LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Thursday, April 23, 2020

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, April 23, 2020

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Is Political Discord U.S. Defense CEO, DevryBV Sustainable Strategies Department Joyce Chang Global Head of Research, Endangering the Wants Mexico to JPMorgan Chase & Co. Reopen Factories Paula Cifuentes Director of Economic & Fiscal Affairs, Lives of Brazilians? The U.S. Defense Department is Latin America & Canada, encouraging Mexico to reopen Philip Morris International factories that produce items Marlene Fernández needed for the supply chain of Corporate Vice President for U.S. defense companies. Government Relations, ? Arcos Dorados Page 2 Peter Hakim President Emeritus, ECONOMIC Inter-American Dialogue Donna Hrinak Maduro Eyes President, Boeing Latin America Jon E. Huenemann Reimplementing Former Corporate and Price Controls Government Senior Executive Venezuelan President Nicolás James R. Jones Brazilian Health Minister Luiz Henrique Mandetta was fired after repeatedly clashing with Chairman, Maduro said he may reimplement the country’s president over the handling of the Covid-19 pandemic. // File Photo: Brazilian Monarch Global Strategies Government. strict price controls on basic Craig A. Kelly goods due to the economic fallout Director, Americas International Following a standoff that lasted for weeks, Brazilian Pres- of the coronavirus pandemic. Gov’t Relations, Exxon Mobil Page 3 John Maisto ident Jair Bolsonaro on April 16 fired his popular health Director, U.S. Education minister, Luiz Henrique Mandetta, who called for social Finance Group Q distancing in order to fight Covid-19. Mandetta’s stance ECONOMIC Nicolás Mariscal Chairman, conflicted with Bolsonaro’s downplaying of the pandemic and his call Region Facing Grupo Marhnos to reopen schools and businesses. State governors in Brazil have also 5.3% Economic Thomas F. McLarty III Chairman, rebelled against Bolsonaro, saying he is endangering public health. How Drop: ECLAC McLarty Associates is the clash between Bolsonaro and his critics affecting Brazil’s handling Latin America and the Caribbean Carlos Paz-Soldan Partner, of the pandemic? Will this dysfunction derail the Brazilian economy’s are facing their worst economic DTB Associates, LLP ability to recover? What actions must Brazil’s federal and state gov- contraction on record this year, Beatrice Rangel according to a report by the U.N. Director, ernments—and new Health Minister Nelson Teich—take now in order to Economic Commission for Latin AMLA Consulting LLC protect public health and the economy? America and the Caribbean, led by Jaana Remes Alicia Bárcena. Partner, Page 2 McKinsey Global Institute Carlos Eduardo Lins da Silva, global fellow at the Woodrow Ernesto Revilla Head of Latin American Wilson International Center for Scholars and professor Economics, Citi at Insper College in São Paulo: “Mandetta publicly defied Gustavo Roosen Chairman of the Board, Bolsonaro several times on federal health policies. The main Envases Venezolanos A dispute was about the speed with which social-distancing measures Andrés Rozental should be ended in order to reopen the economy. But decisions on this President, Rozental & Asociados issue are up to governors and mayors, not the president or a government Shelly Shetty minister, as the Supreme Court has ruled. The federal government can Managing Director, Sovereigns Fitch Ratings recommend what to do, but the decision is for the regional and municipal levels to make. Most governors agree with Mandetta’s approach of a slower reopening of businesses rather than Bolsonaro’s stance in favor of a faster end to the quarantine. Incoming Health Minister Nelson Teich is an obscure oncologist with little practice of medicine and no political Bárcena // File Photo: ECLAC. Continued on page 3

POLITICAL NEWS tion of 4.9 percent. “The effects of Covid-19 NEWS BRIEFS will cause the biggest recession that the region Pentagon Wants has suffered since 1914 and 1930. A sharp Remittances to Latin increase in unemployment is forecast, with America, Caribbean to Fall Mexico to Reopen negative effects on poverty and inequality,” said ECLAC Executive Secretary Alicia Bárcena. 19.3 Percent: World Bank Manufacturing Plants Before the pandemic struck, the region had Remittances sent home by migrants from low- seen nearly seven years of low growth, aver- and middle-income countries are expected The U.S. Defense Department is encouraging aging less than 0.5 percent, according to the to fall approximately 20 percent this year Mexico to reopen some of its factories that United Nations. The economic damage of the amid the economic slowdown brought by the produce items for the supply chain of U.S. de- pandemic includes lower levels of internation- coronavirus pandemic, the World Bank said fense companies, CNBC reported Wednesday. al trade, plunging commodity prices, lower on Wednesday. The flow of remittances to “I think one of the key things we have found out demand for tourism and a fall in remittances countries in Latin America and the Caribbean is are some international dependencies,” Ellen to the region, it added. ECLAC’s report projects likely to drop 19.3 percent, the bank said. [Ed- Lord, the Defense Department’s undersecretary a 5.2 percent contraction for South America, a itor’s note: See related Q&A in the latest issue for acquisition and sustainment, told reporters 2.3 percent drop for Central America and a 1.5 of the biweekly Financial Services Advisor.] this week at the Pentagon. “Mexico right now is percent fall for the Caribbean. somewhat problematic for us.” Many Mexican suppliers of products used by U.S. defense firms, particularly aircraft manufacturers, Argentina Doesn’t Trump Signs Order to have halted production due to the coronavirus Make Debt Payment, Suspend Issuance of Some pandemic. Lockheed Martin, Boeing, Honeywell Green Cards, Work Visas and Textron, among other companies, rely on Raising Default Risk U.S. President Donald Trump on Wednesday Mexican factories. Lord said she and the U.S. signed an executive order that will suspend the ambassador to Mexico, Christopher Landau, Argentina did not make foreign debt payments issuance of certain green cards and temporary discussed the effects of the plants’ closures. due on Wednesday, a move that risks pushing work visas for 60 days, a long-stalled immi- Lord added that she plans to also discuss the the country to a possible default next month gration measure, CNBC reported. Trump said matter with Mexican Foreign Secretary Marcelo unless the government and bondholders can the move seeks to preserve U.S. jobs amid the Ebrard. “These companies are especially economic devastation caused by the Covid-19 important for our U.S. airframe production,” pandemic, but it is widely viewed by both sides said Lord. of the immigration debate as driven more by than politics than policy, according to the report. There are several exemptions, including ECONOMIC NEWS for those seeking entry to work as physicians and nurses. Region Facing 5.3% Economic Drop Guzmán // File Photo: @Martin_M_Guzman via Twitter. Chilean Miner Antofagasta This Year: ECLAC agree on the restructuring of tens of billions of Cuts Capital Expenditures, dollars in sovereign debt, The Wall Street Jour- Lowers Output Guidance The economic fallout of the coronavirus pan- nal reported. The Argentine Economy Ministry demic is projected to cause a contraction of said in a statement that it would instead use Chilean miner Antofagasta is reducing its cap- 5.3 percent this year in Latin America and the a 30-day grace period on approximately $500 ital expenditures for this year and said its cop- Caribbean, the deepest contraction ever, the million in interest payments for three foreign per production will be at the lower end of its U.N. Economic Commission for Latin America bonds. “The Republic of Argentina ratifies its previous guidance because of the coronavirus and the Caribbean, or ECLAC, said in a report willingness to pay, even in the challenging pandemic, Mining Technology reported today. released Tuesday. The last time the region saw international context generated by the Covid-19 The company is lowering its capital expendi- contractions of the magnitude expected this pandemic,” the ministry added. Investors tures to less than $1.3 billion from $1.5 billion. year was 1930, when there was a drop of 5 per- expected Argentina to miss the payment after However, Antofagasta said its production rose cent, and 1914, when the region saw a contrac- Economy Minister Martín Guzmán last week 4.6 percent in the first quarter as compared to the fourth quarter of last year.

COPYRIGHT © 2020, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Thursday, April 23, 2020 proposed the restructuring of some $65 billion FEATURED Q&A / Continued from page 1 in foreign bonds, an offer that involved issuing new debt with lower interest rates, later due experience. (Mandetta is a former congress- and investment). Since the macroeconomic dates and a three-year moratorium on foreign man.) Teich focused his career on health indicators, such as interest rates, inflation, debt payments. Bondholders, including some economics and management. He is likely to reserves and the foreign trade balance, are of the world’s largest money managers as well be much more discrete and accommodating favorable, the Brazilian economy’s ability to as small retail investors, rejected the proposal than Mandetta was. Brazilian economic recover may be surprisingly rapid. Bolsona- earlier this week, saying it puts a dispropor- activities will suffer a lot either way. Indus- ro’s recent rhetoric against Congress and the tionate burden on international bondholders. trial production was stalled even before Supreme Court should be seen in the context “The other side is looking for Argentina to offer the disease was detected in the country. of his confrontational attitude as a method more,” Guzmán said on Tuesday, referring to Prospects for passing the needed structural of governing.” creditors, Clarín reported. “But offering more is reforms were dim since last year because of unsustainable, and it’s something that we are Bolsonaro’s inability to deal with Congress or Wesley Mendes da Silva, not going to do,” he added. even to unite his own base and his cabinet. professor of finance at the Neither Mandetta nor Teich would be able to Fundação Getúlio Vargas Venezuela’s Maduro alter this reality.” A business school: “Bolsonaro’s election in 2018 has led to strong polariza- May Reimplement Rubens Barbosa, former am- tion in Brazil. Bolsonaro’s political position bassador of Brazil to the United can be seen as disruptive, having reduced Price Controls States: “Since the beginning of the granting of positions and money as had A the pandemic crisis, the debate been done under the old political ways. This Venezuelan President Nicolás Maduro said on on how to deal with Covid-19 in Brazil has certainly causes disaffection, including Wednesday that he could reimplement strict been very similar to the discussion taking among mayors, governors and members of price controls on basic goods as the economic place in the United States. Presidents of Congress. Covid-19 has emerged in this at- fallout from the coronavirus outbreak and an both countries have made very similar mosphere, so political disputes can be seen acute gasoline shortage prompt inflation to ac- recommendations in relation to medicines in the context of the next presidential elec- celerate, Reuters reported. His government last and timing of stay-at-home policies and tion. The executive branch faces a dilemma: year had relaxed enforcement of decades-long have even had similar disagreements with suspend any and all activities that involve price controls in order to allow the private sec- governors. In Brazil, Bolsonaro is isolated social contact and accept the economic loss tor to play a bigger role in the import and sale and is making very unpopular decisions, or consider less-extreme measures and con- of goods in the face of tough U.S. sanctions such as replacing the minister of health and serve some level of economic activity. That against the government. However, consumer trying to impose a rapid end to stay-at-home was the conflict between Bolsonaro and his prices have started to rise in recent weeks, policies in order to reactivate the economy. former health minister. Making decisions partially driven by significant gasoline shortag- We have to wait to see if the new health based on fragile information is always up es, which have hurt the transport of products. minister will change the current quarantine for debate. Except for supermarkets, most “I have given precise instructions to tackle policy. Governor João Doria announced Brazilian businesses are starving. Now that speculation by those sectors of the economy Wednesday that São Paulo state would a new health minister has been appointed, it that do not want to cooperate with the country,” gradually reopen its economy, starting remains to be seen in which direction Brazil Maduro said in a televised address, Reuters May 11. Part of the business community will go. More testing for Covid-19 must be reported. “All the mechanisms to regulate is lobbying to suspend the quarantine. The done in order to give credibility to the num- and monitor production, costs and prices are risk Brazil faces is how hard the pandemic ber of deaths and to establish policies for activated,” he added. Venezuela is in its sixth will hit poorer areas in big cities due to the the recovery of the economy, some of which year of hyperinflationary economic collapse. growing demand for hospital facilities and a are already in progress.” Inflation in the Andean nation closed at 9,585.5 shortage of health care capacity. However, percent last year, according to data from the the government has created a working group Beatrice Rangel, member of central bank, though the International Monetary to address measures and policies related to the Advisor board and director Fund had forecast 2019 inflation to be around the recovery of the country both domesti- of AMLA Consulting in Miami 200,000 percent, the Voice of America report- cally (concerning the economy, companies, A Beach: “Some leaders in Latin ed. [Editor’s note: See related Q&A on inflation workers and inequalities) and on the foreign America dismiss the pandemic as some- and deflation in Latin America amid Covid-19 in front (related to vulnerabilities, foreign trade thing easy to overcome because they lack a the April 15 issue of the Advisor.] 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 © 2020 rigorous science-based education. However, Under the federal decree of public calamity, other leaders push for the adoption of public states and cities are free to spend to combat Erik Brand policies that effectively face the challenge. and prevent the root case—the virus—at Publisher [email protected] But the challenge is truly dangerous and the expense of the federal government. At deadly. Accordingly, the tug of war at the the same time, it is in the purview of local Gene Kuleta Editor top of the Brazilian government is hurting officials to control mobility and impose [email protected] many citizens who are braving the pandemic curfews. That is, the economic toll of the Anastasia Chacón González without proper public policy support. It is social lockdown is to mostly be paid by Reporter & Associate Editor high time for leaders in Brazil and the rest federal sources—and that does not please [email protected] of Latin America to realize that unless they Brasília. Facing a national threat, Bolsonaro want to see 1 percent of their population has done poorly in terms of social communi-

die, they need to secure universal testing, Michael Shifter, President implement an effective tech-based follow-up The economic toll of Rebecca Bill Chavez, Nonresident Senior Fellow system for those infected, provide masks Sergio Bitar, Nonresident Senior Fellow and other protective medical supplies to the social lockdown is Joan Caivano, Director, Special Projects first responders and manage quarantines to mostly be paid by Michael Camilleri, Director, Rule of Law Program efficiently. Like every other head of state, federal sources— Kevin Casas-Zamora, Nonresident Senior Fellow President Bolsonaro is worried about the and that does not Héctor Castro Vizcarra, Nonresident Senior Fellow impact that economic paralysis will have please Brasília.” Julia Dias Leite, Nonresident Senior Fellow on his political prospects. So instead of — Alberto Pfeifer Ariel Fiszbein, Director, Education Program denying the severity of the threat, he should Peter Hakim, President Emeritus push for the adoption of efficient quarantine Nora Lustig, Nonresident Senior Fellow measures that isolate only the infected, as cation and generating consensual leader- Margaret Myers, Director, Asia and Israel, Switzerland, New Zealand, Singapore ship. But he was right when he called for a Latin America Program Manuel Orozco, Director, Migration, and South Korea are doing.” rational balance between total lockdown and Remittances & Development maintaining viable economic activity. That’s Xiaoyu Pu, Nonresident Senior Fellow Alberto Pfeifer, coordinator the unwritten order for Nelson Teich. So far, Jeffrey Puryear, Senior Fellow of the Group for the Analysis Brazil’s health infrastructure has not been Mateo Samper, Nonresident Senior Fellow of International Conjuncture stressed to the limit; emergency facilities Tamar Solnik, Director, Finance & Administration A (GACInt) at the University of have been provided, and protocols were Lisa Viscidi, Director, Energy Program São Paulo: “The federal, state and municipal adapted, waiting for a worst-case scenario Denisse Yanovich, Director of Development and governments share Brazil’s Covid-19 re- that so far has not arrived. But the sudden External Relations sponse. The country’s public health services impoverishment of the informal services Latin America Advisor is published every are structured under the Unified Health sector is taking its toll. Hundreds of billions business day, except for major U.S. holidays, System (SUS), a successful model that pro- of dollars are being spared to keep the pro- by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 vides free access to all kinds of treatment—a ductive wheel turning, from cash transfers to Washington, DC 20005 constitutional right—to anyone. SUS suffers tens of millions of low-income individuals to www.thedialogue.org from regional and cyclical disparities: more the postponement of tax collection to small ISSN 2163-7962 developed areas offer better and quicker and medium businesses. The inextricable Subscription inquiries are welcomed at assistance, and the turnover of elected natural course of the pandemic will mandate [email protected]

officials may affect the functioning of the prompt measures; the resilience of the popu- The opinions expressed by the members of the Board of bureaucratic and technical machinery. The lation will determine Brazil’s and Bolsonaro’s Advisors and by guest commentators do not necessarily role of the federal level, health-wise, is more fate in the medium term.” represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily about overseeing, normalizing, guiding and represent the views of their respective employers or firms. recommending. States and cities provide The Advisor welcomes comments on its Q&A The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, direct delivery of health services, with auton- section. Readers can write editor Gene Kuleta nor the opinions based thereon, are guaranteed. If you have omy to organize local infrastructure, to hire at [email protected]. any questions relating to the contents of this publication, contact the editorial offices of the Inter-American Dialogue. human resources and to do procurement. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher.