LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, January 24, 2017

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, January 24, 2017

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Will a New Team Corporate VP, Global Corporate Affairs U.S. May Sanction Cargill Venezuelan Joyce Chang Global Head of Research, Turn Argentina’s Offi cials in Food- JPMorgan Chase & Co. Related Graft W. Bowman Cutter Former Partner, Economy Around? Members of Congress are calling E.M. Warburg Pincus for sanctions following a report Dirk Donath that Venezuela’s military is at the Senior Partner, center of a corruption scheme tied Catterton Aimara to distribution of scarce food in Marlene Fernández Corporate Vice President for the country. Government Relations, Page 2 Arcos Dorados Peter Hakim President Emeritus, ECONOMIC Inter-American Dialogue Remittances to Donna Hrinak President, Boeing Latin America El Salvador Rise Jon Huenemann to $4.58 Billion Vice President, U.S. & Int’l Affairs, Philip Morris International Nicolás Dujovne was named Argentina’s new treasury minister last month. // File Photo: The money transfers, mainly from Argentine Government. James R. Jones the United States, increased 7.2 Chairman, ManattJones percent last year to their highest Global Strategies Since taking over as Argentina’s president a year ago, Mau- level in the country’s history. Craig A. Kelly Page 2 Director, Americas International ricio Macri has implemented free-market measures in an Gov’t Relations, Exxon Mobil effort to spur the economy and attract foreign investment. John Maisto Q POLITICAL Director, U.S. Education However, the country’s economy contracted for the fourth Finance Group consecutive time in last year’s third quarter, and Macri in December Peña Nieto Vows Nicolás Mariscal Chairman, dismissed his fi nance minister, Alfonso Prat-Gay, and split his ministry to Protect Mexican Grupo Marhnos of treasury and fi nance into two cabinet departments. What kinds of Interests in Talks Thomas F. McLarty III economic policies can be expected of new Treasury Minister Nicolás Chairman, With U.S. McLarty Associates Dujovne and new Finance Minister Luis Caputo? What policies should Mexican President Enrique Peña Carlos Paz-Soldan the Macri administration push in order to restore the country to growth? Nieto vowed to protect Mexican Partner, migrants, investments and other DTB Associates, LLP To what extent will midterm legislative elections in October complicate national interests ahead of talks Beatrice Rangel efforts to reduce the country’s fi scal defi cit and pass other needed Director, with the new administration of AMLA Consulting LLC reforms? U.S. President Donald Trump. José Antonio Ríos Page 2 Chief Executive Offi cer, Vadium Technology Inc. Daniel Filmus, Parlasur deputy, researcher at the National Gustavo Roosen Scientifi c and Technical Research Council (CONICET) and Chairman of the Board, Envases Venezolanos professor at the University of Buenos Aires: “Mauricio Andrés Rozental Macri’s economic policies have had serious consequences. President, Rozental & A Asociados and Senior All indicators show a negative trend. GDP has decreased, infl ation was at Policy Advisor, Chatham House its highest level in 15 years, the fi scal defi cit increased sharply, external Shelly Shetty Head, Latin America indebtedness grew, income distribution was regressive, thousands of Sovereign Ratings, Fitch Inc. companies shut down and so on. Foreign investments also did not arrive. Roberto Sifon-Arevalo Social indicators also accompanied this trend. Unemployment, poverty Managing Director, Americas Sovereign & Public Finance Ratings, and indigence increased. Purchasing power fell, and the domestic market Standard & Poor’s collapsed. Investment in key areas such as science and technology de- clined. All of this caused the fall of Alfonso Prat-Gay. However, in order to Peña Nieto // File Photo: Mexican Government. Continued on page 3

POLITICAL NEWS NEWS BRIEFS U.S. May Sanction Peña Nieto Vows Venezuelan Offi cials Brazilian Health Offi cials Conﬁ rm 25 Deaths in to Protect Mexican for Graft Tied to Food Yellow Fever Outbreak

Interests in Talks Members of the U.S. Congress are calling for The Brazilian Health Ministry said it has con- With U.S. sanctions against Venezuelan offi cials follow- fi rmed 47 cases of yellow fever and 25 deaths ing an Associated Press report that the South as a result of the mosquito-borne disease, the American country’s military is at the center of Associated Press reported Monday. Authorities Mexican President Enrique Peña Nieto on Mon- a corruption scheme tied to the distribution of say they are also investigating another 160 day vowed to protect migrants, investment and scarce food in the country, the wire service re- suspected cases of the disease. The outbreak other national interests ahead of negotiations ported Monday. Venezuelan President Nicolás is centered in the east-central state of Minas with the United States under newly inaugurated Maduro has given the military increasing Gerais, whose governor declared a state of President Donald Trump, The Wall Street Jour- control of the country’s food supply amid wide- emergency following an initial report of eight nal reported. Peña Nieto outlined the country’s spread shortages of basic staple foods. The re- deaths. The government said it sent two million port that the AP published last month detailed extra doses of the vaccine against yellow fever a chain of corruption by the military related to Minas Gerais, and that hundreds of thou- Mexico doesn’t to food distribution, including kickbacks to gen- sands of additional doses will be sent there believe in walls; erals for food contracts and bribery related to and to nearby Espirito Santo this week. our country moving food out of ports. Some of the food is believes in bridges.” bought in the United States, with bribes fl owing — Enrique Peña Nieto through the U.S. banking system, according to Trump Reinstates Ban on the report. “When the military is profi ting off of Foreign Aid for Providers Discussing Abortion position on future relations between the two countries and said he would seek to reach U.S. President Donald Trump on Monday rein- agreements that would benefi t both sides. stated a ban on foreign aid for health providers “We will work for a border that unites us, not abroad who discuss abortion as an option to one that divides us,” he said. “Mexico doesn’t those whom they serve, The New York Times believe in walls; our country believes in bridg- reported. The move revives the “Mexico City es.” The remarks came as Trump on Monday policy,” so named because then-U.S. President signed an order to withdraw the United States Ronald Reagan fi rst announced it during a visit from the Trans-Pacifi c Partnership, a 12-nation Cardin // File Photo: U.S. Senate. there in 1984. trade agreement that includes Mexico, Canada, food distribution while the Venezuelan people Peru and Chile. Trump also signed an order increasingly starve, corruption has reached a stating his intention to renegotiate the North new level of depravity that cannot go unno- Remittances to American Free Trade Agreement, or NAFTA. ticed,” said U.S. Senator Ben Cardin (D-Md.), El Salvador Reach Mexican Foreign Minister Luis Videgaray and the ranking member of the Senate Foreign Economy Minister Ildefonso Guajardo will lead Highest-Ever Level in 2016 Relations Committee. Senator Marco Rubio a Mexican delegation to Washington this week Remittances to El Salvador increased by 7.2 (R-Fla.) called on U.S. President Donald Trump to begin talks with senior Trump administration percent in 2016 year-over-year, reaching their to take action against the offi cials named in offi cials. Peña Nieto plans to visit the United highest level in the country’s history and the the report. “This should be one of President States by the end of the month. The Mexican sharpest increase in a decade, the country’s Trump’s fi rst actions in offi ce, said Rubio. U.S. president also said Monday he would negotiate central bank said Monday, Reuters reported. prosecutors are investigating senior offi cials in bilateral trade agreements with members of the Remittances totaled $4.58 billion last year and Venezuela, including military offi cials, for laun- TPP, as well as with the United Kingdom, once were mostly sent from the United States. The dering money through the U.S. banking system, it leaves the European Union. [Editor’s note: spike in remittances comes as U.S. President people with knowledge of the investigation See Q&A on how Trump’s policies may affect Donald Trump has proposed using a remittance told the AP. No charges have been fi led, and Mexico’s level of foreign investment in the Jan. tax to pay for a wall along the country’s border Maduro’s government has not responded to the 10 issue of the Advisor.] with Mexico.

report. Also on Monday, several thousand peo- FEATURED Q&A / Continued from page 1 ple marched in an anti-government protest in Caracas, though protest organizers had hoped change this trend, just changing names isn’t receded and has dropped from around 4.5 for much larger nationwide demonstrations, suffi cient. It is necessary to change policies. percent per month in the fi rst half of the The Washington Post reported. “Motivation Nothing allows for this change. The govern- year to around 1.5 percent. The biggest has decreased because the opposition doesn’t ment is continuing to bet on debt to sustain concern is growth, as the economy remained have a common aim,” Luis Vicente León, the a fi scal defi cit and the dynamism of sectors in recession at least until last November. In president of polling fi rm Datanalisis, told the that have little impact on the real internal December, there was scattered evidence of a newspaper. economy. In a world that will show more dif- recovery, and there seen to be green shoots fi cult economic conditions, the consequenc- in agriculture and even in consumption. es are predictable. To make matters worse, Will they develop or dry-up? Most likely, the BUSINESS NEWS this is a legislative election year, and efforts economy this year will enjoy growth, mainly will be aimed at expanding the debt in order because the factors that led to the recession to sustain the defi cit. This has already have been reversed: interest rates dropped, Peru Terminating caused the resignation of the president of public works are on the rise, infl ation has Pipeline Contract Banco de la Nación, Carlos Melconián. This stabilized at lower rates and real wages will further complicate the economy’s future are up. The recent changes in the cabinet With Odebrecht recovery. Reasonable policies that generate do not signal a change in policies, they equilibrium and macroeconomic stability are intended to achieve better teamwork. The Peruvian government has decided to and at the same time support the growth Dujovne is an experienced economist with terminate a contract with a consortium led of the domestic market, using credit as a an excellent reputation and who is likely to by Brazilian construction giant Odebrecht to lever for innovation, production and national closely monitor government expenditures, build a $7 billion natural gas pipeline, Mines industry as well as the recovery of consump- while Caputo is well-known for his ability to and Energy Minister Gonzalo Tamayo said tion capacity and a progressive distribution manage debt. All in all, Argentina is likely to Monday, The Wall Street Journal reported. The of income seems to be the only way to maintain a friendly investment climate, and government’s move was the latest setback for reverse the present situation.” the economy is up for a year of growth and the company, which has been at the center of much lower infl ation.” a massive corruption scandal. The Southern Miguel Kiguel, executive director of EconViews in Buenos Paula Alonso, associate profes- Aires: “The Macri administration sor of history and international A during its fi rst year concentrated affairs and director of the Latin The consortium its efforts on correcting the large distortions A American and Hemispheric also faces a in relative prices, on resolving the default to Studies Program at The Elliott School $262 million penalty. restore access to international credit and on of International Relations at The George dismantling the systems of price and foreign Washington University: “Argentina has lifted exchange controls. In addition, the govern- capital controls, agreed with holdout bond ment took important steps to de-regulate the investors, improved economic statistics Peruvian Gas Pipeline consortium, of which economy and improve the business climate. and published a set of targets on infl ation Odebrecht owns a 55 percent stake, failed to Despite these positive measures, this fi rst and fi scal defi cits. A road-show announced meet Monday’s deadline to “obtain this fi nanc- year was diffi cult, as the economy suffered Argentina is back, relations with the IMF ing from the international fi nancial community a deep recession and high rates of infl ation. have been normalized and the country will as a sign of their capacity to bring this project But these effects were largely anticipated, chair the G20 in 2018. However, the previous forward,” Tamayo said. Spain’s Enagas owns a due to the ‘tough’ policy measures that the government left the Macri administration 25 percent stake in the consortium, and Peru’s government put in place. Infl ation has now with a massive fi scal defi cit and a myriad Graña y Montero owns 20 percent. Tamayo Continued on page 4 said the consortium would also face a $262 government is studying options to decide who their contract, Peru must use the funds from million penalty for not being able to complete should fi nish the pipeline, and the government a new auction to compensate them for their the construction of the 700 mile-long pipeline, may ultimately decide to auction off the project investments, adding that they expected to which was intended to transport natural gas to new bidders. In separate statements, Enagas receive back a signifi cant portion of their from the Amazon to towns across the southern and Graña y Montero said that according to investments within the next three years. highlands and on the Pacifi c. Tamayo said the

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2017 of microeconomic problems, distorting (with costly concessions) signifi cant laws economic incentives. Fearing their impact in a Congress where ‘Cambiemos’ only has Erik Brand on the economy and on social cohesion, 87 out 257 seats in the lower house and 15 Publisher [email protected] progress has been relatively slow on these out 72 in the Senate. He has also succeeded issues. The new treasury minister, Nicolás in establishing good relations with key prov- Gene Kuleta Editor Dujovne, is a highly respected economist, inces, including those in the hands of the [email protected] a fi scal hawk and a budgetary expert opposition. The election will be a decisive Nicole Wasson who will try to further reduce spending by political battle; it will not only defi ne Macri’s Reporter, Assistant Editor enhancing effi ciency. Dujovne is helped by power and the future of ‘Cambiemos,’ but it [email protected] better-than-expected results from the recent will also begin to defi ne the leadership of the tax moratorium, reducing the fi nancing fragmented Peronist Party. The government requirement for 2017. However, the gov- is betting that the economic recovery will be strong enough at polling time.” Michael Shifter, President Genaro Arriagada, Nonresident Senior Fellow The previous Daniel Artana, chief economist Sergio Bitar, Nonresident Senior Fellow government left the at FIEL in Buenos Aires: “The Joan Caivano, Director, Special Projects new economic team should Kevin Casas-Zamora, Director, Macri administration Peter D. Bell Rule of Law Program be more focused on achieving with a massive fi scal A Ramón Espinasa, Nonresident Senior Fellow gradual improvement in the fi scal accounts. defi cit and a myriad Ariel Fiszbein, Director, Education Program Last year, the government was able to com- of microeconomic Alejandro Ganimian, Nonresident Fellow ply with its target for the primary defi cit, but problems....” Peter Hakim, President Emeritus with the help of one-off fi nes collected from Claudio Loser, Senior Fellow — Paula Alonso the tax amnesty. The target for this year Nora Lustig, Nonresident Senior Fellow assumes an additional improvement of 0.6 Margaret Myers, Director, China and percent of GDP. It would be a very positive Latin America Program ernment faces a tricky juggling act. It must signal if the new team achieved this fi scal Manuel Orozco, Director, Migration, Remittances & Development issue around $10 billion of debt this year target in a year of crucial mid-term elections, Jeffrey Puryear, Senior Fellow and must continue to bring infl ation down without using creative accounting. The Tamar Solnik, Director, Finance & Administration and reduce the fi scal defi cit. However, at economy will rebound in 2017. However, to Lisa Viscidi, Director, Energy Program the same time, it needs to attempt to boost consolidate medium-term growth, Argentina growth in the face of headwinds, as growth needs to increase investment and to raise Latin America Advisor is published every still falters in Brazil, global interest rates productivity. The government is working business day, except for major U.S. holidays, by the Inter-American Dialogue at rise and U.S. trade policy may become more slowly on reforms to improve productivity.” 1155 15th Street NW, Suite 800 restrictive. The outcome will affect the mid- Washington, DC 20005 term election in October. Indeed, one of Mac- The Advisor welcomes comments on its Q&A www.thedialogue.org ri’s main political achievements in his fi rst section. Readers can write editor Gene Kuleta ISSN 2163-7962 year has been his success in negotiating at [email protected]. Subscription inquiries are welcomed at [email protected]

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