LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, May 7, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, May 7, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs What Will Having Mexico Eyes Cargill Tax Deal With Joyce Chang Global Head of Research, Cortizo in Power Tech Platforms JPMorgan Chase & Co. President Andrés Manuel López Marlene Fernández Obrador’s government is planning Corporate Vice President for Mean for Panama? Government Relations, to announce an agreement to Arcos Dorados collect taxes from technology Peter Hakim platforms, said the country’s President Emeritus, deputy finance minister. Inter-American Dialogue Page 2 Donna Hrinak President, Boeing Latin America Jon Huenemann ECONOMIC Retired VP, U.S. & Int’l Affairs, Philip Morris International Argentina’s James R. Jones Industrial Output Chairman, Monarch Global Strategies Falls 13.4 Percent Craig A. Kelly Industrial production declined in Director, Americas International Gov’t Relations, Exxon Mobil March for the 11th consecutive month as the South American John Maisto Laurentino Cortizo, pictured during a campaign stop last month, won the country’s presidential Director, U.S. Education election on Sunday. // File Photo: Cortizo Campaign. country’s economy continues to Finance Group struggle. Nicolás Mariscal Page 2 Chairman, In a tight race, Laurentino Cortizo of the Democratic Revolu- Grupo Marhnos tionary Party won Panama’s presidential election on Sunday. POLITICAL Thomas F. McLarty III The second-place finisher, Rómulo Roux of the Democratic Chairman, U.S. Gov’t Plans McLarty Associates Q Change party, conceded defeat on Monday after initially Carlos Paz-Soldan Incentives for Partner, alleging “irregularities” in the vote and demanding for every ballot to be DTB Associates, LLP scrutinized. What do the unexpectedly close results say about Pana- Venezuelan Troops Beatrice Rangel ma’s electorate? What factors led to Cortizo’s victory? Which issues will U.S. Vice President Mike Pence Director, is today expected to announce AMLA Consulting LLC dominate Cortizo’s agenda as president, and how well will he be able to incentives for members of Ven- Jaana Remes work with lawmakers? ezuela’s military to switch sides Partner, McKinsey Global Institute and support opposition leader Juan Guaidó, whom dozens of Ernesto Revilla Joaquín Jácome Diez, senior partner at Jácome & Jácome Head of Latin American countries recognize as Venezue- Economics, Citi in Panama City and former trade minister of Panama: la’s legitimate president. Gustavo Roosen “Laurentino Cortizo’s election as president of Panama was Page 2 Chairman of the Board, Envases Venezolanos widely expected. Among seven presidential candidates, three Andrés Rozental A of whom were independents running for the first time due to electoral President, Rozental & Asociados and Senior changes, Cortizo’s Democratic Revolutionary Party (the country’s biggest Policy Advisor, Chatham House and most organized political machine) was poised to thrive among Shelly Shetty Head of Sovereign Ratings, division. Cortizo had only to consolidate his party base in order to win. Latin America, Fitch As a matter of fact, he barely achieved it, obtaining only 33 percent of the Roberto Sifon-Arevalo Managing Director, Americas vote. The great surprise of the election was Rómulo Roux of the Demo- Sovereign & Public Finance Ratings, cratic Change party (the party of jailed former President Martinelli), who Standard & Poor’s obtained 31 percent of the vote. One of the main reasons for this was the electoral tribunal ruling against Martinelli one week before the election, banning him from running for mayor of Panama City or the National Pence // File Photo: NASA. Assembly in a shady legal ruling, after having certified several times that Continued on page 2

POLITICAL NEWS of economic aid incentives dependent on a NEWS BRIEFS political transition, the official told the wire Pence Reportedly to service. The planned offers of incentives come Argentina’s Industrial a week after Guaidó, whom the United States Output Falls 13.4% in Offer Incentives to and dozens of other countries recognize as Venezuela’s legitimate acting president, called March: Statistics Agency Venezuela’s Military on the country’s military to overthrow Maduro’s Argentina’s industrial production declined 13.4 government. Thousands of anti-government percent in March as compared to the same U.S. Vice President Mike Pence is planning to protesters took to the streets across the month last year, the government’s statistics offer incentives today to Venezuela’s military to country, but Maduro remained in power. Pence agency, Indec, said Monday, Reuters reported. withdraw their support from President Nicolás is also expected to announce a decision to Output fell more than expected, and the decline Maduro and switch their allegiance to oppo- sanction 25 additional magistrates of Venezu- was the 11th consecutive month of falling sition leader Juan Guaidó, Reuters reported, ela’s supreme court, the unnamed official told production since a debt crisis, a falling peso citing a senior U.S. administration official. In a Reuters. and steep inflation hit the country’s economy speech to be delivered at the State Department last year. [Editor’s note: See Q&A on Argentina’s this afternoon to the Americas Society, Pence economy in the April 15 issue of the Advisor.] is expected to offer assistance to refugees ECONOMIC NEWS who have fled Venezuela, as well as a package Mexican Government Colombia’s Ecopetrol CORRECTION Eyes Tax Deal With Reports 5% Rise in Due to an editing error in the April 30 Profit for First Quarter issue of the Advisor, the words “and Technology Platforms selling” were omitted from the beginning Colombian state oil company Ecopetrol of Ramiro Crespo’s commentary in the reported a first quarter net profit of 2.75 trillion The Mexican government is planning to an- Featured Q&A section. His commentary pesos, approximately $847.1 million, 5 percent nounce the rollout of a landmark tax deal with should have begun, “Arbitrage is the higher than in the same period last year, amid technology platforms in the coming weeks, a simultaneous buying and selling of the an increase in output, sales and greater oper- top official said Monday, Bloomberg News re- same asset in different markets in order ating efficiencies, the company said Monday, ported. Deputy Finance Minister Arturo Herrera to benefit from price differences.” Reuters reported. Earnings before interest, confirmed the news but declined to provide any taxes, depreciation and amortization grew by 2.9 percent in the January-March period, as FEATURED Q&A / Continued from page 1 compared to a year earlier, to 7.4 trillion pesos.

he met all requirements to run legally. This population. He seems to be aware of that, as ruling, reminiscent of Martinelli’s bonanza he vowed to work with all Panamanians.” years and the perception that he had been Chile’s Piñera Cancels treated unfairly during his trial, contributed John Feeley, political analyst Europe Trip Following to Roux’s excellent showing. Even if many at Univision and former U.S. legislators with questionable reputations ambassador to Panama: “Pana- Nepotism Accusations were not re-elected, undoubtedly well-oiled A ma’s presidential campaign was Chilean President Sebastián Piñera has can- political machines were the winners of the a sleeper, but election day was a nail-biter. celed a trip to Germany and the Netherlands election, leaving frustrated a wide sector of During the two-month campaign, candidates that was scheduled to start May 12, govern- the population that is tired of the political mostly avoided personal attacks, and stump ment sources said Monday, saying he had cho- establishment’s corruption. President-elect speeches were short on substance. Cortizo sen to prioritize his local agenda, EFE reported. Cortizo’s victory speech Sunday night was held a comfortable lead in the polls, with Piñera was recently accused of nepotism after conciliatory. Even though he will have good independent Ricardo Lombana surging two of his children traveled with him during representation in the National Assembly in late. Most observers agreed the race was a state visit to China and South Korea last order to tackle inequality, social security, Cortizo’s to lose, as the party holding the month. The president has said the family paid pension reform and constitutional reform, presidency has never won re-election in Pan- for the expenses. Upon his return, the foreign he will also need wide consensus among the ama’s six democratic elections since 1990. ministry announced a new official traveling Continued on page 4 protocol, although it denied it was linked to the nepotism allegations.

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Tuesday, May 7, 2019 details on the plan. Mexico has been looking for ways to strengthen its tax collection, THE DIALOGUE CONTINUES which fares the worst among members of the Organization for Economic Cooperation and Development, or OECD, according to the report. What’s the Cause of Ecuador’s The previous administration of Enrique Peña Nieto had reportedly struck a deal with Uber Troubles With Contraband? in which the platform would withhold taxes Facing a growing problem with Intelligence Unit’s Illicit Trade Global Environ- from partners who gain income from both its contraband, Ecuadorean Pres- ment Index, Ecuador is number 60 out of ride-hailing and food delivery services, as well ident Lenín Moreno in March 84 countries worldwide and number 12 out as with Netflix to impose a sales tax on users. Q said he would deploy the armed of 19 countries in the Americas. There are Airbnb reportedly left talks on an agreement forces to support customs and national publications that locate Ecuador as the Latin that would have required the home-sharing police in combating illegal trade. According American country with the second-high- website to collect income tax from its hosts, to industry leaders, in some categories est levels of illicit trade when it comes to Bloomberg News reported. Herrera said the more than half the products sold in Ecuador cigarette contraband. Such high levels of current administration must focus on strength- are now contraband, ranging from tobacco contraband make one think that the best ening communication with the private sector. and alcohol to textiles and cosmetics. As strategies to solve this problem have not yet “In order for us to grow faster this year and in a result, Ecuador’s government is losing been discovered. Producing sectors have the years to come, we need a private sector hundreds of millions of dollars each year in made recommendations based on universal that is confident and that is facing clear rules tax revenue, and formal employment may suggestions prepared by the Transnational of the game,” Herrera said. Although global be dropping, industry executives say. What Alliance to Combat Illicit Trade (TRACIT), consensus remains elusive on whether and factors are behind Ecuador’s problems with which consist of a checklist of fundamental how to tax businesses with a digital footprint contraband? How does the country compare measures that have to do with the devel- but no physical presence in a jurisdiction, to others in the region and elsewhere in opment of a multilateral, comprehensive, several Latin American countries have imple- the world in addressing it? What strategies intersectoral and international response; mented or are discussing digital tax proposals. work best to stop flows of contraband, and international customs or security forces [Editor’s note: See related Q&A in the March 27 what are the best solutions for Ecuador? cooperation; the protection of merchandise issue of the Advisor.] Will the armed forces be able to address the from free trade zones; hardening sentences; problem or are other measures necessary? an effective enforcement of anti-money laundering regulation; strengthening cus- BUSINESS NEWS Caterina Costa de García, pres- toms processes; and respecting intellectual ident of the Guayaquil Chamber property, among others. The intervention of Brazil’s Bradesco of Industries: “Economic factors the armed forces could help the fight against A due to high tariffs and special illicit trade, but it’s insufficient if the problem Buying BAC Florida taxes on certain products such as cigarettes, is not dealt with in an integral manner.” liquors, perfumes and clothing, among Bank for $500 Million others, as well as factors of corruption facilitated by the weakness and sometimes EDITOR’S NOTE: The comment above is a Banco Bradesco is paying approximately permissiveness of the control authorities in continuation of the Q&A published in the $500 million to buy BAC Florida Bank as part the import and commercialization of such April 30 issue of the Advisor. of the Brazilian bank’s first-ever international products, are behind Ecuador’s contraband acquisition, it said in a statement Monday. problems. According to the The Economist Headquartered in Coral Gables, BAC Florida is controlled by Grupo Pellas, a Nicaraguan financing. “Expanding our product and service “as BAC has clients all over the region,” he add- conglomerate with operations in 10 countries. offerings through BAC Florida is a way of being ed. Roughly 20 percent of BAC Florida’s clients As of last December, the bank posted total the preferred wealth management bank for our are Brazilian, and 9 percent are American, Reu- assets of $2.2 billion and a net income of clients, who have increasingly demanded more ters reported. BAC will add 10,000 customers $29 million, according to the statement. The diversification and greater access to global to Bradesco’s 13,000 private banking clients in acquisition will allow Bradesco to expand its solutions,” Octavio de Lazari, Bradesco’s chief Brazil. “This acquisition is small for Bradesco … offering of investments in the United States, executive officer, said in the statement. With and tends to help the bank to reduce the gap of as well as other banking services, including the acquisition, Bradesco will expand not only its private banking business,” Itaú BBA said in a checking account, credit card and real estate in the United States, but also in Latin America, note to clients, the wire service reported.

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2019 Yet Cortizo’s slim two-point victory shows polls. Polls gave Laurentino Cortizo of Panamanians are far from apathetic when the opposition PRD a healthy lead against Erik Brand it comes to their democracy. Almost 80 Rómulo Roux, the candidate of Democratic Publisher [email protected] percent of eligible voters participated, and Change, the party of former President Ricar- Lombana’s strong third-place finish indicates do Martinelli. However, with more than 94 Gene Kuleta Editor that, while they elected the traditional PRD, percent of ballots counted, Cortizo led with [email protected] they long to disrupt the cycle of patronage 33 percent to Roux’s 31 percent. Indepen- Anastasia Chacón González politics and graft. Cortizo starts with a dent Ricardo Lombana received 19 percent. Reporter serious advantage in that his immediate In the legislative elections, it seems the PRD [email protected] predecessor, Juan Carlos Varela, is deeply will come close to obtaining a majority. First, unpopular. Varela’s surprise victory in 2014 the results confirm the power of political

raised expectations that he might be a real parties, particularly at the presidential level, Michael Shifter, President anti-corruption crusader. Unfortunately, he to mobilize the electorate despite their Genaro Arriagada, Nonresident Senior Fellow politicized the judiciary in pursuing his pre- low approval rating. Second, Democratic Sergio Bitar, Nonresident Senior Fellow decessor, the flamboyantly corrupt Ricardo Change’s ability to mobilize votes, particular- Joan Caivano, Director, Special Projects Martinelli, whose money fueled Rómulo ly in Panama City and Colón, is a testament Michael Camilleri, Director, Peter D. Bell Rule of Law Roux’s second-place finish. Varela leaves to Martinelli’s appeal. The results cement his Program with just a 12 percent approval rating. As status as a significant political force and will Kevin Casas-Zamora, Nonresident Senior Fellow pressing as the corruption fight is, Cortizo complicate his upcoming trial on corruption Ariel Fiszbein, Director, Education Program will have to address income inequality and charges. Third, Lombana’s 19 percent does Peter Hakim, President Emeritus the growing gap between Panama’s haves pose a challenge to the traditional parties. Claudio Loser, Senior Fellow and have-nots. With GDP growth predicted His support is the highest a nonpartisan can- Nora Lustig, Nonresident Senior Fellow to be between 4 and 5 percent this year, didate has received since democracy was Margaret Myers, Director, Asia and Latin America Program Panama’s economy is the fastest-growing restored in 1990. In addition, it seems five Manuel Orozco, Director, Migration, in the hemisphere. Nonetheless, the middle or six legislative candidates who explicitly Remittances & Development class has steadily lost ground in terms of supported Lombana will win seats in the Jeffrey Puryear, Senior Fellow wages and purchasing parity, and they are National Assembly. Traditionally, lawmakers’ Tamar Solnik, Director, Finance & Administration angry. Fixing the nation’s expensive and political loyalties have been fluid and easily Lisa Viscidi, Director, Energy Program underperforming education system is also a manipulated by the president. Lombana Denisse Yanovich, Director of Development and must-do. Finally, China: Many Panamanians may decide to form a political party, but that External Relations

already feel some buyer’s remorse at Vare- might damage his brand, or he might simply Latin America Advisor is published every la’s non-consulted, secretly-negotiated 2017 fade away. Fourth, the dismal results by business day, except for major U.S. holidays, diplomatic flip-flop. They fear the emergence the Panameñista Party represents its worst by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 of Chinese ‘debt-trap’ investment in Panama. showing since 1990. The party was punished Washington, DC 20005 Cortizo has said he welcomes the new rela- heavily by President Varela’s low approval www.thedialogue.org tionship, but not at the expense of Panama’s ratings and his five years in power. Fifth, the ISSN 2163-7962 relationship with the United States. Manag- #NoalaReelección movement demonstrated Subscription inquiries are welcomed at ing that super power brinkmanship may be it could mobilize significant portions of the [email protected] Cortizo’s toughest challenge of all.” electorate as more than a dozen legislators The opinions expressed by the members of the Board of failed to win re-election. Finally, with little to Advisors and by guest commentators do not necessarily Orlando J. Pérez, associate no mandate, President-elect Cortizo faces represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily dean of the College of Arts, significant challenges in tackling corruption, represent the views of their respective employers or firms. Humanities and Social Sciences inequality, weak judicial institutions and an The information in this report has been obtained from at Millersville University: “Poll- ever more fragmented political environment.” reliable sources, but neither its accuracy and completeness, A nor the opinions based thereon, are guaranteed. If you have sters were confounded again by the results any questions relating to the contents of this publication, of the presidential election in Panama. Just The Advisor welcomes comments on its Q&A contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a as in 2014, this year’s electoral results vary section. Readers can write editor Gene Kuleta retrieval system, or transmitted without prior written permis- from those predicted by most of the recent at [email protected]. sion from the publisher.