LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Tuesday, November 26, 2019

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Tuesday, November 26, 2019

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group ECONOMIC Devry Boughner Vorwerk What Does a Close Mexico Falls Into CEO, DevryBV Sustainable Strategies Recession Amid Joyce Chang Global Head of Research, Presidential Vote Stagnant Growth JPMorgan Chase & Co. Latin America’s second-largest Paula Cifuentes economy fell into a recession in Director of Economic & Fiscal Affairs, Mean for Uruguay? the first half of the year, according Latin America & Canada, Philip Morris International to revised official statistics. The Marlene Fernández country saw no growth in the third Corporate Vice President for quarter. President Andrés Manuel Government Relations, López Obrador had promised 2 Arcos Dorados percent growth for 2019 when he Peter Hakim took office nearly a year ago. President Emeritus, Inter-American Dialogue Page 2 Donna Hrinak President, Boeing Latin America BUSINESS Jon E. Huenemann Former Corporate and Ecopetrol Plans Government Senior Executive Investments of as James R. Jones Chairman, Luis Lacalle Pou of the right-of-center National Party (or Blancos) is leading in the vote count Much as $5.5 Bn Monarch Global Strategies in Uruguay’s presidential runoff. // File Photo: Lacalle Pou Campaign. The Colombian state-owned oil Craig A. Kelly company plans to increase its Director, Americas International Former Senator Luis Lacalle Pou appeared to have edged Gov’t Relations, Exxon Mobil capital expenditures, spending the John Maisto out his rival, former Montevideo Mayor Daniel Martínez, bulk on upstream activities. Director, U.S. Education in Sunday’s presidential election in Uruguay. Martínez has Page 2 Finance Group Q not conceded. A victory by Lacalle Pou, a conservative and Nicolás Mariscal Chairman, the son of a former president, would put an end to 15 years of rule by POLITICAL Grupo Marhnos the leftist Broad Front coalition. What are the biggest takeaways from Thomas F. McLarty III Peru Tribunal Chairman, Uruguay’s election? What challenges will the eventual winner need to Frees Opposition’s McLarty Associates address first as Uruguay’s next president? What will the closer-than-ex- Carlos Paz-Soldan Keiko Fujimori pected election result mean for the next president’s ability to govern and Partner, Peru’s Constitutional Tribunal DTB Associates, LLP set his own agenda? freed opposition leader Keiko Beatrice Rangel Fujimori. She was jailed more than Director, a year ago amid an investigation AMLA Consulting LLC David Nelson, CEO of Global Business Policy and former Jaana Remes into corruption allegations that Partner, U.S. ambassador to Uruguay: “Although the final results may she denies. McKinsey Global Institute not be available before Friday, Martínez would need to win 90 Page 2 Ernesto Revilla Head of Latin American percent of the ballots left to count, but those are mostly from Economics, Citi A the interior of the country where Lacalle dominated. So it seems highly Gustavo Roosen Chairman of the Board, likely there will be a transition to the ‘traditional’ parties after 15 years of Envases Venezolanos rule by the Frente Amplio. The close vote probably ensures that Lacalle Andrés Rozental will seek to unite the country, rather than pursue policies that would imply President, Rozental & Asociados a ‘domination’ by the right. The non-Frente Amplio parties have a majority Shelly Shetty in Congress, but they are fragmented so it will be a challenge for Lacalle Head of Sovereign Ratings, Latin America, Fitch to maintain his coalition to pass laws—particularly with the new hard- Roberto Sifon-Arevalo right party led by General Manini Ríos. It may be time for Uruguayans to Managing Director, Americas Sovereign & Public Finance Ratings, recognize a sea change in their traditional political structure—for many Standard & Poor’s years the dominant parties, the Colorados and Blancos, were in fact each coalitions with diverse ideologies. Once again, Uruguay now has two ma- Fujimori // File Photo: TV Perú. Continued on page 3

ECONOMIC NEWS corruption, the Associated Press reported. NEWS BRIEFS The ruling does not constitute a judgment of Mexico Falls Into Fujimori’s guilt related to accusations that she Final Results of Uruguay accepted bribes from Brazilian construction Presidential Election Recession as giant Odebrecht. Prosecutors are investigating accusations that Fujimori, the daughter of Expected Later in Week Growth Stagnates imprisoned former president Alberto Fujimori, Uruguayan electoral authorities are expecting laundered money from Odebrecht to finance to announce the final results of the country’s Mexico’s economy fell into a recession in the her 2011 and 2016 presidential election presidential election later this week, after first half of the year and saw no growth in campaigns, allegations that she denies. She they count some 34,000 “observed” ballots— the third quarter, according to revised data was jailed more than a year ago, while she votes from people who could not get to their released Monday, Agence France-Presse was leading the opposition in Peru’s Congress. assigned polling stations in Sunday’s election, reported. In the first and second quarters, Analysts say Fujimori’s release will strengthen MercoPress reported Monday. Conservative Mexico’s economy contracted by 0.1 percent her Popular Force party for the 2020 parliamen- Luis Lacalle Pou leads leftist Daniel Martínez and experienced zero growth in the third, tary elections scheduled Jan. 26, El Comercio by approximately 29,000 votes. according to national statistics institute INEGI. reported today. “I think that having a visible Preliminary figures had reported earlier that leader who articulates the candidates will help Latin America’s second-largest economy had them a lot in the campaign,” political scientist contracted 0.2 percent in the first quarter, grew María Alejandra Campos told the newspaper. Colombian Teen Dies 0.1 percent in the second and grew 0.1 percent Hundreds of people took to the streets Monday After Being Struck by in the third. In this year’s third quarter, the evening to protest Fujimori’s release, clashing Projectile During Protest economy contracted 0.2 percent as compared with riot police, Bloomberg TicToc reported A Colombian teenager who took part in a to the same quarter last year, according to via Twitter. The rally was organized mainly by protest march last week to demand better the statistics institute’s revised data. The youth through social media with the hashtags access to education has died after being hit data came as bad news for President Andrés #TomaLaCalle and #FujimoriNuncaMas, on the head by a projectile fired by riot police, Manuel López Obrador who on Sunday marks according to the report. All of the former BBC News reported. Outrage over the death of one year in office. He had promised to deliver presidents of Peru still living are currently in Dilan Cruz has sparked calls for fresh marches economic growth of 2 percent this year and 4 prison or under investigation for corruption or by protesters who object to the heavy-handed percent across his six-year term. Mexico’s cen- other misdeeds. [Editor’s note: See related Q&A police response to marches that started last tral bank on Monday reported a larger-than-ex- in the Nov. 19 issue of the Advisor.] Thursday. President Iván Duque said he deeply pected current account surplus of $2.01 billion regretted Cruz’s death. He plans to meet with for the third quarter, Reuters reported. The third leaders of the protests later today. quarter’s figure was driven by a record high BUSINESS NEWS non-oil trade balance surplus and a robust 8 percent increase in workers’ remittances, Gold- man Sachs analysts Alberto Ramos told clients Ecopetrol Planning Ericsson to Invest in a research note. as Much as $5.5 Bn $238 Million in Brazil for in Investment 5G Tech Assembly Line POLITICAL NEWS Swedish telecoms equipment maker Ericsson Colombian state-owned oil company Ecopetrol plans to invest 1 billion reais ($238 million) in said Monday that its 2020 investment plan will Brazil to add a new assembly line dedicated to Peru Tribunal Frees increase capital expenditures to between $4.5 5G cellular technology for export to other Latin Keiko Fujimori After billion and $5.5 billion, up from the $3.5 billion American countries, an executive told Reuters to $4 billion in 2019 forecast at the start of on Monday. Brazilian telecoms regulator Anatel More Than a Year the year, S&P Platts reported. The new figures is still determining the rules for its highly antic- are 25 percent to 53 percent higher than the ipated 5G spectrum auction, which was initially Peru’s Constitutional Tribunal on Monday estimated figure for organic investment this scheduled for next March but later postponed approved a habeas corpus request to free op- year. Eighty percent of investments will be con- as tests on interference with other services are position leader Keiko Fujimori from preliminary centrated on upstream activities, the company still ongoing, according to the report. [Editor’s detention while she is investigated for alleged said in a statement. Ecopetrol said the com- note: See a webcast of the Dialogue’s event on 5G in Latin America.]

COPYRIGHT © 2019, INTER-AMERICAN DIALOGUE PAGE 2 LATIN AMERICA ADVISOR Tuesday, November 26, 2019 pany would generate net positive earnings at FEATURED Q&A / Continued from page 1 approximately $30 per barrel of oil, with plans to organically produce at least 750,000 barrels jor political coalitions—with the Blancos and The new government will carry out audits, of oil-equivalent per day in 2020. The company Colorados united as one facing the Frente mainly regarding Venezuelan business relat- added it will invest more than $150 million Amplio. Can the traditional parties overcome ed to several frustrated projects. The current in energy transition, carbon reduction and historical rivalries to make that work? Im- Uruguayan government defends Maduro’s management of wastewater from operations, mediate policy issues the new government regime and maintains a solid relationship with expected investments of $126 million for faces include improving personal security, with the Foro de São Paulo. Lacalle Pou will innovation and technology, focusing on the use education and the somewhat stagnant econ- revise these links without being involved in of artificial intelligence, block chain and bots omy. In the regional context, dealing with any interventions in third countries’ domes- to improve productivity and efficiency. [Editor’s the new government in Argentina could be a tic issues.” note: See related Q&A in the May 24 issue of challenge, and it seems likely Uruguay could the weekly Energy Advisor.] move toward the majority South American Charles H. Blake, professor view of Venezuela. But the big story is that of political science at James Spain’s Acciona to at a time of popular political upheavals Madison University’s School of throughout the region, Uruguay celebrated a A Public & International Affairs: Build Paraguay democratic election in which the popular will “The Broad Front (FA) enjoyed successes in is respected.” economic growth and poverty reduction, but Biofuel Plant it is difficult within a competitive democracy Sergio Abreu, president of the to govern without interruption for much more Brazil’s ECB Group on Monday announced it Uruguayan Council for Foreign than a decade. The various opposition candi- had contracted Spanish engineering group Affairs and former Uruguayan dates who emphasized perceived shortcom- Acciona to help build what it calls Latin A minister of foreign affairs: “Uru- ings in the FA’s anti-crime and pro-growth America’s first plant to produce advanced guay has held an exceptionally democratic policies will now face the task of trying to biofuels at scale, Reuters reported. ECB plans event, in line with its mature institutional tra- meet the expectations they fanned during to build the $800 million plant in the Paraguay- dition. Lacalle Pou leads a coalition of five the campaign. While the FA is a center-left an municipality of Villeta, outside the nation’s parties with majority in the Congress. The coalition with nearly five decades in exis- capital, Asunción. The plant will be capable of new government must reach macroeconom- tence, Luis Lacalle Pou’s ‘multicolor’ cen- producing 20,000 barrels per day of HVO, or ic stability due to the 5 percent fiscal deficit. ter-right coalition did not emerge until after hydrotreated vegetable oil, a renewable substi- Social programs will be maintained, although the October 2019 legislative elections. If this tute for diesel, and SPK, or synthetic paraffinic a strict evaluation of destined resources and week’s electoral recount confirms Lacalle kerosene, a renewable aviation fuel. Erasmo results is needed. Dialogue will be key to Pou’s victory, his presidency’s dynamics will Carlos Battistella, the president of ECB Group, governability because the country is divided. be shaped by his ability to retain majority made the announcement at an event alongside The new governments in Brazil, Paraguay support in the legislature. In the Senate, La- Paraguayan President Mario Abdo Benítez. and Uruguay will promote an open market calle Pou’s National Party needs the support Launched in February, ECB’s Omega Green Proj- within Mercosur, a new strategy which could of the Colorado Party and of retired General ect represents the largest private investment affect Argentina’s protectionist model. They Guido Manini Ríos’ brand-new ‘Open Town in Paraguay’s history, Battistella said. Barclays will consolidate the European Union-Mercos- Hall’ (Cabildo Abierto) movement to mobilize and UBS are providing structured finance ur Treaty and other free-market agreements, a maximum of 17 votes in that 30-seat for the project. Minnesota-based Crown Iron including one with the United States. Uru- chamber. In the Chamber of Deputies, the Works and Honeywell are providing the core guay is a hinge in the Southern Cone and is legislators from the National, Colorado, and technologies for the facility. Honeywell says its also part of the agriculture business chain. Cabildo Abierto parties will hold 54 of the 99 green biofuels offer a 60-85 percent reduction Multimodal transport plays an important seats. In contrast, although voters from the in the life cycle of greenhouse gas emissions role in terms of infrastructure, mainly the Independent Party and from the Party of the compared to petroleum fuels and provide Paraná-Paraguay waterway, which is vital for People were important to Sunday’s narrow better performance in diesel turbine engines. Uruguayan ports. The Guarani Aquifer is the victory, those two parties’ tiny legislative The plant’s construction will begin in the first second-largest water reservoir in the world presence likely gives them less influence six months of 2020 and should be concluded in and became a priority in ecological policies; moving forward. Given that Manini Ríos ran a 30 months. The facility is expected to employ its one million square kilometers are shared more successful presidential campaign that 2,400 people once operational. by Brazil, Argentina, Paraguay and Uruguay. had been envisioned and that he likely plans Continued on page 4

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2019 to run again in 2024, it will be interesting to Francisco Panizza, associate see whether his knack for seeking publicity professor of Latin American Erik Brand disrupts this legislative coalition.” Politics in the Department of Publisher [email protected] Government at the London A Gene Kuleta Patricio Zamorano, co-director School of Economics and Political Science: Editor of the Council on Hemispheric “If confirmed by the Electoral Court, Lacalle [email protected] Affairs: “The recent presidential Pou’s victory will put an end to 15 years of Anastasia Chacón González election in Uruguay shows, once rule by the center-left Frente Amplio. But A Reporter again, the high level of polarization that char- the narrow victory and the composition of [email protected] acterizes several democracies in the hemi- the winning coalition will present significant sphere. Again, neither presidential candidate challenges for the new president. On the

garnered an absolute majority, with only a plus side for the new president, the ruling Michael Shifter, President narrow margin between Luis Lacalle Pou and coalition will enjoy a parliamentary majority. Rebecca Bill Chavez, Nonresident Senior Fellow Daniel Martínez so far. A relevant takeaway There is also a common program that sets Sergio Bitar, Nonresident Senior Fellow is how close this race turned out, consider- the basis for the legislative agenda. But Joan Caivano, Director, Special Projects ing that most pre-election polls showed a questions remain about political differences Michael Camilleri, Director, Rule of Law Program comfortable advantage for the conservative within the government coalition, particularly Kevin Casas-Zamora, Nonresident Senior Fellow Lacalle Pou and electoral fatigue of the left, concerning the far-right Cabildo Abierto Héctor Castro Vizcarra, Nonresident Senior Fellow which has been in power for 15 years. Most party. A number of issues are set to get Julia Dias Leite, Nonresident Senior Fellow polling companies projected a six-point, plus priority in the new administration. High Ariel Fiszbein, Director, Education Program or minus, difference in favor of Lacalle Pou, among these is the fiscal deficit, which Peter Hakim, President Emeritus but the election has ended up in a technical currently hovers around 5 percent of GDP. A Nora Lustig, Nonresident Senior Fellow tie. Although Uruguay has shown great prog- pension reform will have to be an important Margaret Myers, Director, Asia and ress in decreasing poverty, maintaining a part of the deficit reduction package in the Latin America Program stable middle class, and implementing broad medium term, but as shown almost every- Manuel Orozco, Director, Migration, Remittances & Development state-run programs, the electoral campaign where, pension reforms tend to be politically Xiaoyu Pu, Nonresident Senior Fellow was held in a context of high unemployment, conflictive. Together with the economy, Jeffrey Puryear, Senior Fellow low agricultural commodity prices and slow education and crime, two issues on which Mateo Samper, Nonresident Senior Fellow GDP growth. These factors help explain the outgoing government fared badly, are Tamar Solnik, Director, Finance & Administration the decline in support for President Tabaré likely to be at top of the reform agenda. The Lisa Viscidi, Director, Energy Program Vázquez’s party. However, Sunday’s results reforms, however, are likely to face strong Denisse Yanovich, Director of Development and should create a sense of moderation for the opposition from the unions and other social External Relations incoming right-wing government. Voting is movements. As for the Frente Amplio, it will obligatory in Uruguay, so the virtual tie close- remain by far the largest party in parliament. Latin America Advisor is published every business day, except for major U.S. holidays, ly reflects the polarization of the electorate. Together with the narrow nature of its defeat by the Inter-American Dialogue at This polarization ought to be considered as in the presidential runoff and its close links 1155 15th Street NW, Suite 800 Washington, DC 20005 a base for permanent negotiation and the with social movements, it will be a strong www.thedialogue.org continuation of social policies that work opposition force and remain a key factor in ISSN 2163-7962 for most of the population. The same tie Uruguayan politics.” Subscription inquiries are welcomed at emerged in recent legislative elections, [email protected] reinforcing the need to find consensus and The Advisor welcomes comments on its Q&A The opinions expressed by the members of the Board of avoid acute social confrontations such as section. Readers can write editor Gene Kuleta Advisors and by guest commentators do not necessarily the ones seen in Ecuador, Chile, Bolivia and at [email protected]. represent those of the publisher. The analysis is the sole view of each commentator and does not necessarily Colombia.” represent the views of their respective employers or firms. The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have any questions relating to the contents of this publication, contact the editorial offices of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a retrieval system, or transmitted without prior written permission from the publisher.