LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Thursday, April 13, 2017

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, April 13, 2017

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group POLITICAL Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Will Paraguay’s Venezuela’s Cargill Capriles Vows to Joyce Chang Global Head of Research, Cartes Be Able to Fight Ban on JPMorgan Chase & Co. W. Bowman Cutter Seeking Offi ce Former Partner, Seek Re-election? Opposition leader Henrique E.M. Warburg Pincus Capriles said he will appeal Dirk Donath a decision by the Venezuelan Senior Partner, Catterton Aimara comptroller general’s offi ce that bans him from seeking offi ce for Barry Featherman Senior Director, 15 years. International Government Affairs, Page 2 Gilead Sciences Marlene Fernández Corporate Vice President for BUSINESS Government Relations, Arcos Dorados Banco Macro Peter Hakim Eyes Purchase of President Emeritus, Inter-American Dialogue Banco Patagonia Donna Hrinak In a closed door session March 31, Paraguayan senators voted to amend the country’s Macro proposed an equity sale President, Boeing Latin America Constitution to allow President Horacio Cartes to seek re-election. // File Photo: Paraguayan Government. of as much as $750 million, seen Jon Huenemann as a serious signal of its intent to Vice President, U.S. & Int’l Affairs, Philip Morris International A political crisis erupted in late March in Paraguay, where acquire Patagonia. Page 2 James R. Jones senators secretly passed a constitutional amendment to Chairman, ManattJones Global Strategies allow President Horacio Cartes to seek re-election, which Q POLITICAL Craig A. Kelly is currently banned. The Senate’s action was followed by Director, Americas International Lasso Seeks Gov’t Relations, Exxon Mobil a violent protest in which demonstrators stormed into the congres- John Maisto sional building, setting fi res and ransacking lawmakers’ offi ces. The Recount of Director, U.S. Education outbreak of violence came as a surprise to many who see Paraguay as Finance Group Ecuadorean Vote Nicolás Mariscal having made steady economic and social gains in recent years under Conservative candidate Guillermo Chairman, pro-business and fi scally responsible administrations. What explains the Lasso repeated allegations Grupo Marhnos disconnect between Paraguay’s business sector, its politics and the pop- of fraud in Ecuador’s April 2 Thomas F. McLarty III runoff. He said that if ruling party Chairman, ulation? Why does Cartes want to be re-elected? Where will the debate candidate Lenín Moreno takes McLarty Associates over his re-election lead? offi ce, his government will be Carlos Paz-Soldan Partner, illegitimate. DTB Associates, LLP Page 2 Beatrice Rangel Maria Velez de Berliner, president of Latin Intelligence Director, Corporation: “Macroeconomic stability, a building boom in AMLA Consulting LLC Asunción, high resource extraction, public-private partner- Gustavo Roosen Chairman of the Board, ships and a relative decline in poverty have exacerbated the Envases Venezolanos A disconnect between the haves and the have-nots, students, labor unions, Andrés Rozental President, Rozental & small business owners and ‘regular’ Paraguayans. While presidents Lugo Asociados and Senior Policy Advisor, Chatham House and Cartes focused on creating an attractive climate for foreign direct Shelly Shetty investment that was focused on Asunción, criminality, insecurity and Head, Latin America insurgency by the Ejército Popular Paraguayo rebel group and marijuana Sovereign Ratings, Fitch Inc. Roberto Sifon-Arevalo growing in the Oriental region have increased steadily. Unlike Asunción, Managing Director, Americas where foreign and some national companies thrive, the Tri-Border Area Sovereign & Public Finance Ratings, Standard & Poor’s (TBA) continues to prosper on contraband, money laundering, and arms and drug traffi cking to Brazil, Peru, Bolivia and Argentina. The latter Lasso // File Photo: Lasso Campaign. Continued on page 3

POLITICAL NEWS who is the candidate and the opposition they NEWS BRIEFS will face,” said Capriles, who said he would Venezuela’s Capriles appeal the decision to the comptroller’s offi ce. Macri to Meet With Trump Venezuela’s government last year blocked an April 27 at White House Vows to Fight Ban on effort to place a referendum on the ballot to re- call Maduro, suspended gubernatorial elections Argentine President Mauricio Macri and his Seeking Offi ce and has not set a date for next year’s presiden- wife, Juliana Awada, are set to visit U.S. Presi- tial election, which the Constitution says must dent Donald Trump at the White House on April Venezuelan opposition leader Henrique happen by the end of next year. In one of the 27. The two presidents are expected to discuss Capriles, a two-time presidential candidate latest violent protests in Venezuela, a teenage bilateral regional issues, including trade, secu- and the current governor of Miranda state, on boy was shot and killed during unrest Tuesday rity sector collaboration and the political and Wednesday vowed to fi ght the government’s night in the western city of Barquisimeto, economic crisis in Venezuela, the White House prohibition on him running for offi ce, The Wall Agence France-Presse reported. The victim said in a statement. Street Journal reported. “I don’t accept being was identifi ed as 13-year-old Brayan Principal, according to opposition lawmaker Alfonso Marquina. A 36-year-old man was also killed in Lasso Seeks Recount in The government just the same city in a separate incident, according might permit elections to the state prosecution service, AFP reported. Ecuadorean Election but it’s obvious they It was unclear who was at fault for the deaths, Guillermo Lasso, the conservative former bank- want to decide who but Marquina blamed the teenager’s death on er who lost Ecuador’s April 2 presidential runoff is the candidate government supporters. In a video statement election, on Wednesday fi led a complaint to de- and the opposition released Wednesday, Organization of Amer- mand a full recount of the vote, the Associated they will face.” ican States Secretary-General Luis Almagro Press reported. Lasso reiterated an accusation reiterated his demand that Venezuela hold of fraud and said that if ruling party candidate — Henrique Capriles elections, and he condemned acts of violence Lenín Moreno takes offi ce, his government by state security forces against demonstrators will be illegitimate. “It’s necessary to be in the disqualifi ed,” Capriles told the newspaper. In in recent days. “Day after day, the repression streets,” Lasso told supporters Wednesday. The the interview, Capriles also said the opposition worsens in Venezuela,” said Almagro. “It is offi cial results showed that Moreno defeated would continue and intensify government pro- authoritarian to repress demonstrators who Lasso by fewer than three percentage points. tests that have occurred this month, following call for democracy.” Almagro said government International observers said they detected no the Venezuelan Supreme Court’s ruling to offi cials have generated instability, adding “We irregularities in the vote. effectively dissolve the country’s legislature, a cannot accept the continued imprisonment or move that it later reversed, following wide- banning from running for offi ce of opposition spread condemnation. Capriles is seen as the political leaders so that they can remain in Mexico Has Stance of top contender to challenge President Nicolás power.” [Editor’s note: See Q&A on Venezuela in Maduro in next year’s scheduled presiden- Wednesday’s Advisor.] ‘Strategic Patience’ With tial election. But last Friday, the comptroller Trump: Ambassador general’s offi ce banned Capriles from running Mexican Ambassador to the United States for offi ce for 15 years. The comptroller’s BUSINESS NEWS Gerónimo Gutiérrez on Wednesday said offi ce cited alleged contracting irregularities Mexico’s stance toward U.S. President Donald in barring Capriles, and for the minor alleged Trump is one of “strategic patience,” The Hill re- infractions fi ned him $11, a fi ne that Capriles Argentina’s Banco ported. Gutiérrez said he was optimistic about said he was refusing to pay. He denies the Macro Eyes Purchase the future of U.S.-Mexico relations, though he allegations. In a February survey by pollster said his top concerns were about the future Datanalisis, Capriles had an approval rating of of Banco Patagonia of the North American Free Trade Agreement, 49 percent, while Maduro’s was just 27 percent. or NAFTA. He said that despite “good initial A severe economic crisis, shortages of basic Argentina-based bank Banco Macro, which meetings” between the two countries, nego- goods, including food and medicines, as well is led by CEO Jorge Horacio Brito, signaled tiations are going slowly. On Tuesday, Trump as hyperinfl ation, have dragged down Maduro’s serious intent to buy Banco Patagonia by told a group of business executives to expect popularity. “The government just might permit proposing an equity sale of as much as $750 “pleasant surprises” for them regarding the elections, but it’s obvious they want to decide million to fi nance the acquisition of the bank, trade agreement.

Euro Money reported Wednesday. Macro’s FEATURED Q&A / Continued from page 1 board plans to seek authorization to sell as many as 74 million ordinary B-series shares, sees the TBA as the source of Argentina’s other maintains a vision favorable to the with an over-allotment option of up to 15 exploding drug traffi cking problem. This government. In this scenario, politicians in- percent, according to a recent regulatory fi ling. aggregation of factors is hardly the climate teract by inciting society, generating division Though Macro was not explicit about using for Cartes to seek re-election, claiming around the issue of re-election. However, the proceeds of the sale to buy Patagonia, it is he needs fi ve more years to continue his the events that occurred on March 31 were rumored that Macro is a leading contender to stability policies—a claim few support. The undoubtedly serious, due to the overfl ow of acquire Patagonia. The regulatory fi ling said re-election movement unlocked the ghost of groups of demonstrators who surpassed the sale of shares was “advisable given the the late Alfredo Stroessner, whose delete- the police and burned congressional offi ces, favorable outlook for growth of the banking rious, ‘permanent’ presidency Paraguayans experienced directly or indirectly through their families’ history. The attack on parliament and the continued anti-government I believe fi ve years is protests and marches show Paraguayans are little time to develop not buying into the ‘re-election-itis’ that has government projects.” affl icted Latin America in the last decade. — Gerardo Ramón Ruiz Godoy From country to country, second-term presidents have a dismal record, thus opening opportunities for opposition candidates, Brito // File Photo: jorgehoraciobrito.com. often with right-of-center leanings, to offer an alternative of ‘no more of the same.’ This business in the country and the bank in par- means the debates over re-election will although it did not affect the normal devel- ticular.” The amount of equity Macro is raising focus on who can best deliver stability with opment of economic and social activity. would fi nance the acquisition of 84 percent some level of overall equity, who can control The day after the riots, shops adjacent to of Patagonia for approximately $1.9 billion, and reduce criminality, guarantee security the parliament operated regularly. This is with 50 percent equity and 50 percent debt. and safety, and what legal, viable alterna- not new, because in Paraguay, the economy The bank currently has $265 million available tives marijuana growers can exercise to has always remained immune to political for mergers and acquisitions. Banco do Brasil extricate themselves from the illegal trade, circumstances; this was seen in the changes owns 59 percent of Patagonia. The other which is denting Cartes’ stability.” of government when the Republican National top shareholders are the Milne and Moreno Association, characterized for being of the families, with a combined 21 percent stake. Gerardo Ramón Ruiz Godoy, right, was displaced from the government by The Brazilian bank is currently seeking to shed partner at PCG Auditores – Con- a coalition of the left, led by Fernando Lugo. non-core assets in order to avoid conducting sultores: “Paraguayan society Since 1989, all presidents have sought to be a dilutive equity transaction in its domestic A is very infl uenced by the local re-elected, and they have made unsuccessful market. Patagonia is the 11th-largest bank in press outlets, which in turn belong to groups efforts to amend the Constitution. Personal- the Argentine banking system, with $4.7 billion antagonistic to each other. While one part ly, I believe fi ve years is little time to develop in assets and 200 branches. of the press projects a reality of chaos, the government projects. Paraguay requires Continued on page 4

ECONOMIC NEWS York Times reported. The payments are mostly default is looming ever closer for the cash- related to state oil ﬁ rm PDVSA’s April 5.25 strapped oil-exporting country. “The probability percent note, which requires a combined of default is rising,” said Stuart Culverhouse, Venezuela Vows to interest and principal payment of $2.5 billion. head of sovereign and credit research at Exotix The Venezuelan government and PDVSA owe Partners, a London-based investment bank that Make Nearly $3 Bn a combined $8.5 billion in payments this year trades Venezuelan bonds on behalf of clients. in Debt Payments and at least another $7.9 billion next year. The As oil production and international reserves amount includes roughly $60 billion in external wane at an increasing rate, the government is The Venezuelan government said it would bond debt, which has been incurred since late struggling to make short-term bond payments make nearly $3 billion in debt payments due President Hugo Chávez took ofﬁ ce nearly 20 while still importing badly needed food and Wednesday, staving off a default, The New years ago. Financial experts say the specter of medicine.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2017 longer-term plans, which is the reason for administration. One Colorado Party dissident the alleged re-election effort. In my opinion, in Congress has argued that the amendment Erik Brand this would be very benefi cial, since the cur- debate itself is a way for Cartes to stave off Publisher [email protected] rent president has proven to be effi cient and lame-duck status in the party in the run-up to transparent. The debate over the re-election the elections. Certainly Cartes wants to seek Gene Kuleta Editor will focus on the parliamentary arena, and and gain re-election, but there may be other [email protected] as spectators, we will see the groups of political benefi ts to him and his faction just Nicole Wasson followers of both sides. In particular, I do by keeping the issue alive.” Reporter, Assistant Editor not think there will be any further outrages, [email protected] even though politicians who do not want the Sebastián Acha, executive amendment will appeal to their followers to director of PRO Desarrollo gather in public demonstrations.” Paraguay and former Paraguay- A an congressman: “We don’t Michael Shifter, President Brian Turner, professor and know exactly why Cartes is suddenly eyeing Genaro Arriagada, Nonresident Senior Fellow chair of the Department of re-election, since he has been completely Sergio Bitar, Nonresident Senior Fellow Political Science at Ran- absent in this discussion. He hasn’t said a Joan Caivano, Director, Special Projects dolph-Macon College: “The word about it. His last public speech on the Kevin Casas-Zamora, Nonresident Senior Fellow A Ariel Fiszbein, Director, Education Program Paraguayan Constitution is explicit regarding subject was on Oct. 31, when he gave up his Alejandro Ganimian, Nonresident Fellow re-election, stating that the president serves Peter Hakim, President Emeritus a fi ve-year term and ‘cannot be re-elected Claudio Loser, Senior Fellow in any circumstance.’ Article 290 regarding President Cartes’ Nora Lustig, Nonresident Senior Fellow amendments states that the amendment ambition imperils 12 Margaret Myers, Director, China and procedure cannot be used to change the years of good eco- Latin America Program ‘duration of terms.’ Most of civil society, the nomic performance” Manuel Orozco, Director, Migration, media and many jurists are certain that the Remittances & Development proposed amendment would be a change — Sebastián Acha Jeffrey Puryear, Senior Fellow to the duration-of-term provision, and thus Tamar Solnik, Director, Finance & Administration violates article 290. The Supreme Court Lisa Viscidi, Director, Energy Program lacks the credibility and independence to Latin America Advisor is published every make a convincing ruling on the matter. The re-election intention. What happened since business day, except for major U.S. holidays, court is currently struggling just to empanel that? We can only speculate. The most by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 judges to hear the legal request from the plausible is simply the longing for more Washington, DC 20005 president of the Senate to overturn the frank- power—a regional disease, we can say. But www.thedialogue.org ly illegal process by which the amendment there is no doubt about his lack of political ISSN 2163-7962 was approved by 25 senators in March. The sense, underestimating the people’s reaction Subscription inquiries are welcomed at legacy of the seven re-elections of dictator regarding the non-fulfi llment of his prom- [email protected] Alfredo Stroessner certainly animates public ise. This narrow political vision has been debate, although it clouds the fact that incubating an uneasiness with the govern- The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily Paraguayan elections are now competitive, ment inside and outside the Colorado Party, represent those of the publisher. The analysis is the sole and ex-presidents Nicanor Duarte Frutos and that exploded when the constitutional view of each commentator and does not necessarily represent the views of their respective employers or fi rms. and Fernando Lugo would likely contest the amendment request was discussed in the The information in this report has been obtained from 2018 election, should the amendment be Senate. President Cartes’ ambition imperils reliable sources, but neither its accuracy and completeness, nor the opinions based thereon, are guaranteed. If you have approved. Lugo’s supporters are providing 12 years of good economic performance.” any questions relating to the contents of this publication, votes in Congress for the amendment. The contact the editorial offi ces of the Inter-American Dialogue. Contents of this report may not be reproduced, stored in a issue of increased public debt will certainly The Advisor welcomes comments on its Q&A retrieval system, or transmitted without prior written permis- be used in the election to challenge the section. Readers can write editor Gene Kuleta sion from the publisher. claimed ‘fi scal responsibility’ of the Cartes at [email protected].