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The IMF concluded its second review of the US$56.3bn stand-by agreement with Argentina on 26 November, paving the way for disbursement of a US$7.6bn tranche of the loan. While the economic adjustment programme is progressing, keeping it on track in 2019, an election year, will be a major challenge.

An IMF mission led by Roberto Cardarelli concluded a week-long visit to Argentina on 16 November, praising the economic team for progress to date, including getting the austere 2019 budget approved by congress. The mission stressed that eliminating the primary deficit (which the 2019 budget seeks to achieve) “is a necessary step to reduce the government’s financing needs and put the debt-to-GDP ratio on a downward path”. It also praised the central bank (Banco Central de la República Argentina, BCRA) for its exchange rate and monetary policies. Since September the BCRA has been allowing the peso to float within a pre-determined exchange rate band, and enforcing zero percent monthly growth in the monetary base (M0). This showed that financial markets were stabilising after the extreme volatility of August and September.

While there has been progress, big challenges lie ahead. The federal government deficit has narrowed from 4% of GDP last year to 2.5% in the 12 months to October. This means that the calendar 2018 target – 2.5% of GDP – is almost certain to be met. That said, further tightening is required in 2019. In fact, the government has so far achieved about one-third of the overall fiscal squeeze required over the three-year lifetime of the IMF programme. The full adjustment, if achieved, would be one of the largest ever achieved by any country under an IMF programme.

With an eye on the October 2019 presidential election, the government needs to be able to point to some things getting better at some point next year. But there are no guarantees that hoped-for good news will arrive on cue. Interest rates remain extraordinarily high (they have however fallen from 70%-plus to around 65%). This means economic activity will continue to contract over the next few quarters. Driven by peso depreciation, 12-month inflation soared to 46% in October. The government hopes it will fall a little by the end of this year, and more by mid-2019, but that will still make wage negotiations with the trade unions in early 2019 extremely difficult. A range of short-term indicators are still worrying. Supermarket sales were down 7.9% in September. Economic activity fell 1.6% in August, according to the EMAE indicator (a GDP proxy).

The four members of the Southern Common Market (Mercosur) – Argentina, Brazil, Paraguay, and Uruguay – marked the thirtieth anniversary of the regional trade bloc with an argument over whether, and how, they should flexibilise trade agreements with other countries.           

At a virtual summit held on 26 March, attended by the four member presidents and those of Chile and Bolivia (respectively associate and candidate members), there was a sharp exchange of views between Alberto Fernández of Argentina and Luis Alberto Lacalle Pou of Uruguay. Lacalle Pou said Mercosur should not be allowed to act as “ballast” or as a corset, with rigid trade rules limiting what its members could do. His comments were part of Uruguay’s long-standing opposition to rule 32/2000 which says that member countries cannot negotiate free trade agreements (FTAs) with third parties without the approval of all other members. Fernández retorted that Argentina did not want to hold anyone back, and those who felt weighed down should leave the ship.

The reality is that 30 years after its creation, Mercosur is struggling. Its heyday was in the 1990s and early noughties, when intra-bloc trade quintupled, automobile investments poured in, and negotiations began on an ambitious FTA with the European Union (EU). But a high common external tariff (averaging 14% and rising to 35% for automobiles) has created something of a low-growth protectionist backwater. Since the end of the last commodity boom in 2012 – nearly a decade ago – growth has been low. The coronavirus (Covid-19) pandemic triggered a major economic recession last year. Although an FTA with the EU was finally reached in 2019, allowing a gradual reduction of tariffs, ratification remains on hold due to disagreements over Amazon deforestation and additional environmental safeguards sought by France and other EU members. The net result is that Mercosur countries have low productivity, find it hard to compete at a global level, and are on the margins of global supply chains.

Adding to the problem, the four different governments want sharply different things. Uruguay and Paraguay, the smallest economies, want greater flexibility and lower tariffs. Uruguay would like an FTA with the Peoples’ Republic of China, but Paraguay opposes the idea since it only recognises Taiwan. The right-wing government in Brazil would like an FTA with the US, and in a nod to globalisation, has unilaterally reduced some of its import tariffs. However, with the Covid-19 pandemic out of control, the government in Brasília remains volatile. Economy Minister Paulo Guedes’ desire to open up the economy is prone to being overruled by the more nationalist and protectionist instincts of President Jair Bolsonaro. Argentina’s centre-left President Fernández is the most protectionist: he wants no new free trade deals at all, fearful that they will further weaken the country’s struggling manufacturing sector.

The most likely outcome of these centrifugal forces is that Mercosur will continue experiencing a period of inertia. At the formal level, a new meeting of the Mercosur Council (foreign and economy ministers), due on 22 April, is expected to discuss Uruguay’s formal request for flexibilisation. Rapid progress is unlikely. Uruguay’s foreign minister, Francisco Bustillo, has made it clear that the country has no plans to leave the trade bloc: it wants it to continue but to allow its members to pursue third party trade deals at different speeds.

After a presidency deeply shaken by the protests of 2019 and the coronavirus (Covid-19) pandemic of 2020, Chile’s Sebastián Piñera delivered his last state-of-the-nation address to congress on 1 June, calling for adversaries “to abandon the politics of the trenches” and to focus on dialogue.

Presidential elections are due in November with Piñera set to end his term in office in March 2022. Much of his address was directed to the 155 members of the constituent assembly, elected last month and due to start work on drafting a new constitution shortly. They will operate in parallel with congress. In a significant upheaval [WR-21-20], the traditional political parties of left and right have only a minority of seats in the assembly, with independents and more radical leftists holding the upper hand. Piñera pledged to respect the assembly’s autonomy but said that as a citizen he would like to see it protecting water and property rights, along with rights to health, education, housing, work, and social benefits. 

He struck a moderate tone, asking forgiveness for errors committed both during the protests and during the pandemic. On the protests he recognised that there had been abuses of human rights in 2019, and that his government had not done enough to seek dialogue with Mapuche indigenous groups in the south of the country. On the pandemic, while stressing that over US$20bn had been spent in emergency aid and highlighting the success of the vaccination programme (which has now reached 52% of the population), he accepted that the country was still in the grips of a second infection wave and announced US$2bn in further support for the over-stretched hospital system.

Perhaps the most news-worthy and surprising element in the speech was that Piñera, a Catholic, announced his support for same-sex marriage. The president, who remains an opponent of abortion, nevertheless said “all people, regardless of their sexual orientation, will be able to live, love, and form a family with all the protection and dignity they need and deserve”. A same-sex marriage bill, drafted during the second presidency of Michelle Bachelet (2014-2018), is now likely to resubmitted to congress. The move can be seen as Piñera’s personal recognition that Chile’s traditional cultural conservatism is no longer appropriate in a rapidly changing society. Chile legalised divorce in 2004, one of the last countries in the world to do so, and partially eased the ban on abortion in 2017. Piñera’s same-sex marriage move caught his ruling Chile Vamos coalition by surprise and has caused significant rifts within it, with some members of congress accusing him of acting abruptly and without prior consultation to introduce a policy they disagree with.

COLOMBIA | Covid and inequality. The World Bank (WB) released a report on 27 October detailing the impact of the coronavirus (Covid-19) pandemic on inequality in Colombia, warning that wealth disparities have been both deepened and entrenched since March 2020. The report notes that Colombia’s Gini coefficient (a measure of inequality in which 0 indicates perfect equality and 1 equals maximal inequality) rose from 0.53 in 2019 to 0.54 in 2020, equating to a further 3.6m people living in poverty.

Over the same period, the WB states that extreme poverty increased by 5.5 percentage points, with an additional 2.8m people unable to meet their basic needs compared with the pre-pandemic era. The report warns that this heightened inequality could persist in the long term, with the closure of schools exacerbating disparities that will continue into adulthood for many children, with “future jobs being out of reach for many, due to the slow adoption of new technologies among disadvantaged groups”. The report also noted that, of 75 countries surveyed, Colombia has the lowest intergenerational social mobility.

The WB offered several recommendations for Colombia to reduce its widening inequality, which it noted is the highest of all member states in the Organisation for Economic Cooperation and Development (OECD). These include improvements in early education, labour reforms to improve access to training and ensure equal opportunities for women, the installation of a more progressive tax system, improvements to transport infrastructure in rural areas, and measures to reduce the country’s vulnerability to climate change.

The prices of agricultural products recorded a steep rise during 2021. According to the latest data released by Mexico’s national statistics institute (Inegi) on the consumer price index and its components on 7 January, agricultural products’ prices rose by 15.78% in December 2021 relative to the same period of 2020. This is well above the general price index increase of 7.36%, which itself was the highest level in the last 21 years. Crucially the increase in some prices of agricultural products such as corn and wheat for instance, contribute to price rises for other goods, such as meat. The graph below illustrates the evolution of agricultural product prices between 2018 and 2021 as compared with general inflation levels during the same period.

Inflation and agrifoods price variation 2018-2021
Monthly year-on-year % change

Source: INEGI

The increase in prices has also contributed to a substantial rise in the value of agricultural exports, which account for 4% of all goods exported in 2021. Exports of agricultural and fishery products reached a record level of US$1.86bn in December 2021, a year-on-year increase of 8.3%. The whole year total - US$19.67bn - also represented a significant increase relative to 2020, equivalent to 7.6%. The largest increases in December 2021 relative to December 2020 were seen in exports of avocado (43.1%), melons and papaya (35.8%), coffee grains (25.1%), strawberries (22.3%), and tomatoes (11.5%). The chart below illustrates the evolution of food exports in terms of value since 2000.

Value of agricultural exports 2000-2021
Millions of US dollars

Source: Ministry of Agriculture and Rural Development (SADER)

Crucially, agricultural exports can have a significant impact on the prices of foodstuffs in the domestic market. In its quarterly report published on 2 June 2021, Mexico’s central bank Banxico noted that an increase in the volume of some food exports, particularly to the US (in 2020 Mexican products accounted for 37% of the value of US imports of fruits and vegetables) can have a significant effect on the prices of certain products included in the consumer price index, such as tomatoes, onions, chillies, lettuce, avocado, limes, pineapple, and bananas. According to Banxico, for every additional percentage point that exports of bananas to the US increase, their price in Mexico can go up by 2.1%. In the case of tomatoes, for every additional percentage point increase in exports to the US, the prices in Mexico can grow by 1.4%. In the case of onions, the increase is 1.7%, and with regards to limes, the increase can reach 1.8%

Having said that, in the case of limes - which as of 31 January had recorded a wholesale price increase of 74.4% relative to the previous month and a year-on-year increase of 211.6%, according to figures from Mexico’s agriculture and rural development ministry (Sader) - there are additional factors that explain their extraordinary rise in price, particularly a drop in production and the effects of the coronavirus (Covid-19) pandemic. According to the Mexican Lime Committee, an industry organisation, the lockdowns imposed at the start of 2020 to curb the spread of Covid-19 severely curbed demand (particularly from the service sector and the tourism industry, which are among its main consumers) forcing some producers out of business.

In addition, adverse climate conditions in 2021 due to exceedingly heavy rains during the hurricane season undermined production, as well as more expensive inputs, such as fertilizer. In Michoacán state, which accounts for 28% of limes produced in the country, production contracted 48.2% between December 2020 and 2021, equivalent to 66,166 fewer tonnes. An additional factor that has undermined production is crime. According to producers in Michoacán, organised crime groups in four municipalities in the state (Apatzingán, Múgica, Parácuaro, and Buenavista) have often prevented producers from harvesting all their produce in order to increase the price over which they extort a percentage.

The broader impact of these price rises is likely to be relatively limited because limes are not an essential part of the population’s diet. Inflation of other basic foodstuffs - such as poultry or dairy products, for instance - is of greater concern because they affect the poorest sectors of the population the most, as they allocate a larger share of their expenditure to purchasing food than other groups (more than 50%). The outlook for this sector is bleak, as food and energy prices are likely to continue going up during the rest of 2022. 

Two important figures lost their jobs on 28 March in Brazil. First, Milton Ribeiro resigned as education minister, amid growing pressure following allegations of corruption and influence peddling on his watch. This was swiftly followed by the announcement that Joaquim Silva e Luna, a retired general who was appointed CEO of the state-controlled oil company Petrobras last April, would be replaced by Adriano Pires, a well-known oil & gas consultant.

Ribeiro’s resignation came as little surprise. He had been facing growing criticism, not only from opposition quarters but also from sectors that support the government, notably evangelical leaders, following reports that he distributed education ministry (MEC) funds at the request of two evangelical pastors who have no formal role in government [WR-22-12]. Since the allegations first emerged over a week ago, a number of mayors have described the pastors’ requests for bribes in exchange for the promise of funds.

President Jair Bolsonaro initially stood by his education minister. During his weekly Facebook Live address on 24 March, Bolsonaro dismissed the allegations as “cowardice” and said he could personally vouch for Ribeiro. However, with growing discontent amongst his allies and the October general election looming, Bolsonaro was forced to reconsider, and Ribeiro was pushed out on 28 March. The MEC’s number two, Victor Godoy Veiga, has since been appointed interim education minister.

Diversionary tactics?

Ribeiro’s departure was rapidly overshadowed by the news that Silva e Luna was being ousted also. The Bolsonaro government is unhappy with the state-controlled company after Petrobras increased its oil prices earlier in March [WR-22-11], and Silva e Luna was known to be on shaky ground. His dismissal earlier this week still came as a surprise, and its timing was broadly interpreted as an attempt to divert attention away from Ribeiro, the MEC, and the evangelical pastors’ alleged wrongdoing.

Silva e Luna has suffered a similar fate to that of his predecessor, Roberto Castello Branco, who was dismissed by Bolsonaro in February 2021 following a disagreement over Petrobras’s price adjustments. Petrobras pegs its oil prices to international levels, and, with oil prices surging globally, this has translated into successive hikes for Brazilian consumers – contributing to driving up inflation, a major source of popular discontent in Brazil for which a majority blame the Bolsonaro government.

The problem is therefore an electoral one for Bolsonaro. By changing Petrobras’s CEO, Bolsonaro can at least claim to be trying to resolve the issue, without directly intervening in Petrobras – a move which would spook investors. New appointee Pires will therefore face a difficult balancing act. An economist and well-regarded consultant, he is known to defend market-friendly policies and Petrobras’s duty to its shareholders. It seems unlikely that he would bow to Bolsonaro’s desires for changes to the oil company’s pricing policy.

Pires has, however, expressed support for the creation of a government stabilisation fund to subsidise fuel prices and shield consumers from volatility – a measure the government is considering. Pires’ appointment, along with other members of the board of directors, must be confirmed at Petrobras’s general assembly on 13 April.

Reshuffle imminent

These changes to the MEC and Petrobras came at the start of a week in which a big cabinet reshuffle is expected. All of President Bolsonaro’s ministers who plan to run in the October general election must have given up their posts in government by 2 April – as many as nine of the cabinet’s 23 members with ministerial rank are expected to step down. At the time of writing, the reshuffle had not yet taken place.

ARGENTINA | Poverty rate improves but outlook remains murky. The national statistics institute (Indec) released a report on 31 March which showed that the national poverty rate fell from 31.6% in the first half of 2025 to 28.2% in the second half of the year. This is the lowest poverty level since the first half of 2018. The latest numbers are a vast improvement from the first half of 2024 when Milei’s draconian belt-tightening measures and a spike in inflation drove the rate of poverty to 52.9%. However, the headline number conceals several harsh realities. For example, the Indec report showed that 41.3% of children under the age of 14 live in poverty; that is, they are unable to access a complete basket of basic consumer goods. Other indicators highlighted in the press have shown that the number of homeless people in Buenos Aires has increased 57% over the past two years, and 10.6% of households are overdue on bank loans – the highest level since 2010.

BRAZIL | Embraer unveils new supersonic fighter jet. On 25 March President Luiz Inácio Lula da Silva travelled to a production facility of the aircraft manufacturer Embraer in Gavião Peixoto municipality, São Paulo state, to unveil the first ever plane produced in Brazil that can fly at supersonic speed – a unit of the F-39E Gripen military aircraft, produced in partnership with Swedish manufacturer Saab. This is the first aircraft from Embraer’s FX-2 fighter jet programme, which has been allocated a total investment of R$28.5bn (US$5.58bn) from 2014-2033, R$10.5bn of which is drawn from federal government funding. The programme is expected to produce 36 fighter jets, 15 of which will be produced in Gavião Peixoto. According to the government, Embraer’s fighter jet programme is estimated to create 2,200 direct jobs and 10,800 indirect jobs, with other Brazilian companies, such as tech firms AEL Sistemas, Akaer, and Atech, developing the software and hardware for different components in the Gripen jets.

Brazil & Southern Cone: inflation rate
Percentage variation (year-on-year)

Brazil & Southern Cone: GDP growth (%)
Quarterly figures are year-on-year growth

No es la primera vez que Aníbal Fernández, el abrasivo jefe de gabinete de la Presidenta Cristina Fernández, ha sido acusado de estar involucrado en el tráfico de drogas y asesinato. Pero los alegatos, transmitidos el 2 de agosto, afirmando que él era en última instancia responsable de un ‘crimen triple’, el asesinato de tres personas en el 2008 por el control del comercio de la efedrina, llegó justo una semana antes de las contiendas primarias donde compite el candidato del Frente para la Victoria (FPV) para las elecciones gubernamentales en la provincia de Buenos Aires.

Periodismo Para Todos (PPT), un programa investigativo de la televisión cuyo anfitrión es el periodista Jorge Lanata, ha probado desde hace tiempo que es irritante para el gobierno. El domingo, transmitió un testimonio de un número de testigos que afirman que el asesinato de tres hombres cerca de la Ruta 24 (General Rodríguez) fue orquestado por Aníbal Fernández y miembros de los servicios de inteligencia a fin de asegurar el control sobre la ruta del tráfico de uno de los precursores químicos clave para `producir metanfetaminas. Luego de las acusaciones, el frente del edificio donde vive Lanata fue apedreado, en lo que funcionarios del gobierno insisten en que era un acto no relacionado.

Aníbal Fernández negó vehementemente los cargos, aunque no es la primera vez que le son dirigidos. En el 2013, Graciela Ocaña, una ex ministra de salud, dijo había sospechas que Fernández estaba involucrado en el ‘triple crimen’. El jefe de gabinete acusó a su rival por la nominación del FPV en Buenos Aires, Julián Domínguez, de estar detrás del informe. “Esto es una agresión directa, financiada con los millones de mis rivales en las primarias del FPV,” dijo él. “Ellos están tratando de lastimarme electoralmente”.

Domínguez, el presidente de la cámara baja del congreso federal, y su compañero de fórmula, Fernando Espinoza, han usado gran parte de su publicidad de campaña en prometer una línea dura sobre el tráfico de drogas, mientras que Fernández ha apoyado las campañas de legalización  en el pasado. Pero Domínguez negó cualquier participación en la historia, diciendo que la acusación era “lamentable” y señalando su “sospechosa” oportunidad. No obstante, Fernández criticó la aparente carencia de solidaridad de su rival. Una actuación en broma en un popular show de danzas en la TV, Showmatch, por Domínguez y Espinoza, también irritó a varios importantes políticos del FPV.

Daniel Scioli, es el actual gobernador de la provincia de Buenos Aires, quien está compitiendo por la presidencia representando al FPV, le ha restado importancia a los alegatos contra Fernández. Aunque ambos hombres están lejos de ser cercanos, Scioli dijo que él no creía las acusaciones contra un colega miembro del partido, que eran parte de una “serie de movidas políticas y mediáticas”. PPT es transmitido por el Canal 13, de propiedad del grupo de medios Clarín, desde hace tiempo enfrentado con el gobierno.

Con la advertencia que las encuestas de opinión en las primarias han probado no ser confiables en el pasado, el último sondeo ubica a Fernández, del ala kirchnerista más dura del partido, con 15 puntos porcentuales de ventaja sobre Domínguez, un Peronista más ortodoxo y pragmático. Analogías, la compañía encuestadora. Ubica a Fernández con 30,8% de las intenciones de los votantes, contra 14,1% para Domínguez. Cualquiera de los candidatos sea el que gane, es probable que derrote a la candidata de la principal oposición, María Eugenia Vida, del opositor de centro-derecha, propuse Republicana (PRO). Aunque la ciudad de Buenos Aires se inclina hacia el PRO, la provincia de Buenos Aires es firmemente Peronista.

Incluso antes de los últimos alegatos, la batalla entre Fernández y Domínguez se habían vuelto amargas. Fernández había afirmado que Domínguez y sus alcaldes aliados tratarían de ocultar las papeletas de votación el día de la elección, para dañar sus chances de ganar en la provincia. Al mismo tiempo, Espinoza, un peronista ortodoxo y titular del partido Justicialista (PJ) en la provincia de Buenos Aires, llamó la atención sobre el pasado “comunista” de Martín Sabbatella, el compañero de fórmula de Aníbal Fernández. Espinoza también acusó a Sabbatella de no ser Peronista. Como un signo de la división que la contienda está causando, Scioli dijo el 4 de agosto que él no tomará parte en los actos de cierres de campaña de Fernández, ni de Domínguez.

• Los ingresos fiscales subieron 36,3% en julio

Hablando el 3 de agosto, Ricardo Echegaray, el titular de la agencia fiscal federal (Afip), anunció que los ingresos fiscales para julio habían alcanzado niveles record, ingresando Arg$145mm (US$15mm a la tasa oficial de cambio), un incremento de 36,3% sobre el mismo mes del año previo. Hasta ahora en el 2015, la agencia ha recaudado Arg$867,05mm, casi Arg$30mm más elevado que la meta fijada para este punto en el 2014.

COLOMBIA-PERU | Moving on interest rates. On 30 October Colombia’s central bank (Banrep) announced that it was increasing its benchmark interest rate by 50 basis points to 5.25%. This was the second consecutive increase in the benchmark interest rate in as many months following the 25 basis point increase announced in October. The move surprised local analysts, given that the consensus view was that the Banrep would seek to keep the interest rate stable or opt for another 25 basis point increase. However, in a split decision Banrep’s seven-member board voted in favour of the higher-than-expected increase in a bid to rein in inflation.

Banrep’s move is seen as the start of wider regional trend to counteract the impact that external factors including the appreciation of the US dollar and the expectation that the US Federal Reserve will increase its own benchmark interest rates soon. The dollar’s appreciation is stoking inflation in Latin America as foreign goods and services become relatively more expensive. Meanwhile, there is concern that the imminent increase in US interest rates could lead to a generalised outflow of capital from the region back to the US, undermining the economic growth prospects of Latin American economies. This prompted various economists to suggest that Latin American central banks should pre-empt this by increasing their interest rates. In fact, central banks in some countries, notably Peru, have moved to increase their rates in response to these factors.

On 10 September Peru’s central bank (BCRP) decided to increase its benchmark interest rate by 25 basis points to 3.5% – the first interest rate increase since May 2011 – citing that at 3.4%, the accumulated inflation had already crept up over its target range of 1%-3%. But it is now expected that Peru and a host of other countries (such as Chile and Mexico) will follow Banrep’s lead and further increase rates in the final three months of the year.

The value of the Colombian peso has fallen by 42.9% in the last 12 months, fuelling inflation which is currently running at around 5%, the highest rate since 2009 and above Banrep’s target range of 2%-4%. With local analysts now forecasting that year-end inflation is due to come it at 5.75%, Banrep decided to take action following a 12-hour board meeting – the longest such meeting in a decade. Afterwards, Banrep president José Dario Uribe explained that “in summary, inflation expectations have increased and the risk of a slowdown in domestic demand, over that of the registered fall in national income, has become more moderate”.

In fact, Uribe announced that domestic economic activity had remained dynamic in recent months (growth in the second quarter was 3%, virtually unchanged from the 2.9% registered in the first quarter) leading Banrep to revise its year-end economic growth forecast from 1.8%-3.4% to 2.4%-3.4%, with 3% seen as the most likely result.

Uribe also announced that Banrep was launching a new US dollar call auction programme by which the bank will offer up to US$500m in the local currency market whenever the peso/dollar exchange rate rises seven percentage points above its 20-day moving average.

PERU | European bond issue. On 27 October Peru’s economy & finance ministry (MEF) announced that it had successfully placed €1.1bn (US$1.21bn) in bonds in European markets. An MEF statement said that the issue marked Peru’s return to European markets for the first time in 11 years and that the bonds, which were four times oversubscribed, offered a yield of 2.75%, the lowest in the country’s history.

In fact, the MEF pointed out that while initially the bonds had a 220 basis points (bp) differential compared to Euro area benchmark bonds, this difference was reduced to 190bp as a result of the surge in demand.

The issue was celebrated by MEF head Alonso Segura, who said that it showed that the investor roadshow that he and other MEF officials recently embarked upon had been a success. Segura said that the tour, which took in the United Kingdom, France, Italy, Switzerland and Germany, had allowed the country to “capitalise on the positive image projected by Peru during the annual meetings of the International Monetary Fund and the World Bank”, which were celebrated in Lima on 9-11 October [WR-15-41].

Peru bonds

Peru’s economy & finance ministry (MEF) said the funds from the European bond issue would be used to pre-finance the country’s public sector debt next year. Back in March, Peru placed US$2bn in international markets, while in August it placed a further US$1.25bn. In both instances the MEF said that the funds would be used to finance next year’s national budget.

Just days after US President Donald Trump made a show of putting US-Cuba relations back in the deep freeze, Cuba’s foreign minister, Bruno Rodríguez, arrived in Europe to mark the European Union’s decision to definitively junk its 1996 Common Position on Cuba in favour of a new political dialogue and cooperation agreement

Speaking in Vienna on Monday 19 June, Rodríguez was dismissive of Trump’s announcement, delivered in a typically blustering speech to Cuban-American hardliners in Miami, as a “grotesque spectacle straight from the Cold War”. He warned that the new US measures would hurt not only US companies and citizens, by restricting their ability to invest in or travel to Cuba, but would also hurt Cuban people. “It will wreak economic damage not just on Cuba’s state companies, but also on the cooperatives and private sector workers,” he noted.

And predictably, Rodríguez also used the Trump speech to whip up Cuban nationalism and to recast the US as the imperial enemy, a strategy that has so long served the Cuban government. He said that Trump’s notion of “separating the people from the military”, who, he noted, are simply “the people in uniform”, was “infantile”. “On the contrary, these measures reinforce our patriotism, our dignity and our decision to defend national independence by all means,” Reuters reported him as declaring. The Cuban government, he also noted, would continue working towards better relations “with the majority of Americans” who back engagement. His comments were broadcast back home on Cuban State TV.

On a more positive note, the European Parliament’s Foreign Affairs Commission on 20 June approved (by 57 votes to nine) the Agreement on Political Dialogue and Cooperation for the normalisation of relations between the European Union (EU) and Cuba, signed at the end of 2016 by Rodríguez and the EU’s high representative for foreign policy, Federica Mogherini. Having previously been greenlighted by the International Development and Trade Commission, it now goes to the plenary for final consideration and a vote, scheduled for July.

“This is an important step in relations between the EU and Cuba, which was the only country in Latin America with which the EU had not signed any type of agreement,” stated Luis De Grandes, MEP for the European People’s Party (EPP) Group, a coalition of centre and centre-right parties and the largest group in the Strasbourg-based parliament. “The EU must take advantage of the opportunity offered by this agreement to establish a future of hope for the new generations of Cuba,” he noted.

De Grandes stressed that the new agreement includes a human rights clause, “which creates clear commitments as far as respect for human rights is concerned”. Respect for human rights remains a concern for the EU, and in particular for the EPP Group, he emphasised, noting that the EPP would like to see Cuba release all political prisoners, ensure full respect for human rights, allow media and press freedom, recognise the freedom of assembly, and organise free and fair elections. However, in contrast to his centre-right US counterparts, he was clear that engagement and not isolation was the EU’s preferred strategy.

Canada – no change

Meanwhile, Canada’s Prime Minister Justin Trudeau said he did not expect the latest US policy changes to affect Canada-Cuba relations. At a joint news conference with his Belgian counterpart Charles Michel on 16 June, Trudeau stated: “We have tremendous respect and a constructive relationship with the United States, but on the matter of Cuba there’s always been a certain amount of disagreement.” “The investments in Cuba by Canadian companies and business people, the opportunities for tourism, for trade and for mutual benefit in this relationship will certainly continue…I don’t see anything new in the dynamic between Canada and Cuba other than a continued desire to work together for mutual benefit,” he emphasised.

• Strong rhetoric, weak substance

US President Donald Trump’s eagerly anticipated foreign policy speech on Cuba on 16 June in Miami was, rhetorically, everything one might have expected, ratcheting up the pressure on the Cuban government. His scathing attack on the Cuban Revolution played well to Cuban-American hardliners, but in substance it was different. Despite his assertion that he was ending the “terrible and misguided” policy of President Obama, Trump is only unpicking certain aspects of it. Much of it will remain unchanged. The Cuban government’s equally combative response suggests the diplomatic rapprochement is on hold, although in truth relations may not be moving backwards as far as rhetoric suggests. For a detailed analysis of the change in US policy see our sister publication Latin American Weekly Report.

Focusing specifically on the LAC region, the prospects for agribusiness are closely tied to the performance of primary agriculture. For agribusiness to prosper, obstacles to a vibrant, export-oriented primary agricultural sector must be removed. There is evidence of progress on this front, although in some senses the picture is still mixed. Traditionally, one of the major barriers to the growth of Latin American food exports has been an array of tariff and non-tariff barriers, subsidies, and other regulations put in place by developed world governments, and often designed to protect their local farmers.

Barriers and distortions to international trade are still quite severe, although less so than in the past. In December 2015 at the 10^th ministerial conference (XMC) of the World Trade Organisation (WTO) held in Nairobi, there was an agreement to abolish any remaining agricultural export subsidies paid by developed economies “immediately”, with developing countries scheduled to do the same by the end of 2018. The process had been initiated years earlier. The European Union’s notorious Common Agricultural Policy (CAP) had indeed been gradually reformed over a 20-year time span. EU agricultural export subsidies fell from over EUR10bn (US$12.3bn) in the early 1990s to under EUR2bn (US$2.47bn) by 2010. However, a range of protective tariffs and domestic subsidies still remain in place.

Heinz Strubenhoff, a World Bank specialist, has argued that subsidies have remained persistent for so long because policymakers in developed countries tend to care more about protecting their farmers, while those in developing countries care more about protecting consumers (by keeping short-term downward pressure on food prices). He argues there is good reason to further reduce subsidies, because “Farmers all over the world are willing and able to work hard to act as real entrepreneurs in competitive local markets and, increasingly, in global value chains. Subsidies for farmers in rich countries and emerging economies undermine fair trade and agricultural development perspectives in poor food-importing countries.”

Prospects for innovation and change in Latin American agriculture and livestock are in part dependent on the direction of changes in global trade. At least four trends are of importance for the region. First, ever since the launch of the Doha Round in 2001 (which began a limited process of reducing barriers to agricultural trade) total global agri-food trade has increased with some vigour. In fact, it grew by almost 200% in the 14 years to 2015. The big driver for this expansion has been the combination of growing populations and rising living standards in the developing and emerging economies of Asia and Africa. Although food prices fell after the commodities boom peaked, they are now expected to continue on a long-term rising path, albeit at a more moderate rate than before.

Second, the proportion of total food production that is traded internationally is also growing. According to one study, a 2015 International Food Policy Research Institute (IPFRI) discussion paper entitled ‘Trading Food: A Nutritional Assessment’, the share of produced calories crossing an international border rose from 16.1% to 19.1% in the 20 years to 2015. Food import dependence in Asia, the Middle East, and some parts of Africa is increasing.

Third, food trade is becoming more concentrated. The top food importers – Japan, China, the Middle East, and Korea represent almost 50% of global net foods imports. The Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) along with Oceania (including Australia and New Zealand), plus Ukraine and a few Asian countries account for 56% of global net food exports. This concentration on both the import and export side has some potential disadvantages: one is that abrupt changes in demand or supply by one key player on either side might provoke wider instability in prices and/or in trade patterns.

The fourth significant trend is an increase in global concern over climate change and environmental issues. This may lead to policies seeking to promote, or even to mandate, a preference for low-carbon farming techniques.

Global agricultural exports, in US$bn

Source: WTO Database, 2017

According to the InterAmerican Development Bank (IDB), in 2014 LAC was the world’s largest net food exporter, with a positive balance of US$148bn. Other net exporters included North America (+US$36bn) and Oceania (+US$42bn). Europe had relatively balanced food trade, with a small positive balance (+US$1bn), while both Africa (-US$39bn) and Asia (-US$197bn) were significant food importers. Using United Nations data for 2015 Valeria and Martín Piñeiro, in ‘The future of the global agri-food trade and the WTO’, also emphasise the key food exporting role of the Mercosur bloc, concluding that it accounts for almost one-third of net global food exports (note that their data for Europe covers only a sub-set of exporting countries in that region).

Net food exporters (2015) % shares in US$

Source: WTO Database, 2017

Apart from the long-term growth trend in food trade, it is difficult to predict nearer-term fluctuations. The recent growth in protectionist sentiment in some developed economies such as the US, and any further intensification of the US-China trade war could create a new set of opportunities and risks (the latter category including the possibility of increased Argentine or Brazilian soya exports to China, replacing US suppliers).

Speaking at the 11^th WTO ministerial conference held in Buenos Aires in December 2017 on behalf of the Cairns Group of 20 agricultural exporting countries, ambassador Guillermo Valles said one of the key challenges ahead was to reduce domestic food subsidies. These had been falling in the EU and Japan, and up to a point had moved down in the US. But they had increased in China, India, Indonesia, and Russia. Domestic subsidies represented 43% of total farm income in Japan, 29% in Indonesia, 21% in China, 19% in the European Union, 15% in Russia, and around 9% in the US. Ambassador Valle also drew attention to the prevalence of non-tariff measures (NTMs) in agricultural trade. In 2016, he said, average agricultural tariffs were 7% ad valorem, but NTMs were three times larger, representing around 21% ad valorem.

• The Cairns Group members comprise: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Pakistan, Paraguay, Peru, the Philippines, South Africa, Thailand, Uruguay, and Vietnam.

One conclusion is that international agricultural trade has become freer than in the past, but that there are still significant tariff and non-tariff barriers, and domestic subsidies. This does not directly eliminate the benefits of agribusiness-centred export strategies for Latin American countries. However, if trade were freer than it is now, the benefits of those policies might be greater.

* Brazil’s labour ministry has released the latest figures on formal job creation, which show that 196,966 jobs were created in the formal sector in April this year. The total stock of formal jobs stood at 41.45m in April, a 0.48% increase on the figure in March. Between January and April this year, some 770,593 jobs were created in Brazil’s formal sector – a 13.6% decrease on the number of formal jobs created over the same period in 2021. The labour ministry’s executive secretary, Bruno Dalcolmo, cited the higher base of comparison this year to explain this decrease, saying “we do not expect to create the same number of [formal] jobs as we did last year, when over 2m positions were created” and that the expectation for this year is “quite positive”.

“We know what they do, we know where they are, and now the counterattack is coming,” Peru’s new President José Jerí said on 3 November after promulgating a new law aimed at tackling extortion gangs. This is an urgent political imperative for the new government, given that it was increasing concern over extortion which resulted in the impeachment of Jerí’s predecessor Dina Boluarte (2022-2025) in October [SSR-25-11].

The urgency with which President Jerí moved to tackle extortion reflects the political perils of failing to make headway on the issue. Jerí has no popular mandate, and with elections looming in April 2026 the right-wing parties that dominate congress will not want him to tarnish their own prospects if the government fails to get a grip on crime. The new administration therefore spent its first weeks in office focused primarily on security issues, passing the extortion law less than a month after taking office and ordering nationwide raids in prisons which were also aimed at confronting extortion.

The new ‘Law Against Extortion and Contract Killings on Public Transport’ was approved in the unicameral congress with 90 votes in favour, two against, and three abstentions. It aims to increase the police response time following extortion complaints, with the goal of saving the lives of public transport workers who face the highest levels of violence for failing to pay extortion fees, and also to improve investigative capacities in order to break up extortion gangs.

The law orders the police to establish dedicated command centres focused on extortion. These will carry out patrols along transport routes with the goal of being able to respond to emergency calls within minutes. More surveillance cameras and panic buttons will also be rolled out across the transport network. On the investigative side of things, a new branch of the attorney general’s office will focus exclusively on extortion. This will be part of a new inter-institutional team comprising the national police, the attorney general’s office, the transport and communications ministry, and the financial intelligence unit (UIF).

One of the first tests of the new legislation will be whether it is accepted by transport unions. The president of the congressional transport commission, Juan Carlos Mori, of the centrist Acción Popular (AP), said that the new law reflects the input of transport representatives during negotiations with the previous government, during the wave of transport strikes in the capital region which triggered Boluarte’s impeachment.

However, the early signs were not promising, with transport workers again walking out in Lima and the neighbouring port city of Callao on 4 November, the day after Jerí promulgated the new law. Then, on 6 November, the national federation of markets and traders (Confenatm) also held a national strike, with its president, Manuel Peralta, saying that over half of the markets in the country are targeted by extortionists.

Meanwhile, the government is seeking to bolster the capacity of the security forces in general. On 8 November Jerí announced the launch of a Comando de Cooperación Operativa (CCO), a unified operational command which will include members of law enforcement and the military and will be led by the national police commander, General Óscar Arriola. Whilst Jerí did not provide much in the way of detail, he said that satellite images, drones, and CCTV will all be involved as part of a coordinated fightback against organised crime, and that the plan will also include the tightening of security in prisons.

The return of faceless judges?

Two of the parties which are currently best placed ahead of the April 2026 general elections, the right-wing Fuerza Popular (FP) and the far-right Renovación Popular (RP), have both called for the return of so-called ‘faceless judges’. Concealing the identity of judges was routine in counter-terrorism trials against Sendero Luminoso (SL) guerrillas in the 1990s, and leading figures within FP and RP have argued that the practice should be revived to prevent criminal gangs from using intimidation to influence trials.

In April, the Jamaican government presented its 2011/12 budget, which was largely dictated by the fiscal-tightening demands of the current IMF programme.  At the beginning of May, a paper published by the Washington-based Center for Economic and Policy Research (CEPR) was strongly critical of the pro-cyclical nature of the IMF programme.

Opening the parliamentary debate on the budget on 28 April, Minister of Finance and Public Service Audley Shaw presented a budget that represented a 9.5% increase over 2010/11 at J$544.7bn (US$6.43bn), but with a projected 10.2% growth in tax revenues.  He admitted, however, that Jamaica has rarely been able to meet targeted tax revenues.  A freeze on public-sector pay was imposed on 1 April 2009 and is intended to remain in force until 31 March 2012.  Talks with public-sector leaders are to be held, in consultation with the IMF, on the length of the freeze and on how to treat arrears of agreed (and legally binding) pay increases that were frozen.

The CEPR paper, Jamaica: Macroeconomic Policy, Debt and the IMF, is strongly critical of the impositions of the IMF.  Jamaica is one of the world’s most highly indebted countries, with public debt at 129% of GDP in 2009/10 and interest on this debt accounting for 17% of GDP.

The CEPR argues that the “pro-cyclical macroeconomic policies implemented under the auspices of the IMF have...damaged Jamaica’s recent and current economic prospects”.  The main problem, according to the CEPR report, is that the huge debt burden has crowded out other public expenditure, particularly on education and infrastructure.  This lack of investment has been a major contributor to very weak GDP growth over the past two decades, averaging just 0.7% per annum.

Now, warns the CEPR, the current pro-cyclical IMF programme, with its demands for tax increases, expenditure cuts, and the containment of the public-sector wage bill, “threatens Jamaica’s prospects for recovery and risks exacerbating its public debt problems”.  The report concludes: “In the absence of plans to tackle Jamaica’s debt problems with a broader concern for the growth and employment needs of the economy, Jamaica’s economy will continue to stagnate.”

On a more positive note, Jamaica signed an agreement for the support of the agricultural and security sectors with the UN on 4 May.  The United Nations Development Assistant Framework (UNDAF) is providing US$39.4m for the implementation of development plans from 2012-2016 in three areas: environment; social empowerment and equity; and safety, security, and justice.  The agreement is an extension of the 2007-2011 J$7.5bn (US$88.6m) programme for initiatives in education, HIV/AIDS, poverty and the environment, health and justice, and peace and security.

The interlinking of security issues with poverty was emphasized in the World Bank’s World Development Report published in April, which suggested that Jamaica spends US$385m a year on indirect medical and other costs related to crime and violence.

According to the Jamaican police, there was a 44% reduction in murders in Jamaica in the first three months of 2011.

*** Al-Qaeda activities.  A number of reports in the past week are a reminder of the continuing range of al-Qaeda’s activities.  The first comes from Germany, where security sources say that coded electronic files found in the possession of a suspected al-Qaeda terrorist who is to go on trial in Berlin on 25 January include an al-Qaeda strategy document that talks about a “war of attrition”.  Other documents are said to discuss the taking of hostages and the use of toxic substances.  According to the German sources, the strategy paper was drafted by al-Qaeda leadership in the Pakistan-Afghanistan area and it calls for a combination of smaller and larger attacks intended to “drive the enemy to despair”.  The key purpose is to force reprisals by security forces which, in turn, will lead to a greater marginalization of Muslims and drive them to join the jihadist struggle.

Separately, sources in Cape Verde, an archipelago of 10 islands situated off West Africa, say that the islands have become a recruiting ground for al-Qaeda.  It is said that Cape Verdean converts to Islam are being radicalized and joining al-Qaeda.  Mosques are being used to recruit radicals, and from there they are being sent on to The Gambia for further radicalization and then to camps in Yemen.  It is said that Cape Verde is part of al-Qaeda’s strategy of extending its influence in Africa with a view to targeting Europe.

In Norway, terrorism experts say that Scandinavia has become a top terrorist target, with around 100 Muslim extremists thought to be active in Norway.  Brynjar Lia from Norway’s Defence Research Institute says: “They are becoming more, and they are striving to recruit young persons who, because of varying resons, are searching for a religion and an ideology.”  Magnus Ranstorp of the Swedish Defence College says that the connections with Afghanistan, Pakistan, and Somalia have “escalated in recent years” and that “people who are behind this are higher up in the various networks”.

Back in the heartland, the al-Qaeda forces who took control of the Yemeni town of Rada on 15 January apparently did so in coordination with security services loyal to President Ali Abdallah Saleh.  Also in Yemen, Maj-Gen Ghasi Ahmed Ali, director of security in Aden, said that “Al-Qaeda operates in front of everyone while security officials sit in their homes.”  On 23 January, there were conflicting reports that al-Qaeda militants had taken over Al-Habilayn.  In Turkey, on 17 January, six al-Qaeda suspects were arrested in Adana apparently intending to poison the water supply at the Konya air base.

*** PNA Security forces in anti-Israel demonstrations.  Israeli sources say that Palestinian National Authority (PNA) security forces are increasingly implicated in anti-Israeli demonstrations.  A senior IDF officer was quoted this week as confirming that the PNA is enabling the participation of security officers.  The IDF officer said: “We believe that the PNA is financing the protests, but it is new that security officers are involved.”

Siempre iba a ser un esfuerzo cuesta arriba para Evelyn Matthei, la candidata presidencial  por la gobernante Coalición por el Cambio de centro-derecha del Presidente Sebastián Piñera, quien deberá competir en una segunda ronda contra la ex presidenta Michelle Bachelet (2006-2010) de la coalición opositora de izquierda Nueva Mayoría el 15 de diciembre. Sin embargo, apenas unos días dentro de la campaña para la segunda ronda, sus perspectivas lucen aún más sombrías. En medio de nuevas fisuras en la alianza gobernante, figuras clave de los equipos de campaña del tercer y cuarto clasificados de la primera ronda del 17 de noviembre, Marco Enríquez-Ominami y Franco Parisi (quienes insisten en que ellos no votarán) se han pronunciado a favor de Bachelet.

Reconociendo el rechazo del electorado hacia la Derecha conservadora, Matthei actuó con rapidez para reconfigurar su equipo de campaña, deshaciéndose de Joaquín Lavín del partido más conservador de la Coalición, la Unión Demócrata Independiente (UDI), y reemplazándolo con nuevos rostros [IL-13-46]. La campaña de Matthei para la segunda ronda, que estará basada en capturar el voto centrista y en alentar a quienes se abstuvieron en la primera ronda para que participen en la segunda ronda, ha sido ensombrecida por una nueva controversia que afecta a la alianza gobernante después de que Antonio Horvath, un prominente senador del socio menor en la coalición, Renovación Nacional (RN), se reunió con Bachelet cuatro días después de la primera ronda electoral y aparentemente también le prometió su apoyo. El conservador diario nacional, El Mercurio, sugirió que este incidente había “arruinado” el relanzamiento de la campaña de Matthei.

Horvath, uno de los ocho senadores de RN en la cámara alta de 38 miembros, ya había producido tensiones dentro de la alianza gobernante por su decisión de trabajar en el equipo de campaña de Parisi. Él aún debe declararse públicamente si pretende votar por Bachelet, pero dijo que después de examinar los manifiestos de ambas candidatas, existía “más convergencia” con Bachelet –una posición aparentemente basada en cuestiones medioambientales (ver más abajo). Con especulaciones creciendo acerca de la posible expulsión de Horvath de la RN, su demostración de apoyo a Bachelet es un bochorno más para la alianza gobernante, que tuvo un mal desempeño en la elección legislativa del 17 de noviembre, perdiendo 10 bancas en la cámara baja de 120 bancas, para finalizar con 48 (reteniendo, sin embargo, sus 16 bancas en el senado).

Aparte de las repercusiones de esto, la preocupación más seria para Matthei ante la segunda ronda es el hecho de que el 21% combinado del electorado que votó por Enríquez-Ominami (él mismo un ex miembro del Partido Socialista de Bachelet) y Parisi está apareciendo crecientemente inaprensible.

Tanto el tercero como el cuarto candidato mantienen que ellos no votarán en la segunda ronda, en oposición al “duopolio” –el sistema bipartidista compuesto por la Concertación y la Coalición por el Cambio. Sin embargo, los equipos de campaña de ambos han indicado una inclinación hacia Bachelet.

No fue tan sorprendente cuando el 21 de noviembre 17 prominentes miembros del izquierdista Partido Progresista (PRO) de Enríquez-Ominami, liderados por el ex gobernador de Santiago, Marcelo Trivelli (2001-2005), y el actual alcalde de Arica, Salvador Urrutiam salieron en apoyo de Bachelet. El mismo día, varios miembros del equipo de campaña de Parisi –incluyendo Dino Villegas, el vocero y asesor principal de Parisi, también siguieron el ejemplo. Como economista de centro-derecha, Parisi está más alineado ideológicamente con Matthei. Sin embargo, la carrera por el segundo lugar en la primera ronda, que se degeneró en una amarga disputa entre los dos continúa teniendo un impacto. La descripción de Parisi de Matthei como una “mala mujer” y otros comentarios en ese sentido, aún persisten.

• Horvath

Un reconocido ecologista representando a la Región de Aysén, el giro hacia la ex presidenta Michelle Bachelet (2006-2010) del senador Antonio Horvath, se debe en parte a sus reservas acerca del controversial proyecto hidroeléctrico HydroAysén, que prevé la construcción de varias nuevas represas en un área de bosques vírgenes de Aysén. La línea de Bachelet es que el proyecto no es viable en su forma actual.

The new year may be just a few weeks old, but the Argentine government led by President Mauricio Macri is already grappling with corruption allegations affecting a top government official and one of Macri’s most trusted aides. Gustavo Arribas, the head of Argentina’s federal intelligence agency (AFI), is now the subject of a formal investigation over his suspected involvement in a bribery case embroiling the Brazilian engineering firm Odebrecht. The case has the potential to be damaging for Macri, who vowed to combat government corruption during his 2015 electoral campaign, as Argentina prepares to hold mid-term legislative elections in October, in which Macri needs the ruling centre-right Cambiemos coalition to perform well to ensure governability for the next two years.

The allegations against Arribas first emerged in an investigative report published by local daily La Nación on 11 January. The report claimed to have found evidence that in 2013 Arribas received US$594,518 in a Swiss bank account from a Brazilian financier, Leonardo Meirelles, who has been convicted for corruption in Brazil as part of ‘Operation Car Wash’ – the major anti-corruption investigation that uncovered the extensive corruption network that Odebrecht had succeeded in creating in Brazil and various Latin American countries under which it offered bribes to corrupt government officials to secure lucrative state contracts.

The allegations were given short shrift by Arribas, who denied any wrongdoing and said that the money (which he said only amounted to some US$70,000) he received from Meirelles, who is known for providing loans to individuals in Brazil, was linked to the sale of a flat that he used to own in Brazil and was in no way linked to Odebrecht. Arribas insisted that the transaction did not constitute a bribe to secure a state contract as suggested by La Nación and said that he had nothing to hide. President Macri immediately backed his intelligence chief and said that there was no evidence that the operation was linked to Odebrecht or that Arribas had lobbied on behalf of the Odebrecht-led consortium that in 2008 was awarded a contract to build a railway tunnel in Buenos Aires province by the previous administration led by Cristina Fernández (2007-2015).

Indeed, Macri questioned how Arribas, with whom he has long been associated and who before his appointment to the AFI in December 2015 led a sports management agency he cofounded (Haz Sport Agency), could have lobbied the administration of the now opposition leftist Frente para la Victoria (FPV) faction of the Partido Justicialista (PJ, Peronists). Macri expressed his full confidence in Arribas and said that the allegations were probably nothing more than an attempt by his opponents to tarnish his reputation.

Yet despite Arribas’ and Macri’s assertions, on 24 January Argentina’s public ministry announced that prosecutor Federico Delgado had decided to present formal corruption charges against the AFI head. The statement said that Delgado’s decision was in line with a formal complaint recently filed by national deputy Elisa Carrió. Despite being the leader of the Coalición Cívica para la Afirmación de una República Igualitaria (CC-ARI) party, a member of the ruling coalition, Carrió is a determined anti-corruption campaigner and Arribas’ explanations failed to wash with her.

Arribas reacted to the presentation of charges against him by reiterating his innocence and stating that he intends to collaborate fully with the investigations to clear his name. However, the fact that someone considered to be a trusted Macri aide is now tainted by corruption allegations will erode the government’s public support and could harm the prospects of Cambiemos in the mid-term elections.

• Carrió denounces AFI spying

On 25 January, Deputy Elisa Carrió ratified the legal complaint she presented against the head of the federal intelligence agency (AFI), Gustavo Arribas, and denounced that she may be being spied on by AFI. Carrió said that she requested that Arribas be investigated “not because I have something against him but because I would like that for once in this country government officials are tried while in office, not after they have left”. The deputy added that she believes that she has long been spied on by AFI: “I am convinced that I’m spied on and harassed by an AFI group led by Majdalani”, Carrió said in reference to deputy AFI head Silvia Majdalani.

The coronavirus (Covid-19) pandemic has brough uncertainty and economic recession to Brazil, but the country’s start-ups appear to be bucking the trend, looking positive and thriving. Current performance shows the sector is growing strongly, with venture capital investment in 2020 set to exceed what was achieved in 2019.

Between January and September this year venture capital investment in Brazilian start-up companies totalled US$2.2bn according to a report by Distrito, a consultancy. This is close to the US$2.3bn achieved for 2019 as a whole. “We are close to the total raised last year, and due to the speed of the current recovery we have a chance of exceeding it, despite the economic crisis”, Distrito’s Gustavo Araujo told Spanish newswire EFE in October. In September alone venture capital investments in Brazilian start-ups totalled US$843m, up by 65% on the US$510m achieved in the same month last year and eight times the US$94m achieved in September 2018. “Starting in September we are experiencing a V-shaped recovery,” Araujo says, noting that while creating major economic difficulties, Covid-19 also presented opportunities for tech-based companies mainly in digital banking, e-commerce, online deliveries and tele-medicine.

Distrito’s report shows majority control of around 100 start-ups was acquired by investors in the first nine months of this year. The total number of investment deals in the sector was 322, a new record. “It is as if the start-up ecosystem is side-stepping Brazil’s economic crisis” says Gilberto Sarfati, a professor at the Fundação Getúlio Vargas (FGV) higher education institute, adding that “digitalisation was in any case going to be important on the medium term, but the crisis has accelerated the process”.  

Before the onset of the pandemic, it had been expected that growth in the start-up sector would slow a little this year, after a surge in 2019. Renato Valente, a partner in Iporanga Ventures, says he initially expected 2020 would be a good, but not record-breaking year. In fact, when the pandemic first began to hit the Brazilian economy in March, investment in start-ups fell by a massive 85% on year-earlier levels. At the time worried venture capital groups emphasised the need for start-ups to concentrate on surviving the crisis rather than on launching any big new funding rounds. But in only a few months things turned around. By June, the sector was growing again.

• Softbank 2019 investments

Last year saw big investments by Japan’s Softbank in Brazilian start-ups such as QuintoAndar (real estate management), Gympass (a fitness app), and Loggi (logistics-as-a-service). Outside of Brazil, Softbank ran into difficulties with its investments in WeWork and Uber, so there was a general sense that it, and perhaps other investors, might pull in its horns a little in 2020. According to Valente from Iporanga Ventures, “Softbank distorted the market a little” last year.         

Growing capital investments in Brazilian start-ups

Source: World Economic Forum/Contxto

Three factors have helped. First, interest rates remain at record low levels in Brazil providing competitively priced finance. Second, as mentioned, the pandemic has accelerated the digitalisation of the economy, creating big new opportunities in e-commerce and door-to-door delivery platforms. Third, the need for social distancing and remote working has led traditional companies to realise they must go digital. “The real economy is suffering” says Valente, “forcing everyone to look for better profit margins by cutting costs. This is an opportunity for companies to try and do more with less – and they are turning to technology to try and achieve that”.

José Muritiba, president of Abstartups, the Brazilian association of start-ups, says growth is particularly strong in educational technology (edtech), e-commerce, and health tech. Another important growth area has been banking, where fintech companies are making important gains. Muritiba argues that the start-up “DNA” includes the ability to survive in adverse conditions, and because of that, these companies have been able to respond to the pandemic in a more confident and assertive way.

Brazil has an estimated 13,300 start-ups and is the home of 12 ‘unicorns’ – start-up companies that have grown to achieve a total market value of over US$1bn. In many ways Brazil is the clear regional leader in start-up ecosystems. It is home to over half of Latin America’s 21 unicorns (there are six in Argentina and one each in Uruguay, Colombia, and Mexico). The fact that Brazil is the region’s largest economy, has relatively high internet and mobile phone penetration, and has some world class tech-oriented universities, particularly in the states of São Paulo and Minas Gerais, also helps.

• Brazilian unicorns

Two Brazilian start-ups have reached unicorn status this year, bringing the total in the country to 12, by one estimate. One of two is Loft, a company which offers users the ability to buy, renovate, and re-sell residential property within a four-month window. The other is Vtex, a B2B company which helps traditional bricks and mortar retailers to transition to an online operation. Rafael Forte, executive president of Vtex, says “in our sector the pandemic accelerated development by at least a year. People knew we might become a unicorn, but without the virus, we would have only achieved that in 2021 or 2022”.

Governments have sought to support the sector. In 2018 the government launched a ‘digital transformation strategy’ which aimed to standardise federal initiatives supporting start-ups. This October the current government submitted a start-ups bill to congress. The text defines a start-up as a formally established and tax-paying company with a history of up to six years since foundation and up to R$16m (US$2.8m) in revenues. The legislation aims to create a more secure legal environment for both start-ups and their investors (‘angel’ investors will not be allowed to become partners in start-ups and will not be held responsible for company debts). New rules will also make it easier for start-ups to be awarded public sector contracts.

The government has also announced three new fast track routes for patent applications. Start-ups will be able to register patents more quickly if they can show some aspects of the proposed patent subject matter are already “available in the market”, have been submitted by companies meeting the definition of a start-up, or have at least partly been public sector funded.

There are also efforts to widen the geographic spread of start-ups and to make them more socially accessible to underprivileged groups. While São Paulo state is widely recognised as Brazil’s major tech-hub, a number of new ventures have been set up in the poorer Northeast region of the country.

The Porto Digital business and technology park in Recife, Pernambuco state, has been supporting community-based digital start-ups. There are also efforts to create what has been described as a “black Silicon Valley” in Salvador, Bahia state. Afro-Brazilians, who represent roughly half the population, account for only 5% of the management of Brazil’s top 500 companies. The Vale do Dendé accelerator in Salvador is supporting 80 start-ups including TrazFavela (delivery services to favelas) and AfroSaúde, a heath tech company which employs black healthcare professionals to help prevent the spread of the coronavirus in poor neighbourhoods.

CHILE | Trans-Pacific Partnership membership officialised. Chile’s foreign ministry on 21 February announced that the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) had finally come into force in the country, with Chile taking part in its first virtual meeting as an official member of the trade agreement a day earlier. The senate ratified Chile’s membership of the CPTPP in October of last year, three years after it was first approved in the lower house. Chile is the 11^th signatory to the trade deal, alongside Australia, Brunei Darussalam, Canada, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam.

ARGENTINA | Drought impacts fiscal deficit. Argentina posted a primary fiscal deficit of Ar$203.9bn (US$1.02bn), or 0.12% of GDP, in January 2023, the economy ministry reported on 22 February. This is a marked increase on the Ar$16.7bn fiscal deficit recorded in January 2022, but it is however an improvement on the Ar$502.1bn deficit registered the previous month, in December. Argentina closed 2022 with a primary fiscal deficit of Ar$1.9trn, the equivalent of 2.4% of GDP. The government’s 2023 budget expects a primary deficit of 1.9% of GDP this year. The economy ministry noted that the January primary deficit was impacted by lower revenues from export taxes as a “severe drought had a major impact on the yield of the main exportable products”. 

ARGENTINA | Government conducts local debt swap. Argentina’s economy ministry announced on 9 March that it swapped Ar$4.34trn (US$21.66bn) in domestic debt in loans due to mature in March, April, May, and June. The swap exchanges old debt for new bonds maturing in 2024 and 2025, according to an economy ministry statement. On Twitter, finance secretary Eduardo Setti stated the aim of the debt swap was to “extend the short maturity profile to the middle and long end of the curve”, which he said would “reduce market uncertainty and volatility and improve the conditions of confidence and predictability of the Treasury’s financing”.

Brazil & Southern Cone: inflation rate
Percentage variation (year-on-year)

Brazil & Southern Cone: GDP growth (%)
Quarterly figures are year-on-year growth