LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Thursday, August 22, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, August 22, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Will a New Panel U.S. Homeland Former Corporate VP, Cargill Security Chief Joyce Chang Global Head of Research, Fight Corruption Arrives in Panama JPMorgan Chase & Co. Acting U.S. Homeland Security Paula Cifuentes Secretary Kevin McAleenan Director of Economic & Fiscal Affairs, in El Salvador? arrived in Panama, where he is Latin America & Canada, Philip Morris International expected to discuss migrant Marlene Fernández smuggling and drug trafficking Corporate Vice President for with top officials. Government Relations, Page 2 Arcos Dorados Peter Hakim President Emeritus, BUSINESS Inter-American Dialogue Donna Hrinak Antofagasta President, Boeing Latin America Reports 44% Jon E. Huenemann Former Corporate and Earnings Rise Government Senior Executive for First Half James R. Jones Chairman, President Nayib Bukele is planning to create a new commission to fight corruption in El Salva- The Chilean copper mining com- Monarch Global Strategies dor. // File Photo: Salvadoran Government. pany said an increase in copper Craig A. Kelly production and lower costs Director, Americas International By early September, Salvadoran President Nayib Bukele boosted its earnings. Gov’t Relations, Exxon Mobil Page 3 John Maisto said he wants to establish an independent commission to Director, U.S. Education investigate corruption. The panel would be known as the Finance Group Q International Commission Against Impunity in El Salvador, ECONOMIC Nicolás Mariscal Chairman, or CICIES, and would be similar to the U.N.-backed CICIG in Guatemala. Brazil’s Senate Grupo Marhnos Does El Salvador need an independent anti-graft body, and how would OKs Measure to Thomas F. McLarty III Chairman, it do its work? What sorts of challenges would CICIES have to tackle? Cut Bureaucracy McLarty Associates How likely is it to be launched in less than a month? How well is Bukele Brazil’s Senate approved a dereg- Carlos Paz-Soldan Partner, addressing corruption and impunity in El Salvador, and what are the ulation package aimed at simpli- DTB Associates, LLP biggest differences between his approach and those of past administra- fying business in order to spur the Beatrice Rangel country’s economy. President Jair Director, tions? Bolsonaro’s administration wrote AMLA Consulting LLC the legislation, and the president Jaana Remes is expected to sign it. Mari Carmen Aponte, former U.S. ambassador to El Salvador Partner, Page 2 McKinsey Global Institute and former acting assistant secretary of state for Western Ernesto Revilla Head of Latin American Hemisphere affairs: “Unquestionably, there is a national con- Economics, Citi sensus in El Salvador about the need to combat corruption Gustavo Roosen A Chairman of the Board, and impunity. President Bukele’s election, overwhelmingly rejecting tradi- Envases Venezolanos tional political parties, came from desire for profound change and intense Andrés Rozental rejection of corruption and graft. One of Bukele’s most resounding and im- President, Rozental & Asociados portant campaign promises was the establishment of a CICIES. Specific Shelly Shetty details of the inner CICIES structure, however, do not yet appear finalized. Head of Sovereign Ratings, Latin America, Fitch Conversations as to the structures with the United Nations and the OAS Roberto Sifon-Arevalo are ongoing. Similarly, key factors such as the commission’s composition Managing Director, Americas Sovereign & Public Finance Ratings, and financing are not completely cemented. What seems to be on track is Standard & Poor’s the commission’s role in providing support and technical assistance in local investigations, but not in originating inquiries. The commission would Bolsonaro // File Photo: Brazilian Government. Continued on page 3

ECONOMIC NEWS POLITICAL NEWS NEWS BRIEFS

Brazil’s Senate Acting U.S. Homeland Brazil Moving Financial Activities Control Board Approves Measure to Security Secretary Under Central Bank Unit Reduce Bureaucracy Arrives in Panama Brazil’s government has issued a decree to move the Financial Activities Control Board, Brazil’s Senate on Wednesday passed a deregu- Acting U.S. Homeland Security Secretary Kevin or Coaf, into a new financial intelligence unit lation package aimed at boosting the country’s McAleenan arrived Wednesday in Panama, within the central bank, MercoPress reported sluggish economy by simplifying business, where he plans to discuss migrant smuggling Wednesday. The move gives the central bank The Wall Street Journal reported. Measures and drug trafficking with officials in the Central president control over who heads the new unit, include launching a fast-track process to open American country, the Associated Press as well as which officials are appointed to it. new firms, waivers for some permit require- reported. McAleenan said he is not seeking The Financial Intelligence Unit is designed to ments and expanding the acceptance of digital any specific agreement during his trip. On produce and manage financial intelligence documents, among others. “It is an attempt to Wednesday morning, The Washington Post re- information “for the prevention and combat of level Brazil’s regulatory environment with that ported that the Trump administration wants to money laundering, terrorist financing and the of global economic powerhouses by reducing designate Panama a “safe third country,” which financing of the proliferation of weapons of the state’s interference in business,” André would allow it to send asylum seekers there mass destruction,” according to the decree. if they passed through the country on their Brazil ranks 109th of way to the United States. There is a growing number of migrants from locations including 190 nations in the World Africa and Asia who arrive in South America Argentina to Use Dollar Bank’s Ease of Doing and make their way through Panama en route Reserves to Bolster Peso: Business index. to the United States, the newspaper reported. New Finance Minister Last month, McAleenan reached a deal with the Argentina will use its dollar reserves to shore Guatemalan government that would allow the up declines in its currency, said new Finance Marques, a lawyer with the firm Guerra Batista, United States to send asylum seekers there if Minister Hernán Lacunza, as debt ratings told The Wall Street Journal. “They will let mon- agency Fitch warned that the peso’s recent ey circulate more freely.” Brazil is well known depreciation “suggests a real risk of default,” for its crippling bureaucracy, with the country BBC News reported. The run on the peso also ranking 109th out of 190 nations in the World “raises the potential for a sharper deterioration Bank’s Ease of Doing Business index, lower in economic growth,” Fitch added. than 10 other Latin American countries, including Mexico, Chile and Colombia. Opponents of the deregulation package have expressed concern over its implications on labor rights Fintechs Aiding Financial and environmental protections. “This is very McAleenan // File Photo: U.S. Dept. of Homeland Security. Inclusion, Not Displacing harmful,” said opposition Senator Humberto Costa from the Workers’ Party, The Wall Street they transited Guatemala first. Five days after Large Banks: Moody’s Journal reported. “Reducing bureaucracy won’t signing the safe third country agreement with Fintechs in Mexico will not displace larger create jobs,” he added. Others have criticized Guatemala, McAleenan traveled to Guatemala banks, but they will foster financial inclusion, a regulatory change that allows businesses to City, where he met with business leaders, Moody’s said in a note on Wednesday. While operate without getting environmental permits. reporters and other prominent Guatemalans fintechs will focus on expanding services to the President Jair Bolsonaro is now expected to and said the United States was negotiating unbanked and underbanked, which are a siz- quickly sign the bill into law. Economic activity with Panama, Brazil, Honduras and El Salva- able portion of the population in Mexico, they in Brazil fell slightly in the second quarter, dor. “You have to have partnerships between will not be displacing large Mexican banks any suggesting the country may have slipped into the source, transit and destination countries,” time soon, Moody’s said, adding that smaller recession, Reuters reported. [Editor’s note: McAleenan said, The Washington Post reported banks might lose customers to new entrants if See related Q&A in the July 24 issue of the Aug. 1. On Wednesday morning before he they fail to adapt to digitization. [Editor’s note: Advisor.] departed for Panama, McAleenan said his See related Q&A in last week’s issue of the Financial Services Advisor.]

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Thursday, August 22, 2019 trip was part of a “broader agenda” and not FEATURED Q&A / Continued from page 1 to negotiate a specific deal. “We’re going to talk about our broad security relationship, and include aspects of prevention and reform, will be working with the principal partner, the building on a strong foundation for partnership conducting educational campaigns, thus attorney general’s office, a proven necessary and information-sharing with Panama,” he told incorporating elements of transparency and relationship for successful joint investiga- The Washington Post. McAleenan added he accountability. Depending on details, this tions. The current prosecutor, however, has also wants to make Colombia and Costa Rica could be a useful tool, if effective. There is not shown interest in dealing with complex part of the discussion on handling migration not a lot of time left before September. It is crimes, and furthermore, influence-peddling flows, the Associated Press reported. [Editor’s positive that a few high-ranking officials are networks permeate the office itself. To be note: See related Q&A in the Aug. 6 issue of the working on this project with great commit- a legitimate institution, CICIES must shed Advisor.] ment and dedication. Few actions in the first light on the structures and practices of 100 days of the Bukele administration could illegal networks inside and outside the state be as crucial and send as strong and robust that have survived and evolved since the BUSINESS NEWS signal of change, nationally and internation- wartime era. It is imperative to build ample ally, as a credible CICIES commission. This and sustainable international and national would be an enormous and important con- support at every turn. Otherwise, there is the Chile’s Antofagasta trast with past administrations. Accordingly, risk that this commission could become the Reports 44% Earnings the body’s unveiling should be presented in government’s instrument to merely purge all its details with multisector participation political enemies.” Rise for First Half by civil society. If Salvadorans are to support this commission, it is important that they Michael Camilleri, director of Chilean copper miner Antofagasta today fully understand its scope and reach.” the Peter D. Bell Rule of Law reported higher earnings in the first half of the program at the Inter-American year, as compared to the same period last year, Katya Salazar, executive direc- A Dialogue: “The creation of boosted by an increase in copper production tor of the Due Process of Law CICIES was a central campaign promise and lower costs. Earnings were up to $1.3 bil- Foundation: “Much like its neigh- of President Bukele. That promise was a lion, a 44 percent increase from the $904.2 mil- A boring countries, El Salvador suf- testament to the success of CICIG in next lion registered a year earlier. “While the outlook fers from entrenched high-level corruption by door Guatemala. Citizens of El Salvador, like for the copper market remains uncertain with elites, including three former presidents, and those of Honduras, wanted what they saw in the protracted negotiations between the USA widespread organized criminal violence that Guatemala: an institution with the indepen- and China impacting global trade, Antofagasta remain covered and unpunished. The new dence, capacity and authority to buttress continues to be in a strong position generating president, Nayib Bukele, largely based his the national justice system and hold corrupt solid cash flows and improving returns,” the electoral success on his promise to tackle networks to account. Bukele’s announce- miner said. For the year through June, Antofa- corrupt actors by establishing the Interna- ment that he is moving forward with CICIES gasta produced 387,300 metric tons of copper, tional Commission Against Impunity, CICIES. is encouraging. While former Salvadoran the company said, adding that it expects this Bukele’s aggressive launch date for CICIES Attorney General Douglas Meléndez brought year to see another “record production” with a next month seems unreasonable as border- high-profile corruption prosecutions against target of between 750,000 and 790,000 metric ing models such as CICIG and MACCIH were ex-presidents Antonio Saca and Mauricio tons of copper. The metal’s prices have slid 4 the products of years of social advocacy Funes, there are continuing questions about percent this year, reaching their lowest level and difficult negotiations with international the Salvadoran justice system’s commitment in two years in August after U.S. President bodies (the United Nations and OAS). As and capability to tackle the corruption that Donald Trump said he would expand tariffs on previous experiences suggest caution and a has at times penetrated the state at the high- Chinese imports, the Financial Times reported. realistic development process, Bukele’s in- est levels. CICIES will face at least two early The U.S.-China trade war has been weighing tentions have been met with skepticism. Not challenges. The first is one of institutional on Chile’s economy, which expanded by 0.8 only has his proposal not garnered enough design. Bukele and his vice president, Félix percent in the second quarter, as compared to attention from the international community Ulloa, have proposed to combine aspects of the previous quarter, La Tercera reported, citing or local civil society, but more concerning is the United Nations’ CICIG in Guatemala and a central bank report. Trade tensions have that the scope and structure of such a com- the Organization of American States’ MAC- particularly affected the country’s mining sec- mission, as well as its international spon- CIH in Honduras. This is sensible in theory tor, which grew just 0.2 percent in the second sorship, remain uncertain. A clear challenge but could prove complex in practice, and it quarter from a year ago. 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 © 2019 will be important that CICIES enjoy CICIG’s cuting three former presidents and other broad investigative mandate rather than the high officials. However, a report that CSIS Erik Brand more narrow one of MACCIH. The second published last year based on civil society Publisher [email protected] challenge will be securing the requisite sup- diagnostics showed a country with glaring port of the legislature, where Bukele does vulnerabilities to corruption. A CICIES could Gene Kuleta Editor not have a majority and where there may be offer a strong mechanism to investigate and [email protected] resistance to the heightened accountability.” offer policy reforms to counter the flawed Anastasia Chacón González process for selecting high court judges Reporter Beatrice Rangel, member of and attack judicial corruption itself. That [email protected] the Advisor board and director proposal from President Bukele is a major of AMLA Consulting in Miami

Beach: “President Nayib Bukele A Michael Shifter, President is on the right track. Except for Brazil, Chile, To succeed, it Rebecca Bill Chavez, Nonresident Senior Fellow Costa Rica and Uruguay, all Latin American will require the con- Sergio Bitar, Nonresident Senior Fellow countries need an international institutional tinued strong political Joan Caivano, Director, Special Projects framework to effectively fight corruption. support of President Michael Camilleri, Director, Rule of Law Program For too many centuries, economic progress Bukele, Vice Kevin Casas-Zamora, Nonresident Senior Fellow has mainly been based on rent extraction President Ulloa, civil Héctor Castro Vizcarra, Nonresident Senior Fellow in lieu of wealth creation. This creates a society and its inter- Julia Dias Leite, Nonresident Senior Fellow corporativist society where the few are part national partners.” Ariel Fiszbein, Director, Education Program of the whole, while the many are extras in Peter Hakim, President Emeritus — Mark L. Schneider an economic motion film. Corporativism Nora Lustig, Nonresident Senior Fellow establishes strong economic and political Margaret Myers, Director, Asia and links among the elites who play leading roles break with the past and a first step in imple- Latin America Program in the corruption script. Add to this the fact menting his commitment to transparency Manuel Orozco, Director, Migration, Remittances & Development that, except for Brazil and Mexico, we are and anti-corruption. It also would be a way Xiaoyu Pu, Nonresident Senior Fellow dealing with small markets where there is to investigate illegal campaign financing, Jeffrey Puryear, Senior Fellow little room for several players in the procure- conflicts of interest in a civil service system Mateo Samper, Nonresident Senior Fellow ment of goods and services and there are still based largely on 50-year-old laws that Tamar Solnik, Director, Finance & Administration incentives to collude against transparency. enable preferential rather than merit-based Lisa Viscidi, Director, Energy Program Thus, there is no way national institutions hiring and promotion, and remedy a woefully Denisse Yanovich, Director of Development and will impartially bring the corrupt to trial. inadequate capacity to prevent Ode- External Relations Bukele’s approach is different to his pre- brecht-like suborning of public procurement decessors’ in the fact that he understands and contracting. To succeed, it will require Latin America Advisor is published every business day, except for major U.S. holidays, how globalization can better contribute to the continued strong political support of by the Inter-American Dialogue at political development. Perhaps he should President Bukele, Vice President Ulloa, civil 1155 15th Street NW, Suite 800 Washington, DC 20005 include the UNCAC Coalition as part of the society and its international partners, par- www.thedialogue.org institution that will oversee corruption.” ticularly the United States, and those in the ISSN 2163-7962 private sector who understand that without Subscription inquiries are welcomed at Mark L. Schneider, former State the rule of law, El Salvador cannot achieve [email protected] Department Human Rights Bu- its development goals. CICIG in Guatemala, The opinions expressed by the members of the Board of reau principal deputy assistant unfairly tarred by public and private targets Advisors and by guest commentators do not necessarily secretary and senior advisor at of its investigations, helped Guatemala’s represent those of the publisher. The analysis is the sole A view of each commentator and does not necessarily the Center for Strategic and International attorneys general disband 60 criminal net- represent the views of their respective employers or firms. Studies: “El Salvador has done a decent job works and drug traffickers, convict hit squad The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, recently through former Attorney General leaders and corrupt former high officials and nor the opinions based thereon, are guaranteed. If you have Douglas Meléndez and a dedicated consti- end the belief that the elite were untouch- any questions relating to the contents of this publication, tutional court in investigating and prose- able even when they violate the law.” 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.