LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Wednesday, April 3, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Wednesday, April 3, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs What Will Changes Venezuela’s Cargill Guaidó Stripped Joyce Chang Global Head of Research, at BNDES Mean for of Immunity JPMorgan Chase & Co. From Prosecution Marlene Fernández Corporate Vice President for Brazil’s Businesses? Venezuela’s powerful gov- Government Relations, ernment-aligned Constituent Arcos Dorados Assembly stripped opposition Peter Hakim leader Juan Guaidó of his immu- President Emeritus, Inter-American Dialogue nity from prosecution. It was the government’s latest move against Donna Hrinak President, Boeing Latin America Guaidó, whom dozens of coun- Jon Huenemann tries recognize as the country’s Vice President, U.S. & Int’l Affairs, acting president. Philip Morris International Page 2 James R. Jones Chairman, Monarch Global Strategies ECONOMIC Craig A. Kelly Director, Americas International Mexican Gov’t Gov’t Relations, Exxon Mobil Cuts Planned John Maisto Brazil’s president tapped former Finance Minister Joaquim Levy to lead the Brazilian Develop- Director, U.S. Education ment Bank, or BNDES. // File Photo: Brazilian Government. Spending Finance Group The government said it would cut Nicolás Mariscal $6.2 billion from the budget amid Chairman, Brazilian President Jair Bolsonaro has pledged to inves- Grupo Marhnos lower expected oil production and tigate alleged corruption at state-run development bank economic growth. Thomas F. McLarty III Chairman, BNDES, a massive institution comparable in size to the Page 2 McLarty Associates Q World Bank. Before he took office in January, Bolsonaro also Carlos Paz-Soldan POLITICAL Partner, criticized the development bank, saying it funded projects that were DTB Associates, LLP unrelated to Brazilian national interests, such as a container terminal at Brazil’s Temer Beatrice Rangel Cuba’s port of Mariel. What are the most important actions Bolsonaro’s Director, Indicted on AMLA Consulting LLC government is taking at BNDES? Who will be the biggest winners and Graft Charges Jaana Remes losers resulting from proposed reforms at the development bank? How Partner, Former Brazilian President Michel McKinsey Global Institute will changes at BNDES affect Brazil’s business sector? Temer stands accused of taking Ernesto Revilla part in a bribery scheme related to Head of Latin American a nuclear power plant complex. Economics, Citi Amanda Mattingly, senior director at The Arkin Group in Page 2 Gustavo Roosen New York: “Brazilian President Jair Bolsonaro came into Chairman of the Board, Envases Venezolanos office with a team of neoliberal economists ready to institute Andrés Rozental market-friendly reforms in Brazil. Bolsonaro sees the private President, Rozental & A Asociados and Senior sector as the engine for growth and development and thus, wants to pri- Policy Advisor, Chatham House vatize or reform a number of state-owned entities, including the Brazilian Shelly Shetty Head of Sovereign Ratings, Development Bank (BNDES). It is not surprising, given that BNDES has for Latin America, Fitch some time been criticized for murky deals and lending state funds to pri- Roberto Sifon-Arevalo Managing Director, Americas vate corporations with corrupt practices or that could have financed them- Sovereign & Public Finance Ratings, selves through international capital markets. For example, Odebrecht, Standard & Poor’s the large Brazilian construction company at the center of the Lava Jato corruption scandal, received large loans from BNDES in the past. Even before Bolsonaro campaigned for president, BNDES came under scrutiny Temer // File Photo: Brazilian for loans that benefited projects and workers outside of Brazil. The $700 Government. Continued on page 2

POLITICAL NEWS among the countries that recognize Guaidó as NEWS BRIEFS Venezuela’s president, has said that any attack Venezuela’s Guaidó on him would lead to a severe reaction. “The Brazil’s Temer Indicted on regime believes that by attacking me, they will Corruption Charges Stripped of Immunity stop us,” Guaidó told supporters late Tuesday. Meantime, thousands of Venezuelans, fleeing Authorities in Brazil indicted former Presi- From Prosecution the deteriorating living conditions in their home dent Michel Temer on Tuesday on corruption country, on Tuesday pushed through barri- charges that allege he took part in a bribery Venezuela’s Constituent Assembly, which is cades along the border with Colombia, Reuters scheme in connection with the Angra 3 nuclear aligned with President Nicolás Maduro, on reported, citing Colombia’s migration office. power plant complex near Rio de Janeiro, Tuesday stripped opposition leader Juan In February, Maduro’s government used trucks Reuters reported. Temer, who left office Jan. Guaidó of his legislative immunity from and containers to block two bridges between 1, denies wrongdoing. Federal Judge Marcelo prosecution, The New York Times reported. the countries in an effort to stop U.S.-backed Bretas accepted charges of corruption and Guaidó, the president of Venezuela’s National humanitarian aid from entering Venezuela. money laundering against the former president Assembly, has international recognition as Millions of Venezuelans have fled into Colom- and his energy minister, Wellington Moreira the country’s acting president. The move by bia and other Latin American nations in recent Franco, and six other aides. The case is part of the Constituent Assembly, which Maduro’s years. the massive “Lava Jato,” or Car Wash, probe. government created in 2017 to circumvent the opposition-controlled National Assembly, paves the way for Guaidó’s potential arrest. ECONOMIC NEWS Uruguay’s President Stripping Guaidó of his immunity was the government’s latest move against the opposition Fires Top Military Leaders leader. In recent weeks, Maduro’s government Mexican Gov’t Cuts for Alleged Cover-Up has prohibited him from traveling, frozen his Planned Spending Uruguayan President Tabaré Vázquez has bank accounts, banned him from running for dismissed the country’s defense minister, his office, started investigating him on terrorism Mexico’s Finance Ministry said Tuesday that deputy, the army chief and two generals for al- allegations and arrested his chief of staff. it would cut $6.2 billion in spending from this legedly covering up human rights abuses com- However, government agents so far have not year’s planned $296 billion budget amid slower mitted during the military rule from 1973-85, arrested him. The United States, which is economic growth and lower oil production, The BBC News reported Tuesday. The move came days after a Uruguayan newspaper revealed FEATURED Q&A / Continued from page 1 details of a military tribunal last year regarding the disappearance of a left-wing rebel in 1973. million Mariel port project in Cuba was one. Monica de Bolle, director of the The army chief and two generals were accused So far, Bolsonaro’s most significant action at Latin American Studies program of failing to pass this information on to the BNDES is the appointment of Joaquim Levy at the Johns Hopkins University judiciary, as required by the tribunal’s rules. to run the bank and initiate the reforms. Levy A School of Advanced Interna- comes to the job with a lot of experience, tional Studies: “Bolsonaro has appointed having served in previous administrations former Finance Minister Joaquim Levy to and most recently at the World Bank. Report- head BNDES. Given Levy’s vast experience in Banks Top LinkedIn’s List edly, Levy is charged with uncovering corrupt the public sector and in development banks of Top Employers in Brazil lending practices and opening the so-called such as the World Bank, he is taking steps to Banks are at the top of a list, compiled by pro- ‘black box’ of secret transactions at BNDES. ensure that the development bank is well-fo- fessional-networking site LinkedIn, of the best Whether or not secret transactions are cused on key priorities. BNDES experienced employers to work for in Brazil, CNBC reported actually revealed, BNDES reforms may just massive balance sheet growth during Lula’s today. Heading the list is lender Itaú Unibanco, mean that the bank scales back its funding second term in office, and especially during which also came in first in LinkedIn’s ranking in areas such as agriculture, infrastructure or Dilma Rousseff’s first term. A number of last year of best companies to work for. In energy that would have benefited Brazil and opaque loans were either made directly to second place this year was Banco Santander, other countries in the region, leaving the pri- governments in the region—among them which moved up in the ranking from 21st place vate sector to provide longer-term financing Cuba and Venezuela—as well as to compa- last year. Also in the top 10 are venture capital of such development projects.” nies operating in those countries and deeply company Movile, pharmaceutical company Bay- Continued on page 4 er and energy company Raízen.

Wall Street Journal reported. At the same time, the ministry said it would keep its goal of main- THE DIALOGUE CONTINUES taining the budget shortfall at no more than 2.5 percent of annual economic output. The Finance Ministry said the loss of revenue was Will 5G Services Live Up to the due to state oil company Pemex’s lower expect- Hype in Latin America? ed output of oil, gas and refined products. By matching the expected loss of revenue with In February, Chile officially telecommunications operators and the will- spending cuts, the government is signaling a announced its plans to begin ingness of the public sector and the public commitment to fiscal discipline, Credit Suisse’s an auction process as it seeks to enable the deployment of infrastructure chief Latin America economist Alonso Cervera Q to soon roll out 5G connectivity that enables it. An important factor in deter- told The Wall Street Journal. nationwide. 5G services can bring benefits mining the 5G implementation deadlines is such as improved data speeds and more the spectrum auctions, especially at 28 GHz efficient energy use, but the expected costs and 39 GHz. Global auctions are expect- BUSINESS NEWS involved with building 5G technology have been higher than anticipated, according to a McKinsey study published last year. To The regulatory body Peru Indigenous what extent should Chile be focusing on must ensure that the Group Refuses Talks improving existing infrastructure instead process favors healthy of rolling out 5G connectivity, and how can competition...” With Government the government and telecommunications — Patricio Soto companies mitigate high costs? Would 5G The Fuerabamba indigenous community in services benefit consumers in Latin Amer- Peru, which has been blocking roads to a ican markets, and can they afford the bills ed during this and next year. Given that Chinese-operated copper mine, has decided that would pay for the network buildout? spectrum allocation is essential to any 5G not to negotiate with the government until the What are economic models of success for deployment, the way in which it is assigned group’s lawyers have been released from jail, 5G rollouts in other parts of the world, and and how to it interacts with legacy technolo- the community’s leader said Tuesday, El Comer- what can Latin America learn from them? gy will be fundamental to 5G implementation cio reported. Since February, members of the plans. Chile uses the ‘beauty contest’ model, Fuerabamba community have blockaded a road Patricio Soto, research and which differs somewhat of the auction leading to Chinese miner MMG’s Las Bambas telecommunications manager of model. Moreover, international experiences complex, halting exports from the copper mine, IDC Chile: “At the Mobile World have shown that the auctions model for which produces roughly 400,000 metric tons A Congress on Feb. 25, Chilean spectrum access has made it possible to of copper per year, or about 2 percent of global Telecommunications Undersecretary Pamela collect money that can also be used to pal- copper production and 1 percent of Peru’s Gidi announced the government’s intentions liate the expenses incurred when deploying gross domestic product, Reuters reported. The to soon begin the spectrum allocation 5G. While both models have advantages and road crosses the community’s farmland. The process to make 5G deployment a reality disadvantages, it is important to analyze head of the community, Gregorio Rojas, met in Chile. Subtel has been preparing for this which of these models is best-suited for an with the government in Lima on Sunday, which moment for quite some time, and we believe optimal implementation of 5G. By 2022, 50 offered to call back emergency measures au- that the government’s proposal to the Tribu- percent of the United States, England and thorizing the use of military force in the region nal for the Defense of Free Competition, its Chile’s revenues will come from the mobile in exchange for an end to blockades. However, consultation for the national spectrum plan Internet, BAM and M2M markets, Internet of after meeting with members of the community, and the caps established are all in line with Things solutions, smart cities and augment- Rojas rejected the offer, saying the community this preparation. For the correct deployment ed reality, among others, which in turn will be opposed it. The group’s attorneys, brothers of the band, the regulatory body must ensure leveraged in the deployment of 5G.” Jorge and Frank Chávez, were arrested two that the process favors healthy competi- weeks ago, along with Rojas, on allegations tion, including the participation of a large that they organized the roadblock to extort number of actors, thus enabling a varied and EDITOR’S NOTE: The comment above is MMG. Rojas was released last Friday without attractive offer for consumers. However, a continuation of the Q&A published in charges, but the lawyers remain jailed and this technology’s development must also be Tuesday’s Advisor. under investigation. accompanied by significant investment from

FEATURED Q&A / Continued from page 2 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2019 involved in corruption scandals, such as responsibility and competitiveness across Odebrecht. Over the past few years, the bank a broad spectrum of economic activities. Erik Brand has been trying to make its lending practices Evidently, opportunities will be limited for Publisher [email protected] more transparent, but there’s still a ways to companies that fail to adjust to this new go. Therefore, the most important priorities reality and continue to rely on protective Gene Kuleta Editor are ensuring transparency and formulating a measures, as opposed to taking bold actions [email protected] clear mandate for the bank. If done correctly, to become intrinsically competitive. The Anastasia Chacón González measures would remove distortions from long-awaited social security reform, crucial Reporter the Brazilian financial sector and improve to addressing the country’s severe fiscal [email protected] access to financing, especially for small and constraints, along with the planned liberal- medium enterprises.” ization and microeconomic policies aimed at

deregulation and reduction of the huge cost Michael Shifter, President Joel Korn, president of WKI of doing business, represent cornerstone Genaro Arriagada, Nonresident Senior Fellow Brasil and senior international factors for stimulating new investments and Sergio Bitar, Nonresident Senior Fellow partner at UPITE Consulting economic growth. In this scenario, BNDES Joan Caivano, Director, Special Projects Services: “As part of the highly will have a key role to play for a constructive Michael Camilleri, Director, Peter D. Bell Rule of Law A Program regarded economic team that Economy impact on Brazil’s business sector.” Minister Paulo Guedes assembled, the Kevin Casas-Zamora, Nonresident Senior Fellow appointment of former Finance Minister Joa- Welber Barral, senior consultant Ariel Fiszbein, Director, Education Program quim Levy as the new president of BNDES at BMJ Consultores Associados Peter Hakim, President Emeritus reinforces confidence that the institution will and former Brazilian foreign Claudio Loser, Senior Fellow be subject to sound governance practices trade secretary: “The new Nora Lustig, Nonresident Senior Fellow A Margaret Myers, Director, Asia and and its role as a development bank will be BNDES president, Joaquim Levy, is a former Latin America Program fully aligned with the government’s liberal finance minister and seasoned economist. Manuel Orozco, Director, Migration, economic policies. As such, the bank will be He declared that BNDES will be more active Remittances & Development actively engaged in the support of privatiza- on innovation and infrastructure, rather than Jeffrey Puryear, Senior Fellow tion/public concessions programs and priori- competing with commercial banks. This as- Tamar Solnik, Director, Finance & Administration ty infrastructure projects. Moreover, BNDES sertion also reflects the government’s view Lisa Viscidi, Director, Energy Program will be committed to significantly expand that state-owned banks should be less in- Denisse Yanovich, Director of Development and its support to micro/small-size companies, terventionist in the financial market. BNDES External Relations

recognizing its importance in the promo- will reduce its credit offer to traditional Latin America Advisor is published every tion of economic growth and employment industries. It will be useful in the prom- business day, except for major U.S. holidays, generation. This was confirmed by the recent ised privatization process of state-owned by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 announcement of a new 1.3 billion-real pro- companies. It will focus its credit lines on Washington, DC 20005 gram targeting this specific segment. Unlike SMEs, start-ups and infrastructure projects. www.thedialogue.org the experience in the past three administra- Some sectors that received incentives and ISSN 2163-7962 tions, it is anticipated that the bank will not were not internationally competitive will Subscription inquiries are welcomed at be subject to undue political influences that have to look for alternative credit lines. [email protected] led the institution to finance questionable Trade finance, for example, was dominated The opinions expressed by the members of the Board of projects, especially cross-border. Rather, by BNDES and Banco do Brasil in the last Advisors and by guest commentators do not necessarily BNDES is expected to focus on sound lend- decades, and exporters will be forced to represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily ing activities that are consistent with the pri- look for structured operations with financial represent the views of their respective employers or firms. ority demands of the Brazilian economy. The institutions and fintechs.” The information in this report has been obtained from private sector will benefit significantly as reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have BNDES leverages its role in the promotion of The Advisor welcomes comments on its Q&A any questions relating to the contents of this publication, economic and social development through section. Readers can write editor Gene Kuleta contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a further impetus in overdue productivity gains at [email protected]. retrieval system, or transmitted without prior written permis- while stimulating innovation, environmental sion from the publisher.