LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Monday, April 8, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Monday, April 8, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk Are Multinational New White House Corporate VP, Global Corporate Affairs Cargill Sanctions Target Joyce Chang Global Head of Research, Companies Turning Venezuelan Oil JPMorgan Chase & Co. The Trump administration Marlene Fernández imposed new sanctions on Corporate Vice President for Away From Brazil? Venezuela’s government, this time Government Relations, Arcos Dorados targeted at oil shipments between Peter Hakim Venezuela and Cuba. President Emeritus, Page 2 Inter-American Dialogue Donna Hrinak President, Boeing Latin America BUSINESS Jon Huenemann Peru Indigenous Vice President, U.S. & Int’l Affairs, Philip Morris International Group Agrees to James R. Jones Chairman, End Protest at Monarch Global Strategies Copper Mine Craig A. Kelly The Fuerabamba community Director, Americas International Gov’t Relations, Exxon Mobil Brazilian President Jair Bolsonaro’s government is seen as business-friendly, but companies agreed to end its blockade of have been scaling back operations in Brazil. // File Photo: Brazilian Government. John Maisto a road leading to MMG’s Las Director, U.S. Education Bambas copper mine. Finance Group Switzerland’s Roche said March 26 that it would halt pro- Page 3 Nicolás Mariscal Chairman, duction of medicines at its plant in Rio de Janeiro because Grupo Marhnos the factory is not financially sustainable. The pharmaceu- POLITICAL Thomas F. McLarty III Q tical company’s announcement followed automaker Ford’s Chairman, U.S. Homeland McLarty Associates decision to shutter its truck plant outside São Paulo and Avianca Brasil’s Security Secretary Carlos Paz-Soldan move to terminate 21 of its air routes. What conditions are leading Partner, Steps Down DTB Associates, LLP international businesses to scale back their operations in Brazil? How Kirstjen Nielsen, who has over- Beatrice Rangel favorable is Brazil’s business climate going forward, under new Presi- seen President Donald Trump’s Director, AMLA Consulting LLC dent Jair Bolsonaro? Which industries in Brazil are poised to thrive, and immigration policies, resigned on Sunday. Trump said Kevin Jaana Remes which will suffer? Partner, McAleenan, the commissioner of McKinsey Global Institute U.S. Customs and Border Protec- Ernesto Revilla Thomas Rideg, president of M-Brain Americas Inc.: “Brazil tion, will become acting Homeland Head of Latin American Security secretary. is in a new era with a race to facilitate business and trade, re- Economics, Citi Page 2 Gustavo Roosen duce fat from the state, root out corruption and move forward Chairman of the Board, Envases Venezolanos A with a pension reform. Bolsonaro has already taken important Andrés Rozental measures, such as visiting key nations (the United States, Chile, Israel President, Rozental & Asociados and Senior and soon China) to advance trade, eliminating some bureaucratic steps Policy Advisor, Chatham House to open businesses, laying off more than 21,000 public employees and Shelly Shetty setting off to privatize 23 poorly managed ports and other companies Head of Sovereign Ratings, Latin America, Fitch such as Eletrobras. If approved, the proposed pension reform will boost Roberto Sifon-Arevalo confidence in the country. Meanwhile, many companies are suffering from Managing Director, Americas Sovereign & Public Finance Ratings, Brazil’s economic devastation of the last five years. While the market is Standard & Poor’s cautiously optimistic, some companies simply can’t afford to wait any longer, and in the case of Roche and Ford, this is not only due to Brazil’s situation but also to global mandates for efficiency and profitability. Roche’s factory in Brazil produces drugs at the end of their life cycle. Nielsen // File Photo: U.S. Depart- ment of Homeland Security. Continued on page 3

ECONOMIC NEWS newest sanctions would “tighten the noose NEWS BRIEFS of the financial strangulation of Maduro and White House Targets his cronies.” Other previously announced U.S. U.S. Homeland Security sanctions have targeted Venezuelan devel- Secretary Steps Down New Sanctions at opment bank Bandes, Maduro and several of his associates, Venezuela’s gold sector and a U.S. Homeland Security Secretary Kirstjen Venezuelan Oil Russian-based bank that the administration Nielsen, who has overseen President Donald accuses of facilitating illegitimate transactions Trump’s immigration policies, resigned Sunday The administration of U.S. President Donald for the Maduro government. Tens of thousands amid tensions with some in the White House Trump on Friday slapped new sanctions on of Venezuelans took to the streets on Saturday who have seen her as not doing enough to stop Venezuela’s government, this time targeted to protest Maduro and support Guaidó, Reuters migrants from crossing the country’s southern at oil shipments between the Andean nation reported. Guaidó called for demonstrations to border. “I hope that the next Secretary will and Cuba, The New York Times reported. Vice mark the beginning of what he said was a new have the support of Congress and the courts in President Mike Pence announced the sanctions series of “definitive” protests to force Maduro fixing the laws which have impeded our ability in a speech to a Venezuelan exile community from power. Maduro still has the support of to fully secure America’s borders and which in Houston, saying Washington is imposing Venezuela’s military and has blasted Guaidó have contributed to discord in our nation’s sanctions on 34 vessels that Venezuelan as a puppet of the United States, saying he will discourse,” she said in her resignation letter. state-owned oil company PDVSA either owns face justice. Last week, Venezuela’s powerful or operates. The sanctions also apply to two Constituent Assembly, which is aligned with international companies that ship Venezuelan Maduro, stripped Guaidó of his legislative California Governor crude oil to Cuba. “Venezuela’s oil belongs immunity from prosecution, paving the way for to the Venezuelan people,” said Pence, who his possible arrest. Begins Trip to El Salvador this week is expected to address the United California Governor Gavin Newsom arrived in Nations Security Council on the subject, the El Salvador on Sunday for a four-day trip during newspaper reported. With the sanctions, the Economic Policies which he says he wants to learn about the pov- Trump administration is attempting to force a ‘Bearing Fruit’ for erty and violence that are leading thousands “recalibration” of the Venezuela-Cuba relation- to flee north, in a countermove to what he ship, said top administration officials. Cuba, Argentina: IMF called President Donald Trump’s demoralizing along with Russia and China, are among the rhetoric about the Central American nation, countries that support the government of Ven- The International Monetary Fund’s executive the Associated Press reported. During his first ezuelan President Nicolás Maduro, whom the board on Friday released its third review of visit abroad since he took office in January, United States and other opponents consider a Argentina’s economic progress under its $56 Newsom will meet with Salvadoran President dictator. The United States and dozens of other billion standby financing deal with the country, Salvador Sánchez Cerén and President-elect countries recognize National Assembly leader unlocking another $10.8 billion in funds, the Nayib Bukele, as well as human rights groups. Juan Guaidó as the country’s acting president. international lender said in a statement. “The In the short run, the new U.S. sanctions against the Maduro government are designed to put Two Cars Plunge an end to the arrangement through which Ven- ezuela provides Cuba with oil in exchange for Into River After Ferry intelligence and counterintelligence, The New Strikes Bridge in Brazil York Times reported. Venezuela is estimated to A ferryboat hit a bridge pillar in Brazil’s Pará be shipping Cuba between 20,000 and 50,000 State on Saturday, causing part of the bridge barrels of oil per day, according to White House and two cars to fall into the Moju River and officials and oil industry experts. The sanctions cutting off a route to Belém, home to one of the followed a month of frequent power outages Lagarde // File Photo: International Monetary Fund. country’s busiest ports, authorities said, the in Venezuela that led to the loss of a week’s Associated Press reported. The fire department worth of oil production. In addition to the authorities’ policies that underly the Fund-sup- dispatched scuba divers to find victims in the blackouts, Venezuelans have been suffering ported arrangement are bearing fruit,” IMF river. The five crew members aboard the ferry shortages of food, water, medicines and other Director Christine Lagarde said in the state- survived. Local media reported that a January basic goods as well as skyrocketing inflation. ment. “The high fiscal and current account inspection of the bridge showed corrosion On Friday, a top White House official said the deficits—two major vulnerabilities that led problems on the pillars.

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Monday, April 8, 2019 to the financial crisis last year—are falling.” FEATURED Q&A / Continued from page 1 She said there are economic signs that the country’s recession “has bottomed out,” adding Roche’s more innovative medications are and the continued burden of the infamous that the IMF expects a gradual recovery in the imported, and the company will maintain dis- ‘Brazil Cost.’ Bolsonaro’s economic team, coming quarters. Argentine statistics institute tribution and administrative centers in Brazil. led by Minister Paulo Guedes, is acutely Indec in recent weeks has published downbeat Ford’s decision has been discussed since aware of the urgency to address long-stalled economic indicators, including a report that before the election and extends beyond reforms—particularly pension and tax—and the country’s GDP shrank 6.2 percent in the Brazil, as it was part of a global restructuring changing the rules of the game with respect fourth quarter of last year, the worst quarterly initiative. The company had major losses to trade and decades-long industrial policies performance since 2009, La Nación reported. in Brazil in 2018. While Avianca may be According to the IMF report, Argentina’s econ- terminating 21 of its air routes, flights from omy will likely contract 1.2 percent this year, Europe to Brazil increased by 4 percent Despite the optimistic an improvement of the previous forecast of 1.7 year-on-year in March. Brazil’s economy is outlook, companies percent contraction. It estimates that inflation currently projected to grow 1.9 to 2.4 per- continue to struggle will be 30.5 percent this year. An Argentine cent this year. Opportunities are in Internet with the lag effects of Treasury official, who asked not to be named, of Things, technology and e-commerce that sluggish growth over said the IMF program was going as expected support large industries such as automotive, the last few years...” and that no further major spending cuts were agribusiness and even tourism. The largest — Gabrielle Trebat planned, Reuters reported. risks to the Brazilian economy’s much-need- ed comeback are corruption scandals in the new government and failure to win approval BUSINESS NEWS for the tax and pension reforms.” to secure Brazil’s long-term economic com- petitiveness. President Trump’s support for Gabrielle Trebat, director for Brazil initiating the accession procedure to Peru Indigenous Brazil and the Southern Cone become a full member of OECD creates ex- Group Agrees to End at McLarty Associates: “Brazil ternal and internal pressure for the Brazilian A is at a history-making inflection government to accelerate adoption of OECD Protest Near Mine point with respect to its economic, trade and standards with regard to regulatory transpar- industrial policies and approach to foreign ency, consistency and predictability in tax The indigenous Fuerabamba community in affairs, triggered by several years of lacklus- and judicial determinations, simplification Peru agreed to end its two-month blockade ter economic growth, corruption scandals of the tax system including alignment with of a road leading to Chinese miner MMG’s and a sharp shift to the right with the international best practices on transfer pric- Las Bambas copper mine in exchange for the election of President Bolsonaro. While this ing, and rule of law. With an effort underway company’s commitment to pay the village moment is generating enthusiasm among in Brazil to investigate past lending practices for transiting through its farmland, Reuters the business community that long-stalled at BNDES to return the institution to its reported, citing a document dated Saturday. reforms will finally find traction, the transi- original mission of economic development, tion is also injecting uncertainty with regard national champions that have long relied on to predictability and business planning. preferential financing to fund their overseas The roadblocks were first Despite the optimistic outlook, companies expansions—including in the United States— put up in early February. continue to struggle with the lag effects can be expected to undergo some difficult of sluggish growth over the last few years readjustments.” Continued on page 4

Fuerabamba’s leader, Gregorio Rojas, signed village were arrested for allegedly trying to tion them. Earlier that day, Rojas defended the the document, as did Peru’s prime minister and extort MMG. Rojas was subsequently released attorneys and demanded their freedom before the mine’s manager, after a 10-hour negotia- without charges, but the two lawyers, brothers entering the meeting with the prime minister tion in Lima. The roadblocks, which started Frank and Jorge Chávez, remain jailed and and MMG representatives. Peru’s public prose- in early February, had halted exports from under investigation, El Comercio reported. cutor’s office alleges the Chávez brothers head the Las Bambas mine, which produces some They both deny wrongdoing. Fuerabamba had the Los Chavelos criminal organization, which 400,000 metric tons of copper per year. The initially demanded the attorneys be freed as purportedly plans blockades to force private conflict escalated in recent weeks after Rojas part of the agreement to lift the roadblocks, but companies to accede to economic demands, El and two attorneys representing the indigenous the document signed on Saturday did not men- Comercio reported.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2019 Alberto Pfeifer, coordinator political economy is the sufficient condition of the Group for the Analysis to make sure reforms will be approved—and Erik Brand of International Conjuncture this latter condition is yet to be seen from Publisher [email protected] (GACInt) at the University of the part of the executive branch.” A Gene Kuleta São Paulo: “It depends on the sector to Editor determine the root causes of any given com- Margaret Hayes, professor of [email protected] pany closing facilities anywhere. Over time, security studies at Georgetown Anastasia Chacón González multinational corporations shift factories University: “Brazil is slowly Reporter between countries according to the dynamic A emerging from its severe reces- [email protected] changes of the comparative and competitive sion of 2015-2016. GDP grew by 1 percent advantages and to technological advance- in 2017 and is expected to be around 1.8

ments, which may make old plants ineffi- percent for 2018. This emergence takes Michael Shifter, President cient. Inward-looking production has paid place in the context of significant changes Genaro Arriagada, Nonresident Senior Fellow a high price in the past five years in Brazil, in demand for some Brazilian exports, a new Sergio Bitar, Nonresident Senior Fellow due to persistent high unemployment and government and global industry restructur- Joan Caivano, Director, Special Projects tightening of consumer credit. The economy ing. For example, the global auto industry Michael Camilleri, Director, Peter D. Bell Rule of Law is experiencing excess capacity. This trend Program The economy has explains Ford Motor’s closing of its São Kevin Casas-Zamora, Nonresident Senior Fellow been bouncing back Paulo factory. General Motors has also Ariel Fiszbein, Director, Education Program threatened to leave Brazil, but when São Peter Hakim, President Emeritus since the second half Paulo’s state governor announced significant Claudio Loser, Senior Fellow of 2017, but at no tax incentives to auto companies expanding Nora Lustig, Nonresident Senior Fellow more than 2 percent capacity in the state, GM announced that it Margaret Myers, Director, Asia and Latin America Program of GDP annually.” would stay and invest 10 billion reais in its Manuel Orozco, Director, Migration, — Alberto Pfeifer São Paulo plants and hire additional work- Remittances & Development ers. On the political front, Brazil is struggling Jeffrey Puryear, Senior Fellow has been bouncing back since the second to advance a pension-reform proposal that Tamar Solnik, Director, Finance & Administration half of 2017, but at no more than 2 percent has been pending for several years. Under Lisa Viscidi, Director, Energy Program of GDP annually. Bolsonaro was elected on Brazil’s very generous retirement system, Denisse Yanovich, Director of Development and the basis of a highly pro-business, free-mar- pensions account for some 44 percent of the External Relations ket agenda. He’s been in power for less than federal budget. The system allows govern- Latin America Advisor is published every 100 days. It is too early to say whether his ment employees to retire in their mid-50s business day, except for major U.S. holidays, economic proposals are inducing interna- on full salary. The proposal would set a by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 tional businesses to flee. Reducing the size minimum retirement age and raise contri- Washington, DC 20005 of the state encompasses the triple effect of butions. Passage of the reform bill requires www.thedialogue.org fixing government accounts, increasing total the votes of more than three-fifths of each ISSN 2163-7962 productivity and reducing opportunities for house of Congress. Historically, to achieve Subscription inquiries are welcomed at corruption. It will benefit the majority of the such a majority, the political system has [email protected] private sector, although some low-produc- depended on a pork-barrel practice to buy tivity industries, including some domes- the support of diverse elements of the 28 The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily tic-oriented multinational firms that have parties represented in Congress. The system represent those of the publisher. The analysis is the sole laid on subsidies and trade barriers, will has been profoundly corrupting, as revealed view of each commentator and does not necessarily represent the views of their respective employers or firms. surely be displaced. Systemic modernizing in the ongoing Car Wash investigation. It is The information in this report has been obtained from reforms, targeted at tightening the size of not clear that the Bolsonaro government can reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have the state and opening up the economy, are a muster the votes.” any questions relating to the contents of this publication, lengthy and complex process, which involves contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a Congress, the judiciary and state-level The Advisor welcomes comments on its Q&A retrieval system, or transmitted without prior written permis- decision-making. However, solid economic section. Readers can write editor Gene Kuleta sion from the publisher. policy is just a necessary aspect: sound at [email protected].