June 18, 2021: Latin America Advisor

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Friday, June 18, 2021

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Will New Officials Blackout Leaves Chief Corporate Affairs Officer, Grubhub 337,000 Without Joyce Chang Global Head of Research, Change Mexico’s Electricity in JPMorgan Chase & Co. Puerto Rico Paula Cifuentes Director of Economic & Fiscal Affairs, Economic Policy? A sudden power outage left more Latin America & Canada, than 337,000 customers without Philip Morris International electricity across the U.S. territory Marlene Fernández just days after another massive Corporate Vice President for blackout. Government Relations, Arcos Dorados (McDonald’s) Page 2 Peter Hakim President Emeritus, BUSINESS Inter-American Dialogue Donna Hrinak BR Distribuidora Senior VP, Corporate Affairs, Royal Caribbean Group Launches Offering Jon E. Huenemann as Petrobras Council Member, GLG Inc. Sells Stake James R. Jones Mexican President Andrés Manuel López Obrador (C) last week named Arturo Herrera (L) the BR Distribuidora launched a share Chairman, country’s new central bank chief and Rogelio Ramírez de la O (R) as his new finance minister. offering in which state oil com- Monarch Global Strategies // Photo: @lopezobrador_ via Twitter. pany Petrobras will sell a stake in Craig A. Kelly Mexican President Andrés Manuel López Obrador said this Senior Director, Americas the fuel distribution firm. Int’l Gov’t Relations, Exxon Mobil month that he would nominate current Finance Minister Ar- Page 3 Barbara Kotschwar turo Herrera to be the new chief of the central bank. Current Executive Director, Visa Economic Empowerment Institute Q head Alejandro Díaz de León’s term ends Dec. 31. López POLITICAL John Maisto Obrador had previously said he wanted a central bank president with a Director, U.S. Education Nicaragua Orders Finance Group “social dimension” who is “in favor of moral economics.” Is there likely Two More Arrests Nicolás Mariscal to be a big change in the Mexican central bank’s direction when Díaz de in Crackdown Chairman, León’s term ends? Is Herrera the best person for the position, and what Grupo Marhnos Nicaraguan authorities ordered Thomas F. McLarty III is he likely to prioritize? What is likely to be the direction of Mexico’s Fi- two more arrests in a widening Chairman, nance Ministry under the leadership of its new designated head, Rogelio crackdown. Former Education McLarty Associates Ramírez de la O, whom López Obrador tapped to succeed Herrera? Minister Humberto Belli and busi- Beatrice Rangel ness owner Gerardo Baltodano Director, AMLA Consulting LLC were ordered detained. Jaana Remes Jonathan Heath, deputy governor of the Bank of Mexico: Page 2 Partner, “Arturo Herrera, the current finance minister, has a clear McKinsey Global Institute Ernesto Revilla understanding of the bank’s role and its importance for the Head of Latin American correct conduct of monetary policy aimed at maintaining Economics, Citi A Gustavo Roosen price stability. The Bank of Mexico is a solid institution with a well-built President, legal framework, designed to weather all types of vicissitudes. Without a IESA doubt, Herrera will continue along the same path taken by the bank, start- Andrés Rozental President, Rozental & ing with its autonomy in 1994. Nevertheless, as of 2022 and for the first Asociados time ever, all five members of the board will be outsiders without previous Shelly Shetty Managing Director, Sovereigns work experience from within the bank. While it is true that the president Fitch Ratings has so far appointed three out of the five members of its Governing Board, it is fair to say that all three feel complete autonomy in terms of their decisions and have the bank’s legal mandate at the top of their priorities. While I cannot speak for other members, I was chosen because Belli // File Photo: Facebook Page of Humberto Belli. Continued on page 3

POLITICAL NEWS nization of American States condemned the NEWS BRIEFS arrests and urged the immediate release of the Nicaragua Orders people who have been detained. OAS Secre- Donors Pledge $1.5 Billion tary General Luis Almagro has called Ortega a for Venezuelan Migrants Two More Arrests in “dictator.” Also on Thursday, Nicaragua denied a New York Times reporter from entering the Donors at an international conference in Cana- Widening Crackdown country, the newspaper reported. The airline da on Thursday pledged more than $1.5 billion on which he was scheduled to travel canceled in grants and loans to support Venezuelan Nicaraguan authorities on Thursday ordered the ticket of Anatoly Kurmanaev, who met all of migrants who have fled the country’s humani- the arrests of a former education minister and Nicaragua’s legal and health requirements for tarian crisis, Reuters reported. The grants total a businessman as the government widened a entering the country. On Sunday, Nicaragua’s $954 million, including $407 million from the crackdown on opponents of President Daniel government added 13 Nicaraguan news outlets United States and $93 million from Canada. Ortega beyond politicians, the Associated to a criminal investigation that is targeting That amount exceeded the $653 million in Press reported. In a statement, Nicaragua’s members of the opposition over allegations grants that were pledged last year at a similar attorney general’s office said it was order- of money laundering, treason and “seditious event. More than 30 countries and develop- ing the capture of Humberto Belli, who was conspiracy,” The New York Times reported. ment banks took part in the conference. education minister under former President Violeta Chamorro, and Gerardo Baltodano, who owns Café Soluble, for failing to appear ECONOMIC NEWS Men Posing as Security to give statements as scheduled, the wire service reported. Both individuals had served Guards Attack Haiti on the board of the Nicaraguan Foundation for Blackout Leaves Power Plant, Employees Economic and Social Development, a non- 337,000 Without Officials at Haiti’s power company said governmental organization that is the target Thursday that its employees and some of its of an investigation. Earlier this month, the Power in Puerto Rico infrastructure were attacked by a group of men organization’s former executive director, Juan who pretended to be security guards, the Asso- Sebastián Chamorro, was arrested and ac- A sudden power outage left more than 337,000 ciated Press reported. L’Électricité d’Haïti said cused of committing crimes against the state, customers without electricity across Puerto the men and what it called complicit security the Associated Press reported. Nicaraguan Rico late on Wednesday, just days after an- guards occupied a power plant near the Péligre prosecutors announced Thursday that a judge other massive blackout, the Associated Press Dam in the country’s central region, adding that had ordered bank accounts belonging to Belli reported. Luma Energy, a private firm that took the men had previously been hired illegally and and Baltodano, and others tied to the organiza- over the U.S. territory’s power transmission later dismissed, but they continued to return to tion, to be frozen. The judge also barred Belli and distribution system on June 1, said three the plant. Michel Présumé, the firm’s director and Baltodano from leaving the country. The units went offline. The cause was not immedi- general, said on Wednesday that authorities pair are under investigation due to “financial ately known. Luma initially said some 190,000 had not removed or arrested the men. operations derived from illicit activities,” customers had been affected but later said in a prosecutors alleged. Belli and Baltodano were tweet that electricity had been restored to more the latest targets as authorities in Nicaragua than 252,700 customers and more than 84,000 pursue politicians, businesspeople and others, were still without power. Various spokespeople Fourteen Jamaican a crackdown that comes five months before for the company did not respond to the AP’s Migrants Detained After Nicaragua’s presidential election. Ortega, who request for comment. The blackout sparked Coming Ashore in Florida has been in office for 14 years, is seeking to a flurry of complaints on social media from Authorities on Thursday detained 14 migrants remain in power. Authorities in Nicaragua have enraged customers who said they had to dis- hailing from Jamaica via the Bahamas who arrested at least 16 people in recent weeks. card food and refrigerated medication such as came ashore in Pompano Beach, in South They include 13 members of Nicaragua’s insulin in recent days, according to the report. Florida, the Associated Press reported, citing political opposition, including four potential The company had announced hours before the local television station WPLG-TV. While being presidential candidates. Two former employ- outage that services would be interrupted in handcuffed, one of the migrant men told ees of the Violeta Chamorro Foundation and the following three nights for pre-scheduled WPLG-TV that he was fleeing from violence in Luis Rivas Anduray, the executive president of maintenance at one plant as well as interrup- his country. U.S. Customs and Border Protec- Banco de Producción, were also arrested. On tions in the generation of power run by Puerto tion did not immediately respond to the AP’s Tuesday, the Permanent Council of the Orga- Rico’s Electric Power Authority, or PREPA. request for more information.

However, Luma said the most recent outage FEATURED Q&A / Continued from page 1 was not related to these announcements, La Noticia reported. Luma took over the opera- of my experience, reputation, independence dent of independence from the new governor tions of Puerto Rico’s power grid on June 1 in and nonalliance to any political party or toward the president makes it reasonable to a public-private partnership with PREPA that specific politician. Personally, I have never assume that Banxico’s policy function might aims to improve the island’s resilience, Utility spoken or even met the current president, weigh inflation less and growth more. In the Dive reported. The transition came amid some as I was offered my position by the previous Ministry of Finance, the direction will not concerns over Luma’s readiness, with critics finance minister, Carlos Urzúa. When I was change much from the past. Ramírez de la pointing to a lack of sufficient and prepared approached, I received no conditioning nor O might have more say in issues related to staff. instructions. In fact, I was told that it did Pemex and energy, but this will not change not even matter if I was hawkish or dovish the administration’s energy policy nor its in monetary policy conduction. Rogelio austerity.” BUSINESS NEWS Ramírez de la O is likely to continue along the same line that the president has dictated Amanda Mattingly, managing from the start: austerity, no debt and an all- director at The Arkin Group in BR Distribuidora out fight against corruption. Nevertheless, New York: “The good news is Launches Offering Ramírez speaks his own mind and may very A that Arturo Herrera is a known well resign before his three years are over if quantity, and while he does not have a steep for Petrobras Stake he is not allowed full conduct of the Finance background in monetary policy, he has the Ministry.” experience to steer the Mexican central bank Brazilian fuel retailer BR Distribuidora on Thurs- in a manner that does not rattle markets or day launched a share offering in which state Ernesto Revilla, managing investors or destabilize the Mexican econo- oil firm Petrobras will sell an 11.5 billion reais director and head of Latin my. Rogelio Ramírez de la O, who studied at ($2.3 billion) stake in the company, Reuters America economics at Citi- reported, citing a securities filing. The offering group: “With Díaz de León leav- A The real question is set to be priced on June 30. The company ing, Mexico loses a superb public official. In said several banks—Bank of America, Citigroup addition, AMLO, unknowingly, will lose one will be the degree to Global Markets, Goldman Sachs, Itaú, JPMor- of his best allies—because the stability that which Herrera will be gan Chase as well as Morgan Stanley and XP the governor has brought (along with high able to maintain the Investimentos—were managing the offering. policy rates) has meant that the Mexican bank’s autonomy.” Petrobras said it had informed BR Distribuidora peso has been surprisingly stable even in the — Amanda Mattingly last week of its plans to sell its remaining 37.5 face of a dramatic deterioration of domestic percent stake in the distribution firm, according microeconomic and institutional funda- to the report. “This operation is in line with the mentals. For the first time since becoming UNAM and Cambridge, also seems to have optimization of the portfolio and the improve- autonomous, the new governor will not come the requisite credentials to take Herrera’s ment of the company’s capital allocation, from Banxico’s ranks (nor any other member position at the Finance Ministry. It is also aiming at generating value for its sharehold- of the board), one of the most celebrated good news that President López Obrador ers,” Petrobras said in that filing. The move civil services in Mexico. This will mean that made the announcement last week before is part of the company’s broader divestment the board will have to rely on Banxico’s staff too much time had elapsed since late May, strategy aimed at raising money and reducing to keep an eye on market sentiment and po- when he said he would not extend the term its debt burden. As part of the plan, it is looking tential reaction to communications, as well of current central bank head Alejandro Díaz to sell eight refineries by year-end, according as on technical issues of monetary policy de León. Markets do not like uncertainty, so to a deadline it had set before the pandem- and financial regulation. Minister Herrera making the announcement right after the ic. The company in recent weeks has made was orthodox in fiscal policy as he pursued midterm elections was important. So far, progress toward the first sale of the refineries the austerity that AMLO mandated. The mar- Herrera has sent the right messages to the after antitrust watchdog Cade approved the ket perceives, however, that the orthodoxy market about continued macroeconomic sta- company’s $1.65 billion deal with Abu Dhabi’s might not immediately transfer to monetary bility. But the real question will be the degree state-owned investment fund, Mubadala, Argus policy as in this area there can potentially be to which Herrera will be able to maintain the Media reported. The sale is still subject to a disagreement with AMLO in certain ‘states of bank’s autonomy. López Obrador’s disdain review period and other conditions included in the world.’ The fact that there is no prece- for neoliberal economic policies is no secret, the agreement. Continued on page 4

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue ISSN 2163-7962 and he has been a critic of Banxico. He will taxes, but it is hard to see how Mexico can likely want Herrera’s loyalty even though the continue providing social subsidies to the Erik Brand central bank is supposed to be independent. young and the elderly without a more robust Publisher [email protected] Depending on how Mexico emerges from income-generating strategy.” the pandemic and an economic decline of Gene Kuleta Editor 8.5 percent in 2020, López Obrador may be Lucinda Vargas, research [email protected] tempted to cross that line separating the fellow at the Center for Border Anastasia Chacón González bank from his administration, particularly Economic Development at New Reporter & Associate Editor as he tries to push through economic and A Mexico State University: “In [email protected] fiscal reforms and make good on the ‘social choosing Arturo Herrera as his nominee dimension’ promise to his base.” for governor of the central bank, President Lopez Obrador is presenting a candidate

Amy Glover, president and who not only has solid credentials in the Michael Shifter, President founding partner of Agil(e): world of finance and economics, but one Rebecca Bill Chavez, Nonresident Senior Fellow “While the announcement of with the additional ‘social dimension’ that Bruno Binetti, Nonresident Fellow A these changes was ahead of the president is attaching to the role. Herrera Sergio Bitar, Nonresident Senior Fellow schedule, it was generally welcomed, as was, after all, the president’s pick for his Joan Caivano, Senior Advisor both Arturo Herrera and Rogelio Ramírez current post as finance minister, so he would Kevin Casas-Zamora, Nonresident Senior Fellow de la O are well respected economists in seem to automatically have checked that Julia Dias Leite, Nonresident Senior Fellow Mexico. The private sector views Herrera box. Overall, Herrera seems to be the right Ariel Fiszbein, Director, Education Program as having done a decent job at Hacienda choice to lead the central bank. Respected in Sandra García Jaramillo, Nonresident Senior Fellow and his replacement, Ramírez de la O, is national and international circles, he can be Selina Ho, Nonresident Senior Fellow well known as a consultant for a variety of trusted to uphold the much-lauded inde- Edison Lanza, Nonresident Senior Fellow multinational companies and as a former pendence of the central bank. Moreover, he Nora Lustig, Nonresident Senior Fellow advisor to AMLO. This decision provides is likely to take a prudent approach toward Margaret Myers, Director, Asia Program some comfort that the macroeconomic monetary policy, much like the one he has Manuel Orozco, Senior Fellow stability Mexico has enjoyed over the last 25 taken toward fiscal policy, even amid the Xiaoyu Pu, Nonresident Senior Fellow years will continue. López Obrador employs pandemic. This means Herrera will favor a Jeffrey Puryear, Senior Fellow terms like ‘moral’ and ‘social’ to reassure his monetary policy stance that keeps a close Tamar Solnik, Director, Finance & Administration base and to differentiate his administration guard on inflation. If there is a common Lisa Viscidi, Director, Energy Program from what he views as the greedy ‘neoliberal’ understanding by all in the central bank, and Denisse Yanovich, Director of Development approaches of the past. Reckless govern- perhaps especially so by Herrera, it is that Latin America Advisor is published every ment spending is not in the works, however. if let loose, inflation will affect the poor the business day, except for major U.S. holidays, Mexico’s debt-to-GDP ratio has risen over most. With regard to the selection of Rogelio by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 the last two years and is close to 60 percent, Ramírez de la O as Herrera’s successor, there Washington, DC 20005 but AMLO considers austerity part of what are many more imponderables, even though www.thedialogue.org constitutes a moral management of the he is a longtime ally of the president. For Subscription inquiries are welcomed at economy. And when it comes to keeping example, Ramirez de la O has spoken of the [email protected]

inflation under control, both Herrera and need for a more efficient and fiscally sound The opinions expressed by the members of the Board of Ramírez de la O understand that this is vital energy sector, something that goes counter Advisors and by guest commentators do not necessarily represent those of the publisher. The analysis is the sole to avoid negative effects for those who have to how the president is currently handling view of each commentator and does not necessarily the least. A fiscal reform is in the works and things on that front. It is not yet clear which represent the views of their respective employers or firms. will be discussed when Congress returns in side will prevail.” The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, the fall. The details remain vague but expect nor the opinions based thereon, are guaranteed. If you have the government to close tax loopholes for The Advisor welcomes comments on its Q&A any questions relating to the contents of this publication, contact the editorial offices of the Inter-American Dialogue. large corporations. The president has prom- section. Readers can write editor Gene Kuleta Contents of this report may not be reproduced, stored in ised the private sector that he will not raise at [email protected]. a retrieval system, or transmitted without prior written permission from the publisher.