LatinNews Daily - 07 August 2020

On 6 August Costa Rica’s President Carlos Alvarado warned that unless measures are taken to reduce the central government’s salary bill, his administration could run out of cash. 

Analysis:

Successive Costa Rican governments have tried but failed to contain government spending and reduce its fiscal deficit in recent years. The Alvarado administration itself has implemented a major spending cut programme to try to balance the books. But the drastic fall in economic activity due to the coronavirus (Covid-19) pandemic has affected the government’s finances by significantly reducing the tax take and forcing the authorities to spend more to prop up the domestic economy. This has once again depleted state coffers with the government now forced to take drastic measures to prevent these from becoming completely empty. 

• The government estimates that its income will fall by C$1.2trn (US$2bn) due to the economic paralysis produced by Covid-19. Consequently, it announced the “largest public spending cuts” in Costa Rica’s history only last month, reducing spending by C$355bn (US$608.4m) to address the precarious fiscal position amid the pandemic. 
• But with the pandemic continuing to hit Costa Rica’s economy hard after the authorities were forced to delay the phased plan to lift restrictions on economic activities due to a surge in Covid-19 infections in recent weeks, the situation has deteriorated further. Yesterday Costa Rica’s statistics institute (Inec) reported that the country’s unemployment rate rose by 12.1 percentage points in the second quarter to reach an all-time high of 24% as the restrictions continue to lead to the closure of businesses and job losses.
• In response to this Alvarado gave a national address yesterday in which he announced more emergency measures to mitigate the economic impact of the pandemic. This included the creation of a new US$300m fund to offer financing to some 18,000 firms that have been badly affected by the pandemic in a bid to try to save jobs. Alvarado stressed that these efforts put further strain on public finances and in an effort to address this, he also announced that he has asked his cabinet and the heads of all public institutions to accept a 15% salary cut (Alvarado has already cut his salary by 15%). 
• However, Alvarado warned that this would not be enough to ensure that the government has enough resources to pay its bills, and he said that more relief measures are needed. In particular, Alvarado called for a proposal to reduce the working hours of public officials that earn over C$1,5m (US$2,574.34) a month to be approved by the legislative assembly. “I’m making a moral appeal…I would not like it for the reality of a prolonged crisis to force us into saying ‘we can’t pay’”, Alvarado said, recalling that his administration had already been forced to delay the payment of some government salaries in November 2018 amid a lack of funds. 

Looking Ahead: The political opposition has expressed reservations over the proposal to reduce public officials’ working hours, insisting that the government should look at other options first. Convincing the opposition to support the proposal is now the Alvarado government’s main priority.  

On 6 August, Peru’s President Martín Vizcarra appointed Walter Martos as his new prime minister.

Analysis: 

Martos becomes Peru’s third prime minister in less than a month, after Pedro Cateriano was forced to resign, along with the entire cabinet of ministers, after the country’s congress denied the cabinet (only appointed on 15 July) an inaugural vote of confidence on 4 August. While 15 out of 19 ministers were yesterday reappointed by Vizcarra, Martos will nonetheless have to submit the cabinet to another confidence vote. Under normal circumstances, a second rejection would allow Vizcarra to dissolve congress, but this is constitutionally prohibited in the final year of the legislature’s term; the pressure is therefore on Vizcarra and Martos to appease congress, despite only minimal changes to the rejected cabinet, to avoid launching a constitutional crisis in the midst of the country’s economic and health emergencies.

• Martos, a retired army general, had served as defence minister since October 2019, following the dissolution of the previous congress. President of congress Manuel Merino responded positively to this appointment, saying “we promise a co-ordinated and efficient effort to move the country forward”.
• The appointment of Javier Palacios as labour minister was also well-received, after his 32-year-old predecessor Martín Ruggiero was widely held to be too inexperienced for the role. More controversial will be the reinstatement of economy minister María Antonieta Alva and education minister Martín Benavides, both facing the threat of a vote of censure from congress.
• With only limited ministerial changes, the success of this cabinet will therefore depend on whether Martos’ vision for the government’s final year in office can prove more convincing than Cateriano’s, which was criticised for paying insufficient attention to addressing the coronavirus (Covid-19) pandemic, and focusing excessively on the role of mining and the private sector in the country’s economic recovery.

Looking Ahead: The early signs, however, suggest that the executive is still reluctant to compromise; Martos’ first contribution as prime minister was to rule out a return to stricter quarantine measures, citing the urgent need for economic reactivation, while Vizcarra was once again highly critical of congress, calling on legislators to “leave behind disputes that do not contribute to the well-being of the country".

* Colombia’s national statistics institute (Dane) has released figures which show that the country saw zero monthly inflation in July; this brings annual inflation to 1.97%, the lowest level recorded since July 2013, falling below the central bank’s (Banrep) 2%-4% target range. Dane noted that the sectors in which prices increased the most in July (both by 0.56%) were healthcare spending and restaurants and hotels. 

On 6 August, the federal police (PF) arrested the transport secretary for the Brazilian state of São Paulo, Alexandre Baldy, on suspicions of fraud.

Analysis:

This arrest is the latest in a series of operations led by the 'Lava Jato' anti-corruption unit targeting current or former public officials, bringing the fight against corruption back into the public eye. Baldy’s arrest is notably an embarrassment for the state governor of São Paulo, João Doria, who has presidential aspirations, and takes a strong stance against corruption as he seeks to present himself as an alternative to President Jair Bolsonaro in the 2022 general election.

• Baldy’s temporary arrest was ordered by federal judge Marcelo Bretas, in the context of an investigation (stemming from the wider Lava Jato probe) into the suspected deviation of resources in the healthcare sector in Rio de Janeiro state in previous years. The PF notes that the suspects could face charges of embezzlement, corruption, money laundering, and forming a criminal organisation.
• According to Bretas, Baldy supposedly committed various illegalities while occupying different public positions between 2014 and 2018. Now a member of the Partido Progresista (PP), Baldy was elected federal deputy for a term in 2014, and notably served as cities minister (2017-2019) in the Michel Temer administration (2016-2019). Baldy denies the allegations.
• Reportedly considered one of Doria’s star secretaries, Baldy is not the first member of the Doria state government to face such allegations of wrongdoing, but he is the first to be arrested. Doria has always sought to distance himself from the corruption scandals that have dogged his party, the Partido da Social Democracia Brasileira (PSDB), and have recently re-emerged.  
• Doria was quick to clarify that the suspected wrongdoing for which Baldy has been detained predates his role in the São Paulo state government, and said he is “convinced that Baldy will know to clear up the facts and collaborate with the courts” . Baldy has now taken leave of absence from his position as São Paulo transport secretary.  

Looking Ahead: Coming amid signs of renewed discontent with corruption in Brazil, the arrest of yet another figure from the political establishment could fire up both the (now opposed) ‘lavajatismo’ and ‘bolsonarismo’ movements.

* Brazil’s national statistics institute (Ibge) has released the latest employment figures, which show that the unemployment rate rose to 13.3% in the second quarter of the year, up 1.1 percentage points on the previous quarter (January-March), and 1.3 percentage points above the unemployment rate recorded in the second quarter of 2019. A record 8.9m people stopped working in April-June, bringing the employed population to 83.3m, the lowest figure since current records began in 2012. However, the number of unemployed people remained stable at 12.8m, as the ranks of the working-age population outside of the workforce (that is to say, not looking for work) swelled by 10.5m compared with the previous quarter, to a record 77.8m. “There is an increase in the potential workforce with people who, although they are not looking for work, would like to, and when we look closely at the reasons for which they’re not looking for work, a large contingent cites reasons linked to the pandemic”, Adriana Belinguy, an Ibge researcher, explains. 

* Panama’s national assembly has given its final approval to a bill creating a ‘special regime for the establishment and operation of multinational firms that offer services related to manufacturing’ (Emma). The aim of the Emma is to attract foreign manufacturing firms to the country by offering tax, customs, migratory, and labour incentives. The bill was tabled by the trade & industry ministry, which said that it formed part of the government’s action plan to reactivate the national economy following the slump it has suffered as result of the coronavirus (Covid-19) pandemic. The latest official projections are that Panama’s GDP will fall by 9% this year as a result of the general fall in economic activity due to the pandemic. But the government led by President Laurentino Cortizo hopes that with the Emma and other measures aimed at attracting foreign investment and promoting job creation, Panama’s economy will rebound in 2021, with a projected GDP growth of 4%.

On 6 August Mexico officially passed 50,000 fatalities caused by the coronavirus (Covid-19) pandemic.

Analysis:

Just four-and-a-half months ago, as the vast majority of Latin American countries were adopting drastic measures in a bid to contain Covid-19, Mexico’s President Andrés Manuel López Obrador bucked the trend, continuing to shake hands with and embrace supporters, in defiance of his own government’s health advice. “It’s a global issue but when it comes to Mexico I don’t feel like we’ll have big problems. That’s my prognosis. Adversity and pandemics are going to do nothing to us”, he said on 18 March, the same day on which Mexico confirmed its first death from Covid-19. Mexico is now only the third country in the world with in excess of 50,000 confirmed fatalities from the virus, behind the US and Brazil, whose presidents Donald Trump and Jair Bolsonaro adopted a similarly cavalier attitude towards the pandemic.

• Health authorities yesterday confirmed that in the previous 24 hours, 819 people had died from Covid-19, bringing the national total to 50,517. The number of confirmed cases grew by 6,590, to a total of 462,690. There are a further 87,973 suspected cases.
• The deputy health minister, Hugo López-Gatell, an epidemiologist López Obrador appointed to head the country’s public health strategy, said that estimated fatalities stood at 52,479. Mexico lies fourth in the region in terms of per capita fatalities, with 40 per 100,000 inhabitants, behind Peru (65.25 per 100,000), Chile (54.93), and Brazil (46.61).
• López Obrador’s confidence that Mexico would somehow be less affected by Covid-19 than other countries now looks especially misplaced, as it has emerged that obesity significantly increases the risk of severe symptoms. Some 65% of Mexicans are overweight, and 30% of the population is obese—the second highest rate in the world, after the US.

Looking Ahead: The main opposition Partido Acción Nacional (PAN) is ramping up the pressure on the government, demanding López-Gatell’s resignation and accusing both him and López Obrador on 5 August of being “criminally complicit” in the deaths of thousands of people, as a result of a flawed strategy in response to Covid-19.

* Mexico’s national statistics institute (Inegi) has released figures for May on gross fixed capital formation (GFCF), according to which investment in fixed capital goods such as machinery and equipment fell by 38.4% year-on-year, and by 4.5% compared with April. A breakdown of the figures reveals a 43.8% year-on-year drop in spending on machinery, and a 33.1% drop in construction spending. Inegi president Julio Santaella noted that this decline brought GFCF to its lowest level since 1997, which he attributed to the impact of the coronavirus (Covid-19) pandemic.

On 6 August, Argentina’s Vice President Cristina Fernández railed against two federal judges after they issued an order she perceived as being favourable to former president, Mauricio Macri (2015-2019).

Analysis:

Cristina Fernández’s attack on judges Martín Irurzun and Leopoldo Bruglia, whom she accuses of being politically biased and incompetent, comes as the national congress is debating a divisive judicial reform tabled by President Alberto Fernández last week, which is vehemently opposed by the political opposition. The Fernández duo argue that judicial reform is needed to correct the political bias in the country’s justice system, while the opposition fears that the Fernández government would use the reform to shield Cristina and her allies from prosecution in the multiple corruption investigations they face - Cristina dismisses the corruption cases relating to her time as president (2007-2015), many of which have reached the courts, as political persecution against her and the Partido Justicialista (PJ, Peronists) by the Macri administration.

• On 5 August, Irurzun and Bruglia issued an order restricting the time period for the analysis of phone records in an investigation into suspicions that Macri and former public officials exercised undue use of power and pressured business executives into certain decisions.
• Cristina then took to Twitter yesterday to slam the judges’ order. Implying that Irurzun is biased, as he ordered the detention of Macri’s opponents during his presidency, and questioning Bruglia’s professional credentials, Cristina said their order “consecrates once more impunity for Mauricio Macri”.
• This supposed bias amongst judges is one of the issues that President Fernández’s judicial reform proposal seeks to address, notably by increasing the number of federal judges. This point in particular causes discomfort amongst the opposition, as the current government would be responsible for appointing new magistrates.
• The reform faces widespread criticism and questioning. Yesterday, the senate’s justice & constitutional affairs committee heard the opinion of various judicial experts, many of whom expressed reservations with different aspects of the reform, including the impact it might have on the work of criminal courts, and the excess power it might give to federal judges.

Looking Ahead: Political tensions are already running high in Argentina, and political divisions are set to increase further as the reform continues to be debated in congress.

* The Uruguayan government has announced that it has won a multi-billion-dollar trial at the United Nations (UN) Commission on International Trade Law, against mining company Minera Aritirí, the Uruguayan subsidiary of United Kingdom-based Zamin Ferrous. The lawsuit, filed in 2018 by three investors in Minera Aratirí, alleged that by passing mining legislation that affected the company’s iron ore mining project in the Durazno department, the Uruguayan government had violated the Treaty of Protection and Promotion of Investments between Uruguay and the United Kingdom, and sought compensation for Minera Aratirí of US$3.5bn. In a statement, Uruguay’s government said that the UN arbitration council had rejected the complaints against the government, finding that at the time, the plaintiffs were not in fact owners of an asset protected under the treaty, and so lacked legitimacy. The plaintiffs were ordered to pay the US$4.1m in legal costs incurred by the Uruguayan government during the case.