LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, June 15, 2021

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, June 15, 2021

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Is Embracing Bitcoin Nicaraguan Agents Chief Corporate Affairs Officer, Grubhub Arrest Another Joyce Chang Global Head of Research, the Right Move for El Opposition Figure JPMorgan Chase & Co. Nicaraguan police have arrested Paula Cifuentes another opposition figure, Víctor Director of Economic & Fiscal Affairs, Salvador’s Economy? Hugo Tinoco, bringing to 13 the Latin America & Canada, Philip Morris International number of opposition members Marlene Fernández arrested in Nicaragua since the Corporate Vice President for beginning of June. The broad Government Relations, crackdown comes ahead of Arcos Dorados (McDonald’s) Nicaragua’s presidential election Peter Hakim in November. President Emeritus, Inter-American Dialogue Page 2 Donna Hrinak Senior VP, Corporate Affairs, ECONOMIC Royal Caribbean Group Jon E. Huenemann Brazil Eying Council Member, GLG Inc. Power Rationing James R. Jones Salvadoran President Nayib Bukele has said cryptocurrency will “generate jobs and help pro- Amid Drought Chairman, vide financial inclusion to thousands outside the formal economy.” // File Photo: Salvadoran Monarch Global Strategies Government. Brazil’s government is reportedly preparing a temporary decree that Craig A. Kelly El Salvador’s ruling party-controlled Legislative Assembly Senior Director, Americas could lead to electricity rationing Int’l Gov’t Relations, Exxon Mobil on June 8 passed a measure proposed by President Nayib amid a severe drought. Barbara Kotschwar Bukele to designate Bitcoin a legal tender, making the Cen- Page 3 Executive Director, Visa Economic Empowerment Institute Q tral American nation the first in the world to do so. What are John Maisto Bukele’s goals in making Bitcoin one of El Salvador’s official currencies, POLITICAL Director, U.S. Education Finance Group and what are the major benefits and drawbacks? What implications does Pinzón Tapped Nicolás Mariscal the move have on remittance flows, anti-money laundering efforts and as Colombia’s Chairman, the U.S. dollar, which is El Salvador’s main currency? What potential con- Grupo Marhnos Envoy to U.S. sequences could formalizing the cryptocurrency have on the country’s Thomas F. McLarty III Colombian President Iván Duque Chairman, program with the International Monetary Fund? What does the measure McLarty Associates tapped Juan Carlos Pinzón as the country’s ambassador to the Beatrice Rangel mean for businesses operating in El Salvador? Director, United States. Pinzón previously AMLA Consulting LLC occupied that post from 2015 to Jaana Remes Julia Yansura, program manager for Latin America and the 2017. Partner, Caribbean at Global Financial Integrity: “El Salvador’s GDP Page 2 McKinsey Global Institute Ernesto Revilla contracted nearly 9 percent in 2020 during the Covid-19 crisis, Head of Latin American and full recovery is not expected until 2023. Meanwhile, exter- Economics, Citi A Gustavo Roosen nal debt is rising. In this difficult economic context, the country is trying President, to find solutions. President Bukele has said Bitcoin will promote financial IESA inclusion, facilitate remittances and attract investment to the country. Andrés Rozental President, Rozental & Some of these make more sense than others. It’s unlikely that Bitcoin, Asociados which is complex and volatile, will be a financial inclusion pathway for Shelly Shetty Managing Director, Sovereigns average Salvadorans who find existing options with banking, community Fitch Ratings credit unions or mobile money too complicated or costly. Moreover, for migrants sending remittances, Bitcoin is too complicated to be attractive. I do think the move will attract investment to El Salvador, but not without significant risks. While El Salvador’s security situation has improved Pinzón // File Photo: White House. Continued on page 3

POLITICAL NEWS usurpers share in common is their allegiance NEWS BRIEFS to the government of the United States of Nicaraguan Police America and the fact that they have directly Colombia’s Duque or through their respective NGOs, received Taps Pinzón as Arrest Another millions of dollars in U.S. taxpayer money through USAID, NED, IRI and other agencies, Ambassador to U.S. Opposition Politician aimed at overthrowing the elected govern- Colombian President Iván Duque on Monday ment of President Comandante Daniel Ortega tapped Juan Carlos Pinzón, a former defense Police in Nicaragua have arrested another Saavedra,” Nicaragua’s government said in a minister, to be the country’s new ambassador opposition politician, bringing to 13 the number statement. The U.S. government has criticized to the United States, the Associated Press of opposition members detained since the the crackdown. “The United States condemns reported. Pinzón, 49, is expected to take over beginning of June in an expanding crackdown this ongoing campaign of terror in the most the embassy in August. He had previously held on foes of President Daniel Ortega, the Asso- unequivocal terms and considers President the post between 2015 and 2017, when Colom- ciated Press reported Monday. In the latest Ortega, Vice President Murillo, and those bia’s government signed a peace deal with the arrest, 10 agents in plainclothes and wearing complicit in these actions responsible” for the Revolutionary Armed Forces of Colombia, or hoods seized Víctor Hugo Tinoco, the leader of safety of those arrested, a State Department FARC. Pinzón later became a critic of the peace political movement Unamos and a former Nic- spokesperson told The Wall Street Journal. agreement, saying its terms were too lenient on araguan foreign minister and ambassador to the top commanders of the former rebel group, the United Nations, the wire service reported. the AP reported. Tinoco was detained late Sunday at a shop- Authorities in Costa ping mall. Tinoco’s arrest brought to six the Rica Make Arrests in number of opposition members detained over CABEI Head Expresses the weekend. Another Unamos party leader, Large Graft Probe Suyen Barahona, was seized earlier on Sunday. Support for El Salvador’s Unamos activist Tamara Dávila was also Costa Rican authorities on Monday carried out Adoption of Bitcoin arrested over the weekend, as were ex-Sand- dozens of searches and arrests in connection Dante Mossi, the head of the Central American inista dissidents Dora María Téllez and Hugo with a massive public corruption investigation Bank for Economic Integration, or CABEI, on Torres and another opposition member, Ana related to the awarding of road construction Monday said the bank will provide technical Margarita Vijil. Former Sandinistas who have and maintenance contracts, the Associated assistance to El Salvador for it to implement criticized Ortega for nepotism and autocratic Press reported. The probe is one of the most Bitcoin as legal tender, even though it still is- ways as well as continual re-elections formed impactful public corruption investigations in sues debt only in U.S. dollars, Reuters reported. Unamos. Nicaraguan police said they arrested the country, according to the director of the El Salvador last week passed a law to formalize the opposition members on charges related to Judicial Investigation Organization, Walter Bitcoin as the country’s currency alongside the a law that the ruling-party dominated National Espinoza. The case allegedly involves a series dollar, the first country in the world to do so. Assembly passed in December that gives of bribes, from cars to properties, cash and Mossi said the measure would give Salvador- Ortega’s government the power to unilaterally personals favors, by a group of private firms ans many opportunities, including reducing the declare citizens “terrorists” and “traitors to the to public officials in exchange for securing costs of remittances. homeland” and prohibit them from running as government contracts, Espinoza said, the AP candidates, the AP reported. The law also al- reported. He added that the scheme caused lows for punishing people “who lead or finance a $127 million deficit in the budget for road a coup ... encourage foreign interference, ask works from 2018 to 2020, Reuters reported. Brazil’s GPA Considering for military intervention ... propose or plan Authorities executed 57 searches, 14 of them Spinoff of Colombia’s economic blockades, applaud and champion of public institutions, including the offices Almacenes Éxito: Report the imposition of sanctions against Nicaragua of the president. Eighteen officials and 11 or its citizens.” The crackdown comes ahead businessmen were arrested, and Espinoza said Brazil-based food retailer GPA is considering a of Nicaragua’s presidential election, which is dozens more were under investigation. One of spinoff of its Almacenes Éxito unit in Colom- scheduled for Nov. 7. Ortega, who has been in the judicial orders was for the arrest of one of bia, of which it owns nearly 97 percent, Reuters office since 2007, is seeking to extend his rule. President Carlos Alvarado’s closest advisors, reported Monday, citing two unnamed sources In a statement Monday, Nicaragua’s govern- Camilo Saldarriaga, who resigned from his with knowledge of the matter. GPA sharehold- ment characterized the arrests as legitimate. post on Monday, Reuters reported. Saldarriaga, ers include parent company Casino Guichard “The only thing that this group of opposition 29, advised the president on infrastructure Perrachon.

COPYRIGHT © 2021, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Tuesday, June 15, 2021 matters. He is under investigation for allegedly FEATURED Q&A / Continued from page 1 participating in the scheme in exchange for money, cars and sexual services. Saldarriaga somewhat, the country remains vulnerable for multinational firms doing business in has denied wrongdoing and said he was resign- to organized crime and drug trafficking. El El Salvador. Should headquarters consid- ing to focus on his defense. “I feel enormous Salvador will need to be extremely careful er Bitcoin a foreign currency, or should it indignation, frustration and anger at the acts to avoid the wrong types of investment. remain regulated as a commodity? How will of corruption in the public works contracts,” Attracting international tech entrepreneurs international tax treaties and financial regu- Alvarado said on Monday in an appearance is one thing; attracting international money lations address cryptocurrencies once they on Facebook Live. “This type of behavior is launderers or tax evaders is another. If become legal tender? These are all issues absolutely unacceptable,” he added. things go wrong, the Bitcoin experiment that regulators will now have to consider, as could be very costly to the country’s security Salvadorans assess whether they want to as well as its image, causing other investors, embrace Bitcoin as their currency or merely ECONOMIC NEWS businesses and financial institutions to per- use it with the final goal of exchanging for ceive heightened AML/CFT risks, particularly U.S. dollars.” at the Bitcoin-to-dollar conversion point. As Brazil Reportedly the country updates its regulatory framework Tim Jacklich, senior analyst at Eyes Power Rationing in preparation for Bitcoin, it would do well Americas Market Intelligence: to evaluate its overall AML/CFT system and “President Bukele presents the Amid Severe Drought address existing weaknesses in light of the A recognition of Bitcoin as legal big changes that lie ahead.” tender in El Salvador as a groundbreaking Brazil’s government is preparing a temporary step for financial development and inclu- decree that could bring electricity rationing as Helen Harris, senior research sion. Upon a closer look, this policy is a the country grapples with its worst drought in associate at McLarty Associ- risky gambit, likely offering some benefits almost a century, Reuters reported Monday, ates: “By designating Bitcoin but also exposing the Salvadoran economy citing a draft of the measure. The decree, A as legal tender in El Salvador, to substantial risks. There is some merit which would need to be approved by Congress, President Bukele seeks to increase financial to Bukele’s proposal that Bitcoin transfers would create a commission that could decide penetration, while eliminating transaction replace traditional remittances. Bitcoin on more drastic measures to control the use of fees on remittances—which account for transfers can indeed be faster and cheaper electricity if there are shortages that could hurt 20-25 percent of GDP. President Bukele also than legacy methods, owing to the reduced the country’s economic recovery. President argues that it would foster investment and need for financial intermediaries. However, Jair Bolsonaro has not approved the decree boost employment, primarily if El Salvador congestion on the Bitcoin blockchain can but was set to meet with cabinet ministers on becomes a hub for Bitcoin mining, a strategy boost transaction fees, blunting Bitcoin’s Monday to discuss it, according to the report. that raises skepticism and is criticized by en- cost advantage during peak network usage. The Mines and Energy Ministry said in a state- vironmentalists. While the country is moving Bukele is less convincing in his argument ment that the government and state agencies forward with the implementation of a bimon- that Bitcoin-related investment would are working “incessantly” to guarantee energy etary system with the cryptocurrency and the represent an economic boon for El Salvador. security and avoid any rationing of power U.S. dollar, the enforcement of this design New bitcoin inflows would likely behave like this year in what the ministry called “a critical is not clear. The government has declared short-term, procyclical ‘hot money,’ attracted juncture.” The South American nation’s worst it will guarantee Bitcoin convertibility to by the favorable tax regime but with limited drought in at least two decades has left water the U.S. dollar, but given Bitcoin’s volatility, economic development benefits. As for the reservoirs that supply energy operating well there are doubts whether El Salvador has the risks, El Salvador’s ‘Bitcoinization’ could below typical output and forcing the country’s necessary funds. There are additional conse- be painful. The Bitcoin Law requires most electricity generators to turn to more expensive quences to the adoption of a decentralized Salvadoran merchants to accept Bitcoin as thermal production, which has driven up costs, cryptocurrency, such as the negative impact a form of payment, presumably when the Folha de S.Paulo reported last month. However, it may have on the country’s anti-money laun- law takes effect 90 days after its passage. If “shortage of energy is unlikely to happen in the dering efforts. Should El Salvador become enforced, this provision would compel mer- near future, but higher prices are expected,” a haven for money laundering, it will most chants to make costly investments in Bitcoin Renato C. Zambon, professor at the University likely see its $1 billion negotiation with the wallets and processing technology, even as of São Paulo, told the Energy Advisor in a Q&A IMF become compromised. In addition to a near-term surge in consumer-side Bitcoin published May 28. fiscal concerns, there are also implications uptake seems unlikely. Bukele’s endorse- Continued on page 4

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue ISSN 2163-7962 ment of Bitcoin might also give Salvadorans zero cost, if the sender and receiver use the misplaced confidence in the cryptocurren- same application, but there will be fees if Erik Brand cy as a savings vehicle. Especially after people need to trade from Bitcoin to dollars. Publisher [email protected] Bitcoin’s price collapse this spring, the U.S. If in a commercial transaction a person dollars remains much more reliable. With El wants dollars instead of Bitcoin, a special Gene Kuleta Editor Salvador’s per capita GDP unlikely to return trust has been constituted in the national [email protected] to pre-pandemic levels until 2024, Salvador- development bank, which will provide the Anastasia Chacón González ans should exercise caution regarding risky Reporter & Associate Editor crypto bets.” [email protected] For a government Álvaro Trigueros, director of with a debt close to 90 the department of economic percent of GDP, there studies, and Marjorie de Trigue- will be more uncer- Michael Shifter, President A ros, director of the department tainty and volatility...” Rebecca Bill Chavez, Nonresident Senior Fellow of legal studies, both at Fusades: “The — Álvaro Trigueros & Marjorie de Trigueros Bruno Binetti, Nonresident Fellow government and the Legislative Assembly Sergio Bitar, Nonresident Senior Fellow approved Bitcoin as legal tender in a matter Joan Caivano, Senior Advisor of hours, with no previous discussion, service of instant exchange and will absorb Kevin Casas-Zamora, Nonresident Senior Fellow consultation or a prior study of regulatory any risk at taxpayers’ cost. Will the trust Julia Dias Leite, Nonresident Senior Fellow impact, costs, benefits and risks. The gov- have sufficient dollars to support all daily Ariel Fiszbein, Director, Education Program ernment wants publicity and sees this as a transactions? For a government with a debt Sandra García Jaramillo, Nonresident Senior Fellow means for promoting financial inclusion and close to 90 percent of GDP, there will be Selina Ho, Nonresident Senior Fellow attracting foreign direct investment, in order more uncertainty and volatility, and the IMF Edison Lanza, Nonresident Senior Fellow to leapfrog into modernization. However, it has mentioned that Bitcoin as legal tender Nora Lustig, Nonresident Senior Fellow is not a magic wand. Bitcoin will introduce requires very careful analysis. It is unknown Margaret Myers, Director, Asia Program a level of complexity to a country where how the financial system will abide by the Manuel Orozco, Senior Fellow the U.S. dollar has been legal tender since guidelines of the Financial Action Task Force Xiaoyu Pu, Nonresident Senior Fellow 2001. Not everyone will want to hold Bitcoin, (FATF) against global money laundering and Jeffrey Puryear, Senior Fellow as prices are expressed in dollars, and for terrorist financing.” Tamar Solnik, Director, Finance & Administration daily cash transactions, many vulnerable Lisa Viscidi, Director, Energy Program households don’t have smart phones or The Advisor welcomes comments on its Q&A Denisse Yanovich, Director of Development access to the Internet. Transfers of remit- section. Readers can write editor Gene Kuleta Latin America Advisor is published every tances in Bitcoin could be made almost at at [email protected]. business day, except for major U.S. holidays, by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 Washington, DC 20005 www.thedialogue.org Subscription inquiries are welcomed at [email protected]

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