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MEXICO | Gov’t hails success of anti-inflation plan. On 2 August, Mexico’s finance minister, Rogelio Ramírez de la O, announced that the government’s anti-inflation plan had reduced inflation by 2.6 percentage points. According to this, annual inflation would have stood at 10.76% in the first two weeks of July, rather than 8.16%, without the package against inflation and high prices (Pacic), which was implemented in May.

MEXICO | Remittances rise in first half of 2022. On 1 August, Mexico’s central bank (Banxico) released new figures which showed remittances to Mexico totalled US$27.57bn in the first half of 2022, a 16.6% increase on the US$23.65bn received in the same period of 2021. This suggests that remittances to Mexico are on track to exceed the record US$51.59bn sent to the country in 2021. However, remittances to Mexico could take a hit if the economic situation in the US worsens.

MEXICO | GDP grows in Q2. On 29 July, Mexico’s national statistics institute (Inegi) released the latest figures on its quarterly estimation of GDP, showing that economic activity increased 1% in the second quarter of 2022 as compared to the previous quarter. This represents the second consecutive quarter of growth after GDP in the first quarter of 2022 registered a 0.9% increase.

MEXICO | US files labour rights complaint. On 21 July, Mexico’s government received a request from the US to review whether workers at a Manufacturas Vu auto parts factory in Coahuila state were being denied the rights of free association and collective bargaining. The request marks the fifth time the US has used the Rapid Response Labour Mechanism (RRLM) in the US-Mexico-Canada Agreement (USMCA) on regional trade. Mexico agreed to conduct a review, which must be completed within 45 days of receiving the request.

Mexico: GDP growth
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Mexico: unemployment rate
Economically active population

Mexico: inflation rate
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VENEZUELA | Oil sanctions loosened. On 23 May the US Treasury Department’s Office of Foreign Assets Control (Ofac) issued a new general licence authorising four US firms to make transactions involving Venezuela’s state oil company Petróleos de Venezuela (Pdvsa). The companies authorised to engage with Pdvsa are oilfield services companies Halliburton, Schlumberger Limited, Baker Hughes Holdings, and Weatherford International. These companies will not be authorised to participate in the drilling, processing, commercialisation or transport of Venezuelan oil, nor to pay dividends (including in kind) to Pdvsa or any entity in which Pdvsa owns an interest of at least 50%, among other conditions. However, the general licence permits “transactions and activities necessary for safety or the preservation of assets in Venezuela”; “payment of local taxes and purchase of utility services in Venezuela”; and “payment of salaries for employees and contractors in Venezuela”, among other things.

PERU | Interest rates held. On 9 June Peru’s central bank (BCRP) maintained the benchmark interest rate at 7.75% for the fifth consecutive month. The BCRP noted that despite a slight reduction in the annual inflation rate, which fell from 7.97% in April to 7.89% in May, this remains above the target range of 1-3%. In a statement, the BCRP said that “a downwards trajectory in annual inflation is forecast to continue in the coming months, falling close to the target range at the end of the year, due to the moderation of international prices for food and energy [and] the reversal of supply shocks in the agricultural sector.”

COLOMBIA | Inflation slows. Colombia’s national statistics department released the latest consumer price index on 7 June, putting monthly inflation in May at 0.43% and annual inflation at 12.36%. This was down from monthly inflation of 0.78% in April, when annual inflation was 12.82%. The largest year-on-year price increases in May were for restaurants and hotels (+18.01%), transport (+17.82%), and food and non-alcoholic drinks (+15.66%).

BOLIVIA | Trade surplus. Bolivia’s national statistics institute (INE) announced on 5 June that the country registered a trade surplus of US$71m in April. Exports totalled US$988m, up from US$976m in March, while imports totalled US$917m, down from US$1.08bn. The INE highlighted increased exports of soya and its derivatives to Peru as a key cause of the increase in exports, while the decline in imports was attributed to lower imports of fuels and industrial inputs.

Andean countries: inflation rate
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Andean countries: GDP growth (%)
Quarterly figures are year-on-year growth

ECUADOR | Slowdown or recession? The economy and finance minister, Juan Carlos Vega, insisted this week that Ecuador was not in recession as indicated in a recent report published by the country’s central bank (BCE).

Vega insisted that there had been “small economic growth in the first quarter”, fastening on to a report by the BCE in June, which showed 1.2% year-on-year growth and a 0.3% GDP expansion on the final quarter of 2023. In July’s report, however, the BCE said the economy had tipped into recession in the first quarter and would remain so in the second quarter.

Bolivia’s President Luis Arce was expelled from the ruling left-wing Movimiento al Socialismo (MAS) on 3 September. Not for the first time, the MAS faction loyal to former president Evo Morales (2006-2019) is trying to drive Arce out of the party to pave the way for a presidential bid by Morales next year.

The Evista faction of the MAS expelled President Arce and Vice President David Choquehuanca during a party congress in Lauca Ñ, in the central department of Cochabamba, a bastion of support for former president Morales, citing their “betrayal of the Bolivian people”. Specifically it accused them of “converting to neoliberalism; destroying the economy; and ferociously repressing the indigenous peasant movement”. It also criticised the two men for being prepared to work with the US Central Intelligence Agency (CIA) and Drug Enforcement Administration (DEA). The party leadership went on to issue a resolution declaring that Morales is the “sole candidate” of the MAS.

Morales has already tried this approach and it is far from clear that he will have any more joy this time around. Arce and Choquehuanca were expelled from the MAS in October 2023 after failing to attend the party congress in Lauca Ñ [WR-23-40] but the supreme electoral court (TSE) subsequently revoked their expulsion [WR-23-45].

On 17 January Anglo American pooh-poohed suggestions that it was losing its battle in the Chilean courts with the Chilean state-owned mining company Corporación del Cobre.

Codelco wants to exercise its option to buy 49% of Anglo American’s Chilean subsidiary, Anglo American Sur (AAS). AAS’s main asset its Los Bronces mine. On 2 January Codelco exercised its option and argued that its rights conferred by the option overrode Anglo’s deal to sell 24.5% of AAS to Mitsubishi. Codelco had taken out an injunction to prevent Anglo selling part of AAS to Mitsubishi but now argues that the sale will become void because it is exercising its option and therefore is withdrawing the injunction.

Codelco’s position is that Anglo has sold an asset over which it has a claim and that even if Anglo wins the legal point that it has the right to sell a 24.5% stake to Mitsubishi, Anglo still has the obligation to compensate it under the terms of its option. Codelco says that it would take cash or shares.

Codelco appears to want the shares even though the terms of the option allow it to buy the stake in AAS on the cheap for about US$6bn, which is the equivalent of half the price (US$5.4bn) Mitsubishi paid for its 24.5% stake in AAS. Codelco wants the Chilean courts to cancel the Anglo-Mitsubishi deal.

Anglo appears to be hinting that it would cancel the Mitsubishi deal if Codelco sweetened the price it was prepared to pay for the 49% of AAS. As the option gives Chilean courts jurisdiction (in Codelco’s view), Anglo may only get a face-saving increase. Anglo claims that as British law governs the option contract, the British courts should handle any dispute.

The Chilean courts have already demanded that Anglo provide details of the contract with Mitsubishi. The terms of this deal almost certainly allude to the Codelco option because Codelco had already announced that it would exercise the option when it next became available for exercise (in January 2012. In theory the option, which was agreed in 1978, only expires in 2028: Codelco can exercise the option in any January of an even numbered year.

Anglo announced the deal with Mitsubishi on 9 November; Codelco had announced that it would exercise the option in October and had lined up a US$6bn credit from another Japanese company, Mitsui to do this.

Diego Hernández, Codelco’s executive president, claimed that Anglo’s deal with Mitsubishi could contain a buy-back clause which would suggest that the deal was not a true sale. Hernández is clearly furious with Mitsubishi which has long had a close business relationship with Codelco. He accused it of disloyalty and acting in a bizarre way in offering to overpay so much for an asset.

AAS was previously Compañía Minera Disputada de Las Condes. Its two key assets are Los Bronces and El Soldado. In 2010 these two projects produced 261,000 of fine copper. They also have their own smelter and two other promising deposits which are currently being explored.

BRAZIL| Industrial production shows important recovery in August. Data from Brazil’s national statistics institute (Ibge), released on 2 October, showed that industrial production in the country in August increased by 1.5% when compared with July, the highest expansion in the last 15 months. Ibge pointed out that with the August result, Brazil’s industrial production has posted three consecutive months of increases, following a 0.3% increase in May and a 0.5% increase in July. This means that the industrial production rate accumulated a 2.3% increase in the last three months, which almost made up for the cumulative 2.8% decrease recorded between February and April. Yet in annualised terms, August’s production rate was 2.0% lower than the in the same period of 2011. As Ibge pointed out, “the domestic industrial production in August continued the downward trajectory that began in October 2010 (when it accumulated a 11.8% year-on-year increase) and registered its worst negative result since January 2010 (when it accumulated a 5% year-on-year contraction)”. More encouragingly, Igbe points out that its August data showed that 20 of the 27 manufacturing sectors exhibited a positive performance compared with the previous month, led by a 3.3% increase in the automobile manufacturing sector, thanks in large part to the recent tax breaks introduced by the Dilma Rousseff government.

CHILE| Bilateral pharmaceutical cooperation agreement with Mexico. On 30 September Chile’s health ministry announced that it had signed a pharmaceutical cooperation agreement with Mexico, which will allow medicines and vaccines registered in one country to be automatically approved and sold in the other. A statement issued by the health ministry explained that from now on, Chile’s public health institute and Mexico’s federal sanitary risks protection commission will be able to exchange the technical information necessary to allow approved medicines to “directly” enter each other’s markets. The statement added that the agreement represents a “historic milestone” for Chile’s national pharmaceutical industry, which will allow it to gain access to an important market. Moreover, the statement highlighted that the agreement will be beneficial for both “consumers and the pharmaceutical industry in both countries”. Both Mexico and Chile are founding members of the Pacific Alliance, Latin America’s latest regional integration bloc, which was formally launched last June. Its main objective is the promotion of free trade and economic integration among all its member countries, which also include Peru and Colombia.

ARGENTINA| Bunge suspended again. On 1 October Argentina’s tax authority (Afip) announced that the local subsidiary of the multinational agricultural and food processing firm, Bunge Limited, has been suspended from the national grain operators register (ROG), a voluntary register that allows the authorities to monitor the financial operations of registered firms in exchange for tax breaks. Bunge is the world’s leading soybean trader and it has an important presence in Argentina, the world’s second largest soybean producer. However, the Afip accuses it of using a shell firm based in Uruguay between 2006 and 2007 to avoid paying taxes in Argentina. This is the second time that Afip adopts such a measure against Bunge, which was also suspended in March last year when Afip claimed it had discovered that the firm set up fake subsidiaries abroad in order to secure tax credits that cost Argentine tax payers AR$16m. The Afip already suspended Bunge for its alleged tax evasion back in April, but the firm appealed the decision in the local courts, which ruled that the Afip failed to provide sufficient evidence and observe due process in the case. The Afip has challenged this ruling, which is expected to make it all the way to the supreme court. In announcing the suspension, the head of the Afip, Ricardo Echegaray, said that the authorities now have more evidence that Bunge has conducted “triangulation operations to divert its profits and avoid paying the corresponding taxes”. Echegaray estimates that Bunge owes AR$435m (US$ 92.52m) in unpaid taxes and explained that the decision to suspend the company was a way to recover this, as “it has a financial cost to the firm because it means that the tax rate on its profits will increase from 2% to 15%”. Furthermore, Echegaray pointed out that other agri-export firms Beretti Cereales, Molinos and Proydesa have all been suspended from the ROG.

• Paraguay concerned by Brazil’s electricity tariff cuts

On 1 October Paraguay’s representative at the Southern Common Market Parliament (Parlasur), Alfonso González Núñez, warned that the Brazilian government’s proposal to reduce electricity tariffs in its industrial sector by up to 28% could have negative consequences for Paraguay. González Núñez said the measure, designed by the Brazilian government to increase competitiveness, may ultimately translate into lower prices paid for the electricity produced at the bi-national Itaipú hydroelectric plant. González Núñez added that while Brazil may decide whatever it wants to do to its domestic electricity rates, this should not be allowed to affect the price that Brazil pays for Paraguay’s energy and called on the government of President Federico Franco to ensure this is does not happen.

POLITICS | Food deliveries are arriving, says government ahead of election/Christmas. On 24 October Venezuela’s President Nicolas Maduro praised the work of Venezuela’s food minister Félix Osorio, as Osorio announced that over 36,000 tonnes (t) of food imports had arrived in the country in recent months from Colombia and Uruguay. Speaking in Tucaní, Mérida, where he inaugurated a new warehouse for the state-run food company Productora y Distribuidora de Alimentos SA (Pdval), Osorio said that another 400,000t of food from Colombia, Uruguay and Argentina was due in November and December, with 80,000 also due from Brazil, after the vice-president for economic affairs Rafael Ramírez this week inked a new supply deal with Brazil. “We are in an economic war and we are going to fight it with more production and distribution [of food]”, Osorio stated. Meanwhile Agriculture Minister Yván Gil said that supplies of liquid and powered milk would be restored to normal “soon”, thanks to government support for local producers. Gil stated that the current national milk production of 50,000 litres a day covered 50% of the domestic need, with the rest imported. He added that “all” the vegetables consumed in Venezuela were produced domestically, with 65% of meat consumption also produced domestically. He said that local meat production was growing at about 4%-5% a year, noting that consumption had gone from 14 to 28 kilos per capita a year (without specifying dates). Venezuela is importing meat, rice, maize and other essential goods from its regional neighbours. President Maduro yesterday admitted on State TV that the government had used the country’s strategic food reserves in recent months to deal with the supply shortages. “What there was, we put on the street, otherwise there would be no food in your house”, he said, stressing, “if it wasn’t for the economic war there would be controlled inflation and food supply to the market”. Food price inflation was 4.9% month-on-month and 67.3% year-on-year in September, on central bank index data.

HONDURAS | La fortaleza de las finanzas públicas es cuestionada. El 8 de julio el Instituto Centroamericano de Estudios Fiscales (Icefi) difundió un estudio que arroja dudas sobre la futura estabilidad financiera de Honduras. El estudio, titulado ‘Honduras, la peligrosa ruta hacia el endeudamiento. Diagnóstico de las finanzas públicas 2010-2013 y perspectivas para 2014’, resalta un creciente déficit fiscal y una deuda pública de rápido crecimiento como las dos cuestiones financieras claves que enfrenta el país.

De acuerdo con el estudio, si el alto déficit fiscal es mantenido en los próximos años será imposible reducir la deuda pública a mediano plazo, y Honduras podría afrontar un círculo vicioso de insostenibilidad del servicio de la deuda. En el 2013, el déficit fiscal y la deuda pública de Honduras llegaron respectivamente al 7,9% y al 42,5% del PIB; y de acuerdo con el estudio, las estimaciones para ambas cifras en el 2014 permanecerán altas, con el déficit fiscal proyectándose en un  4,7% del PIB y la deuda pública expandiéndose al 52% del PIB. El estudio subraya que la deuda pesa tan fuertemente sobre las finanzas públicas de Honduras que para fines del 2014 será necesario dirigir más del 40% de los ingresos fiscales para financiar sus pagos. La deuda pública en Honduras prácticamente se ha duplicado en los últimos cuatro años, yendo de US$4.8mm en el 2009 a US$8bn en el 2013. El año pasado el país recaudo alrededor de US$1mm a través de su primera emisión de bonos de deuda externa en los mercados internacionales.

El estudio también critica la reforma fiscal promovida por el gobierno liderado por el Presidente Juan Orlando Hernández, comentando que incluso si resulta ser “una de las más productivas” de su tipo, la misma no mejorará significativamente el desempeño económico, debido a su enfoque en aplicar impuestos sobre el consumo básico. Hugo Noé Pino, el coordinador del estudio, dice que Honduras necesita disminuir constantemente el déficit fiscal. Pino sugiere que una posible solución  sería “reducir sustancialmente el déficit en un marco de un pacto fiscal permitiendo el establecimiento de prioridades de gastos, uniformidad de ingresos y transparencia en el uso de los recursos”. Ricardo Barrientos, un economista que contribuyó con el estudio, se hizo eco de las palabras de Pino, pidiendo por “un pacto fiscal que trace un sendero de estabilización y de mejoramiento de las finanzas públicas”.

Fresh from attending the Asia-Pacific Economic Forum (APEC) summit in Lima, Peru, China’s president Xi Jinping was in Santiago, Chile, on 22 November, where he reasserted China’s comprehensive strategic partnership with Latin America at the headquarters of the United Nations’ Commission for Latin America and the Caribbean (ECLAC).

To mark the occasion, ECLAC released a new Spanish-language report on economic relations between Latin America & The Caribbean and China. Entitled, ‘Relaciones económicas entre América Latina y el Caribe y China – Oportunidades y Desafíos’, the report is freely available at http://repositorio.cepal.org/bitstream/handle/11362/40743/1/S1601155_es.pdf

Giving a summary of the report, ECLAC’s executive secretary, Alícia Barcena, noted that trade in goods between Latin America & The Caribbean and China has grown 22 times over since 2000. It reached a historic peak of US$278bn in 2013, but declined thereafter.

Between 2013 and 2015, the value of the region’s exports to China fell by 23%, amid the deceleration in China’s growth. This, Barcena noted, had repercussions in terms of lower demand and sharp price drops for the commodities that make up the bulk of the regional export basket to that market.

Meanwhile, regional imports from China only fell by 3% in the same period, meaning that China’s trade surplus with the region – and Latin America’s trade deficit with China – was valued at US$84bn last year. Much of this deficit comes from the very unbalanced trade between China and Mexico and Central America; by contrast, the trade relationship between China and South America has been more equitable. But overall, the trade pattern between the Asian giant and the region remain unchanged – Latin America sells China raw materials in return for manufactured goods, with the overall balance firmly in favour of China.

While China displaced the European Union (EU) in 2014 as the region’s second-largest trading partner, Barcena noted that the export basket from Latin America & The Caribbean to the Asian giant is still much less sophisticated than what is sent to the rest of the world.

By way of illustration, five products alone represented 69% of the value of regional shipments to China in 2015, while manufactured goods made up only 8% of regional sales to China. Likewise, 90% of Chinese FDI in Latin America between 2010-2015 was destined for extractive industries, led by mining and hydrocarbons (oil and gas). In 2015, moreover, just three countries – Brazil, Mexico and Chile – accounted for 70% of regional exports to China.

The need to build and diversify

Barcena emphasised that there are “significant opportunities for improving the quality of Latin America and the Caribbean’s global insertion and moving forward with the Cooperation Plan 2015-2019—approved during the First Ministerial Meeting of the China-CELAC Forum, held in Beijing in January 2015—which includes US$500bn in trade and US$250bn of reciprocal Foreign Direct Investment (FDI) stock”.

She stressed that “these opportunities entail jointly rethinking globalization to achieve better economic and financial governance, trade multilateralism without protectionism, and greater climate security, peace and stability; establishing innovation as a pillar of development, with the stimulus of science and technology, providing incentives for productive diversification and adding value to exports; promoting an inclusive and sustainable economy, strengthening open regionalism with more trade and investment, with cooperation on matters of energy, natural resources, infrastructure, industry, innovation and connectivity, as well as with the circular economy, accompanied by an environmental big push and low-carbon development; improving the distribution of gains (income and capital); and increasing cooperation and cultural exchange between both sides”.

For his part, President Xi, reaffirmed “the comprehensive strategic partnership between China and Latin America & The Caribbean to foster their people’s development in the current global circumstances”. He advocated “bolstering trust to contribute to new progress and objectively explaining the complementary advantages of both sides, while also promoting cooperation models that have an innovative spirit”. Bárcena indicated that the visit by the Chinese premier allowed for a joint rethinking of the traits of globalization and a broadening of the view of the relationship between both sides. “It is time to build bridges, not walls, to open markets, not close them, to respect differences and build a shared home for the generations to come,” she stressed.

Energy plan: On 6 July, Panama’s energy ministry presented its new national energy plan in the framework of a so-called “Energy Atlas”, a document drawn up by the ministry alongside the United Nations Development Programme (UNDP) which sets out guidelines for the next 35 years. 

According to UNDP administrator in Panama Fernando Hiraldo, the plan’s main objectives are making the energy matrix more sustainable and improving energy efficiency. Panama’s national energy secretary, Víctor Carlos Urrutia, said that the plan was established through a participative process which began in 2015. He explained that the plan is based on four essential pillars: universal access & energy poverty reduction; decarbonisation of the energy matrix; energy efficiency; and moderating consumption & energy security.

The plan also contains concrete objectives including the proposal to transform the electricity sector so that by 2050 70% of Panama’s electricity will be generated by renewable energy sources, up from 66.5% at present.

Also present at the event was Vice-President Isabel de Saint Malo who highlighted efforts by President Juan Carlos Varela’s government aimed at constructing a cleaner, more diversified and more competitive energy matrix. These efforts include the fact that Panama has attracted US$2bn of foreign direct investment (FDI) into renewable resources and is developing the first liquified natural gas (LNG) plant in Central America, due to open in May 2018 in the northern province of Colón. De Saint Malo also noted that Panama has the largest wind farm in Central America and the Caribbean region, located in the city of Penonomé in Coclé province, which generates 8% of the country’s electricity demand, preventing the emission of 450,000 tonnes of coal and saving approximately 900 barrels of oil a year.

FDI: According to recent figures from Panama’s national statistics institute (Inec), foreign direct investment (FDI) in the first quarter of 2017 reached US$1.3bn – up 10.7% on the same period the previous year. The most recent (29 June) US State Department’s Investment Climate Statement notes that Panama received a record US$5.21bn in FDI in 2016 – up 16% from 2015, and it retains one of the highest “FDI to GDP” ratios in Latin America.

The International Monetary Fund (IMF) has been praising the policies adopted by Grenada since it was devastated by Hurricane Ivan in 2004. However, it is asking for even more preparation for future natural disasters and for even greater regional cooperation.

The deputy managing director of the IMF, Tao Zhang, visited Grenada in mid-February, straight after a visit to Dominica, which was in turn devastated by Hurricane Maria in 2017 and is struggling to rebuild.

Grenada’s economy is doing relatively well. It grew by 5% in 2017, and similar GDP growth is estimated for 2018. Grenada has also achieved this while following a policy of fiscal discipline. Zhang was quick to acknowledge this while at the same time warning that not all countries of the Eastern Caribbean Currency Unit (ECCU) area were doing as well. Zhang said that the ECCU debt target of 60% of GDP by 2030 “remains elusive for most countries – although not for Grenada”.

Grenada, thanks in part to the implementation of a fiscal discipline law, has cut the fiscal deficit by 10% of GDP, and it has reduced public debt by more than 40 percentage points from a high of 108% of GDP in 2013 – and it has done this without hurting growth.

But Zhang also argued that this is no time for Grenada to rest on its laurels, particularly with regard to future preparedness. He said: “These are all positive developments, but it is necessary to recognise that more can be done…The focus on post-disaster recovery should be supplemented with better all-round preparedness…Preparing for a disaster can make a huge difference.”

Zhang argued that a comprehensive preparedness strategy needs “three pillars”. He categorised these as:

1. More investment in emergency preparedness and response, such as early warning systems, shelter and security, and the distribution of essential goods and services.
    
2. An emphasis on resilient “physical and social infrastructure”, including investing in disaster-resilient infrastructure, enforcing land-use and zoning rules to limit deforestation and coastal exposure, and ensuring “appropriate building standards”.
    
3. Steps to ensure financial resilience, including insurance mechanisms and building cash reserves to enable a swift response to disasters.

It is clear that Zhang is happier with Grenada than he is with some of its peers in the region. He urged “stronger government efforts, particularly in upgrading budgeting and project execution capacity”. Zhang also suggested that credibility with the international community was at stake for some countries. He said that successful preparation “would also involve maintenance of strong fiscal discipline and acceleration of reforms to rationalise and improve efficiency of all public spending. This would greatly support the countries’ credibility with the international community.”

COSTA RICA | IMF warns on fiscal deficit. On 24 February the International Monetary Fund (IMF) released a statement, following a recent visit to Costa Rica, which describes the country’s large fiscal deficit as the main risk to macroeconomic stability, with public debt projected to exceed 60% of GDP in 2020. According to the IMF, “successful implementation of the fiscal reform approved in end-2018 and the fiscal rule that came into effect with the 2020 budget remain key to preserving macroeconomic stability and boosting confidence” and the successful issuance of a US$1.5bn Eurobond in November 2019 “helped reduce pressures on domestic interest rates even further”. However, it highlights that the central government primary deficit still rose to 2.8% of GDP in 2019 while the overall deficit rose to 7% of GDP, its highest level in over 30 years, owing to “a growing interest bill, higher capital spending, and payment of some transfers owed in 2018”. Overall the IMF said that “macroeconomic conditions remain broadly stable”, but growth remains “subdued”, with overall estimated GDP growth of 2.1% in 2019, which is projected to rise to 2.5% in 2020.

HAITI | Request for relief efforts. On 2 March the Haitian government said that its 2020 Humanitarian Response Plan (HRP) is requesting US$253m to support relief efforts, up more than 50% on the US$126.2m requested in 2019. Approximately 4.6m people – more than 40% of Haiti’s population – will likely require humanitarian assistance in 2020, up from the 2.6m people in need in 2019. According to the United Nations, the depreciation of the Haitian gourde, fuel shortages, and gang-related roadblocks have limited access to basic services, food, livelihood opportunities, and markets, while impeding humanitarian access to vulnerable populations.

Central America & Caribbean:​ Inflation
Monthly year-on-year figures

Following legislative setbacks in May, Brazil’s President Luiz Inácio Lula da Silva has brought back a usual practice from his previous presidential terms (2003-2011), holding regular meetings with government-aligned legislators so that the president can take a more active role in negotiations to pass key legislation. However, on 11 June congress dealt a blow to the plans of the finance ministry to raise more revenue, by rejecting parts of a decree that would have limited tax benefits.

The first of President Lula’s series of weekly meetings took place on 3 June and was attended by the leader of the governing coalition in congress, Randolfe Rodrigues, as well as two heavyweights of Lula’s left-wing Partido dos Trabalhadores (PT), Jaques Wagner and José Guimarães, the leaders of the ruling coalition in the senate and lower chamber respectively. According to national media outlets, such as daily newspaper Folha de São Paulo, senior officials from the finance ministry were also present, as the government is reportedly prioritising legislation for its economic agenda for the time being.

The day after the meeting, the government published a ‘medida provisória’ (MP) decree signed by Lula which sought to place restrictions on tax breaks. The MP proposed revoking tax credits applied to the PIS and Cofins taxes. In a press conference, the executive secretary of the finance ministry, Dario Durigan, said that the decree would help the government meet its fiscal targets, by compensating for the revenue lost from the payroll tax breaks to be granted for companies in 17 economic sectors and to municipal governments of small cities.

In May, the government negotiated with legislators and local mayors on how to gradually phase out these payroll tax reductions, which had tested the negotiating chips of Lula and his finance minister, Fernando Haddad. However, Durigan highlighted last week that the continuation of payroll tax breaks would cost the federal government R$26.3bn (US$4.9bn) in lost revenue in 2024. The finance ministry estimated that the restrictions proposed in the MP on PIS/Cofins would help the government raise R$29.2bn this year.

From 4-11 June, Brazilian lobby groups and congressional caucuses representing their business interests raged against the restrictions on tax benefits. Right-wing lawmakers tied to the farming caucus, the Frente Parlamentar da Agropecuária (FPA), such as Senator Tereza Cristina da Costa Dias, a former agriculture minister (2019-2022), described the MP as a major blow to the agricultural sector. In a statement released on 6 June, the FPA cited figures from the national association of vegetable oil industries (Abiove) which estimated that the tax breaks on PIS/Cofins had saved producers of soya and vegetable oils a total of R$6.5bn in 2023. On 10 June the Confederação Nacional da Indústria (CNI), a national lobby group for the industrial sector, also released a statement criticising the decree but highlighted that it was open to negotiation and that it has already held meetings with government officials and legislators to discuss a new tax measure that would lower the burden on Brazilian manufacturing companies.

Given the overwhelming pressure from business groups to challenge the Lula government’s measure, Rodrigo Pacheco, the senate president, decided on 11 June to reject key clauses of the decree. MPs are temporary measures that take immediate effect but require the approval of congress to be extended. Pacheco opposed the decree on the grounds that the constitution does not allow immediate changes to social security contributions, such as the PIS and Cofins taxes. Having suffered this latest legislative setback, the ball is now back in the Lula government’s court to negotiate a new tax initiative to help balance the books.

Right-wing legislative victories

While the Lula government and its allies in congress are focusing on passing economic legislation, several pieces of legislation backed by conservative parties have made significant advances. On 12 June the lower chamber’s constitution and justice committee (CCJ) approved a constitutional amendment proposal to criminalise the possession of any quantity of any drug. On the same day the lower chamber approved a motion to expedite the review process for a bill which proposes tougher punishments for women who get abortions beyond 22 weeks after conception; the bill seeks to equate abortion with murder, with a prison sentence of up to 20 years.

The idea of building a structure across the estuary that separates the coastal cities of Guarujá and Santos in the state of São Paulo has been around for nearly a century but never came off the drawing board because of a host of technical, political, and financial problems. Now these challenges seemingly have been overcome with the successful tender on 5 September for the construction of a tunnel under the waterway leading up to Santos, Latin America’s largest commercial port.

The Santos-Guarujá tunnel project will utilise immersed tunnel technology, a construction method where prefabricated segments are sunk and joined underwater. This is expected to provide the solution to the challenging subsoil. An excavated tunnel would have had to be very deep and 1,200m longer due to the type of soil in the waterway, and a bridge would not provide the necessary height for ships to clear. The immersed tunnel was a solution for a complex traffic flow involving cyclists and supramax ships in a densely populated city.

The project will also benefit from the technical know-how of the consortium that made the convincing offer for the tender – Portuguese construction company Mota-Engil in partnership with China’s CCCC, which has experience with complex projects that involve bridge-tunnel systems with immersed tube tunnels, such as the Hong Kong-Zhuhai-Macao Bridge and the Shenzhen-Zhongshan Link.

The state government of São Paulo and the federal government have agreed to split the project’s cost of R$6.8bn (US$1.3bn), overcoming political differences between left-wing President Luiz Inácio Lula da Silva and right-wing governor Tarcísio de Freitas, who could both face each other as rival candidates in next year’s presidential race. At the time of writing, neither has confirmed plans to run in the 2026 election, but opinion polls have ranked Lula and De Freitas as among the strongest potential presidential contenders.

But it has been an uneasy partnership between Lula and De Freitas, with both sides claiming to be the intellectual authors of the project and failing to give the other credit. At one point President Lula considered putting the entire project under control of the federal government, according to national daily Folha de São Paulo. But in the end, he backed down and declined to attend the public tender, sending Vice President Geraldo Alckmin in his place.

Win-win

What convinced both leaders to play ball is that the project is a winning proposition that benefits local residents and maritime shipping alike. Traffic is intense between the port city of Santos on the island of São Vicente and the city of Guarujá on the island of Santo Amaro. Currently 23,000 people per day must take a 20-minute ferry ride or drive a 30km detour for 50 minutes. The tunnel, which will be accessible to pedestrians, cyclists, motor vehicles, and a tram, is expected to reduce that time to two minutes.

Unlike other major infrastructure projects that have been held up because of red tape, the tunnel obtained a previous environmental licence from the state regulator Companhia Ambiental do Estado de São Paulo (Cetesb). However, it has yet to obtain other construction and operation permits. In fact, there are numerous potential pitfalls for the project, including geological surprises, massive coordination challenges that may require temporary closures of the port’s access channels, and expropriations needed on either side to build access ramps and shafts.

Other port projects

Other public works that will be tendered by the ports and airports ministry in the remainder of the year will pave the way for investments of R$20bn (US$3.6bn). They include new terminals and improvements in the access canals at Santos and Paranaguá ports. The Paranaguá port, in the state of Paraná, is Brazil’s second largest commercial port behind São Paulo’s port of Santos. The federal government stated in August that the criteria for the Paranaguá canals project will serve as a model for the public tenders of other upcoming port infrastructure works, such as access canals in ports like Santos and Itajaí, in Santa Catarina state.

En las primeras horas del 29 de mayo, apareció un comunicado de prensa en el sitio web del Club de París confirmando los rumores que circulaban en la prensa de Argentina. “Los representantes de los acreedores del Club de París y del Gobierno de la República Argentina se reunieron el 28 y 29 de mayo y llegaron a un acuerdo para saldar la deuda en mora con los acreedores del Club de París en un periodo de cinco años”. Ausente en el comunicado de prensa estuvo cualquier mención de una auditoría del Fondo Monetario Internacional (FMI), anteriormente una condición previa para la reestructuración de la deuda de Argentina. El ministro de economía, Axel Kicillof, había dejado claro que no aceptaría ninguna intervención del FMI. El acuerdo marca un significativo paso para que Argentina de nuevo pueda acceder a préstamos en los mercados internacionales.

Las conversaciones se reanudaron en París el 28 de mayo, después de que Kicillof viajara a la capital francesa en enero, con una nueva oferta sobre cómo Argentina podría reestructurar su deuda de US$9,7mm. Japón es el principal acreedor con el 30,6%; seguido de Alemania con el 27,7%; Holanda, 8,7%; EU, 7,6%; Italia, 7,5%; España, 5,2% Suiza, 4,1% Canadá, 3%; Francia, 2,5%; UK, 1,3%; y Austria, 0,9%.

Los detalles del acuerdo aún son limitados, pero de acuerdo con el sitio web del Club de París, la reestructuración permitirá saldar los atrasos en los pagos de Argentina con sus acreedores en los próximos cinco años. Un pago mínimo de US$1,15mm deberá hacerse en mayo del 2015; el siguiente pago será en mayo del 2016. Kicillof dijo que se haría un pago inicial de capital de US$650m el próximo julio y de US$500m en mayo del 2015. Crucialmente, desde la perspectiva argentina, el acuerdo significa que las agencias crediticias miembros del Club de París ahora estarán libres de reanudar sus actividades, abriendo el camino para que Argentina tenga acceso al capital internacional.

Las reservas internacionales de Argentina han cayeron un 27% en el último año a un nuevo nivel bajo de US$28,5mm, y el país está desesperado por retornar a los mercados de capital a fin de evitar una crisis en la balanza de pagos. El punto muerto con aquellos acreedores que se rehusaron aceptar la depreciación de sus bonos (‘holdoouts’) después del default continúa. El 12 de junio la corte suprema de EU debe emitir otra resolución en la ya larga saga. En cierto punto, Argentina se encontrará teniendo que decidir si paga alrededor de US$3mm a los ‘holdouts’ o correr el riesgo de provocar otro default.

El gobierno dividido sobre las tasas de interés

La habilidad negociadora de Kicillof en París aún debe causar efecto en su colega en Buenos Aires, Juan Carlos Fábrega, el presidente del banco central de Argentina. Kicillof está interesado en reducir las tasas de interés, mientras que Fábrega ha indicado que él lo considerará hacer solamente si la inflación cae debajo del 2%. Después de devaluar el peso por alrededor del 20% en enero, el banco central casi dobló las tasas de interés a cerca del 30% para estabilizar la moneda y contener la inflación. Bajo la nueva y más confiable metodología, la inflación mensual fue del 3,7% en enero, pero cayó al 1,8% en abril. Con este progreso en el frente de la inflación, y signos de que la economía está al borde de la recesión, Fábrega redujo las tasas a alrededor del 27%.

Hablando en una cena con líderes empresariales el 28 de mayo, Fábrega dijo que las medidas del banco central habían regularizado la moneda e incrementado los depósitos bancarios. Y agregó que la devaluación había ayudado a estimular la exportación haciendo que los productos argentinos sean más competitivos en el exterior. Fábrega predijo que las reservas internacionales del banco permanecerían constantes en US$28mm este año, y señaló que una producción de soja mejor de lo esperado es el garante de esa estabilidad. El gobierno ha estado urgiendo a los productores a que vendan el grano rápidamente para evitar otra corrida sobre el peso. Fábrega también se ha convertido en el primer funcionario prominente en admitir que el banco central intencionalmente devaluó la moneda en enero. Kicillof y el jefe del gabinete, Jorge Capitanich, previamente habían culpado la devaluación a la insaciable especulación de la subsidiaria local de Royal Dutch Shell.

• Granjeros descontentos

Eduardo Buzzi, titular de la Federación Agraria Argentina, dijo el 28 de mayo que él estaba considerando plantear una moción para convocar a una huelga nacional en la próxima reunión de la Mesa de Enlace, el grupo de líderes agrícolas anti-gobierno. Buzzi alega que el fracaso del gobierno en colaborar con su grupo ha dado lugar a severas inundaciones en algunas áreas y la consiguiente pérdida de cultivos.

Works on Nicaragua’s US$50bn 'Gran Canal' inter-oceanic canal project linking the country’s Caribbean and Pacific coasts, officially began on 22 December 2014. With the Hong-Kong-based company HKND – which was awarded the build-operate concession in June 2013 – and the Frente Sandinista de Liberación Nacional (FMLN) government led by President Daniel Ortega yet to assuage transparency concerns, the start of the project was marred by violent protests.

In the weeks preceding the start of the works, there had already been various protests in the areas that will be affected by the project [RC-14-12], which remains controversial for various reasons. These include the lack of complete feasibility studies, concerns regarding its environmental impact, as well as claims by local communities that they have not been properly consulted. On 10 December the first protest march took place in the capital, Managua, which saw thousands take to the streets (more than 5,000 on local press reports) - the biggest protests against the ‘Gran Canal’ to date. Former Sandinista guerrilla commander, Henry ‘Modesto’ Ruiz, who has long distanced himself from President Ortega and the FMLN government, also presented a petition against the Canal’s construction containing 60,000 signatures.

The protests surrounding the launch of the works, however, were violent and attracted human rights concerns. On 23 December at least 21 people were injured in clashes between police and protesters which took place on a highway near El Tule area, in the Río San Juan department after the police tried to clear over 300 protesters. While national police chief, Aminta Granera, said that 15 police officers and six civilians had been injured, protest organisers said that at least 40 protesters had been injured. Meanwhile, foreign journalists have also been targeted. According to local investigative weekly, Confidencial, a Belgian photojournalist, Michèle Sennesael, who was covering the launch of the project, was reportedly deported on 22 December without being given any reason; while three Spanish journalists reporting for Televisión Española (TVE) were detained, although they were subsequently released. In a further sign that transparency concerns are mounting, for the first time the US has spoken out. On 6 January the US embassy in Managua issued a statement in which it raised concerns about “the lack of information and transparency that has existed, and continues to exist, over many of the important aspects of this project”.

• Workforce

According to a December 2014 report by Hong Kong-based firm, HKND, the five-year construction period of Nicaragua’s ‘Gran Canal’ project envisages “an estimated average annual workforce of approximately 50,000 employees…HKND anticipates that up to 50 percent of the workforce would be recruited from within Nicaragua”. The report notes that “it is likely, however, that a core contingent of experienced personnel (e.g., management staff, training personnel, selected equipment operators) would need to be employed on an expatriate basis, with about 25 percent from China and 25 percent from other countries”.

The confrontation between Peru’s President Martín Vizcarra and the country’s single-chamber legislature appears to be deepening, as political parties fragment further. The battle between Vizcarra and congress is looking like a stand-off where two rivals each hold a gun to the other’s head. Vizcarra is demanding that congress, where the main opposition right-wing Fuerza Popular (FP, Fujimoristas) still has most seats, should approve his remaining anti-corruption reforms, along with a bill bringing forward general elections by a year, so that they are held in April 2020, instead of 2021. Congress is dragging its feet on both counts and is instead considering a plan to impeach the president.

The grounds for an impeachment (known in Peru as vacancia) process are not entirely clear. Deputies have cited Vizcarra’s suspension of the US$1.4bn ‘Tía María’ copper mining licence in the southern region of Arequipa, following local opposition [WR-19-32]. More recently they have argued that trying to call early elections is itself an impeachable offence.

Political parties have continued to fragment, making it difficult for either side to command any kind of reliable majority within the 130-seat chamber. In July 2016, there were six political parties represented in Congress. After a multitude of splits and realignments, three years later there are now 11 parties and some independent deputies.

• Congress

FP, led by Keiko Fujimori (currently in prison on corruption charges) started out with an outright congressional majority of 73 seats, but saw that whittled down to only 54 after the defection of her brother, Kenji Fujimori who set up a rival party, Cambio 21. The left-wing Frente Amplio (FA) coalition was weakened by the breakaway of a more environmentally focused group known as Nuevo Perú (NP). It is now down to nine seats while Nuevo Perú has 10.

The traditional Partido Aprista Peruano (PAP), an ally of the Fujimoristas, has only five seats in congress. It is leading the attempt to impeach Vizcarra. Deputy Mauricio Mulder said the group had “unanimously” agreed to seek impeachment, but it then emerged that at least two PAP deputies, Luciana León and Jorge del Castillo, oppose the idea, which could be part of internal jostling ahead of a PAP convention in October to elect a new secretary general. While impeachment is supported by FP deputy and president of congress Pedro Olaechea, the opposition is unlikely to gather the necessary majority.

The government has its own difficulties. Three deputies, including Vice President Mercedes Aráoz, resigned from Peruanos Por el Kambio (PPK), until recently the main pro-government party, taking it down to only four deputies. Under congressional regulations, parties need a minimum of five deputies to be recognised as a congressional group and qualify to sit on parliamentary commissions.

In a desperate attempt to retain that privilege, PPK invited Yesenia Ponce, a controversial former Fujimorista turncoat who faces charges of falsifying her education qualifications, to join the group. The Vizcarra government is now reduced to looking for support among the PPK (5 deputies), Alianza Para el Progreso (9 deputies) Bancada Liberal (5) and Unidos por la República (5).

The fragmented nature of congress suggests that neither Vizcarra nor the opposition will achieve any quick wins and that a continuation of the war of attrition between the two sides is the most likely outcome. It does however seem that public opinion backs the President. According to an Ipsos survey, although down by three percentage points on the previous month, the president’s approval rating was a still substantial 54% in July. Sixty-nine percent of respondents opposed the idea of presidential impeachment, against 27% who favoured it. Significantly, if Vizcarra is able to call a referendum on bringing the general elections forward by a year, 75% said that they would vote in favour.

On 15 July the International Monetary Fund (IMF) published details of its 2025 Article IV consultation and the completion of its first review of El Salvador’s Extended Fund Facility (EFF) arrangement which it said allowed for the immediate disbursement of around US$118m in funding.

This is part of the EFF arrangement worth around US$1.4bn in total that was approved in February following years of negotiations, which stalled in part due to concerns around President Nayib Bukele’s decision to make cryptocurrency bitcoin legal tender. The IMF said that programme performance has been “solid” in the months since it was finalised, “with the economy continuing to expand as macroeconomic imbalances are being addressed”. It cited a return to the pre-coronavirus (Covid-19) pandemic trend in real GDP growth, supported by robust remittances and strong performance in tourism and construction sectors driven by improvements in security and business confidence. Inflation has fallen and improvements in public finances, leading to a narrowing of the current account deficit and near-term refinancing risks have receded due to government buyback operations, said the Fund.

The IMF added that “substantial progress” had been made in implementing key structural benchmarks after what it called some “initial delays”. The Fund highlighted the fact that a new fiscal sustainability law has been enacted, a decree which limits exceptions to the procurement law has been published and financial information relating to the country’s six largest state-owned companies has been released, all of which were stipulated by the agreement. It also noted that “the overall stock of Bitcoin held by the public sector has remained unchanged since program approval”. However, in July the Salvadorean government’s bitcoin office said that it held 6,233.18 bitcoin, up from 6,101.18 bitcoin in March, demonstrating that Bukele has followed through on his pledge to continue adding to the country’s bitcoin reserves even though it violates the terms of the IMF arrangement.

El Salvador still faces macroeconomic vulnerabilities and structural impediments to growth and development, according to the IMF, including a high debt-to-GDP ratio, high external financing needs and costly market access. The country is also vulnerable to shocks such as natural disasters, especially as its economy is dollarised, and external and financial buffers are weak, it added. Longstanding concerns around low productivity remain, reflecting gaps in human capital and infrastructure, and there are persistently high poverty rates of around 25%.

To help deal with these myriad issues, an agreement has been reached on a timetable for further reforms that will safeguard macroeconomic stability and strengthen governance and transparency. The programme remains focused on “strengthening public finances, rebuilding external and financial buffers, and enhancing governance and transparency frameworks to create the conditions for stronger and more resilient growth” according to an IMF statement. This will be key in the face of increased downside risks that have arisen due to US President Donald Trump’s trade war and stricter immigration policies, which add to external challenges. 

Looking ahead, the IMF believes that this weaker external backdrop will be offset by stronger momentum in domestic GDP growth, which hit an estimated 2.6% in 2024 and is forecast to remain at 2.5% in 2025 and 2026. It also forecasts that inflation will be contained at around 1% in 2025 before rising slightly towards the historical average of around 1.75% in subsequent years, and the fiscal primary balance will rise from 1.9% of GDP this year to a surplus level of 3.7% of GDP by 2027. “Under these projections, the probability of sovereign stress would remain moderate and public debt would be on a sustainable path,” said the IMF, which added that the agreement also envisages support from international creditors in the coming years. “These improvements in public finances are expected to support higher per capita growth over the medium term,” it added.

However, while the IMF paints a relatively rosy picture of the country’s finances, there are growing concerns for the country’s poor. For example, the Center for Global Development (CGD), a thinktank with offices in Washington DC and London, estimates that a new 1% tax on remittances introduced by the US in July will mean that El Salvador receives US$198m less in remittances each year. These remittances constitute a significant portion of household income for the poorest families, who rely on them for basic necessities. El Salvador is also forecast to be the worst affected country in the world in terms of the estimated reduction in annual remittances as a percentage of gross national income (GNI), with US$198m equivalent to 0.62% of GNI. This could weaken consumer demand, with knock on effects for economic growth. 

In addition, the CGD estimates that El Salvador will also lose out on US$150m in funding from the US Agency for International Development (Usaid) as a result of spending cuts imposed by Trump. These programmes overwhelmingly support the poorest Salvadorean families to fulfil basic needs. With the Salvadorean economy standing to lose a combined US$348m per year as a result of the remittances tax and Usaid cuts, there is significant potential for the country’s poverty rate, which has already increased in recent years, to worsen further.

In conclusion, there is something of a disconnect between the IMF’s appraisal of the economy and the challenges that appear to be mounting for ordinary Salvadoreans. This could add to growing discontent with Bukele, although the president appears to have cemented control of state institutions to the extent that it would be difficult for a potential protest movement to remove him from office.

El Salvador’s trade deficit grows

In July El Salvador’s central bank (BCR) released new figures showing that the country’s exports totalled US$606.14m in May up from US$556.76m in April and up 6.75% on May 2024. Meanwhile imports in May totalled US$1.55bn, up from U$1.47bn in April and up 11.03% on April 2024. This leaves a trade deficit of US$947.85m in May, up from US$911.09m in April. Total exports in the first five months of 2025 came to US$2.84bn, representing accumulated growth this year of 5.4%. According to the BCR, total imports in the first five months came to US$7.62bn, representing accumulated growth of 10.5%.