LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, October 22, 2018

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, October 22, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs What’s the Outlook Thousands of Cargill Joyce Chang Migrants Regroup Global Head of Research, for Copper Prices & in Mexico on JPMorgan Chase & Co. Dirk Donath Journey North Senior Partner, The caravan of Honduran migrants Catterton Aimara Chile’s Economy? crossed from Guatemala into Marlene Fernández Mexico where some splintered Corporate Vice President for Government Relations, off. Many regrouped, however, Arcos Dorados and continued their journey north Peter Hakim toward the United States. President Emeritus, Page 2 Inter-American Dialogue Donna Hrinak President, Boeing Latin America BUSINESS Jon Huenemann Vice President, U.S. & Int’l Affairs, Laub Resigns as Philip Morris International Chief Executive of James R. Jones Chairman, Credicorp Capital Monarch Global Strategies Chile needs a rebound in copper prices in order to finance its agenda, Mining Minister Baldo Christian Laub is stepping down Craig A. Kelly Prokurica said earlier this year. A worker at state-run copper producer Codelco is pictured from the helm of the Peruvian Director, Americas International above. // File Photo: Codelco. financial holding company, which Gov’t Relations, Exxon Mobil The value of Chile’s copper exports fell 17 percent in he has led as CEO for more than John Maisto six years. Director, U.S. Education September, compared to the same month last year, amid Finance Group Page 3 price volatility surrounding the metal, the South American Nicolás Mariscal Chairman, Q country’s top export product. Meantime, President Sebastián ECONOMIC Grupo Marhnos Piñera announced an expenditure increase of just 3.2 percent in next Thomas F. McLarty III Argentine Peso Chairman, year’s budget, the lowest level of public spending expansion in eight McLarty Associates years, several months after his mining minister said a rebound in copper Not Yet Stable: Carl Meacham Bank Chief Associate VP for Latin America prices was “essential” for implementation of Piñera’s government plans. Int’l Advocacy Division, PhRMA What is the outlook for global copper prices in the near future, and how Guido Sandleris, who took over Carlos Paz-Soldan may this affect Chile’s economy in the short and long term? How much last month as Argentina’s central Partner, bank chief, said in an interview DTB Associates, LLP do Piñera’s proposals, including pension reforms and a student loans that it is “definitely too soon” to Beatrice Rangel fund, rely on revenue from copper output? Does he have plans to diversi- declare the country’s currency to Director, AMLA Consulting LLC fy the Chilean economy? be stable. Page 2 Ernesto Revilla Head of Latin American Economics, Citi Marcos Lima, former executive president of Codelco and Gustavo Roosen partner at CIS Consultores: “Though the sharp drop in Chairman of the Board, Envases Venezolanos exports in September may have been an isolated case, when Andrés Rozental it’s added to a fall in the price of copper of around 10 percent President, Rozental & A Asociados and Senior compared to September last year and a decrease in production associ- Policy Advisor, Chatham House ated with the long festivities of ‘Fiestas Patrias’ and other factors, it’s Shelly Shetty Head of Sovereigns Ratings, clear the future of copper prices depends, fundamentally, on what occurs Latin America, Fitch in the trade war between China and the United States. In fact, with China Roberto Sifon-Arevalo Managing Director, Americas accounting for more than 50 percent of global copper demand, it is im- Sovereign & Public Finance Ratings, possible to avoid the trade war’s uncertainty, despite supply and demand Standard & Poor’s and the growth of the global economy showing favorable signs of higher copper prices in the near future. Speculative investment funds, very Sandleris // File Photo: Argentine Government. Continued on page 3

POLITICAL NEWS suit against Ecuador’s foreign minister, José NEWS BRIEFS Valencia, and attorney general, Íñigo Salvador, Migrant Caravan for “violating [Assange’s] fundamental rights Brazilians Take to Streets and freedoms” after the embassy on Oct. 13 in Competing Rallies Regroups in Mexico, imposed new rules regarding the WikiLeaks founder’s visitation rights, communications and For, Against Bolsonaro Heads Toward U.S. even care of his cat. Ecuador granted Assange, Tens of thousands of Brazilians rallied across who was avoiding extradition to Sweden for 15 of the country’s states on Sunday in support A caravan of Honduran migrants heading to the questioning regarding rape allegations that of far-right presidential candidate Jair Bol- United States has regrouped in Mexico after have since been dropped, political asylum sonaro, the Associated Press reported. A day crossing the country’s southern border illegally in 2012. He still faces a charge in Britain for earlier, anti-Bolsonaro Brazilians came out to over the weekend, The Wall Street Journal skipping bail and is wanted by U.S. officials protest the front-runner’s candidacy, shouting reported Sunday. Thousands of Hondurans in connection to leaking classified govern- “ele não,” or “not him.” The rallies came one fleeing poverty and violence in their country ment documents on his website and alleged week before the runoff between Bolsonaro and continued north from a town at the Mexi- involvement in Russian interference in the U.S. Workers’ Party candidate Fernando Haddad, co-Guatemala border after Mexican border presidential election in 2016, USA Today report- who is trailing the former army captain in the officials refused to let them in on Friday and ed. The South American country has toughened latest polls. Saturday. At least several hundred returned to restrictions after President Lenín Moreno Honduras by bus, another group stayed to ask came into power in May of last year, including Mexico for asylum and others crossed into banning Assange’s access to the Internet in Mexico illegally. There are some 3,000 people December. The new rules limit his visitors and Chilean Court Orders in the new group, Agence France-Presse report- communication and force Assange to clean his Church to Pay Men ed. Since the migrants began their journey from bathroom and take better care of his pet cat, Allegedly Abused by Priest Honduras, U.S. President Donald Trump has El Universo reported. A domestic Ecuadorean Chile’s Court of Appeal has ordered the taken to Twitter to demand that Mexico stop court will hear the case this week. archbishop’s office in Santiago to pay a total them from advancing to the United States. “Full of $650,000 to three men who have alleged efforts are being made to stop the onslaught of that they were sexually abused by a priest, Fer- illegal aliens from crossing our Souther[n] Bor- ECONOMIC NEWS nando Karadima, La Tercera reported Sunday. der,” Trump tweeted on Sunday. “People have A three-judge panel accepted the appeal for to apply for asylum in Mexico first, and if they “moral damages” against the Catholic Church fail to do that, the U.S. will turn them away.” It Too Soon to Declare for covering up the incidents, the newspaper is unclear how Mexican authorities will handle Stability in Argentine reported. A lower court previously rejected the second caravan, which arrived in Tapachu- the case citing a lack of evidence, Reuters la, in Chiapas State, on Sunday afternoon after Peso: Bank Chief reported. a nine-hour walk. Along the way, local residents and churches handed out water, food and baby It is “definitely too soon” to declare that diapers, and Mexicans shouted out “Good luck! Argentina’s peso has returned to stability, the Good luck!” to the migrants passing by, The country’s new central bank chief told the Finan- Mexico’s Banorte Wall Street Journal reported. cial Times in an interview published today. “The Reports 26% Increase in global financial storm sometimes quietens Profit for Third Quarter down, then it regains force and that could Assange Sues happen [again],” Guido Sandleris, who became Mexico’s Banorte reported a net profit of 7.82 Ecuador Over the head of the central bank last month, told billion pesos, or $417 million, in the third quar- the newspaper. The peso has strengthened 10 ter, a 26 percent increase from the same period New House Rules percent against the U.S. dollar since Argentina a year ago, Reuters reported Friday. Moreover, put in place a new program backed by the the Mexican bank said consumer credit and Julian Assange, who has taken refuge at the International Monetary Fund. In late September, demand for autos and housing boosted its loan Ecuadorean embassy in London for six years, is the IMF agreed to increase its credit line to Ar- portfolio by 25 percent, in comparison to the suing the South American country’s govern- gentina to approximately $57 billion over three third quarter last year, to 751.7 billion pesos. It ment, El Universo reported Friday. Assange’s years. That was about $7 billion more than the was the first report that included the results of lawyer, Baltasar Garzón, arrived in Quito to file lender had announced in June. At the time the Grupo Financiero Interacciones, which Banorte acquired earlier this year.

September deal was announced, Argentina had FEATURED Q&A / Continued from page 1 already received $15 billion in loans and would have access to another $19 billion by the end vulnerable to the trade war’s uncertainty, are and early this year, the assumption was that of 2019, Bloomberg News reported. In return affecting short-term copper prices. However, President Piñera would benefit as much from for the bailout, Argentine President Mauricio we can’t forget that Chile’s budget calculates it in his second term (2018-2022) as he did Macri and Sandleris had to agree to step up fiscal revenue using long-term prices, which in his first (2010-2014). The first half of this budget savings and also freeze the country’s an expert panel conservatively estimated year seemed to bear this out, with growth of supply of money in order to fight inflation. The would undergo a slight increase. This in South American country’s monthly inflation turn implies more revenue coming from the rate stood at 6.5 percent in September, the copper industry, regardless of what happens Financial Times reported. Sandleris told the to the metal’s price over the next year. No major plans to newspaper that the central bank has a “sad Nevertheless, expenditures will be financed diversify the economy record” and must rebuild its credibility. “Con- more by a hike in trend GDP growth than are in the offing.” fidence and credibility are two things that are by copper, another variable that influences very delicate ... They break very easily and are budget estimates. The biggest concern for — Jorge Heine difficult to rebuild,” he said. Argentina’s peso the future of the copper industry in Chile and the Brazilian real are the only two emerging has to do with a drop in ore grades and the market currencies that have strengthened absence of new mines, which implies more against the dollar over the past two weeks. investment without correlating production The peso was at nearly 42 to the dollar before increases. This will result in no significant 4.2 percent in the first quarter, 5.3 percent the implementation of the country’s economic increases in tax revenues for the country, ex- in the second quarter and 4.8 percent in the plan. It has since strengthened to about 26.50 cept if there is a new boom in copper prices, first half overall. Yet, the fall in the copper per greenback. [Editor’s note: See related Q&A which is not expected at present.” price since then (largely due to the U.S.-Chi- in the Oct. 15 issue of the Advisor.] na trade spat) has changed this. Projections Jorge Heine, former ambassa- now are of a price of $2.95 per pound for dor of Chile to China, India and 2018, $2.85 in 2019 and $2.80 in 2020, well BUSINESS NEWS South Africa, and a public policy below earlier ones (and far from the nearly A fellow at the Woodrow Wilson $4.50 per pound at its earlier peak). The International Center for Scholars in Wash- result has been a relatively restrictive fiscal Laub Resigns as ington: “There is a close correlation between budget for 2019. Although Chile’s public debt Chief Executive of the price of copper and Chile’s economic is low (25 percent of GDP), there is no appe- growth. At the height of the commodity’s tite to increase it. With the average monthly Credicorp Capital boom from 2010 to 2013, Chile did very well, pension being paid to male beneficiaries by growing at over 5 percent. Growth dropped the private pension system at 150,000 pesos Peruvian financial holding company Credicorp off sharply between 2014 and 2017, as the (a little more than $230) in 2018, in a country Capital’s chief executive, Christian Laub, re- bottom fell out of the copper market. With with a high cost of living, pension reform is signed from his post after more than six years the rise of the price of copper late last year urgent, and a bill may soon be submitted to Continued on page 4

countries in Latin America. “Credicorp has changes take effect on Jan. 1. The firm had un- strengthened its regional model and is now in a dergone structural changes last year, merging new stage of consolidation and integration with the wealth units of Credicorp and of its sister its Peru wealth management business, which bank Banco de Crédito del Peru, or BCP, into brings along structural changes that will allow a single division to bring BCP’s advisory busi- us to continue bolstering the service offering ness to Colombia and Chile, the wire service for all the clients in Chile, Colombia and Peru,” reported. Montero, who previously led BCP’s the financial company said in a statement after $11 billion advisory wing, was named head of Laub // File Photo: Credicorp Capital. announcing Laub’s resignation in a regulatory the combined unit last July. Mariano Baca, who with the firm, El Comercio reported Friday. filing, CityWire reported. Eduardo Montero, currently manages BCP’s corporate banking The move came as Credicorp seeks to expand who currently serves as Credicorp’s wealth unit, will take Montero’s place, according to a its wealth management brand across other management head, will replace Laub when the spokesperson for Credicorp, CityWire reported.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2018 Congress. No major plans to diversify the boosting production while diversifying its economy are in the offing.” exportable offer, which is still concentrated Erik Brand in a few products and companies, with Publisher [email protected] Andrés Rebolledo, former direc- more urgency. Four percent of all exporting tor of Chile’s general director- companies represent 90 percent of the total Gene Kuleta Editor ate of international economic export value, and only 1.8 percent of small [email protected] relations and former minister enterprises are able to export. In this con- A Anastasia Chacón González of energy of Chile: “The global economic text, Chile at present has a historic opportu- Reporter scenario has changed as a result of U.S. [email protected] President Donald Trump’s measures. Global- ization is suffering a rollback, as ‘Brexit’ and Chile could be caught the emergence of far-right forces in our re- in the crossfire of Michael Shifter, President gion show. Global economic principles have the two superpowers, Genaro Arriagada, Nonresident Senior Fellow been weakened, and international economic with regrettable Sergio Bitar, Nonresident Senior Fellow cooperation has been put in doubt. The trade consequences.” Joan Caivano, Director, Special Projects war has escalated, with the biggest fear Michael Camilleri, Director, Peter D. Bell Rule of Law being that it will expand to other aspects — Andrés Rebolledo Program such as industrial politics and technologi- Kevin Casas-Zamora, Nonresident Senior Fellow cal development. In this dispute, there are Ariel Fiszbein, Director, Education Program many losers, and Chile is one of them, since Alejandro Ganimian, Nonresident Fellow its economic model, based on open trade, nity for its future economic development. We Peter Hakim, President Emeritus greatly depends on international markets must undertake all public and private actions Claudio Loser, Senior Fellow and China (25 percent of its exports and 7 possible to take advantage of our copper Nora Lustig, Nonresident Senior Fellow percent of its GDP). Chile could be caught in and lithium within the current global context Margaret Myers, Director, Asia and Latin America Program the crossfire of the two superpowers, with of energy transition toward cleaner energies Manuel Orozco, Director, Migration, regrettable consequences. In fact, the latest and electric transportation. To do this, we Remittances & Development adjustments to world growth have already must develop new productive capacities in Jeffrey Puryear, Senior Fellow discounted up to 10 percent from the fore- sectors with greater added value and greater Tamar Solnik, Director, Finance & Administration casts made in the beginning of the year, with incorporation of technology.” Lisa Viscidi, Director, Energy Program uncertainty hitting international copper de- Denisse Yanovich, Director of Development and mand. It is likely that natural resources will The Advisor welcomes comments on its Q&A External Relations again gain strategic importance, and for this section. Readers can write editor Gene Kuleta Latin America Advisor is published every reason, Chile must address the challenge of 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 LATIN AMERICA ADVISOR www.thedialogue.org ISSN 2163-7962 Subscription inquiries are welcomed at Financial [email protected] The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily represent those of the publisher. The analysis is the sole Services Advisor view of each commentator and does not necessarily represent the views of their respective employers or firms. The answers to questions that informed The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, executives are asking. nor the opinions based thereon, are guaranteed. If you have any questions relating to the contents of this publication, Upgrade your subscription with the Inter-American Dialogue’s contact the editorial offices of the Inter-American Dialogue. biweekly Financial Services Advisor. Send an email to Contents of this report may not be reproduced, stored in a SUBSCRIBE retrieval system, or transmitted without prior written permis- [email protected] today. sion from the publisher.