LATIN AMERICA ADVISOR a DAILY PUBLICATION of the DIALOGUE Thursday, June 1, 2017

LATIN AMERICA ADVISOR A DAILY PUBLICATION OF THE DIALOGUE www.thedialogue.org Thursday, June 1, 2017

BOARD OF ADVISORS FEATURED Q&A TODAY’S NEWS Diego Arria Director, Columbus Group BUSINESS Devry Boughner Vorwerk Corporate VP, Global Corporate Affairs Will Alibaba’s Deal JBS’ Controlling Cargill Shareholder to Pay Joyce Chang Global Head of Research, With Argentina $3.2 Billion Fine JPMorgan Chase & Co. J&F Investimentos said it would W. Bowman Cutter Former Partner, Expand Trade? pay the fi ne due to its role in E.M. Warburg Pincus two major corruption cases. The Dirk Donath company’s owners have admitted Senior Partner, to paying bribes to some 1,900 Catterton Aimara politicians. Barry Featherman Page 3 Senior Director, International Government Affairs, Gilead Sciences ECONOMIC Marlene Fernández Corporate Vice President for Brazil Slashes Government Relations, Arcos Dorados Key Interest Rate Peter Hakim by Full Point President Emeritus, Inter-American Dialogue The country’s central bank Donna Hrinak Argentine President Mauricio Macri and First Lady Juliana Awada visited Beijing last month, reduced the benchmark Selic rate, President, Boeing Latin America where they were received by Chinese President Xi Jinping and his wife, Peng Liyuan. // File continuing a cycle of rate cuts Jon Huenemann Photo: Argentine Government. that began in October. Vice President, U.S. & Int’l Affairs, Page 2 Philip Morris International China-based e-commerce giant Alibaba reached a coop- James R. Jones eration agreement with Argentina’s government in early Chairman, ManattJones POLITICAL Global Strategies May to help the administration of President Mauricio Macri Q OAS Meeting Ends Craig A. Kelly introduce the country’s wine and other agricultural prod- Director, Americas International Without Action Gov’t Relations, Exxon Mobil ucts into China, as well as help small- and medium-sized businesses John Maisto in Argentina “make progress” in China, in exchange for the Argentine on Venezuela Director, U.S. Education government’s commitment to use Alibaba’s electronic platforms as its A group of countries including Finance Group the United States and Canada put Nicolás Mariscal offi cial sales channels. Is the partnership a good fi t for both parties? forward a declaration that includ- Chairman, How will Argentina’s membership in Mercosur affect its ability to sell Grupo Marhnos ed a call for President Nicolás goods through Alibaba? Is it likely that a free-trade agreement between Thomas F. McLarty III Maduro’s government to respect Chairman, China and Mercosur will be reached in the near future? human rights and the rule of law, McLarty Associates but it failed to receive the required Carlos Paz-Soldan support for passage. Partner, Agustín Crivelli, economist at the Scalabrini Ortiz Center Page 2 DTB Associates, LLP Beatrice Rangel for Economic and Social Studies in Buenos Aires: “The Director, agreement signed with Chinese e-commerce giant Alibaba AMLA Consulting LLC will not contribute to increased sales of Argentine products Gustavo Roosen A Chairman of the Board, in the Chinese market, since Argentine rules do not allow door-to-door Envases Venezolanos commerce for export, as is the case for imports. So it is expected that Andrés Rozental President, Rozental & Argentine purchases, but not sales, will increase through Alibaba. The Asociados and Senior Policy Advisor, Chatham House consequences are known: a higher trade defi cit, increased indebtedness Shelly Shetty and a process of ‘reverse substitution,’ in which local industrial products Head, Latin America are replaced by manufactures from China. The agreements between Sovereign Ratings, Fitch Inc. Roberto Sifon-Arevalo China and various Latin American countries have only contributed to Managing Director, Americas reinforcing the classic international division of labor of the major powers, Sovereign & Public Finance Ratings, Standard & Poor’s along with the land and business sectors of our region. This has been happening for more than a century as economies in the region have Maduro // File Photo: Venezuelan Government. Continued on page 3

POLITICAL NEWS other small Caribbean islands, which receive NEWS BRIEFS subsidized oil from Venezuela, also defended OAS Meeting Ends Maduro’s government at Wednesday’s OAS China, E.U. Leaders Back meeting, Reuters reported. Venezuela’s gov- Paris Accord as Trump Without Agreement ernment celebrated the meeting’s suspension without action as a victory against “interven- Mulls Withdrawal on Venezuela tionist countries” seeking to meddle in the China and leaders from the European Union country’s affairs, BBC News reported. As the today agreed to push forward with the Paris Organization of American States member na- discussions were happening in Washington, Agreement on climate change as U.S. Pres- tions met Wednesday in Washington to discuss thousands of anti-government protesters again ident Donald Trump mulls withdrawing the Venezuela’s political crisis, but the meeting took to the streets in Caracas in an attempt United States from the accord, CNN reported. ended without agreement, BBC News reported. to march to the foreign ministry. At least 89 Trump is expected to announce his decision The United States, Canada, Mexico, Panama people were injured when demonstrators today, but two U.S. offi cials familiar with his and Peru proposed a declaration calling for an clashed with security forces. Some 60 people plans say he will likely pull out of the accord. have been killed in two months of unrest in The United States is the world’s largest carbon Venezuela. [See related Q&A in the May 9 issue dioxide emitter after China. Our goal is to return of the Advisor.] to full respect for the rule of law, full Brazil Slashes Key respect for freedoms ECONOMIC NEWS of political expression Interest Rate by Full and participation.” U.S. Auditing OPIC Percentage Point — Tom Shannon Brazil’s central bank on Wednesday slashed its Loans for Chilean benchmark Selic interest rate by a full percentage point, to 10.25 percent from 11.25 percent, immediate end to the violence that has raged Renewable Projects continuing a loosening cycle that began in in the country for two months, as well as for October, The Wall Street Journal reported. The political prisoners to be released and for the The U.S. government is auditing a foreign country’s struggling economy and below-target Andean nation’s government to respect the aid program approved by the government’s infl ation led to the decision, the central bank rule of law and human rights. The declaration Overseas Private Investment Corporation, or said in a statement accompanying the rate also demanded the President Nicolás Maduro’s OPIC, in which nearly $1 billion was loaned for announcement. The trend for infl ation is still government drop a plan to form a “constituent renewable energy projects in Chile, Reuters favorable, and recent economic indicators assembly” to rewrite the Constitution. “Our reported. OPIC loaned approximately $890 mil- point to a gradual recovery this year, policymak- goal is to return to full respect for the rule of lion to projects including solar farms that are ers added. law, full respect for freedoms of political ex- in fi nancial trouble, and the loans may never be pression and participation,” said Tom Shannon, fully repaid, according to people familiar with the U.S. undersecretary for political affairs, the matter. The Offi ce of Inspector General for Reuters reported. “Today is an opportunity the U.S. Agency for International Development, Mexico’s Central Bank for us to demonstrate that this commitment or USAID OIG, confi rmed to the wire service Increases Growth Forecast remains alive and well relevant to the current that it would be auditing the loan. The audit Mexico’s central bank has revised its 2017 plight of our Venezuelan neighbors.” However, centers on OPIC’s funding of fi ve Chilean solar growth forecast upward to between 1.5 and the declaration failed to receive the support of farms and a hydroelectric project in 2013 and 2.5 percent, up from the previous projection the required two-thirds of member countries 2014. The audit started in 2016, but had not of between 1.3 and 2.3 percent, the Financial present, BBC News reported. Venezuela did not been previously reported. At least three of the Times reported Wednesday. GDP increased send a representative to the meeting and had fi ve Chilean solar projects have already started 0.7 percent in the fi rst quarter from the fourth previously announced that it would withdraw restructuring their debt, according to two peo- quarter, and grew 2.8 percent year-over-year, from the OAS after a majority of the body’s ple familiar with the projects. They said OPIC slightly ahead of estimates of 2.7 percent year- members voted to hold the meeting. Nicara- could see losses exceeding $160 million on the over-year growth. Banco de México said its gua’s government, which supports Maduro, projects. In a statement, OPIC said it believed 2018 GDP forecast would remain unchanged at also opposed the meeting, saying Venezuela it would recover the loans over the coming between 1.7 percent and 2.7 percent. was the victim of a “political lynching.” Several decades, though not in the original timeline the

agency had projected. It added that most of FEATURED Q&A / Continued from page 1 its projects are on solid fi nancial footing, and said it would evaluate the USAID OIG’s recom- focused on extractive industries and the ex- has entered a new period of development mendations once it completed the audit. U.S. portation of primary products, discouraging and needs some new impetus and stim- President Donald Trump has proposed cutting diversifi cation and industrial development, ulation. Alibaba is China’s largest online funding for any new OPIC projects in his 2018 thus weakening the basis for self-sustaining company, and it is also a global leader in the budget, which was released last week. and independent regional integration. The e-commerce trade platform. Its participa- major powers, including China, have exerted powerful pressure on the process of regional Companies Eye integration in South America. In this sense, The current economic Chile-Argentina signing a free-trade agreement with Mercos- and trade relationship ur, which Chinese economic and political between China and Tunnel Project diplomacy have been advocating, would only Argentina has entered further strengthen these disruptive tenden- a new period of Ten different consortiums, including Chinese cies. The possibility of such an agreement development...” and European companies, have expressed will depend on the results of Argentina’s — Lin Hua interest in building a planned $1.5 billion tunnel legislative elections this year and Brazil’s beneath the Andes mountains that would general elections next year.” connect Argentina and Chile, Reuters reported Wednesday, citing Chile’s minister of public Lin Hua, general secretary of tion in Sino-Argentine economic and trade works, Alberto Undurraga. The Agua Negra the Center of Argentine Studies cooperation is a worthwhile opportunity for tunnel would be more than eight miles long of the Institute of Latin Amer- both countries. At present, China’s consum- and would link Chile’s Coquimbo region with A ican Studies at the Chinese ers are growing their demand for high-end Argentina’s San Juan province. Existing roads Academy of Social Sciences: “From 2003 products and have become accustomed that cross the border, passing over the Andes, to 2013, the bilateral trade volume between to online shopping. These conditions are are sometimes forced to close during snow- China and Argentina increased almost fi ve very favorable for getting quality Argentine storms, but the tunnel would be able to operate times, but after 2014, the trade between the products into the Chinese market. Using an year-round. Among the companies expressing two countries showed ups and downs. This e-commerce platform to promote exports interest in the project are Power China and the means that the current economic and trade and SME development, and accelerating Chinese Communications Construction Com- relationship between China and Argentina the construction of infrastructure like local pany, as well as Spain-based OHL and FCC, Continued on page 4 and Italy’s Astaldi and Salini Impreglio, said Undurraga. Construction of the tunnel would December. The holding company will have 25 approximately 600 million reais in bribes for likely take more than a decade to complete. years to make the payments. J&F said it would nearly 1,900 politicians, further engulfi ng Bra- be paying the fi ne entirely in order to protect zil’s politicians in corruption scandals. Joesley minority shareholders. JBS Chairman Tarek Batista is also at the center of a corruption BUSINESS NEWS probe surrounding President Michel Temer, after he revealed he had secretly recorded a conversation with Temer in which the president JBS’ Controlling appeared to condone the executive’s paying of Shareholder to Pay bribes to potential witnesses in the “Lava Jato” corruption scandal involving state oil company $3.2 Billion Fine Petrobras and construction conglomerate Odebrecht. Other JBS executives in plea-bar- J&F Investimentos, the controlling shareholder gain testimonies have alleged that Temer took nearly $5 million in bribes from the company. of Brazilian meatpacking company JBS, will Farahat // File Photo: Procter & Gamble. pay a 10.3 billion real, or $3.2 billion, fi ne for The JBS testimony also alleged that former its role in two corruption cases, setting the Farahat said the settlement would alleviate the presidents Luiz Inácio Lula da Silva and Dilma record for the largest leniency fi ne ever levied, risk for JBS investors, employees and clients. Rousseff had received $80 million in bribes in Reuters reported Wednesday. J&F will exclu- The fi ne follows testimony from J&F owners offshore accounts. Temer, Lula and Rousseff sively cover the payments, which are to start in Joesley and Wesley Batista, who say they spent have all denied wrongdoing.

FEATURED Q&A / Continued from page 3 LATIN AMERICA ADVISOR is published every business day by the Inter-American Dialogue, Copyright © 2017 logistics and payment, will be a new way for vineyards, which have a decade’s head start China and Argentina to cooperate. The key is in supplying the Chinese market. Depending Erik Brand whether the related policies of the Argentine on the time of year, sales of Chilean fruit are Publisher [email protected] government can be continued. Argentina’s also quite common in China, particularly in membership in Mercosur does not affect its coastal cities and Hong Kong. Argentina’s Gene Kuleta Editor cooperation with Alibaba. On the contrary, if [email protected] this cooperation is successful, it will provide Nicole Wasson a good demonstration for other member A free-trade Reporter, Assistant Editor countries. There is little chance that China agreement between [email protected] and Mercosur will reach a free-trade agree- China and Mercosur ment in the near future. On the one hand, is also far-fetched.” the coordination between member countries — Thomas Andrew O’Keefe is diffi cult, especially between Brazil and Michael Shifter, President Argentina. On the other hand, the long-term Genaro Arriagada, Nonresident Senior Fellow core objective of Mercosur is to expand Sergio Bitar, Nonresident Senior Fellow Joan Caivano, Director, Special Projects intraregional trade. Although this intention membership in Mercosur is probably irrele- Michael Camilleri, Director, Peter D. Bell Rule of Law has changed recently, Mercosur’s opening vant in terms of Argentine exports that are Program to the outside world is not large enough, currently in demand in China. A free-trade Kevin Casas-Zamora, Nonresident Senior Fellow so it will take time to create the necessary agreement between China and Mercosur is Ariel Fiszbein, Director, Education Program conditions.” also far-fetched. Mercosur has to fi rst get Alejandro Ganimian, Nonresident Fellow its internal house in order and fi gure out if it Peter Hakim, President Emeritus Thomas Andrew O’Keefe, pres- wants to be just a free-trade area or a cus- Claudio Loser, Senior Fellow ident of Mercosur Consulting toms union or if it still aspires to the original Nora Lustig, Nonresident Senior Fellow Group in San Francisco: “Given common market goal. Given that Mercosur’s Margaret Myers, Director, China and A that Alibaba is as ubiquitous negotiations for a free-trade agreement with Latin America Program in China for online shopping as Amazon is the European Union have now dragged on Manuel Orozco, Director, Migration, Remittances & Development in the United States, this can probably only inconclusively for two decades, it is hard Jeffrey Puryear, Senior Fellow benefi t Argentine wine sales in China, par- to visualize an FTA with China in the near Tamar Solnik, Director, Finance & Administration ticularly given how wine has become a big future.” Lisa Viscidi, Director, Energy Program status symbol. I am not sure, though, if this Denisse Yanovich, Director of Development and will benefi t sales of fresh agricultural prod- The Advisor welcomes comments on its Q&A External Relations ucts in China. In any event, the Argentines section. Readers can write editor Gene Kuleta will face tough competition from Chilean at [email protected]. Latin America Advisor is published every business day, except for major U.S. holidays, by the Inter-American Dialogue at 1155 15th Street NW, Suite 800 Washington, DC 20005 LATIN AMERICA ADVISOR www.thedialogue.org ISSN 2163-7962 Subscription inquiries are welcomed at Financial [email protected] The opinions expressed by the members of the Board of Advisors and by guest commentators do not necessarily represent those of the publisher. The analysis is the sole Services Advisor view of each commentator and does not necessarily represent the views of their respective employers or fi rms. The answers to questions that informed The information in this report has been obtained from reliable sources, but neither its accuracy and completeness, executives are asking. nor the opinions based thereon, are guaranteed. If you have any questions relating to the contents of this publication, Upgrade your subscription with the Inter-American Dialogue’s contact the editorial offi ces of the Inter-American Dialogue. biweekly Financial Services Advisor. Send an email to SUBSCRIBE Contents of this report may not be reproduced, stored in a [email protected] today. retrieval system, or transmitted without prior written permis- sion from the publisher.