LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Friday, November 6, 2015

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Friday, November 6, 2015

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Genaro Arriagada Is Costa Rica’s Nonresident Senior Fellow, Bolivia to Poll Inter-American Dialogue Voters on Morales Joyce Chang Global Head of Research, Economy on Re-election JPMorgan Chase & Co. Bolivia’s Congress approved a W. Bowman Cutter Former Partner, the Right Track? measure to hold a referendum E.M. Warburg Pincus next year on whether to allow Dirk Donath President Evo Morales a fourth Senior Partner, consecutive term. Catterton Aimara Page 2 Marlene Fernández Corporate Vice President for Government Relations, ECONOMIC Arcos Dorados Peter Hakim More Brazilians President Emeritus, Inter-American Dialogue Using Banks, But Donna Hrinak Debt Load Grows President, Boeing Latin America More than 84 percent of adults in Jon Huenemann Brazil had a checking or savings Vice President, U.S. & Int’l Affairs, Philip Morris International President Luis Guillermo Solís’ administration last month announced an economic plan that account last year, but Brazilians includes lower interest rates, infrastructure spending and fi nancial assistance for businesses. are saving relatively little and tak- James R. Jones // File Photo: Costa Rican Government. Co-chair, Manatt Jones ing on an increasing load of debt, Global Strategies LLC according to a central bank report. Costa Rica over the past fi ve years has implemented the Craig A. Kelly Page 2 Director, Americas International highest number of reforms of any country in Latin America Gov’t Relations, Exxon Mobil in an effort to improve its business climate, according to the John Maisto Q POLITICAL World Bank’s Oct. 27 “Doing Business 2016” report. Howev- Director, U.S. Education Moïse, Célestin Finance Group er, the country’s economy posted its sixth consecutive slowdown in GDP Nicolás Mariscal Advance to Chairman, growth in this year’s second quarter. Is Costa Rica on the right track to Grupo Marhnos attract more investors and improve its business climate? How well is Runoff in Haiti Thomas F. McLarty III President Luis Guillermo Solís handling the economy? How strong are Government-backed candidate President, Jovenel Moïse and former gov- McLarty Associates the country’s levels of investor and business confi dence? ernment construction chief Jude Carlos Paz-Soldan Célestin will advance to the sec- Partner, DTB Associates, LLP Alexander Mora, Costa Rica’s minister of foreign trade: ond round of Haiti’s presidential election, offi cials announced. The Beatrice Rangel “Costa Rica assigns high value to the continuous attraction Director, third-place fi nisher has alleged AMLA Consulting LLC of FDI. It is a priority area of action for the current administra- fraud in the Oct. 25 fi rst round. José Antonio Ríos tion, and a longstanding public policy in place since the late Page 2 Chief Executive Offi cer, A Vadium Technology Inc. 1980s. We are a small country open for business, strongly committed to Gustavo Roosen generating quality jobs and creative avenues to yield new opportunities Chairman of the Board, Envases Venezolanos for investment and growth. We believe that these tasks are of shared Andrés Rozental interest, and that government needs to address the trade of promoting President, Rozental & Asociados and Senior sustainable development in close partnership with business. Our vision Policy Advisor, Chatham House has rendered encouraging results. We have the region’s best education Shelly Shetty Head, Latin America system and a high-quality health system; these are the lofty principles Sovereign Ratings, Fitch Inc. that set the foundation of our nation, and areas in which we continue to Roberto Sifon-Arevalo invest heavily. In Latin America, we are known for having the greatest po- Managing Director, Americas Sovereign & Public Finance Ratings, tential for innovation and sophistication; and for being the fi rst high-tech Standard & Poor’s exporter of industrial products, as well as the top choice for establish- ing global business services centers; and in Central America and the Moïse // File Photo: Moïse Campaign. Continued on page 3

POLITICAL NEWS tin have alleged fraud. They asked election au- NEWS BRIEFS thorities to form an independent body to review Moïse, Célestin the results. Election offi cials are expected to Bolivians to Vote release certifi ed results later this month. on Allowing Morales Advance to Haiti’s Fourth Term Presidential Runoff ECONOMIC NEWS Bolivian lawmakers on Thursday approved a bill to hold a 2016 referendum that would allow Haiti’s government-supported presidential can- More Brazilians Bolivians to vote on whether President Evo didate, Jovenel Moïse, and former government Morales may run for a fourth consecutive term, construction chief Jude Célestin will face off Using Banks, But Agence France-Presse reported. The reform in the country’s Dec. 27 presidential runoff, would allow presidents to run for re-election election offi cials announced Thursday, the Debt Load Growing twice instead of just once, as the old law stipu- Associated Press reported. The announcement lated. Recent opinion polls show that Morales of the preliminary results came a week and a An increasing number of Brazilians are using is popular enough to secure re-election. He is half after the fi rst round of Haiti’s presidential formal banking services, but their debt loads the longest-serving president in South America. are growing and they are saving very little, the country’s central bank said in a report released Thursday, The Wall Street Journal reported. More Than a Dozen Last year, 84.5 percent of adults in the South American country had either a checking or a Feared Dead After savings account, an increase from 60.8 percent Dam Bursts in Brazil in 2005, according to the 2015 Financial As many as 16 people are feared to be dead Inclusion Report. However, Brazilians’ debt load after a dam in Brazil’s southeastern Minas has also increased, with households owing 46 Gerais state burst, sending waste water from Célestin // Photo: Célestin Campaign. percent of their income, on average, the report an iron ore mine rushing into homes in the said. That compares to 29 percent in 2007. area, BBC News reported today. One person is vote in which 54 candidates for the country’s Annual rates on mortgages, which make up a confi rmed dead, but the death toll is expected top job appeared on the ballot. A candidate large part of Brazilians’ debt, are approximately to rise, offi cials said. A fl ood of thick, red mud would have needed a majority of the votes in cascaded down valleys near the colonial city order win in the fi rst round on Oct. 25. Moïse of Mariana, destroying homes and swallowing received 32.8 percent of the vote while Célestin In September, the cars and trucks, BBC News reported. The dam won 25.2 percent, according to Pierre Louis average interest rate on burst on Thursday afternoon and sent the mud Opont, leader of Haiti’s Provisional Electoral unpaid credit card and debris into the town of Bento Rodrigues, Council. Several candidates in the race, how- which is located four miles away. ever, have alleged fraud by Moïse’s campaign. balances in Brazil was The third-place fi nisher, former Senator Moise 414 percent. Jean-Charles, recently asserted that he won half of the country’s departments, adding that Nicaragua Approves his supporters discovered partially-burned 10 percent. The growing level of debt could Environmental Study ballots marked with his name in Port-au-Prince. become more of a problem in Brazil, where for Proposed Canal Several other ballots cast for him had disap- unpaid credit card balances carried an average peared in other parts of the country, he added. interest rate of 414 percent in September. The Nicaraguan government approved an en- Jean-Charles called on his backers to mount a The report also said that just 12 percent of vironmental impact study on Thursday, giving “peaceful revolution” to express their views. In Brazilians have money in a savings account. China’s infrastructure fi rm HKND permission several locations in the capital, tire barricades That amount is the lowest among the emerging to begin its proposed $50 billion canal project, had been set on fi re and a person believed BRICS economies, which also include Russia, Al Jazeera reported. Nicaraguan authorities to be a supporter of Jean-Charles was found India, China and South Africa. On average, had already approved the plan for the 172- dead, lying in the street, the AP reported. In the 14 percent Latin Americans have cash in a mile route through Nicaragua. The canal is days following the election, eight presidential dedicated savings account, while the fi gure is scheduled for completion in December 2019, candidates, including Jean-Charles and Céles- 52 percent for high-income countries, The Wall though some experts doubt it will be built due to fi nancial, economic and social concerns.

FEATURED Q&A / Continued from page 1 Street Journal reported. The central bank’s report also said the number of Brazilians using Caribbean, we are the top country for future Pacifi c Alliance was put on hold and nec- cell phones for banking increased 200 percent FDI. Over 250 high-tech multinationals with essary fi scal reforms were postponed. This between 2010 and 2014. [Editor’s note: See operations in our territory take advantage last decision has the potential to undermine Q&A on the future of fi nancial technology in the of our positioning and provide solid proof the country´s credit quality and constrain latest issue of the Financial Services Advisor.] of the strong levels of business confi dence economic growth. Finally, the appreciation that exist in our country. Our efforts to in the value of our currency confronted with implement the highest number of reforms the recent depreciation of other regional BUSINESS NEWS to improve the business climate in the past currencies is damaging the competitiveness year offer evidence that we are on the right of our export sector.” track to continue attracting investors. We GM Planning to will continue to direct our actions toward José Antonio Muñoz, founding Invest $100 Million these objectives.” partner at Arias and Muñoz: “Costa Rica’s long-established in Colombia Laura Chinchilla Miranda, A track record of having the best former president of Costa Rica: human capital is the paramount factor in the U.S. automaker General Motors, on Wednesday “Costa Rica has sound and country’s continued success in attracting announced it plans to invest $100 million in Co- A stable democratic institutions, a foreign direct investment. Recently-re- lombia over the next four years, EFE reported. solid foreign investment and trade platform, leased global health indexes in Costa Rica Representatives from GM made the announce- and an educated and highly skilled work- re-confi rm that investors seeking high levels ment to President Juan Manuel Santos and force. Thanks to those conditions, we have of education, productivity, innovation and a become one of the strongest performers committed and healthy labor force should in Latin America. However, despite these continue to look at Costa Rica as an ideal GM is planning to export strengths, we have some problems that are situs for their investments in the short and to Brazil some 2,000 ve- negatively affecting our economy’s compet- the long term. President Solís’ administra- itiveness. These include the poor quality of tion is to be commended for both continuing hicles made in Colombia infrastructure, excessive red tape and a fi s- the work in regulatory improvement begun a between 2017 and 2018. cal defi cit that continues to climb steadily. In decade ago and for the president’s dedicat- order to continue to lead Costa Rica through ed efforts to meet with foreign investors the path of growth, and to overcome some of and highlight the country’s advantages as the aforementioned challenges, the previous a destination for international and regional Trade, Industry and Tourism Minister Cecilia two administrations—mine and that of Óscar investment. The administration has also Álvarez at the end of a meeting at the presi- Arias—put forward a series of bold initia- allowed spaces for the productive sector to dential palace. The company plans to export tives. Among them: the negotiation of trade realize that social and economic progress approximately 2,000 vehicles produced in Co- agreements with the largest economies in are their responsibility. After very weak lombia to Brazil between 2017 and 2018. GM the world—the United States, Europe and Chi- investor confi dence for the fi rst 18 months currently assembles Chevrolet vehicles at its na; the beginning of the accession process of the Solís administration, the last quarter plant in Bogotá. The president of GM Colombia, to the Pacifi c Alliance and the OECD; the of 2015 has seen investor confi dence surge. Jorge Mejia, told Santos on Wednesday that opening of the telecommunications sector; National and international investors alike de- the company planned to maintain its export an ambitious public investment program for cided that the country’s economic and social volume to Ecuador while taking advantage of the construction of port and road infrastruc- successes do not depend solely on govern- U.S. trade talks with Brazil by selling it 2,000 ture; and an ambitious regulatory reform that ment action but also on the entrepreneurial units. The investment would create new jobs allowed us to move up in the international capacity of its people. Boosters to investors’ in Colombia, Mejia said. “Probably, yes, we will rankings. President Solís’ administration morale include the interest of low-cost hire more personnel and depending on the mar- has remained committed to ongoing efforts carriers like RyanAir, Irelandia and Volaris ket dynamics in Colombia, undoubtedly we’ll in attracting foreign investment, but that to not only to start fl ying to Costa Rica but need more,” said Mejia. GM is the top-selling has not been the case with other policies. to make the country their regional hub. This, automotive company in the Andean nation, with For example, the infrastructure projects are coupled with increased number of fl ights a 25 percent market share. The U.S. automo- suffering delays, Costa Rica’s access to the from new and established traditional airlines tive company sold 82,103 Chevrolet vehicles Continued on page 4 in 2014.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2015 to the country’s two airports, are signifi cant the economy. Local business’ lack of confi - developments for the increased number of dence is at the heart of the country’s inability Erik Brand companies making Costa Rica their regional to lower a stubbornly high unemployment Publisher [email protected] headquarters. Increased interest in medical rate (10 percent) and long-stagnant poverty investigations and research based on Costa fi gures.” Gene Kuleta Editor Rica’s world-class record and certifi cations [email protected] after a six-year regulatory lull.” David Gutiérrez, partner at law Nicole Wasson fi rm BLP: “Costa Rica is defi nite- Reporter, Assistant Editor Kevin Casas-Zamora, director ly on the right track to attract [email protected] of the Peter D. Bell Rule of Law A more foreign investment. It has Program at the Inter-Ameri- done so for many years and remains so, A can Dialogue and former vice in particular in the fi eld of free zones. The president of Costa Rica: “Since falling into country has a very strong record in terms Michael Shifter, President negative growth in 2009, the performance of of treatment to foreign investors and keeps Genaro Arriagada, Nonresident Senior Fellow the Costa Rican economy has been solid but benefi ting from longstanding investment in Sergio Bitar, Nonresident Senior Fellow unspectacular. This has not changed under education and health and from very stable Joan Caivano, Director, Special Projects President Solís. The IMF recently revised and safe political and economic conditions. Kevin Casas-Zamora, Director, Peter D. Bell Rule of Law Program down its growth projection for 2015 from Costa Rica offers foreign investors strong Maria Darie, Director, Finance & Administration 3.8 percent to 3.0 percent. While this places institutions, real separation of powers and Ramón Espinasa, Nonresident Senior Fellow Costa Rica second to last in Central Amer- rule of law. It offers foreign citizens a very Ariel Fiszbein, Director, Education Program ica, it was not unexpected given the global high quality of life for themselves and their Alejandro Ganimian, Nonresident Fellow slowdown and the headwinds that Latin families. It remains one of the world leaders Peter Hakim, President Emeritus American economies, in general, are facing. in the attraction of FDI as a percentage of Claudio Loser, Senior Fellow External confi dence in the Costa Rican econ- GDP. The challenges we have as a country Nora Lustig, Nonresident Senior Fellow omy has not been greatly affected by this include linking the ‘modern’ Costa Rica, Margaret Myers, Director, China and unremarkable performance or by Intel’s 2014 the one that has embarked on the path of Latin America Program decision to shut down its manufacturing globalization and technology, with the ‘old’ Manuel Orozco, Senior Fellow plant in Costa Rica. The country continues Costa Rica, which is isolated from the world. Jeffrey Puryear, Senior Fellow to attract signifi cant fl ows of FDI (around Local businesses also need to benefi t more Lisa Viscidi, Director, Energy Program $2.2 billion per year in 2013 and 2014) and, from exporters and foreign investors (i.e. Latin America Advisor is published every leaving aside electronic components, its sell them local products to manufacture business day, except for major U.S. holidays, exports grew just shy of 2 percent in the year exportable goods). Local investors should by the Inter-American Dialogue at: up to September 2015. The real problem is be offered the same facilities and conditions 1211 Connecticut Avenue NW, Suite 510 Washington, DC 20036 domestic, where the business sector’s trust that foreign investors are offered. Local Phone: 202-822-9002 in the current administration has deteriorat- business people and entrepreneurs face Fax: 202-822-9553 ed sharply. This is the result of the general never-ending bureaucracy, regulation, lots www.thedialogue.org lack of direction of Solis’ administration, his of red tape and other limitations that in ISSN 2163-7962 perceived closeness to public-sector trade some cases apply only to local investors. Subscription Inquiries are welcomed at unions, and, most of all, his unwillingness to One practical solution would be to create [email protected] take credible measures to rein in a large and a nationwide free zone, for both local and The opinions expressed by the members of the Board of growing fi scal imbalance. The fi scal defi cit foreign investment. This will mean more and Advisors and by guest commentators do not necessarily is expected to reach 5.8 percent of GDP this better jobs and clear connection and link represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily year and nearly 7 percent in 2016, a clearly between exporters and local manufacturing represent the views of their respective employers or fi rms. unsustainable path. The government’s and services companies.” The information in this report has been obtained from inaction in the face of this pressing issue reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are is far more consequential than the modest The Advisor welcomes comments on its Q&A guaranteed. If you have any questions relating to the con- package of measures, which included an un- section. Readers can write editor Gene Kuleta tents of this publication, contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be certain commitment to lower interest rates, at [email protected]. reproduced, stored in a retrieval system, that Solís recently announced to reactivate or transmitted without prior written permission from the publisher.