LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Friday, May 18, 2018

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Friday, May 18, 2018

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Are Argentina’s All Chilean Cargill Joyce Chang Bishops Offer to Global Head of Research, Infrastructure Resign Over JPMorgan Chase & Co. Dirk Donath Abuse Scandal Senior Partner, All of Chile’s Roman Catholic bish- Catterton Aimara Plans in Peril? ops today offered to resign over a Marlene Fernández sex abuse and cover-up scandal. Corporate Vice President for Government Relations, Page 2 Arcos Dorados Peter Hakim ECONOMIC President Emeritus, Inter-American Dialogue IMF Vows to Donna Hrinak President, Boeing Latin America Move Quickly on Jon Huenemann Argentina Loans Vice President, U.S. & Int’l Affairs, Philip Morris International The International Monetary Fund James R. Jones and Argentina’s government are in Chairman, talks over a loan package. Monarch Global Strategies Argentine Finance Minister Luis Caputo (center) met with business leaders on Wednesday to Page 3 Craig A. Kelly discuss the government’s investment plans under a potential agreement with the International Director, Americas International Monetary Fund. // Photo: Argentine Government. Gov’t Relations, Exxon Mobil POLITICAL On May 13, Argentina’s federal government proposed to John Maisto Director, U.S. Education cut 30 billion pesos ($1.22 billion) from its public works Ecuadorean Finance Group budget in response to worsening economic conditions and a President Removes Nicolás Mariscal Chairman, Q request from the administration of President Mauricio Macri Extra Security Grupo Marhnos for support from the International Monetary Fund, Clarín reported. The for Assange Thomas F. McLarty III Chairman, ministry of public works and the interior says the cuts in federal funding Ecuadorean President Lenín McLarty Associates will not affect projects that are already planned. Argentina’s government Moreno ordered the removal Carl Meacham said in April it received 32 bids for six road projects requiring around $8 of extra security for WikiLeaks Associate VP for Latin America founder Julian Assange, who has Int’l Advocacy Division, PhRMA billion in investment through public-private partnerships. Media reports been holed up in the country’s Carlos Paz-Soldan embassy in London since 2012. Partner, described the auction as a test of how public-private partnerships, or DTB Associates, LLP PPPs, can help finance Argentina’s infrastructure needs. How has the Moreno’s move followed reports that Ecuador had spent $5 million Beatrice Rangel country’s fast-evolving economic situation changed the outlook for Director, on security operations to protect AMLA Consulting LLC infrastructure investment? How might ongoing negotiations between Ar- Assange. Gustavo Roosen gentina and the IMF affect Argentina’s PPP plans? Does Argentina have Page 2 Chairman of the Board, Envases Venezolanos the right model in place for advancing ambitious infrastructure plans? Andrés Rozental What could go wrong? President, Rozental & Asociados and Senior Policy Advisor, Chatham House Kezia McKeague, director at McLarty Associates: “From Roberto Sifon-Arevalo Managing Director, Americas the outset, Macri’s economic policymaking team committed Sovereign & Public Finance Ratings, to both shrinking the government’s gaping fiscal deficit and Standard & Poor’s A boosting spending on Argentina’s infrastructure, which had suffered after more than a decade of considerable underinvestment. In this context, the ‘PPP Law’ was the logical model, allowing companies to finance projects and enter into long-term contracts with the state to ultimately recoup their investments. With the recent acceleration of cuts

to the fiscal deficit, the PPP program becomes even more important as a Moreno // File Photo: Ecuadorean Government. Continued on page 3

POLITICAL NEWS Correa also denounced Moreno, his former NEWS BRIEFS vice president, for blocking Assange from Ecuador’s Moreno receiving visitors, calling it a form of “torture” Brazil Charges 11 With and a violation of Ecuador’s duties to protect Attempting to Establish Removes Extra Assange’s safety and well-being. Ecuador suspended Assange’s communication systems Islamic State Cell Security for Assange in March after his pointed political comments Brazilian federal police charged 11 individuals on Twitter, which he had previously agreed not with terrorism, alleging they were attempting Facing a growing controversy over a secret to undertake as a condition of the Andean na- to establish an Islamic State cell in the country, $5 million security operation to protect and tion’s protection. Despite the fact that Swedish The Guardian reported on Thursday, citing support WikiLeaks founder Julian Assange, Ec- prosecutors dropped a sex crimes investigation a court filing. The filing says some of the uadorean President Lenín Moreno on Thursday into Assange last May, British authorities have suspects were attempting to recruit members ordered the removal of extra security measures vowed to arrest him on alleged bail violations. and send them to Syria, and also discussed from the London embassy where Assange has emulating last year’s attack at London Bridge been living for nearly six years, The Guardian at one of Brazil’s Carnival events. reported. The special protections included an All Chilean Bishops international security company and undercover Offer to Resign Over agents to monitor his visitors, embassy staff Nearly 5,000 Evacuated and the British police, according to the report. Sex Abuse Scandal Former President Rafael Correa, who approved After Dam Overflows of the operation, this week defended the secu- All 31 of Chile’s active Roman Catholic bishops in Northern Colombia rity measures as “routine and modest.” In an today offered to resign over a sex abuse and Colombian officials have evacuated 4,985 interview with The Intercept, Correa called the cover-up scandal, marking the first known oc- people from their homes after the Hidroitu- Guardian story, which the newspaper investi- currence in history that an entire national bish- ango dam in the country’s northern Antioquia gated with research group Focus Ecuador, as ops conference offered to step down en masse, province began to overflow, the National Unit highly “sensational,” accusing the newspaper Argentine daily newspaper Clarín reported. The for Management of Disaster Risks said, El Ti- of seeking to depict embassy security mea- bishops tendered their resignations at the end empo reported. The dam, which was still under sures as something scandalous or unusual. of an emergency summit at the Vatican with construction on the Cauca River some 70 miles FEATURED Q&A / Continued from page 1 north of Medellín, is reportedly in danger of bursting, endangering 17 towns downstream. vehicle for attracting private investment to recent period of financial turbulence is over, The overflow was caused by the blockages of complement dwindling government resourc- but the long-term effects of higher inflation three tunnels and has led to the destruction of es. Since the law’s entry into force in Febru- and lower growth prospects may dampen two bridges and a medical center, the Bogotá ary 2017, the government has touted the par- the investment outlook. Fortunately for the Post reported. adigm shift in public procurement at every Macri administration, none of the bidders in relevant international opportunity (including the first tranche of road projects pulled out recent visits to Washington by Transporta- following the currency crisis. Furthermore, in tion Minister Guillermo Dietrich and Finance a May 17 press conference in Buenos Aires, Mexico’s Central Minister Luis Caputo, who oversees a PPP Ministry of Finance officials affirmed that Bank Holds Interest unit within his ministry). According to most an ultimate agreement with the IMF will not Rates Unchanged legal analysts, the PPP scheme represents place conditions on the PPP program.” a significant improvement for foreign The board of Mexico’s central bank unanimous- investors given that it allows for transparent Rebecca O’Connor and Made- ly voted to hold interest rates at 7.5 percent in and competitive bidding processes, the leine Elder, specialists in the a surprise move on Thursday, Reuters reported. conversion of payments into foreign curren- political and regulatory risk/ “In the presence of a highly uncertain envi- cy, and greater visibility in arbitration and strategic affairs practice at Ce- ronment, the balance of risks for inflation in A relation to its expected path remains biased dispute resolution processes. Nevertheless, feidas Group in Buenos Aires: “In light of the Argentina will be a test case given its risk Macri administration’s recent announcement upwards,” Banco de México said in a state- profile; the best-laid regulations would come that it will cut 30 billion Argentine pesos ment. The board of governors cited domestic to naught without investor confidence. The ($1.22 billion) in public works spending to factors, such as the upcoming presidential election in July, as well as negotiations over a Continued on page 4 new North American Free Trade Agreement.

Pope Francis, who can now accept all or some of the resignations, reject them or delay mak- JOB POSTINGS ing a decision. The pope has accused Chilean bishops of destroying evidence of sex crimes, putting pressure on investigators to minimize allegations of abuse and also displaying “grave EDITOR’S NOTE: We are pleased to share Latin America-related job postings that companies negligence” in keeping children safe from pe- reading the Advisor and others have listed recently. dophile priests, the Associated Press reported. The entire hierarchy of the Roman Catholic Ryder Systems: Latin America Export Sales Manager, Miami Church in Chile had collective responsibility for “grave defects” in handling abuse cases Millennium Challenge Corporation: Managing Director, Latin America, Washington and for the loss of credibility that the church Radisson Hotel Group: Vice President for Marketing, Americas Region, Minneapolis has sustained. “No one can exempt himself and place the problem on the shoulders of Ecolab: Regional Director of Marketing, Latin America, Miami the others,” the pope wrote in a 2,300-page Vatican report on the Chilean scandals, which The Coca-Cola Company: Senior Manager, Latin America Affairs, Atlanta was leaked early this morning and published by Chile’s T13 television channel. The Vatican TripAdvisor: Associate Director for Latin America, Miami has confirmed the document as accurate. The Inter-American Dialogue: Communications Coordinator, Washington Chilean bishops said the document’s contents were “absolutely deplorable” and showed an Amazon Web Services: Senior Manager, AWS Public Policy, Mexico City “unacceptable abuse of power and conscience” in addition to sexual abuse. Pope Francis had country’s current situation, with “renewed firms look to gain a foothold in the country, an called the entire Chilean bishops’ conference to financial market volatility” that has caused a executive for the bank told Reuters on Thurs- the Vatican after acknowledging that he made plunge in the country’s currency, is very differ- day. According to Diego Folino, the deputy “grave errors in judgment” in the case of Chil- ent from the last time Argentina sought aid chief executive of Bank of China Mexico, the ean Bishop Juan Barros, whom victims have from the IMF 17 years ago, said Rice. The fund firm was only recently granted approval to offer accused of ignoring instances of abuse by Rev. “can move quickly ... and we intend to move services in Mexico, despite having received a Fernando Karadima. In 2011, the Vatican found quickly,” Rice told reporters. The type, size and license to operate in the country two years ago. Karadima guilty of sexually abusing children terms of the loan package will be determined Folino told Reuters that the increased presence in Chile and ordered him to retire to a “life of through the talks between Argentina and the in Mexico is needed to support Chinese firms, prayer and penitence,” The New York Times re- IMF that began last week. “Our ultimate goal is which are rapidly moving into the country. ported. Karadima has denied the accusations. to help support the authorities in their efforts “There are about 70 strong Chinese companies A Chilean judge previously determined that the to strengthen the Argentine economy and to already investing in Mexico and Chinese finan- abuse allegations against Karadima had merit, protect the living standards of the Argentine cial institutions must follow them,” Folino said but ruled the time limit for prosecuting him had people, and particularly for the most vulnerable in an interview. Folino added that the firm is expired, the Catholic Herald reported in 2015. groups,” Rice said. [Editor’s note: See Q&A on also preparing to offer other services, particu- Argentina’s economy in the May 11 Advisor.] larly in exchange operations and offshore management of the Chinese renminbi. “We expect ECONOMIC NEWS to become the leader in renminbi management BUSINESS NEWS eventually,” Folino told the wire service. “The IMF Vows to Move use of the currency is increasing significant- ly.” The Chinese renminbi currency is used in Quickly on Argentina Bank of China to foreign transactions, allowing companies and Begin Providing individuals to move funds in and out of China Loan Program despite currency controls. Bank of China is just Services in Mexico one of many East Asian financial institutions, The International Monetary Fund will move including China’s ICBC, South Korea’s Shinhan quickly to agree on a loan program for Argenti- Bank of China will start providing wire transfers Bank, and Japan’s Mizuho Bank, to expand into na, IMF spokesman Gerry Rice said Thursday, and new loan services in Mexico as Chinese Mexico in recent years. MercoPress reported. The South American

LATIN AMERICA ADVISOR FEATURED Q&A / Continued from page 2 is published every business day by the Inter-American Dialogue, Copyright © 2018 lower Argentina’s fiscal deficit and shore The government’s efforts to create a more up investor confidence, the government’s attractive business environment, as demon- Erik Brand ambitious public-private partnership (PPP) strated in its change to the PPP framework Publisher [email protected] plan becomes even more important. Private and the recently passed capital markets law, sector financing will be key to meeting will likely factor into these decisions.” Gene Kuleta Editor Argentina’s infrastructure needs. The govern- [email protected] ment has taken a number of steps to make Rodrigo López, economist and

its PPP program as attractive as possible, sociologist at the Centro de including offering U.S. dollar-denominated Estudios Económicos y Sociales Michael Shifter, President contracts, incorporating a dispute resolution Scalabrini Ortiz (CESO): “The Genaro Arriagada, Nonresident Senior Fellow mechanism that includes international arbi- A situation has changed drastically for Macri’s Sergio Bitar, Nonresident Senior Fellow tration and exempting PPP operators from government. The central bank managed Joan Caivano, Director, Special Projects Argentina’s value-added tax. The high level to stop the run on the Argentine peso, but Michael Camilleri, Director, Peter D. Bell Rule of Law of interest in the six ‘Safe Highways and at a cost of losing reserves and reversing Program Road Network’ projects—the first under Ar- its monetary policy. It had to offer annual Kevin Casas-Zamora, Nonresident Senior Fellow interest rates of 40 percent just to slow the Ariel Fiszbein, Director, Education Program purchase of dollars. In the middle of this Alejandro Ganimian, Nonresident Fellow turmoil, the government announced that Peter Hakim, President Emeritus All eyes are focused it is seeking an agreement with the IMF to Claudio Loser, Senior Fellow on ongoing talks negotiate financial support. Unlike the World Nora Lustig, Nonresident Senior Fellow with the IMF ...” Bank, the IMF is a Bretton Woods institution Margaret Myers, Director, China and Latin America Program — Rebecca O’Connor and Madeleine Elder that is not interested in economic develop- Manuel Orozco, Director, Migration, ment. It will not grant loans for any reason Remittances & Development other than balancing the external accounts. Jeffrey Puryear, Senior Fellow The loans will be conditioned on a reduction Tamar Solnik, Director, Finance & Administration gentina’s new PPP framework—demonstrat- in public spending, for which Argentina will Lisa Viscidi, Director, Energy Program ed that investors had taken note. However, have to postpone some of its infrastructure Denisse Yanovich, Director of Development and External Relations the success of the PPP program will depend projects. This will undermine one of the few not only on Argentina’s ability to attract strategies the government has to win the Latin America Advisor is published every bids, but on operators’ ability to attract the electorate over on economic issues. Most of business day, except for major U.S. holidays, necessary financing to get infrastructure them are highway projects, which have high by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 projects off the ground. Recent economic visibility. Some are simple; others are gigan- Washington, DC 20005 developments in Argentina—including the tic and unjustified, like the megaproject of www.thedialogue.org depreciation of the peso and cuts to public creating a train and subway transfer station ISSN 2163-7962 financing—have presented new challenges under the Obelisk in Buenos Aires, an iconic Subscription inquiries are welcomed at for the government’s ambitious economic monument. These are not projects that [email protected] plan. All eyes are focused on ongoing nego- should be priorities, and they are suspected The opinions expressed by the members of the Board of tiations with the International Monetary Fund of corruption for their links to the president’s Advisors and by guest commentators do not necessarily to set up a $20-30 billion ‘stand-by’ credit family. Some are afraid that we will see a re- represent those of the publisher. The analysis is the sole arrangement, as well as the upcoming MSCI view of each commentator and does not necessarily peat of Brazil here. In addition, the IMF does represent the views of their respective employers or firms. index announcement indicating whether not appear to agree with the format for the The information in this report has been obtained from Argentina will be upgraded from a frontier government’s public-private partnerships. reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have to an emerging market. Reliance on the IMF If the health of the Argentine economy is to any questions relating to the contents of this publication, to ensure economic stability is a politically depend on loans from the IMF, knowing what contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a risky move for the Macri administration, but happened in the run-up to the crisis in 2001, retrieval system, or transmitted without prior written permis- a successful outcome on both fronts would it is difficult to imagine that the IMF will not sion from the publisher. contribute to solidifying investor confidence question this expensive and poorly timed and help PPP contractors attract financing. electoral-minded infrastructure policy.”