariffs, U.S., Guatemala “remittance fees” and other penalties on the Ecuador’s Moreno Central American nation, saying its officials Signs Decree Requiring Sign ‘Safe Third had broken their pledge to sign the agreement. Two weeks ago, Morales had been scheduled Venezuelans to Have Visas Country’ Agreement to visit the White House but canceled the trip Ecuadorean President Lenín Moreno on Friday just before the Constitutional Court’s decision. signed a decree requiring visas for Venezue- The United States and Guatemala on Friday On Friday, Morales’ government seemed to be lan citizens wishing to enter the country, who signed a “safe third country” agreement, which going around the court ruling by avoiding the previously could cross the border with just if it takes effect as scheduled within weeks, use of the “safe third country” term, but the a passport or other form of identification, would require asylum seekers who are passing Trump administration did use the term, which Reuters reported. The measure is part of a through Guatemala to request asylum there could give fuel to a legal challenge in Guatema- wider security plan for migrants, which outlines instead of continuing to the United States. la, The New York Times reported. The United tighter regulations and a non-obligatory census Guatemalan Interior Minister Enrique Degen- States still must take several steps before the of Venezuelans in Ecuador to help them access hart signed the controversial agreement at the agreement can be fully implemented. Among education, health and welfare benefits. Asso- White House. U.S. President Donald Trump has them, the U.S. Justice Department and the ciations of Venezuelan migrants in Ecuador been seeking to limit the number of asylum Department of Homeland Security must certify celebrated the initiative but criticized the visa claims, particularly from a surging number of that Guatemala has a “full and fair” asylum sys- requirement. Central Americans who have been crossing the tem and can protect asylum seekers from other United States’ southern border and overwhelm- nations if the United States sends them there, ing border agents. “Look, we’ve been dealing the newspaper reported. Under the agreement, for many years, I would say, with Guatemala migrants could be sent from the United States Mexico’s Government and with other countries, and we are now at to Guatemala, regardless of their country of to Help Honduras a point where we are—we just get along. And origin. In an interview with CBS News, U.S. Rep. Create 20,000 Jobs they’re doing what we’ve asked them to do and Norma Torres (D-Calif.), the only member of the Mexico’s government announced Saturday I think it’s going to be a great thing for Gua- U.S. Congress born in Guatemala, called the that it would help Honduras create 20,000 jobs temala,” Trump said at the signing in the Oval agreement “an insult to common sense.” She amid an effort to stem migration to the United Office, CBS News reported. The deal will “put added, “It is inconsolable to think Guatemala— States, Reuters reported. After a meeting coyotes and the smugglers out of business,” the country that has one of the highest murder between the two countries’ presidents in Vera- Trump added, UPI reported. “These are bad rate in the world… could be a safe country for cruz, Mexican Foreign Minister Marcelo Ebrard people.” The signing came three days after people coming from Venezuela, from Cuba said his country would help Honduras create Trump threatened to punish Guatemala over and some countries that are in deep trouble. the jobs between now and December. Mexico is its Constitutional Court’s ruling that blocked To think that [Guatemala] is a country that is also pledging to help Honduran coffee farmers. President Jimmy Morales’ government from going to accommodate asylum seekers from

FEATURED Q&A / Continued from page 1

the central bank would like. Lower govern- A still relatively new administration faces a Qatar Petroleum Buying ment spending is subtracting from activity. classic trade-off between maintaining the Stake in Guyanese Oil, We expect this effect—typical of the first confidence of investors in the policy frame- year of a presidential term—to fade. Public work and supporting the economy. So far, it Gas Blocks From Total investment has been cut over successive has chosen the former. Meeting the fiscal Qatar Petroleum has reached a deal with years, but higher investment, not to mention target of a 1 percent of GDP non-financial French oil company Total to acquire a stake in some proposed programs, will be difficult public sector primary surplus is within reach two oil and gas blocks offshore Guyana, the to accommodate within the current fiscal in 2019, but meeting a higher target in 2020 Qatari firm said Monday, Reuters reported. framework. Pemex will receive more resourc- may prove challenging. We expect Banco de Qatar Petroleum said it will buy 40 percent es to carry out a revised business plan. The México will cautiously start cutting rates this of Total’s 25 percent participating interest in company announced that it had stabilized year, helped by a more dovish global rates the Orinduik block, as well as a 40 percent crude production in the second quarter, picture.” of Total’s 25 percent participating interest in

although we think it’s too early to celebrate. Continued on page 4 the Kanuku block. Tullow Oil holds 60 percent participating interest in the blocks, and EcoAt- lantic has a 15 percent interest.

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Monday, July 29, 2019 anywhere else in the world—that is ridiculous.” Humanitarian groups also blasted the deal. JOB POSTINGS Refugees International President Eric Schwartz called the agreement a violation of U.S. law and said Guatemala is unsafe for migrants. EDITOR’S NOTE: We are pleased to share Latin America-related job postings that companies Guatemala “is in no way safe for refugees and reading the Advisor and others have posted recently. asylum seekers, and all the strong-arming in the world won’t make it so,” he said. MetLife: Director of Governance, Latin America, New York

Puerto Rico Secretary Accion: Senior Director, Digital Transformation, Latin America of Justice Doesn’t Mastercard: Manager, Managed Services, Mexico City Want Governor’s Job Zimmer Biomet: Compliance Senior Counsel, Investigations, Latin America

Puerto Rico Secretary of Justice Wanda Hillrom: Financial Analyst, Latin America, New York Vázquez, who is next in the line of succession U.S. Air Force: Professor of National Security Studies (Latin America), Alabama to replace Governor Ricardo Rosselló, said Sun- day that she does not want to be governor of Inter-American Development Bank: Resource and Planning Specialist, Washington the U.S. territory. Rosselló is set to step down this Friday after announcing his resignation Inter-American Dialogue: Coordinator, Development and External Relations last week following days of massive protests demanding his ouster. “I have no interest in oc- represents,” Mayra Velez Serrano, a professor put U.S. energy companies at a disadvantage cupying the position of Governor,” Vázquez said of political science at the University of Puerto and pave the way for a greater role for Chinese Rico at Río Piedras, told CNN. “It’s no surprise and Russian operators in the South American that Puerto Ricans don’t want her either.” [Edi- country, the newspaper reported. The license tor’s note: See related Q&A in the July 23 issue renewal allows Chevron to remain in Venezuela, of the Advisor.] where it has operated for nearly a century, until Oct. 25, when it could be further extended. Chevron had pushed for the extension. “We are BUSINESS NEWS a constructive presence in the country,” spokes-

Vázquez // File Photo: Puerto Rico Department of Justice. U.S. Extends We are a constructive on Twitter. As secretary of justice, she was Chevron’s License to presence in next in the constitutional order of succession, the country.” given that the territory’s secretary of state, Operate in Venezuela — Ray Fohr Luis G. Rivera, who would normally replace the governor, also resigned, CNN reported. Rivera The administration of U.S. President Donald was a member of a group chat at the heart of Trump on Friday extended a license allowing man Ray Fohr said earlier last week, adding on the scandal that resulted in Rosselló’s resig- Chevron and several other oil field services Friday that its Venezuela operations “continue nation. Hundreds of pages of group messages companies to remain in Venezuela, The Wall in compliance with all applicable laws and that included misogynistic and homophobic Street Journal reported. The license would regulations.” The U.S. company’s share of pro- comments as well as jokes about victims have expired on Saturday, a deadline that duction in Venezuela was 44,000 barrels of oil of Hurricane Maria were leaked, prompting sparked debate within the administration over and gas a day last year, less than 2 percent of Puerto Ricans to take to the streets in numbers whether to extend it, according to unnamed its global output total. Chevron and other U.S. comparable to past protests demanding that sources familiar with the matter. Some U.S. firms’ departure from Venezuela could have the U.S. Navy leave Vieques island in the early officials argued that shutting down Chevron’s worsened an already declining production trend 2000s. Puerto Ricans last week protested Venezuela units was a crucial step in the in the country, Francisco Monaldi, fellow in Lat- against Vázquez, also calling on her to resign. administration’s efforts to pressure Venezuelan in America energy policy at the Baker Institute, “Her positions and her character as a person President Nicolás Maduro to step down, while told the Advisor. [Editor’s note: See related Q&A is well aligned with what Ricardo Rosselló others believed the company’s departure would in last week’s issue of the Energy Advisor.]

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2019 Wolfram F. Schaffler Gonzalez, nor study). A recession would deeply affect director of the Texas Center for this, and recent events such as the resigna- Erik Brand Border Economic and Enterprise tion of the Mexican finance secretary and Publisher [email protected] Development at Texas A&M Fitch’s downgrade of Pemex’s status to ‘junk’ A Gene Kuleta International University: “Various factors contribute to the uncertainty. The challenge Editor account for the contraction of the Mexican in all of these cases is to regain trust, some- [email protected] economy, and there are several possible thing that might take more time than what Anastasia Chacón González actions to get it back on track, but the is needed to avoid a recession or a more Reporter common denominator in both cases is trust: severe economic downturn.” [email protected] Trust in AMLO’s leadership by the business sector (not easy to regain); trust by AMLO Joan Domene, senior economist

that they both are on the same side (not at Oxford Economics: “The 2.1 Michael Shifter, President easy to achieve); trust in the importance of percent month-on-month con- Genaro Arriagada, Nonresident Senior Fellow facts and knowledge in the decision-imple- A traction in industrial production Sergio Bitar, Nonresident Senior Fellow in May was broad based. The highly uncer- Joan Caivano, Director, Special Projects AMLO needs tain scenario dampened investment, and Michael Camilleri, Director, Peter D. Bell Rule of Law Program economic stability slow government revision of building projects and permits caused a sharp 6.2 percent Kevin Casas-Zamora, Nonresident Senior Fellow and resources to month-on-month plunge in construction. We Ariel Fiszbein, Director, Education Program fulfill his promises...” believe that the rise in global protectionism Peter Hakim, President Emeritus — Wolfram F. Schaffler Gonzalez and the Mexican government’s failure to pro- Claudio Loser, Senior Fellow vide stability after a rocky start of the year Nora Lustig, Nonresident Senior Fellow menting process (difficult for someone who is behind the weak investment trend and Margaret Myers, Director, Asia and Latin America Program believes his own facts more than real ones); deteriorating business and consumer confi- Manuel Orozco, Director, Migration, trust in the certainty and benefit of interna- dence. Moreover, the fiscal austerity agenda Remittances & Development tional trade agreements (this is a point of and high borrowing costs drag down private Jeffrey Puryear, Senior Fellow coincidence but also a risk until the USMCA consumption. The likelihood of recession Tamar Solnik, Director, Finance & Administration is approved and the threat of new tariffs dis- increases the chance for a countercyclical Lisa Viscidi, Director, Energy Program appear); and trust that AMLO’s fight against fiscal policy, which could revive credit rating Denisse Yanovich, Director of Development and corruption and the reinvesting of recovered woes if the government deviates signifi- External Relations

funds is real and not only a political sound- cantly from the planned 1 percent surplus. Latin America Advisor is published every bite. As an anonymous author once said, Meanwhile, we expect Mexico’s central business day, except for major U.S. holidays, ‘Trust takes years to build, seconds to break, bank to keep a restrictive stance to anchor by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 and forever to repair.’ The wisdom of this inflation expectations and shield the peso. Washington, DC 20005 frequently repeated quote can be applied in However, slowing aggregate demand and the www.thedialogue.org this case and also in the current U.S.-Mexico U.S. Federal Reserve’s more accommodative ISSN 2163-7962 relationship and how it affects trade, indus- position should provide incentives for a rate Subscription inquiries are welcomed at trial productivity and regional competitive- cut by the end of the year.” [email protected] ness. AMLO needs economic stability and The opinions expressed by the members of the Board of resources to fulfill his promises of delivering The Advisor welcomes comments on its Q&A Advisors and by guest commentators do not necessarily benefits for elderly people, single mothers section. Readers can write editor Gene Kuleta represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily and ‘nini’s’ (young people who neither work at [email protected]. represent the views of their respective employers or firms. The information in this report has been obtained from 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 permis- sion from the publisher.