LatinNews Daily - 16 July 2018

Development: On 14 July Haiti’s President Jovenel Moïse accepted the resignation of Prime Minister Jack Guy Lafontant and his 18-member cabinet.

Significance:  Lafontant’s resignation was not a surprise given calls for him to step down over the government’s recent mishandling of a rise in petrol fuel prices which prompted deadly unrest. Nevertheless, it is the biggest crisis to face President Moïse and his Parti Haïtien Tèt Kale (PHTK) government since taking office in February 2017. Appointing a new prime minister, who must be ratified along with the new government’s plan by both houses of the national legislature (comprising the 119-member chamber of deputies and the 30-member senate), is a notoriously challenging task in Haiti. While the PHTK has the largest representation in the legislature, it is short of a majority. With protesters also calling for Moïse to go, he is under particular pressure to find an acceptable replacement to Lafontant as soon as possible.

• A gastroenterologist, and reportedly close personal friend of Moïse, Lafontant was unknown in local political circles ahead of his ratification in March 2017.
• Lafontant had faced a potential vote of no confidence on 14 July, had he not resigned, and various sectors had called for him to go. These included the country’s most powerful business sector lobby, Forum Économique du secteur; presidents of both chambers of congress, Senator Joseph Lambert and Deputy Gary Bodeau; human rights group Collectif du 4 décembre; Haiti’s Catholic Episcopal Conference; and the national federation of Haitian mayors.
• The crisis stemmed from the government’s 6 July decision to increase petrol fuel prices in line with a six-month deal reached with the International Monetary Fund (IMF) in February 2018.  The IMF had called for the government to lower petrol subsidies in order to mobilise “revenues and rationalise current expenditure, to make room for critical public investment in infrastructure, health, education, and social services”.
• Such was the social unrest in response, which left either three or seven dead on varying reports, that Moïse was forced to backtrack and suspend the move. However it is worth pointing out that, since the unrest, on 12 July IMF spokesperson Gerry Rice said that Haitian authorities were working on a revised reform plan which, the IMF believes, would still include a lowering of petrol subsidies, albeit in stages along with “the implementation of compensatory and mitigating measures to protect the most vulnerable people”.
• The government’s misstep over the proposed rise in fuel prices comes amid more general discontent with the PHTK government over corruption. This followed a resolution passed earlier this year by the senate requesting that the superior court of audit and administrative disputes (CSC/CA) conduct a review of the management of funds from Petrocaribe, Venezuela’s discounted oil initiative, over the eight-year period from September 2008 to September 2016, under the governments led by René Préval (2006-2011) and President Moïse’s predecessor and close ally Michel Martelly (2011-2016).
• As well as Préval and Martelly, other names which featured in the report included members of the current government such as Moïse’s chief of staff Wilson Laleau, who previously held the portfolios of trade & industry and economy & finance, while an energy company, Comphener SA, owned by Moïse, also featured for allegedly securing contracts in an irregular manner.

Looking Ahead: President Moïse has yet to give any indication as to a possible replacement for Lafontant, who must be ratified by 60 votes in the lower chamber and 16 votes in the senate.

Development: On 13 July Peru’s justice minister, Salvador Heresi, tendered his resignation at the behest of President Martín Vizcarra over a corruption scandal embroiling senior magistrates in the national justice system.

Significance: Heresi’s position became untenable after the local news programme Panorama broadcast an audio recording of a conversation he had held with a supreme court judge, César Hinostroza, one of the principal figures implicated in the corruption scandal. While the audio does not reveal any wrongdoing, President Vizcarra clearly calculated that it would have made it difficult for Heresi to push through congress a sweeping judicial reform. Vizcarra promised such a reform when the scandal first broke a week ago.

• On the latest audio recording Heresi asks Hinostroza, president of the second transitory criminal chamber of the supreme court, to come to his office to discuss a legal initiative with him. In the first batch of recordings released days earlier, Hinostroza is heard to offer an intermediary of a defendant accused of raping an 11-year old girl a reduced, or even a not guilty, sentence.
• Walter Ríos, president of the senior appeals court in Callao region, resigned on the same day as Heresi after appearing in several compromising recordings. Two days later, on 15 July, the national police (PNP) arrested Ríos after a supreme court magistrate accepted a request to apprehend him by the acting prosecutor of internal affairs, Jaime Velarde.
• Velarde assumed control of the investigations after the prosecutor of internal affairs, Víctor Raúl Rodríguez, was recused on 13 July. Rodríguez was implicated in the scandal after an audio recording emerged in which he can be heard talking to Mario Mendoza, a businessman suspected of being central to the judicial influence trafficking and corruption network. On the recording, Rodríguez asks Mendoza to drop by his office to discuss a matter of importance.

Looking Ahead: Vizcarra appointed a six-strong commission of legal experts on 13 July, giving them 12 days to draw up a report with proposals for a reform of the justice system. Vizcarra will present these proposals in his state-of-the-nation address to congress on 28 July.

Venezuela: Venezuela’s ambassador to the Organization of Petroleum Exporting Countries (Opec), Ángel González, has said that Venezuela produced 1.57m barrels of crude oil per day during the first six months of the year. This compares to 2.25m barrels per day produced in January 2017, on figures reported by Opec. Production figures directly reported by Venezuela’s state-owned oil firm, Pdvsa, have varied from those published by Opec, which often uses information from secondary sources. The International Energy Agency believes that Venezuela’s oil output will fall to 1.38m barrels per day by the end of 2018, the lowest level for 70 years outside of the 2002-2003 Venezuelan government strike.

Development: On 15 July O Estado de São Paulo, the Brazilian daily, published a study by LCA Consultores which shows that the number of Brazilian homes in which more than 75% of income comes from pensions grew by over 12% in the last year.

Significance: Brazilians’ increasing dependence on pension income explains some of the difficulty that the administration led by President Michel Temer had in trying to reform the social security system. It also highlights how challenging any pension reform will be for the next government due to be elected in the 7 October general election. Given how heavily pension liabilities are weighing on the country’s overstretched public accounts, almost all of the pre-candidates running for the presidency accept the need to reform the pension system - but none have given a clear indication about how they intend to do so.

• The number of households which rely on pensions for over three-quarters of their income grew from 5.1m in 2017 to 5.7m in 2018. Dependency is highest in the north-east area of the country, traditionally the poorest part of Brazil, where over 23% of households are now dependent on pensions for the vast majority of their income. In the country as a whole, the rate is now 18.5%, according to the consultancy Tendencias.
• In those households where over 75% of income comes from pensions, the number of unemployed persons is almost double the national average. The phenomenon is not exclusive to Brazil; it was also widely observed during the 2008 financial crisis in Spain, where grandparents financially supported their children and grandchildren.
• “Grandparents are becoming the backbone of the family”, Alexandre Kalache, a specialist in longevity, told O Estado de São Paulo. “They are absorbing the impact of unemployment and economic instability. The generation that today depends on their parents could have difficulty in retiring. Soon, they will be elderly, and without income”, he added.

Looking Ahead: Unemployment in Brazil remains stubbornly high, at close to 13m people. The underwhelming economic recovery, with domestic economic growth now looking set to come in at around 1.5% this year, does not look as if it will provide a big uptick in employment any time soon.

* Brazilian aerospace conglomerate Embraer SA, the third largest producer of civil aircraft in the world, has forecasted that global demand for new aircraft with a capacity of up to 150 seats, such as those produced by the firm, will reach 10,550 in the next 20 years, a business that would be worth US$600bn. According to Embraer, this increase in demand will come as a result of the increase in the in-service fleet from 9,000 aircraft to 16,000, an increase that will be generated mostly by air travel market growth (65%) but also by aircraft replacements (35%). Nonetheless Embraer’s president & CEO, John Slattery, warned that “past performance is no guarantee of future results” because “we are now warming up for the next period of higher costs, with pressures on yields likely to continue unbated”. Embraer’s forecast comes after on 5 July the firm announced that it had established a “strategic alliance” with US aviation giant Boeing to form a new joint venture in which Boeing will hold an 80% stake and Embraer the remaining 20%. The two companies signed a non-binding agreement which would benefit Embraer with greater access to global markets and allow Boeing to compete in the market for smaller planes. The Brazilian government, which holds a voting share in Embraer, is expected to approve the deal despite some public pressure to reject it.

Panama: Panama’s President Juan Carlos Varela has ordered the Autoridad de los Servicios Públicos (Asep), the country’s public services regulator, to “immediately suspend” the increase in electricity tariffs for some consumers for the second half of 2018. The tariff adjustment was announced by Asep on 5 July and had been met with public protests and discontent from unions and private sector lobby groups. Panama’s chamber of commerce, industry, and agriculture (CCIAP) for example, claimed that the increase in tariff prices owed to “irresponsibility and lack of timely decisions on the part of different government administrations”. In response to the public anger, President Varela stated in a public announcement that he had asked the finance ministry to assume the cost of the tariff increases until the national assembly passed an exemption which would enable the government to increase the fiscal deficit by 1% of GDP or US$300m for 2018. The increase in the fiscal deficit was presented to the opposition-controlled national assembly also on 5 July and has been justified by the government as a necessary measure for spurring on economic growth through government spending. This followed a downward revision of Panama’s growth forecast for 2018 from 5.6% to 4.6% by the International Monetary Fund’s (IMF) on 1 June.

Development: On 13 July Mexico’s President-elect Andrés Manuel López Obrador met a top-level delegation from the US government, led by Secretary of State Mike Pompeo, in Mexico City.

Significance: This is the first face-to-face meeting between López Obrador and senior members of the US government. It follows fast on the heels of a phone conversation between López Obrador and US President Donald Trump in which both men revealed they discussed a specific bilateral accord, in addition to issues such as the renegotiation of the North American Free Trade Agreement (Nafta) and immigration.

• Pompeo led a delegation including Treasury Secretary Steven Mnuchin, Homeland Security Secretary Kirstjen Nielsen, and President Trump’s son-in-law and senior advisor, Jared Kushner. They first met President Enrique Peña Nieto to discuss trade and immigration issues, but this was little more than a courtesy call. The real reason for the visit was to meet López Obrador, who won election on 1 July with the largest margin of victory of any Mexican presidential candidate since 1985 and will enjoy a majority in both chambers of the federal congress.
• López Obrador was accompanied by his incoming foreign minister, Marcelo Ebrard, who described the meeting as “frank, respectful, and cordial”, and as providing cause for “reasonable optimism”. Beyond these platitudes, little is known about the content of the talks. But López Obrador did apparently present the US delegation with a set of proposals to improve bilateral cooperation on a range of issues.
• No detail of the proposals has been disclosed, but following his recent phone conversation with Trump, López Obrador said the two men had discussed an agreement on development projects in Mexico which would serve to create jobs, as well as improve security and reduce migration (a major domestic policy problem for the Trump administration).

Looking Ahead: The visit by such a high-level US delegation less than two weeks after Mexico's general election is a sign not just of the importance the US government attaches to bilateral relations but also a recognition that López Obrador will provide a very different proposition as Mexican head of state to any of his immediate predecessors.

* Mexico’s state news agency Notimex has reported that Javier Jiménez Espriú, President-elect Andrés Manuel López Obrador’s proposed communications & transport minister, has announced that a national consultation will take place in October on what the incoming government (which takes office in December) should do with the construction of a new international airport for Mexico City (NAICM). Jiménez said that next week he will meet with authorities at the communications & transport ministry (SCT) in order to define groups to study and analyse the issue and have the technical information to provide to the public ahead of the consultation.

Development: On 15 July Paraguay’s President-elect Mario Abdo Benítez instructed his government transition team to expedite all the investigations into government corruption allegations and present formal accusations to the public ministry where necessary.

Significance: Abdo Benítez’s call to his future cabinet ministers is in line with one of his main electoral pledges: to combat government corruption. It suggests that Abdo Benítez is determined to honour his pledge. However, given that Abdo Benítez is due to take over on 15 August from fellow Asociación Nacional Republicana-Partido Colorado (ANR-PC) party member Horacio Cartes, the investigations could produce uncomfortable revelations for the ANR-PC and potentially create governability problems for the incoming administration.

• The ANR-PC united behind Abdo Benítez’s electoral bid to retain the presidency and its simple majority in congress in the April general election. But under the Cartes administration the party became deeply divided between Cartes’ supporters and detractors (anti-Cartistas), who succeed in nominating Abdo Benítez as the party’s presidential candidate. These divisions remain under the surface and as Abdo Benítez prepares to take office, tensions between the two sides are resurfacing.
• Many of these tensions revolve around the numerous corruption allegations that have affected the Cartes government and Cartista political leaders. Some of these cases are under investigation. But on 15 July Abdo Benítez said after meeting with his government transition team that he had instructed his future ministers to expedite all investigations into irregularities in their future portfolios ahead of his inauguration. In particular, Abdo Benítez said that he had asked the future public works & communications ministry (MOPC) to “uncover” any acts of corruption in the portfolio.
• The future MOPC head, Arnoldo Wiens, has already said that he will review all state contracts signed by the ministry including those linked to the major Metrobús urban transport project and to the expansion of two new roads. On 15 July Wiens said that he would also carefully revise the contract awarded to a consortium led by Brazilian construction firm Queiroz-Galvão for the construction of the tranche of the ‘biocenic corridor’ regional highway (which would link Brazilian and Chilean ports) that will pass through Paraguay.
• Meanwhile the local press has recently reported on a number of irregularities in contracts awarded by the national civil aviation directorate (Dinac). According to the local press reports, some US$36m in Dinac contracts have been irregularly awarded to firms that have links to Gerónimo Viveros Osnaghi, cousin to President Cartes.

Looking Ahead: Queiroz-Galvão is implicated in the major regional corruption scandal centred round Brazilian engineering firm Odebrecht, which suggests that the firm is also implicated in wrongdoing in Paraguay, and that the investigations could reveal widespread corrupt practices in the Cartes administration.

Paraguay: The central bank (BCP) has published its latest monthly economic activity indicator (Imaep), which shows a 5.3% increase in May 2018 compared with May 2017. The BCP attributed the increase principally to an expansion in the services sector and some manufacturing and construction sub-sectors. In the services sector the BCP’s report highlights commerce, home and government services, transport, telecommunications, and restaurant and hotel services as key areas of growth. In terms of manufacturing it emphasises metal products, chemicals, non-metallic minerals, textiles, machinery and equipment, and beverages and tobacco. The May Imaep figures mean that accumulated growth in economic activity for the first five months of 2018 is currently at 6%, higher than for the same period in 2017. According to the latest BCP forecasts published in April, Paraguay’s GDP is expected to increase by 4.5% in 2018.

Argentina: On 11 June a New York court rejected an appeal put forward by the Argentine government in relation to the 2012 nationalisation of oil company Yacimientos Petrolíferos Fiscales (YPF), meaning that Argentina could face legal action in the US. The court sustained a previous ruling which had dismissed claims made by Argentina that the US courts were not able to judge this case properly. Under the US Foreign Sovereign Immunities Act (FSIA), Argentina and YPF are not immune to legal action in the US. The original lawsuit, filed in 2015 on behalf of the Peterson group by the law firm Burford Capital, seeks a multimillion US dollar compensation for the supposed economic damages caused by the nationalisation of YPF. In 2012 Argentina expropriated 51% of YPF’s shares from Spanish oil company Repsol. The Argentine government paid out US$5bn to Repsol in compensation. The Peterson group continued its affiliation with YPF, having come to control approximately 25% of the company, but it disagreed with the nationalisation process due to the damages they had suffered as a result.

Colombia: On 9 July the US Embassy in Colombia issued a note of concern regarding the murders of social leaders and human rights defenders in Colombia. The embassy also said that it is supporting the efforts of the Colombian government led by President Juan Manuel Santos to improve security in the country. The statement comes after multiple demonstrations took place in more than 50 Colombian cities on 6 July, in protest at the increased number of social leaders and activists that have been killed recently. According to the local NGO Instituto de Estudios para el Desarrollo y la Paz (Indepaz), 123 social leaders have been murdered from the beginning of 2018 to 5 July. Also, on 9 July President Santos signed a pact, along with leaders of political parties and supreme court justices among others, which commits the signatories to protect the lives of social leaders and human rights advocates and condemns violence against them.

Guatemala: On 10 July US Secretary of Homeland Security (DHS) Kirstjen Nielsen met foreign and security ministers from Guatemala, Honduras, El Salvador, and Mexico in Guatemala City, Guatemala, to discuss joint international efforts to combat human trafficking, drug smuggling, and illegal immigration. A DHS press release notes that “during these meetings, the ministers and Secretary Nielsen reiterated their commitment to carry out concrete actions to enhance information-sharing best practices as well as collectively address security challenges and illegal migration flows”. The press release notes commitments made during the meetings. Among other things, these include plans to: 1) Expand and share joint public messaging efforts to dissuade potential migrants from taking the dangerous journey north (from Central America to the US) – and work to counter-message the advertising and false information promoted by human smugglers; 2) Enhance security cooperation, including joint efforts to combat human smuggling and illicit trafficking; 3) Step up operations and resources dedicated to dismantling transnational criminal organisations; 4) Deepen information sharing about criminals, threat actors, and migration trends, including through co-locating more frontline operators and establishing action plans to share data in real-time across borders.

Mexico: On 11 July Mexico’s foreign minister, Luis Videgaray Caso, travelled to Guatemala’s capital, Guatemala City, where he met ministers and deputy ministers from the US and Central America’s so-called ‘Northern Triangle’ countries (El Salvador, Guatemala, and Honduras). A Mexican foreign ministry (SRE) press release noted that the goal of the meeting was to discuss the “separation and detention of migrant families in the US, exchange information and good practices and agree on joint strategies that help the migrants”.  The officials also reportedly discussed ways to combat human trafficking networks in the region.