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LatinNews Daily - 24 September 2020

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Main Briefing

On 23 September US President Donald Trump announced more economic sanctions on Cuba, including a prohibition on US travellers staying at properties owned by the Cuban government.

Analysis:

This is latest sign of the hard-line policy pursued by the Trump administration against Cuba, citing human rights violations and its support of Venezuela’s de facto government led by Nicolás Maduro. The measures, which aim to deprive the Cuban government led by President Miguel Díaz-Canel of much-needed revenue, have been slammed by Díaz-Canel and Trump critics as electoral and a bid to win over Cuban-American votes in the swing state of Florida ahead of the 3 November US presidential election. With other US economic sanctions having proved damaging to Cuba even before the onset of the coronavirus (Covid-19) pandemic, the latest measures, which take effect today (24 September), will deal a further blow to the island’s economy which is forecast to contract by 8% this year on the latest estimate by the United Nations Economic Commission for Latin America and the Caribbean (Eclac).

  • The US Department of State announced the creation of the Cuba Prohibited Accommodations (CPA) List which includes 433 properties that are “owned or controlled by the Cuban regime or certain well-connected insiders”. It states that authorised travellers should instead “stay in private accommodations, or casas particulares, owned and operated by legitimately independent entrepreneurs”. This builds upon the Cuba restricted list, which includes multiple properties specifically affiliated with the Cuban security, military, or intelligence services, by extending the prohibition to all state-run properties.
  • The changes also introduce further restrictions on importing Cuba-origin alcohol and tobacco products, overturning the policy of Trump’s predecessor, Barack Obama (2009-2017), which allowed US travellers to bring back as much Cuban rum and cigars that they could carry in their baggage for personal use. The measures also further restrict lawful travel to Cuba by prohibiting travel for professional meetings and conferences as well as for certain competitions, performances, and other events. 
  • Other examples of increased US pressure on Cuba, which has intensified in the past two years, include last month’s announcement suspending private charter flights to all airports in Cuba, including Havana (public charter flights between the US and all Cuban airports bar Havana were suspended in January, while in October 2019, the US banned commercial flights to all Cuban cities other than Havana); a cap on remittances at US$1,000 per quarter; and sanctions on several shipping companies and vessels that transported Venezuelan oil to Cuba, among other things.
  • Indicative of the economic pressures on Cuba’s economy and key tourism sector (which accounted for 10.3% of GDP in 2019 on figures from the World Travel & Tourism Council), as a result of the economic sanctions and pandemic, the Cuban government has been forced to introduce emergency economic measures in recent months. These include the elimination of the 10% tax on US dollars in place since 2004; opening of more shops that accept only foreign currencies and an easing of restrictions regarding business activities permitted in the country’s fledgling private sector.

Looking Ahead: Questions persist as to the immediate impact of the new sacntions given the lack of US visitors to the island due to the pandemic and the suspension of commercial air travel (Havana airport remains shut to all tourists). However, in a telephone briefing yesterday US Deputy Assistant Secretary of State for the Bureau of Western Hemisphere Carrie Filipetti said the new policy would continue “even past the pandemic”.

Andean

On 23 September, Colombia’s Defence Minister Carlos Holmes Trujillo refused to comply with a supreme court (CSJ) ruling ordering the government to take action to guarantee the right to protest, and said he would challenge the ruling in the constitutional court (CC).

Analysis:

The CSJ ruling, issued the previous day, condemned “the systematic, violent, and arbitrary intervention of state security forces in demonstrations and protests”, and ordered the government to take a series of actions in response, most immediately for Trujillo to issue a formal apology, and for the national riot police (Esmad) to be prohibited from carrying 12-gauge shotguns. Trujillo’s defiance has stoked criticism from political opponents, who have accused the government of moving towards authoritarianism, and from judicial officials, who have claimed that appealing against the ruling will not prevent the government from being held in contempt of court once the 48-hour deadline for it to comply with the CSJ orders has passed.

  • The CSJ ruling came in response to 49 complaints of violence by state security forces (principally Esmad) against protesters between 2005 and 2019, but carries additional significance in the context of recent protests against police brutality, in which at least 13 civilians were killed after the police opened fire on protesters.
  • Trujillo responded yesterday by defending Esmad, claiming that its violent interventions came “exclusively in the face of violent criminal actions” by protesters, and insisting that any excesses that do occur should be understood not as evidence of structural failings in the state security forces, but rather as the “individual actions of some of its members”. He offered no apology, and pledged to challenge the ruling in the CC.
  • Opposition senator and 2018 presidential runner-up, Gustavo Petro, warned that the government was moving towards “dictatorship”, and emphasised that “if the government does not respect the CSJ’s ruling, it is committing a crime”. Prosecutor General Fernando Carrillo similarly maintained that “judicial decisions must be respected and fulfilled, even if they are not shared. This principle is the basis of the democratic rule of law”.

Looking Ahead: It remains to be seen whether the CC will admit Trujillo’s appeal, and whether the CSJ will take action to hold the government in contempt once the initial 48-hour deadline expires later today (24 September).

* The Universidad Católica Andrés Bello (Ucab) in Caracas, a private university, has released a report showing that Venezuela’s annual budget deficit is set to shrink to 7.9% of GDP in 2020, compared to 11% the previous year. Ucab professor, Francisco Rodríguez, noted that this would make Venezuela the only country in the hemisphere to reduce its fiscal deficit this year, which he attributed to the fact that “to have a high deficit you must have a way to finance it, and no-one is lending money to Venezuela”. The country’s government has not published a full budget since 2015, and is increasingly struggling to access international credit, having defaulted on debt repayments in 2017, and been denied access to international markets by US economic sanctions.

Brazil

On 23 September, Brazil’s Economy Minister Paulo Guedes and the government leader in the federal chamber of deputies, Ricardo Barros, indicated that the executive and congress are working hand-in-hand to implement economic reforms.

Analysis:

Guedes has a notoriously fractious relationship with the legislature, one of several factors which have contributed to delaying the presentation and implementation of his planned economic reforms for Brazil. Comments made to the press by Guedes and Barros together yesterday, after a meeting with President Jair Bolsonaro, seemed to be an attempt to provide reassurances on the government’s economic agenda, deemed a necessary step in the country’s path to recovery post-coronavirus (Covid-19) pandemic.

  • In a press conference yesterday, Guedes praised congress’s recent work, and said that the government’s reforms are being built jointly with the legislature. The government recently presented two of its flagship projects to congress: part of a (still to be fine-tuned) tax reform, and an administrative reform. Barros similarly said that the tax reform was being designed by the government, with input from congressional leaders.
  • On the subject of tax reform, Guedes said yesterday that it was necessary to reduce the burden of payroll taxes, so as to stimulate employment, but noted that this would be compensated by “other taxes”. This has been understood as a reference to a mooted tax on financial transactions, a re-creation of the hugely unpopular CPMF tax which Guedes has long supported, but which is opposed by many in government.
  • Guedes also spoke of the need to “soften the landing” after the payment of the emergency basic income – a benefit implemented during the pandemic which has reached a third of the population – stops at the end of this year. Barros said that the government is now looking into how it might be able to finance social programmes, even a basic income scheme (Bolsonaro last week shut down talk of his government’s previously announced social programme).
  • Barros stressed congress’s “commitment to the spending cap and fiscal rigour” – an important point for Guedes, which he has had to fight for in government over recent months.   

Looking Ahead: “Congress is reformist, the president supports the reforms [...] we’re building the agreements, building the solution”, Guedes said yesterday, in an apparent bid to instill confidence in the successful outcome of his economic agenda.  

* Brazil’s central bank (BCB) has released its latest external sector statistics, which reveal a sharp drop in foreign direct investment (FDI) in the country. FDI in August this year totalled US$1.4bn, down from US$9.5bn in August 2019 – an 85% decline. This also represents a decline on FDI received in July. FDI in the 12 months to August totalled US$54.4bn (equivalent to 3.51% of GDP), down from US$62.6bn in the 12 months to July, and the lowest FDI figures recorded for the 12-months-to-August period since 2010. FDI in Brazil plunged with the onset of the coronavirus (Covid-19) pandemic earlier this year, but local analysts believe that growing misgivings over the Brazilian government’s failure to uphold environmental commitments might further deter foreign investors and drive capital flight.  

Central America & Caribbean

* The Panamanian government led by President Laurentino Cortizo has announced that it has issued US$2.57bn worth of sovereign bonds to combat the decrease in fiscal income due to the coronavirus (Covid-19) pandemic. The government projects a drop of US$3bn in public revenue more than what was originally expected. One of the bonds totals U$1.25bn, maturing in 2032 with a 2.252% yield — the lowest in Panamanian history. The others are for US$1bn and US$325m respectively, maturing in 2060 and 2026, with yields of 3.28% and 2.77%. According to the government, part of the funds raised will be used to repurchase local bonds which expire in 2021 and 2022 in order to obtain more favourable rates. The government described the response to the issue as “extremely positive”, receiving offers of around US$10bn.

Mexico

On 23 September governors from 14 Mexican states called on the federal government led by President Andrés Manuel López Obrador not to politicise public security, arguing that this will only lead to failure.

Analysis:

The calls by the governors come amid accusations by Chihuahua state governor, Javier Corral, that the federal authorities have decided to abandon the state’s public security coordination committee due to the confrontation over the handling by the federal security forces of the protests over access to water in Chihuahua. The accusations raise further doubts over the López Obrador administration’s commitment to improving public security around the country.

  • Corral, of the national opposition Partido Acción Nacional (PAN) party, denounced that following his confrontation with the López Obrador administration over the excessive use of force by the national guard in dealing with the protests, federal security cabinet officials have not attended the security coordination committee. Corral revealed that the federal public security minister, Alfonso Durazo, informed him that the federal security cabinet had decided to no longer participate in the committee and instead hold its own regular meetings with commanders of the federal security forces stationed in Chihuahua.
  • Corral attributed the move to a “political retaliation” against his administration and complained that it would undermine the coordination of public security and the fight against criminality in the state. Corral also warned that it sets a precedent that could be replicated in other states, wheret the local and federal authorities have political differences.
  • The Alianza Federalista grouping of 10 opposition governors (that includes Corral) held a meeting yesterday to discuss the issue. Afterwards they released a statement criticising the decision and complaining that the national security policy “cannot be hostage to political disputes”. Warning that a lack of coordination between the federal and local security forces would only “benefit criminality and hurt society”, the statement urges the federal government to reconsider. A group of four other governors immediately supported the statement.

Looking Ahead: The López Obrador government has yet to respond to the statement. But given its failure to improve the security situation in Mexico to date, the controversy looks set to grow.  

* Mexico’s finance ministry (SHCP) has unveiled new measures to restructure loans for individuals and firms in order to mitigate the economic impact of the coronavirus (Covid-19) pandemic. The measures will allow borrowers to restructure their credit with lower interest rates, extended payment terms, and lower repayments. Additionally, the SHCP’s package includes regulatory measures to incentivise banks and financial intermediaries to restructure and also grant more loans. The measures will apply to 8.62m recipients of a credit scheme (CCE) implemented in March to facilitate access to loans, as well as new loan applicants. Prior to the announcement, Alejandro Carvajal, a national deputy for the ruling Movimiento Regeneración Nacional (Morena) party, said in a press conference that 7m out of the 24m people with active loans had sought some kind of extension.

Southern Cone

On 23 September, the Uruguayan government expressed its support for the extension of the mandate of the United Nations (UN) investigation into human rights violations in Venezuela, signalling an expected foreign policy shift under President Luis Alberto Lacalle Pou.

Analysis:

Uruguay’s support for the UN investigation in Venezuela, which has already provided damning reports on the human rights situation there, represents a marked change in tone from the non-interventionist approach favoured by the previous leftist Frente Amplio (FA) coalition governments (2005-2020). Lacalle Pou’s government had already taken a critical stance against the Nicolás Maduro government in Venezuela, turning a page on years of hand-wringing from the FA as to how to respond to the increasing authoritarianism of its former ally. The issue goes beyond mere foreign policy, however; Uruguay’s opposition to the Maduro administration in an international forum could harm the country economically given the close economic ties forged with Venezuela under the FA. It notably risks complicating efforts to negotiate the repayment of some US$33.7m owed by Venezuela to two Uruguayan cooperatives, Funsa and Conaprole.

  • Uruguay’s foreign ministry issued a statement yesterday saying it “supports the resolution presented by Peru on behalf of various members of the Lima Group in the United Nations Human Rights Council, which extends the mandate of the fact-finding mission investigating human rights violations in Venezuela”.
  • On Twitter, Lacalle Pou added that “where the Maduro regime is concerned we have had a clear stance of condemnation, and that will remain the same in all areas”.
  • The foreign ministry has kept the issue of Venezuela’s outstanding debt in mind, holding a meeting with Uruguay’s Instituto Nacional del Cooperativismo (Inacoop), a body that advises the government on policy relating to cooperatives in late August to discuss it. At the time, Inacoop president Martín Fernández had stressed that “commercial trade and international relations are one thing, and ideological affinities are another […] If it came down to ideology, we wouldn’t have had trade with the US for the last 15 years.”

Looking Ahead: Foreign Minister Francisco Bustillo had previously said he will explore all lines of dialogue to help Funsa and Conaprole recoup their dues, while Fernández had acknowledged the complexity of the situation – now made more difficult by Uruguay’s siding against Venezuela in the UN.

* Argentina’s national statistics institute (Indec) has published new figures which show that the unemployment rate for the second quarter of 2020 rose to 13.1%, up from the 10.4% registered in the first quarter. This marks the highest rate since Q3 2004, when the country was recovering from one of the worst economic, political, and social crises in its history. According to the Indec report, this increase owes as much to the rise in people unable to find work in the context of the coronavirus (Covid-19) pandemic as to a reduction in the economically active population. The figures also show that the rate of “employed but absent” workers spiked to 21.1%, up from 10.4% in Q1. On 31 March, the government led by President Alberto Fernández issued a decree forbidding employers to dismiss workers without just cause, which was extended on 27 July until 30 September.