All Categories

YPF to boost investment: Yacimientos Petrolíferos Fiscales (YPF), the state-owned Argentine oil company, will invest between US$4bn and US$5bn each year until 2023 to boost its output, said chief executive Daniel González. He stated that the aim was to boost output by 5%-7% with the emphasis on non-conventionals such as shale, given the company’s big investment in the Vaca Muerta shale oil and gas deposits in Patagonia. YPF accounts respectively for 45% and 39% of Argentina’s total oil and gas output. González said the company was set to grow faster and in a more disciplined fashion, and to “significantly” reduce its debt leverage.

Femsa profits down: Mexican Coca-Cola bottler and retailer Femsa reported an 86% drop in third-quarter profits, down to MXN4.7bn (US$250.7m). However, the basis of comparison – Q3 2017 – was unusually high because the company in that quarter received a one-off windfall from the sale of its 5.24% shareholding in Heineken. In Q3 2018 operating revenue was up 7.9%, reflecting a good performance from Oxxo, the convenience store network. A company-owned chain of pharmacies and its interest in petrol stations also performed well.

SQM green light for Chinese purchase: In a 3-2 decision Chile’s Constitutional Court (Tribunal Constitucional – TC) rejected a motion trying to block the sale of shares in mining group SQM to Tianqi Lithium of China. Tianqi had agreed to buy a 24% stake in SQM from Nutrien of Canada for a reported US$4bn. An objection to the sale had been filed by SQM’s controlling groups (Pampa Calichera, Potasios de Chile, and Global Mining) who had argued that Tianqi would secure an unfair competitive advantage by gaining access to SQM’s commercially sensitive information.

Rappi becomes a unicorn: Rappi, the Colombian home delivery company, became a ‘unicorn’ in September – the name given by Silicon Valley to start-ups that reach a valuation of US$1bn or more. The company is the 11^th Latin American and 270^th global unicorn. Rappi started in 2015 in Bogotá and is now present in 27 cities and six Latin American countries. It specialises in delivering food, documents, cash, and just about anything else that its customers may need on their doorstep. It currently has a staff of 1,500 and a total of 25,000 part time couriers, known as rappitenderos. However, echoing similar disputes that have affected companies like Uber, some rappitenderos are campaigning for better treatment and employment rights.

Laurentino ‘Nito’ Cortizo, a former legislator and agriculture minister (2004-2006), is leading the race in Panama’s presidential elections, which are due to be held on 5 May. In some polls Cortizo, from the centre-left Partido Revolucionario Democrático (PRD), has up to double the support of his nearest rival, Rómulo Roux of the centre-right Cambio Democrático (CD). While surprises are still possible, it is worth looking more closely at Cortizo’s economic policy proposals.

Panama remains one of the fastest-growing economies in Latin America, but the pace has eased back quite sharply from the 5%-6% of recent years. A slight dip in big investment projects coupled with a long construction workers’ strike helped reduce GDP growth from 5.3% in 2017 down to 3.9% in 2018. Both inflation and unemployment are low (0.8% and 6.0% respectively) compared with many of Panama’s neighbours, but that does not stop them remaining as important election issues. According to a poll published in early April, the economy is the main issue for voters. Unemployment was the top problem for 27.1% of respondents, with 24.4% citing inflation. An earlier poll by Gallup last December identified the main concerns as corruption (30%), crime (19%), unemployment (18%), and the high cost of living (12%).

Cortizo, as well as well as all the other candidates, has an important window of opportunity. With the big Cobre Panamá copper mine due to start production and exports this year, all forecasters are predicting that economic growth is set to recover quite strongly. In the medium term the mine could boost Panama’s exports by around 20% and add two percentage points to GDP. The next president, due to take office on 1 July, is therefore potentially poised to reap the political benefits of economic recovery. The IMF is forecasting that GDP will bounce back with growth of 6.0% this year and 5.5% in 2020.

That doesn’t mean that the next government’s macro-economic policies will be unimportant. Cortizo is essentially promising continuity of Panama’s market-friendly economic policies, with some tweaks of a social democratic nature. The latest version of his economic plan is being described as based on “four pillars, one star, and 125 proposals”. The four pillars are: one, good government; two, the rule of law; three, action to reduce poverty and inequality; and four, a competitive economy creating jobs. The ‘star’ is a commitment to invest in education.

In his campaign speeches Cortizo has emphasised various themes. Along with most of his rivals he believes fighting corruption requires constitutional reform to strengthen the independence of powers and the judiciary. He also wants a change to public procurement rules to ensure greater transparency. Cortizo’s team claims that if elected his government will be able to deliver a US$1bn immediate stimulus to the economy, simply by eliminating a backlog of overdue payments owed to private contractors.

Cortizo’s commitment to free trade is not unqualified. He has a history of seeking to protect Panama’s farming and livestock sector. He resigned as agriculture and livestock minister back in 2006, opposing the terms of a free trade agreement (FTA) with the US, which he argued did not provide sufficient health and sanitary safeguards for Panama’s farmers. This time round he says that Panama’s food safety authority (Aupsa) has been captured by special interests linked to food importers and needs to be replaced. He is promising to promote and protect Panamanian producers, and if necessary, introduce seasonal import controls.

In other areas the candidate has shown a degree of caution. He has said relatively little about Panama’s closer links with China. Potentially the country’s biggest fiscal problem is the Caja del Seguro Social (CSS), a giant government agency which funds state pensions and the public health system. Its financial problems have often led to shortages of medicines. Cortizo has sidestepped questions over how to deal with the CSS crisis, saying that decisions on pension contributions, the retirement age, and the availability of medicines will have to wait until a full financial audit is conducted.

The role of Chinese telecommunications company, Huawei, in Brazil’s ‘5G’ rollout is still uncertain, and an ongoing cause of friction in relations between Brasília and Washington. 

In an interview published by Brazilian daily O Globo on 29 July, US ambassador to Brazil Todd Chapman said that Brazil would suffer “consequences” if it selected the Chinese company to build its 5G cellular telecoms network. The US claims Huawei violates intellectual property rules and collects data for the purpose of espionage by the Chinese state. Huawei denies this. In Chapman’s telling, the “consequences” could involve reduced investment interest in Brazil among companies worried over the protection of their intellectual property. There was also a carrot as well as a stick. The ambassador said the US International Development Finance Corp (IDFC) has US$60bn in its coffers to help allies who chose “trustworthy suppliers” in the place of Huawei, such as Sweden’s Ericsson, South Korea’s Samsung, or Finland’s Nokia.

Brazil’s Vice President Hamilton Mourão responded on 3 August telling a press conference for foreign correspondents that his government did not fear US pressure on the issue. He added that Brazilian legislation does not allow Huawei to be excluded from the bidding process as long as it is transparent in observing the bidding rules. Mourão pointed out that “over one third” of existing 4G telecoms equipment in Brazil has been provided by Huawei. Any decision to ban the company would therefore cause serious difficulty and financial losses to the country’s mobile phone operators. The vice president acknowledged the existence of a trade and technology war between China and the US (respectively Brazil’s first and second most important trade partners) but said that Brazil wished to maintain its links with both.

US pressure on the issue may already have had some impact at the margins. In early July sources at Telecom Italia (TIM) said it had excluded Huawei from a tender for 5G equipment for use in both Italy and Brazil. Company sources said the decision was part of a supplier diversification policy. Officially, however, the company’s Brazilian subsidiary, TIM Participações, said it had not taken any decision over its suppliers and might hold a second tender next year after 5G frequencies are allocated. Officially, Brazil’s 5G frequency auction is now scheduled for June 2021, after two earlier postponements. It has been estimated to bring in up to US$5.6bn in government auction revenues and to trigger over US$24bn in private sector investments over the following five years, but these numbers are out date and are probably underestimates. What is clear is that the quarrel over Huawei may lead to very costly delays limiting the productivity gains 5G offers across the wider Brazilian economy.

Moves by the government of Trinidad & Tobago to reform the country’s public service, and other initiatives, should boost the economy’s productivity and growth over the medium-term. A return to effective operation of the Central Statistics Office (CSO) will be an important indicator that this is actually happening. There are also other clearly observable signs to watch for over the next two years.

In the report published following its latest Article IV consultation with the government in early June 2014, the International Monetary Fund (IMF) noted that the economy has embarked on sustainable growth of around 2.0%-2.5% per annum. As chart 1 shows, most of the recent metrics (and the IMF’s own forecasts) are favourable. At current prices and exchange rates, GDP per capita is around US$21,000 and is rising steadily. According to official figures, inflation is about 5% and is falling: however, the IMF suggests that the figure may overstate the extent to which consumer prices are actually rising. Officially, unemployment is also about 5% of the labour force, although the IMF notes that under-employment is rife. Trinidad & Tobago’s substantial exports of oil and other products underpin a current account surplus of around 10% of GDP. Savings and investment have been about 24% of GDP and 14% of GDP respectively.

Public finances are in good shape. The budget deficit should fall from 3.7% of GDP in 2013 to about 2.5% this year. Gross government debt is not particularly high, at about 33% of GDP. The figure for net government debt drops to about 10% of GDP after allowance is made for the accumulated funds in the Heritage and Stabilization Fund (HSF). Set up in 2007, the HSF is the successor to the Interim Revenue Stabilization Fund, which dated from 2000. Contributions to the HSF come from petroleum revenues. With assets under management (AUM) of US$5.5bn (or about 20% of GDP), the HSF provides the government with a buffer against a downturn in hydrocarbons revenues, and provides an alternative source of investment income.

The IMF report alluded to the possibility that excess liquidity in the banking system may be leaking into imports and, in particular, automobiles. Overall, though, the relevant monetary aggregates are not expanding at a worryingly rapid rate. According to the Central Bank of Trinidad & Tobago (CBTT), total local currency (M3) rose by 12% to the equivalent of US$13.18bn over the year to the end of June 2014. Including foreign currency deposits within the banking system, the equivalent figures were 9% and US$16.74bn. The CBTT noted that gross lending by the commercial banks rose by 7% to the equivalent of US$8.46bn over that period. The IMF assessed the banking system as sound.

However, Trinidad & Tobago is not a particularly easy country in which to do business. In its latest (2014-15) Global Competitiveness Report, published in early September 2014, the World Economic Forum (WEF) ranked Trinidad & Tobago as the 89th most competitive country, of 144 assessed worldwide. As usual, the WEF asked each of the firms that it surveyed to identify the five biggest challenges to doing business in a country. As chart 2 shows, the most pressing problems include the inefficiency of government bureaucracy, corruption, the (perceived) poor work ethic of the labour force and crime/theft. Conversely, access of finance and the ability of local businesses to innovate were not widely seen as problematic.

Chart 2: The most problematic factors for doing business (% of responses*)

*Respondents were asked to identify and rank the five biggest challenges for doing business and to rank them from 1 (most serious) to 5 (least serious). The chart shows percentages weighted according to rankings.

Source: WEF Global Competitiveness Report 2014-15

These findings are reinforced by the country’s rankings in the various aspects considered by the WEF. As chart 3 indicates, Trinidad & Tobago’s investment environment (including tax incentives, availability of funding and access to relevant technology) is strong - and, in some respects, comparable with those of developed countries. Social services, including health and education, also appear to be better that might be expected given the overall level of competitiveness. The WEF also found that physical infrastructure is of higher quality than might be expected (and was something that did not cause undue concern to the businesses surveyed by the WEF).

However, of all countries surveyed by the WEF, Trinidad & Tobago ranked in the bottom quintile (if not decile) for aspects such as: the ethical behaviour of firms; the burden of customs procedures; favouritism in decisions made by public officials; co-operation in negotiations between labour and employers; and pay and productivity. The business costs of crime and violence are higher in Trinidad & Tobago than in all but three of the 144 countries assessed.

In short, Trinidad & Tobago provides a classic example of a country where structural reforms could substantially improve perceptions of the business sector, boost the efficiency with which public sector services are delivered and - perhaps most importantly - reduce inequality in a country where the wealth of the energy sector has not automatically ‘trickled down’.

Fortunately, the current government is aware of this. As the IMF noted, the average time needed to start a business in Trinidad & Tobago has been reduced from 43 days to just three. The time needed to obtain construction permits has fallen from 42 weeks to just six. The government, it notes, is “also reducing the time to clear shipments through customs and intends to establish appropriate insolvency frameworks, reform procurement legislation, expedite property registration and improve contract enforcement”.

Following the financial crisis of 2008-09, which resulted in the collapse of the Hindu Credit Union and the CL Financial Group (a conglomerate which included CLICO, one of the largest life insurance companies in the Caribbean), the government is also making good progress with reform of the financial sector, which is already strong by a number of benchmarks. Five non-bank Systemically Important Financial Institutions (SIFIs) have been identified. Each regulated by their own Act, they include: the Unit Trust Corporation (UTC); the Home Mortgage Bank (HMB); the T&T Mortgage Finance Co. (TTMF); the National Insurance Board (NIB); and, the Agricultural Development Bank (ADB). The long-term objective is to bring these institutions under the supervision of the CBTT.

There is advancement on other fronts. The CBTT is working with the ministries of Finance and Planning on a National Financial Crisis Contingency Plan. New legislation in the pipeline will strengthen the regulation of insurers and insurance. The Occupational Pensions Act and the Unit Trust Corporation Act are being updated. Another new law will require that all real estate agents active in Trinidad & Tobago hold licenses: this would be a major change, because only a third of the country’s 1,500 agents are licensed currently.

It remains to be seen what progress is made with labour policies within the public sector workforce, something the IMF considers as urgently needed. About one quarter of the entire workforce is employed by the public sector, across 48 ministries, agencies and departments. However, human resource management is concentrated in a small number of centralised agencies - the Chief Personnel Officer, the Ministry of Public Administration and the Services Commissions Department (SCD - comprising the secretariat for the Public Service Commission, the Teaching Service Commission, the Judicial & Legal Service Commission and the Police Service Commission), which are not well co-ordinated.

The consequences of all this are not good. The various ministries and agencies have little ability to make necessary hiring and firing decisions. Overall accountability is very low. Processes move at glacial speed: as the IMF observed, negotiations for the 2008-10 wage round for public servants were only concluded in 2012. Acknowledging the problem, the Public Service Commission allowed the 48 line ministries, agencies and departments to hire acting and temporary staff from 2006. The number of temporary staff rose from 1,920 in 2005 to 12,636 in 2012, according to the Commission. Meanwhile, the number of new permanent appointments in a calendar year fell from 916 to 628. Over the same period, the number of people in acting roles (i.e. where they have greater responsibilities but no formal promotion) has more than doubled to 18,012. Inevitably, morale has fallen.

An additional challenge is that the public sector (and other key actors) does not have access to the data that it needs. Writing in June 2014, the IMF observed that, because of the extreme resource constraints at the Central Statistical Office (CSO), “official trade data are available up to February 2012, and labour market data up to March 2013, while the GDP data for 2012 is still only provisional”. As a temporary measure, CBTT staff has been assigned to the CSO for one year. In addition, Statistics Sweden is helping the government with an “aggressive” plan to modernise the CSO.

Reform of the public service will be a time consuming, complex and probably contentious process. Protagonists who see themselves as actual or potential losers from the change are unlikely to accept it without loud complaint. The next general elections are due in September 2015. Campaigning will likely be dominated by debates over the controversial changes to the constitution that have been proposed by the People’s Partnership (PP) government led by Prime Minister Kamla Persad-Bissessar. As the IMF observed, the political cycle will likely delay fiscal reforms that could be beneficial, such as a reduction in fuel subsidies.

Nevertheless, we would take it as encouraging sign if the WEF’s Global Competitiveness Report for 2015-16 observes clear improvements in several aspects of the overall business environment in Trinidad & Tobago. We would also be heartened by clear progress with the new legislation that is designed to strengthen the financial sector. Over two years (i.e. a period that includes the general elections and beyond), we hope to see real reform to labour relations and management within the public sector. Most crucially, we would see the return to effective operation of the CSO as an encouraging sign.

Nicaragua has become the latest Central American nation to end relations with Taiwan in favour of recognising China, and, if previous moves by neighbouring countries are anything to go by, it can expect a wave of investment from Beijing in return.

Cosying up to China makes sense for Nicaragua’s President Daniel Ortega amid increasing international isolation and deteriorating relations with the US, and the move could have interesting ramifications in the region more widely. The decision was announced on 10 December, and swiftly followed by a vote to end a 2006 free trade agreement (FTA) with Taiwan in the Nicaraguan legislature. Taiwan expressed “extreme regret” at what it called a “unilateral” decision, and the US also condemned the move.

US State Department spokesperson Ned Price issued a statement on 9 December slamming Nicaragua’s “sham election” on 7 November and arguing that the resulting re-election of Ortega “did not provide it with any mandate to remove Nicaragua from the family of American democracies.”

However, China wasted no time in rewarding the Ortega government for its decision, delivering a shipment of 200,000 Sinopharm vaccines against the coronavirus (Covid-19) on 12 December. This is the first batch out of a total 1m vaccines promised by Beijing and is just the beginning of Chinese cooperation. Central America used to be a bastion of support for Taiwan, but in recent decades Costa Rica (2007), Panama (2017), the Dominican Republic (2018), and El Salvador (2018) have all switched allegiances to China.

Following its switch, Costa Rica received a new national sports stadium that opened in 2011, signed an FTA with China that same year, and then received phytosanitary permits for pineapple exports in 2017. It also agreed a contract to upgrade the No. 32 national highway in 2015, and a US$50m donation to a transportation infrastructure programme. However, in November 2021 Costa Rica’s deputy minister for multilateral affairs, Christian Guillermet, told US international broadcaster Voz de América that commercial relations with China hadn’t been as successful as officials would have wanted. The same media cited official figures which show that Costa Rican exports to China only increased from US$37.8m in 2011 to US$121.6m in 2019.

Chinese efforts in Panama focused on the Panama Canal, including adding extra capacity to the Colón Container Terminal and building a 4km-long bridge over the canal to connect Panama City to Panamá Oeste province worth US$1.4bn.

At the end of December 2021, El Salvador’s government led by President Nayib Bukele confirmed that construction would begin this year on a Chinese-funded new national sports stadium. This is in line with Bukele’s previous announcement of that initiative along with other Chinese-backed projects which include a national library and water sanitation projects which Bukele said were worth US$500m.

Possible cooperation

The same day that Ortega assumed office for his current term, on 10 January, the Nicaraguan and Chinese governments announced the signing of four bilateral agreements: a general cooperation agreement, a Memorandum of Understanding (MoU) regarding cooperation in the framework of China’s Belt and Road Initiative (BRI), an agreement relating to visa exemptions for holders of diplomatic and official passports, and an MoU regarding the establishment of a mechanism for political consultation.

Further agreements could include phytosanitary agreements to allow Nicaragua to export coffee and fruit, while there may be other agreements to set up a Confucius Institute in Managua or allow some Nicaraguan students to study on scholarships in China. But more importantly, the MOUs will open the door to Chinese investment in infrastructure projects such as ports and highways. While Nicaragua, and Central America more widely, does suffer from an infrastructure deficit, the benefits of these projects could be limited by the fact that China tends to insist on using Chinese firms, labour, and bank loans to execute them.

One project of particular interest is the proposed inter-oceanic ‘Gran Canal’ project in Nicaragua. In 2013 the Ortega government granted the now-dissolved Chinese firm Hong Kong Nicaragua Canal Development (HKND) the US$50bn concession to build and operate the project which would have obvious strategic benefits for China in that it would end its reliance on the Panama Canal for interoceanic trade, but it has not advanced despite Nicaraguan government approval. The canal is hugely controversial in Nicaragua, but the move towards closer relations with Beijing will reignite speculation about its future.

Others to follow suit?

Across the border in Honduras, President-elect Xiomara Castro also pledged to switch the country’s allegiance to China on the campaign trail. While her team have somewhat rowed back on this position more recently, perhaps in order not to damage relations with the US during a tense transition period, Honduras could well become the latest Central American nation to cut ties with Taiwan in the next few years. If this does come to pass, it would create opportunities for Chinese-funded cross-border infrastructure projects in the Gulf of Fonseca, a 162-mile bay on the Pacific Ocean, which is shared between El Salvador, Honduras, and Nicaragua. It would mean those three nations had more scope to operate independently of the US, and also leave Guatemala and Belize as the only Central American nations that recognize Taiwan.

In January 2021, Guatemala and Taiwan announced a new MoU for US$60m in aid for new projects in Guatemala over the next four years. According to the document, the funds will be assigned to “support development projects agreed by both nations”, which will aim to provide assistance to the “most vulnerable populations”, although further details were not provided. In December 2021, Guatemala’s President Alejandro Giammattei used a speech in Washington to reaffirm the country’s commitment to relations with the US and Taiwan over China. Similarly the speaker of Belize’s legislature pledged continued support for Taiwan during a meeting with President Tsai Ing-wen in early December.

However, Beijing continues to work to bring supporters of Taipei into its orbit and seems unlikely to give up on that goal. At the very least, those countries which maintain relations with Taiwan will likely be able to demand more financial support to stop them switching sides, although, as mentioned by Giammattei, the desire to ensure continued US support may influence their decisions.

For those that have embarked on a new relationship with China, the amount of investment they receive may depend on China’s own economy, which has hit choppier waters than during the boom times of the early 2000s. If the malaise deepens, officials in Beijing may have to concentrate on problems closer to home, rather than expanding their influence halfway across the world, and countries that switched allegiances recently may find they have distanced themselves from the US “family of democracies” without much to show for it in return.

• Taiwan and Nicaragua

Taiwan has been a longstanding ally of Nicaragua, serving as one of its main bilateral donors in 2020, providing US$28.0m of the total US$245.67m in bilateral assistance on official figures. A report dated 11 December by government mouthpiece el19Digital tallied bilateral trade between Nicaragua and Taiwan in 2020 at some US$168m. While trade with mainland China was just under US$50m, el19Digital considers that trade with Taiwan has “probably reached its peak” while the government expects that this year, in just a few months, trade with mainland China will exceed that with Taiwan.

Unlike Brazil, Argentina has a largely unregulated crypto market, which is nevertheless developing rapidly. In Brazil most of the trading is done through regulated exchange. In Argentina most is done on an online peer-to-peer basis (P2P) which is more open to abuse. A big driver for crypto take-up in Argentina has been high domestic inflation and low confidence in the national currency. According to Anthony Pompliano, a crypto specialist, “Argentines don't trust their central bank, they want money that can't be degraded by anyone. They want to be able to access monetary value without having to ask for permission. They want to be able to send and receive money without anyone getting in the way between them and their counter-party.”

Another analyst, Santiago Pontiroli, at the Chilean branch of cyber-security company Kasperky, says the big driver for crypto in the region has been the combination of high fiat currency inflation and economic crisis. According to the global index of cryptocurrency adoption published by Chainalysis, the top Latin American crypto economies are Venezuela (ranked 7th in the world) followed by Argentina (10th in the world), Colombia (11th), and Brazil 14th. Chainalysis ranks countries by looking at various factors relative to the wider economy including value and volume of crypto trading. Consultancy Finder on the other hand, using different methodology, says Argentina and Mexico are leaders in crypto adoption in the region, measured in terms of penetration as a proportion of the population. In Argentina 15.2% of the population is said to own crypto, with the most popular currencies being Bitcoin, Ethereum, Dogecoin, Solana, and Ripple.

Like El Salvador, Argentina has faced warnings from the IMF that an unregulated crypto boom could increase financial risk. The text of the March 2022 US$45bn debt rescheduling and economic stabilisation agreement with the IMF commits the government to “discourage the development of cryptocurrencies” as a way of combating “money laundering, informality and dis-intermediation”. The Argentine crypto-community reacted angrily saying crypto currencies are helping the country develop technology and protect citizens from a weak fiat currency.

PARAGUAY | New legislation upsets financial sector

Viviana Varas, the president of Banco Itaú in Paraguay, said this week that the implementation of a newly approved ‘credit card law’ would be “impractical”. Since President Horacio Cartes sanctioned ‘Law 5476’ on 26 August on the transparency and use of credit cards - which establishes new guidelines for the credit card business and sets limits on the level of interest that credit card issuers can charge customers - it has been heavily criticised by the local banking sector. Local financial institutions argue that the new legislation will distort the credit card market that will affect its normal functioning and make it less attractive for credit card providers.

The law, which was drafted by a cross-party group of national legislators and stipulates that credit card interest rates may not exceed three times the average savings rate, was designed to address the current lack of regulation of the country’s rapidly expanding credit card market, in which the interest rates charged by credit card issuers varied wildly and in some instances exceeded 50%.

Proponents of the law argued that the lack of regulation allowed some financial institutions to prey on their credit card customers, leaving them with un-payable debts. But directors of national financial institutions countered that the imposition of interest rate limits could lead to less credit being offered to the general population as they would be less willing to offer credit cards to some customers if they are unable to charge higher interest rates. Indeed, they pointed to research carried out by the likes of the World Bank and the Inter-American Development Bank (IDB), which has found that the introduction of similar measures in other Latin American countries has led to the exit of smaller players from the credit card market, to the detriment of market competition and to general credit provision.

After the bill was approved by congress, the local banking association (Asoban) called on President Cartes, who owns a bank himself, to veto it. But perhaps conscious of just how popular the initiative is, Cartes opted not to exercise his veto. However, a group of 23 financial institutions led by Itaú, the dominant player in the local credit card market with a 40% share, has filed an appeal with the supreme court against the law on constitutional grounds (for an alleged abuse of power by the government).

In a recent interview, Varas said that the constitutional question aside, the implementation of the law would be problematic as the legislation is not clear on how the average savings rate is to be determined, creating confusion and uncertainty in the sector.

• OECD revises down Brazil forecast

On 16 September the Organisation for Economic Co-operation and Development (OECD) revised down its forecast for Brazil’s growth this year to -2.8%. Only three months ago, the OECD was predicting a much milder recession, of just -0.8%, and expected the economy to return to growth in 2016. Now, the forecast is that Brazil will also stay in recession next year, with the economy shrinking - 0.7%. The OECD estimates are even worse than the average of those economists surveyed by the central bank in its weekly Focus Bulletin, which predicts negative growth of -2.55% this year and -0.6% in 2016.

Ahead of the first round of the Uruguayan elections due on 27 October the balance of probabilities seemed to indicate the electorate was set to click a few notches towards the Right.

Uruguayan public opinion surveys have a reasonable track record for accuracy. In the last weeks before the elections the “base case” scenario they all seem to have been pointing to is for Daniel Martínez, the former mayor of Montevideo and candidate for the incumbent left-wing Frente Amplio (FA) coalition, to win the first round of the presidential ballot on 27 October, but to fall short of the necessary 50% of the vote to win outright. That means that in the run-off due on 24 November he is likely to face the centre-right Luis Lacalle Pou of the Partido Nacional (PN, Blancos). In that second round, with voters of candidates knocked out in the first round expected to re-direct their allegiances, it is Lacalle Pou who is the odds-on favourite to win.

The best-case scenario for the FA – and an outcome that remains within the range of possibilities – is that Martínez will defy the odds and win the second round as well. But even in that event – winning a historic fourth consecutive term for the FA – it is highly likely that the coalition will lose its current narrow majority in both legislative chambers.

If he wins the presidency, therefore, Martínez will have to do deals with the Centre and with the Right, moderating some of the FA’s economic policies (this might, for example, mean more rapid action to cut the fiscal deficit and to stimulate the private sector).

On the other hand, if Lacalle Pou wins as the pollsters are predicting, he too may lack a parliamentary majority and will have to do deals, either to the Right or to the Left, to gain majority support for his more market-friendly policies.

Surveys by five different polling agencies conducted between mid-September and mid-October all placed Martínez in the lead in the first-round ballot, with all also unanimously putting Lacalle Pou in second place. Support for Martínez was in a range between 33% and 41%. Support for Lacalle Pou was 23%-28%. Four of the five pollsters had Enrique Talvi of the conservative Partido Colorado (PC, Colorados) coming third, while one suggested that the far-right candidate, retired General Guido Manini Ríos of Cabildo Abierto (CA) might push past Talvi to take third place.

Based on the numbers, one possible outcome would be a Lacalle Pou victory leading to a Blanco-Colorado coalition government. In the speech closing his campaign on 23 October, Lacalle dropped a strong hint that Uruguay’s next government may be a coalition. Even this coalition between the country’s two traditional parties, however, would most likely full short of a congressional majority.

What happens in the second round is obviously key. A poll by Opción published on 16 October suggested that Lacalle Pou’s second round advantage has been narrowing. In a Martínez – Lacalle Pou run-off, the poll gave Lacalle Pou a 47% vs 42% advantage over Martínez, down from 49% vs 41% in September.

According to Opción executive Rafael Porzecanski, to counter this narrowing margin Lacalle Pou has begun to talk more explicitly of a future centre-right coalition government. The thinking is that by demonstrating more of an up-front willingness to form a coalition, Lacalle Pou will attract voters who might otherwise be put off by the expectation of quarrels within the centre-right block. For the Colorados, Talvi has signalled he will be prepared to enter coalition talks.

In terms of the underlying issues, the slowdown in economic growth, worries over rising crime rates, and a general sense that the FA has been in office for a long time (15 years) all point to a degree of voter fatigue which is expected to favour the centre and the Right.

To a significant, extent, but less so than in neighbouring Brazil last year, some disaffected Uruguayan voters are expected to turn to the extreme Right. The favoured candidate for them to do this is Manini Ríos, referred to by some as a ‘Bolsonaro Junior’.

In little over six months Manini Ríos has built up his support base to 7%-12%, with signs of potentially further growth before election day. He entered the race shortly after being dismissed by President Tabaré Vázquez and consequently forced into retirement in March, after he had criticised court investigations into officers accused of human rights violations during the 1973-1985 military dictatorship. He also faces investigation for allegedly covering up the murder of an opposition activist in 1973.

CA, his new political movement, attacks Uruguay’s socially liberal laws (such as legal marijuana and same-sex marriage) and highlights crime with a promise to “create order from chaos” and boost employment. In a move that echoes the Brazilian far Right, CA also promises to re-write schoolbooks to eliminate ‘gender ideology’ and sex education. According to Radar, one of the main pollsters, Manini Ríos is picking up support in rural areas and among poorer voters. 

MEXICO | Inflation continues to rise. On 7 April, Mexico’s national statistics institute (Inegi) released its latest figures on the national consumer price index (INPC) which showed that monthly inflation rose 0.99% in March 2022, bringing the annual rate to 7.45%. This was up from 7.07% in January and 7.28% in February, as inflation remains well above the 3% +/- 1 target range that Mexico’s central bank (Banxico) set for 2022. In a statement, Inegi said that the prices of agriculture products had increased 1.23% on the previous month and the prices of energy and other tariffs authorised by the government had risen by 2.24%.

MEXICO | Finance ministry lowers 2022 growth forecast. On 1 April, Mexico’s finance ministry (SHCP) revised down its forecast for economic growth in 2022 from 4.1% to 3.4%. In a statement, the SHCP said the reason for the adjustment was related to the continuing impact of the coronavirus (Covid-19) pandemic on the imbalance of supply and demand, and the escalating geopolitical conflict between Russia and Ukraine. The SHCP said the government still expected to meet its fiscal targets for the year, “despite the uncertainty observed in the external environment”. In a survey carried out by Mexico’s central bank (Banxico) in March, private sector economists also revised down 2022 GDP growth forecasts for Mexico, from 2.04% to 1.76%.

MEXICO | Jalisco state to export avocados to US this year. On 23 March, Mexico’s agriculture and rural development ministry (Sader) announced that work was underway to begin exporting avocados from the state of Jalisco to the US this year. According to Sader, Jalisco exports more than 113,000 tonnes (t) of avocados a year to 30 countries. The US temporarily suspended avocado imports from Mexico’s Michoacán state in February, citing security reasons. Imports were swiftly reinstated following talks.

Mexico: GDP growth
Percentage variation (year-on-year)

Mexico: unemployment rate
Economically active population

Mexico: inflation rate
Percentage variation (year-on-year)

On 16 April the US Department of the Treasury’s Office of Foreign Assets Control (Ofac) sanctioned seven individuals and seven companies in a marked expansion of its sanctions regime against Nicaragua's gold mining sector.

Among those targeted are Daniel Edmundo Ortega Murillo and Maurice Facundo Ortega Murillo, two sons of co-presidents Daniel Ortega and Rosario Murillo. Other targets include those involved in maintaining the legal framework for the mining sector, including Vice Minister of Energy and Mines Santiago Hernán Bermúdez Tapia and lawyer Lester Matus Tamariz, and mining firms including Thomas Metal, Brother Metal, and Zhong Fu Development.

• Individuals and firms sanctioned

The mining firms sanctioned by the US include Exportadora de Metales, Sociedad Anónima (Emsa), which sells gold in bulk in the US, and Grupo Minero Xiloa, a Nicaraguan firm that became more prominent after Ofac sanctioned gold mining company Compañía Minera Internacional, Sociedad Anónima (Comintsa) in 2024, along with Capital Mining Investment Nicaragua. The other five Nicaraguan firms are: Thomas Metal; Nicaragua Xinxin Linze Minería Group; Brother Metal; Santa Rita Mining Company; and Zhong Fu Development. Along with the two sons of Ortega and Murillo, the other five individuals sanctioned are: deputy mining minister Santiago Hernán Bermúdez Tapia; Comintsa’s legal representative Nelson Francisco Sobalvarro; lawyer Lester Matus Tamariz; and two legal representatives of Zhong Fu, Aníbal Vladimir Matus Buitrago and Feiwu Bian, a Chinese national who is its president.

US Secretary of the Treasury Scott Bessent explicitly linked the sanctions to the seizure of assets owned by BHMB Mining Nicaragua SA (BHMB), a Nicaraguan firm founded in 2019 with foreign investment from a US company, last year. “The Murillo-Ortega dictatorship has sought to fill its own coffers through the use of these gold companies and co-conspirators by confiscating American investments in Nicaragua and using it to generate funds to maintain its political power,” said Bessent in a statement published 16 April. “The United States will not allow the illicit confiscation of American-owned assets and will continue to target revenue streams that empower the corrupt Murillo-Ortega regime,” he added.

However, this latest round of sanctions doesn’t appear to have persuaded Nicaraguan officials to change course. Within two weeks, the government announced that it had granted seven new mining concessions to Chinese firms that do not appear on the sanctions list: Nicaragua Xiajing Minería Group, Minesight Minería, and Zhongwei Mining Group.

This mirrors a similar sanctions avoidance strategy from 2024, when a concession owned by sanctioned government-affiliated gold mining firm Compañia Minera Internacional SA (Comintsa) was simply transferred to Zhong Fu Development, one of the firms sanctioned on 16 April.

It appears that the Nicaraguan government has successfully insulated its mining sector from US sanctions, as the Ortega-Murillo regime continues to decouple from Washington and throw in its lot with Beijing. Chinese firms in Nicaragua are keen to buy as much gold as they can, with growing evidence that they will even buy illicit gold smuggled across the border from northern Costa Rica [SSR-26-04].

However, there are some remaining pressure points that the US could use. According to a 7 April report by Central American regional outlet Divergentes, a bill is being drawn up in US congress to penalise Nicaraguan gold in international markets. Other forms of pressure from Washington could include wider sanctions on the Nicaraguan economy or suspending Managua from the Dominican Republic-Central America-US Free Trade Agreement (Cafta-DR) trade deal. The US remains Nicaragua's largest export destination, handing Washington the opportunity to inflict significant economic pain if it decides to do so, but so far officials haven’t taken any drastic measures.

Looking ahead, Nicaragua’s gold miners have a willing buyer in China and support from the Ortega-Murillo regime, which appears to have figured out how to stay one step ahead of US sanctions. This likely means that mining activity will continue to expand, with Washington seemingly reticent to target the Nicaraguan economy more widely, perhaps as this would risk setting off a wave of migration from the country.

COLOMBIA| Considering further rate cuts. On 24 September Colombia’s recently appointed finance minister, Mauricio Cárdenas, said ahead of his first monetary policy meeting on 28 September that the central bank should consider further cuts to the benchmark interest rate in order to curb the high levels of capital inflows entering Colombia that are appreciating the peso.

    Cárdenas explained that he was concerned that the recent announcement made by the US Federal Reserve that it was preparing to launch a third round of quantitative easing would simulate capital inflows into Colombia as foreign capital looked for profit opportunities. The Colombian peso has appreciated by 7.4% against the US dollar since the start of the year, the world’s third highest rate of appreciation this year, on the back of the continued strong performance of its economy. However, this is affecting Colombian exporters and manufacturers who have complained about lower export levels and higher domestic costs.

    The latest figures released by Colombia’s statistics department (Dane) on 20 September showed that the economy grew by 4.8% in the first half of the year, surpassing market expectations. According to Dane, the better-than-expected performance came on the back of the booming mining and oil sector which continues to attract foreign and domestic investment; and which recorded a 10.8% increase. In contrast, Dane data shows the manufacturing sector contracted by 0.2% during the period, confirming the negative effects of the strong peso. Perhaps concerned by this, the central bank has cut the benchmark interest rate by 50 basis points to 4.75% in the last two months, arguing that it expected lower exports this year as a result of the global economic crisis. Yet, Cárdenas said that the goal now should be to reduce the difference between Colombia’s interest rates and international rates in order to stem the large amounts of capital inflows.

    The adoption of such a strategy by Colombia’s central bank could quickly be replicated by neighbouring Peru, which has also seen a strong (5%) appreciation of the sol against the US dollar. Peru’s central bank has reacted to this by intervening in the currency market by buying US dollars, but has so far refrained from cutting its benchmark interest rate of 4.25%.        

PERÚ | Recortan pronóstico de crecimiento. El banco central de Perú (BCRP) ha revisado a la baja su pronóstico de crecimiento económico para el año, de 5,5% a 4,4%. El nuevo pronóstico es la proyección más baja para la economía peruana desde el 2009, aparentemente proveyendo confirmación de una marcada desaceleración económica este año. De hecho, esta es la segunda vez que el BCRP ha recortado su pronóstico de crecimiento para todo el año, habiéndolo hecho por primera vez en mayo de este año [IL-14-17].

En su informe, el BCRP dijo que había decidido revisar a la baja su pronóstico, en primer lugar, debido a la proyectada reducción en la actividad del sector primario del 3,1% al 0,9%. El informe explicó que esto era el resultado de una estimada caída en la producción en el sector de la actividad pesquera en la segunda mitad del año debido a un esperado incremento en las temperaturas del mar como consecuencia del fenómeno climático de El Niño. El informe del BCRP también señaló que los menos favorables términos del comercio y la baja inversión del sector público condujeron a un crecimiento más bajo de lo esperado en los primeros meses del año. Los términos menos favorables del comercio aluden tanto a la sostenida apreciación del Sol desde inicios del año (se ha apreciado un 8,58% hasta ahora en este año, operando en NS$2,866/US$1 a principios de julio), y a la menor demanda global para las exportaciones minerales claves de Perú (las exportaciones tradicionales del país cayeron un 30% en el primer trimestre del año).

Dado este escenario adverso, el BCRP también revisó su proyección de la balanza comercial apara todo el año. Ahora cree que déficit comercial de Perú en el 2014 será del 4,8% del PIB, más que el 4,3% del PIB pronosticado originalmente. Este último panorama de la economía interna de parte del BCRP ayuda a explicar porqué el gobierno del Presidente Ollanta Humala ahora está apresuradamente tratando de introducir una serie de medidas tales como la eliminación del papeleo burocrático e introducir exenciones fiscales temporales que apuntan a impulsar la inversión y los niveles de consumo interno.

El gobierno primero envió un paquete de estímulos económicos conteniendo algunas de estas medidas al congreso nacional el 11 de junio. El paquete aún está siendo analizado por el congreso; sin embargo, pocos días antes de la difusión del último informe del BCRP, el 15 de junio, el (ahora ex) primer ministro, René  Cornejo, reveló que Humala develará un nuevo plan de diversificación económica, que incluye medidas adicionales que apuntan a remover aún más restricciones burocráticas a la inversión, en su discurso sobre el estado de la nación al congreso, el 28 de julio.

BOLIVIA | Entusiasta interés en planta de potasio. El 4 de mayor el gobierno boliviano reveló que firmas de China, Perú, y España han presentado propuestas para la construcción de una planta industrial de potasio en el sudeste del país, a un costo estimado de US$178m. La planta estará ubicada en las llanuras de salar de Uyuni, en el departamento andino de Potosí, que también alberga grandes reservas de litio, y se espera que produzca 700.000 toneladas (t) de sales de potasio anualmente.

El gerente general de la firma estatal boliviana, la Corporación Minera de Bolivia (Comibol), Luis Alberto Echazú, dijo que Camc Engineering de China; Graña Montero de Perú; y el consorcio Español-Boliviano, Tecna Bolivia, todos habían expresado su interés en el proyecto. Echazú agregó que el gobierno espera que la planta comience a operar para mediados del 2018.

El pasado abril, el Presidente de Bolivia, Evo Morales, anunció que el país invertiría US$617,9m en el desarrollo de las industrias de litio y potasio en el área de Uyuni. También hay planes para construir una planta industrial de carbonato de litio, para la cual una compañía de Alemania y otra de Suiza han sometido sus propuestas.

COLOMBIA | Caen las exportaciones en el primer trimestre. El departamento nacional de estadísticas (Dane) informó el 5 de mayo que las exportaciones de Colombia en el primer trimestre del año totalizaron US$9,42mm, un 30,2% menos que en el mismo periodo del 2014. De acuerdo con el informe de Dane, la caída trimestral en las exportaciones se produjo como resultado  de una significativa caída año en año del 22,8% en las exportaciones generales en marzo, de US$4,4mm a US$3,4mm.

El informe señala que la caída trimestral en las exportaciones responde “principalmente a una reducción del 42% en las ventas externas de combustible y del sector de las industrias extractivas, una caída del 46,1% en ‘otros sectores’ y un 7,3% en las manufacturas”. Esto a medida que la caída en los precios internacionales del petróleo continúa afectando  al sector de hidrocarburos de Colombia. Las exportaciones de hidrocarburos representan el 67% de todas las exportaciones del país. De hecho, el informe de Dane muestran que una caída en los embarques a India, EU, y China, contribuyeron en mayor medida a la caída en las exportaciones en general, representando el 24,9% de la caída. Estos países son algunos de los mayores consumidores de la producción del sector de hidrocarburos de Colombia.

Aún así, las cifras de Dane muestran que EU permanece como el principal mercado para las exportaciones de Colombia, llegando al 26% de las exportaciones totales. Detrás de EU están Panamá (8,5%), España (4,7%), Ecuador (4,1%) y Holanda y Aruba (3,7%).

Contrariando esta tendencia a la baja, las exportaciones de productos de agricolas, alimentos y bebidas aumentaron un 12% a US$623,9m en marzo, de acuerdo con el Dane.

Durante un evento público del 5 de mayo, el Presidente Juan Manuel Santos dijo que a través de la innovación, Colombia podría estimular sus niveles de exportación. Hablando en la ceremonia en la cual él otorgó el premio a la innovación empresarial (Innova) del ministerio de comercio, industria & turismo, Santos dijo que la innovación podría permitir a Colombia alcanzar su objetivo de exportar unos US$30mm en bienes y servicios de otros sectores que no sean los de hidrocarburos e industrias extractivas para el 2018.

El ganador del premio Innova de este año fue Industrias Acuña, por su desarrollo de una planta de extracción del aceite de palma que nueva usa tecnología; que no deja ningún residuo; y reduce el desperdicio de agua y energía.

COLOMBIA | Apuntalando los lazos de inversión y comercio con Portugal. El 5 de mayo los gobiernos de Colombia y Portugal anunciaron que ellos continuarán incrementando el comercio bilateral y la inversión, que ya ha crecido significativamente durante los últimos años pasados.

El anuncio fue hecho por la ministra de relaciones exteriores de Colombia, María Ángela Holguín, y el viceprimer ministro de Portugal, Paulo Portas, durante una visita del último a la ciudad portuaria del Caribe Colombiano de Cartagena de Indias. Los dos funcionarios señalaron que durante los últimos cuatro años, la inversión portuguesa en Colombia se ha incrementado de €5m (US$5,6m) a casi €500m (US$564m) y el comercio bilateral entre los dos países se ha expandido un 120%.

Holguín dijo que, “lo que hemos estado haciendo es formar una nueva asociación, donde ellos [Portugal] han encontrado un nuevo socio en América Latina, y nosotros hemos encontrado un gran nuevo socio en Europa”.

• Air Canada Rouge une a Lima con Toronto

El 2 de mayo Air Canada Rouge realizó su primer vuelo desde el Aeropuerto Internacional Pearson de Toronto hasta el Aeropuerto Internacional Jorge Chávez en la capital de Perú, Lima. El ministerio de turismo & comercio exterior (Mincetur) de Perú dijo que la nueva ruta de vuelo no solamente incrementará la conectividad entre las dos ciudades sino que también mejorará el turismo promoviendo un mayor comercio bilateral entre Canadá y Perú. Los 280 pasajeros recibieron regalos peruanos hechos de algodón, así como también fueron obsequiados con un show de danza peruana antes de embarcarse, organizado por la oficina peruana de comercio exterior (Ocex) en Toronto.

On 4 March 2016, Moody’s Investor Services placed the Baa2 sovereign rating of Trinidad & Tobago on review for a downgrade. However, a full- blown financial crisis in 2016 is unlikely.

Moody’s assessment is based on the structural shock to the finances of the government of Trinidad & Tobago resulting from the fall in prices of oil and gas, which together account for nearly two-thirds of total exports and about 30% of GDP. They also account for about 36% of government revenues (having generated half of revenues as recently as 2013). In December 2015, ratings agency Standard & Poor’s (S&P) had maintained its investment grade A/A-1 long- and short-term ratings for the sovereign, but revised its outlook from stable to negative.

Looking forward, Moody’s is fairly bearish about the prospects for the energy sector. The ratings agency looks for the price of oil (as per the Brent benchmark) to be US$33/barrel this year before rising to US$38/barrel in 2017. Moody’s expects that the price of oil will increase gradually to US$48/barrel by 2019. Moody’s is looking for a gas price (as per the Henry Hub benchmark) of US$2.25/ million Btu in 2016 and US$2.50/ million Btu in 2017.

Moody’s notes that, “assuming no policy response and other factors being equal, the depressed energy prices for the coming years would imply a further reduction of 22% in government revenues (to 23% of GDP from 30.6% of GDP), an increase in the fiscal deficit and a rise of 15 percentage points in Trinidad & Tobago’s debt burden over a four year period. (2013-2016).”

The current budget (for the year to September 2016) does recognise that the economic environment is much tougher than in much of 2015 (let alone 2014 and 2013). Overall spending in the year to September 2015 amounted around TT$61.8bn (about US$9.7bn). In the current year, spending – after one-off payments of back-pay to public sector workers – should be reduced by about TT$3.8bn.

Measures to boost revenues include changes to the Value Added Tax (VAT) system. The overall VAT rate is being reduced from 15.0% to 12.5% and the threshold for VAT registration has (since the beginning of 2016) been increased from TT$360,000 to TT$500,000. However, the base for VAT has been broadened, and collection has been made more rigorous. The government expects to boost overall VAT revenues in the current fiscal year by TT$4.0bn.

Other tax changes should boost revenues by another TT$1.2bn. These include: the reduction of the fuel subsidy (which had kept the retail prices of gasoline and diesel at artificially low levels); increased efficiency in the collection of tax; the introduction of a new property tax system; rises in the Green Fund and Business Levies; and a new tax for the gaming industry.

However, these figures pale into insignificance relative to what the government hopes to generate from one-off items. The budget envisages TT$13.4bn in revenues from: an Initial Public Offering (IPO) of Trinidad & Tobago NGL Limited; a partial repayment from insurance-based conglomerate CLICO – which had been rescued by the government in the wake of the global financial crisis; dividends from the National Gas Company (NGC); and a capital repayment from Trinidad Generation Unlimited.

In other words, the government has assumed that new revenue measures and one-off items will assist the budget to the tune of 3.2% of GDP and 8.2% respectively, with the result that the deficit falls from 4.2% of GDP in 2015 to 1.8% of GDP this year. This is in the context of the government having access to the Heritage & Stabilisation Fund (HSF), whose assets amount to around US$5.6bn (or 22% of 2016 GDP). In an address to the nation on 29 December 2015, Prime Minister Keith Rowley noted that the government plans to draw down around US$1.0bn from the HSF this year and, perhaps, another US$0.5bn in 2017.

In explaining its decision to place the government of Trinidad & Tobago on review for a downgrade, Moody’s identified a number of factors that could actually result in a lowering of the rating. One was a “marked worsening in the fiscal balance for which there was no clear reversal”. A second was pressure on the exchange rate regime. The third was deterioration in the local or regional political environment that disrupts energy production or investment. A fourth was signs of financial stress at state-owned oil company Petrotrin and the NGC.

Considering all of these factors together, it is nearly certain that Moody’s will downgrade the sovereign at some stage in 2016. Considering the factors individually, though, we conclude that a full-blown crisis is unlikely.

• Thanks to the combination of higher tax revenues, lower spending, one-off items and access to around TT$6.4bn in funds from the HSF, it appears unlikely that the government would really find itself in a situation where the deficit is irredeemably large. Even if the government is only able to raise half the amount that it is looking for in the current year from one-off transactions, the gap should be filled by money extracted from the HSF.

• Nor is there evidence of a foreign exchange crisis. The Central Bank of Trinidad & Tobago (CBTT) has allowed the currency to depreciate from around TT$6.35/US$, the prevailing level for much of 2015, to TT$6.55/US$ currently. However, this is in the context of a currency that had been appreciating in real terms for years previously because the level of inflation in Trinidad & Tobago had been higher than in the country’s trading partners. Foreign exchange reserves at the CBTT have run down from US$11.3bn in March 2015 to US$10.3bn (or about 11.8 months of export cover) at the end of 2015.

• Although the industrial relations environment in Trinidad & Tobago has often been difficult, in that workers have demanded and received wage increases that are quite independent of any improvement in productivity, there is no sign of an exacerbation in industrial tensions. Over the medium-term, any agreement with the government of Venezuela that permits the development of the Loran-Manatee gas field should actually boost production and exports. Meanwhile, there is no sign of financial problems at the state-owned energy companies that would be beyond the capability of the government to deal with.

In October 2015, we suggested that the government had not found a fiscal policy that is truly sustainable over the long-term. We did concede, however, that it had bought itself time in which it could build consensus with key stakeholders in order to make hard decisions. In short, we considered that a full-blown crisis was far from inevitable. This remains our view.

Presidents Alberto Fernández of Argentina and Luis Alberto Lacalle Pou of Uruguay finally met for the first time in their capacity as heads of state on 19 November. After testing negative for the coronavirus (Covid-19), Fernández flew across the River Plate to the Uruguayan presidential country retreat of Anchorena, Colonia department, where Lacalle Pou welcomed him with a home-cooked barbecue.

The meeting between the two neighbouring heads of state was long overdue. The last time Fernández and Lacalle Pou met in person was at the former’s investiture in Buenos Aires in December 2019, which Lacalle Pou attended as Uruguay’s president-elect. Fernández did not return the courtesy on 1 March this year, opting to miss Lacalle Pou’s swearing-in ceremony for the opening of the Argentine congress [WR-20-09]. Plans for a meeting at a later date did not materialise before the onset of the Covid-19 pandemic paralysed travel and monopolised presidential agendas.

The pandemic may have provided a convenient excuse to avoid a meeting. There have been rumours that communication between Fernández and Lacalle Pou broke down earlier this year, and in early October Uruguay’s former president José Mujica (2010-2015) was reported as saying that Lacalle Pou’s attempts to establish a dialogue were being ignored in Argentina. It is true that there are some fundamental political differences between Fernández, a leftist Peronist, and Lacalle Pou, who governs backed by a broad right-leaning coalition, but both men sought to paint their meeting last week in a positive light.

It was a “good meeting” which they “owed” each other, Lacalle Pou said in brief comments after Fernández’s visit, saying they discussed “a little of everything”. In a statement, Fernández similarly qualified the meeting as very good. “We were able to speak at ease on the problems of the region in general and Argentina and Uruguay in particular,” Fernández said, adding: “We believe we must work together to unify the region, respecting ideological diversity”. Uruguay’s foreign minister Ernesto Bustillo did appear at pains to stress that all the subjects broached during the “informal” meeting – which included the pandemic response and the Paraná-Paraguay waterway on the River Uruguay – were discussed superficially, and that no decisions were reached.

The diversity – or lack of unity – mentioned by Fernández is notably on display in the Southern Common Market (Mercosur) regional trade bloc, which was also discussed. Uruguay is keen to see the ratification of a trade deal reached last year between Mercosur (whose members include Brazil and Paraguay as well as Argentina and Uruguay) and the European Union (EU), but resistance from EU members, notably over concerns with Brazil’s lack of environmental safeguards, has put the deal at risk. Uruguay is now trying to salvage it but, under Fernández, Argentina has shown little enthusiasm for the deal, or for Mercosur pushing forward with other trade negotiations. 

• Bustillo goes to Europe

On 25 November, Uruguay’s foreign minister Ernesto Bustillo set off on a tour of European countries, during which he is expected to sound out the level of support for the EU-Mercosur trade deal and seek to advance the possibility of ratification. Bustillo is due to visit France and Germany and to meet EU officials, including the European Commission’s Trade Commissioner, Valdis Dombrovkis, and the foreign policy chief, Josep Borrell, in Brussels. Bustillo is also due to visit Russia.  

Other possible sources of tension between the two countries are Uruguay’s efforts to attract foreign residents with tax breaks [EB-20-08], which has caused a small exodus of wealthy Argentines, with a reported 150 per week requesting residency at the moment; and Argentina’s plans to entice tourists from neighbouring countries in an efforts to boost economic activity, whereas Uruguay is discouraging international travel and has opted to keep its borders closed to foreign nationals during the Southern Hemisphere summer as a precaution against the coronavirus.

In the first seven weeks the Banco Central de Venezuela increased the volume of dollars available for discretionary imports by 44%, year-on-year. The move reinforces two well substantiated assumptions. The first is that with crude oil prices surging again, the government has money coming out of its ears. The second is that this money will be spent where it can have most immediate benefit on President Hugo Chávez’s re-election. Elections are due on 7 October 2012.

The Sitme (Sistema de Transacciones con Títulos en Moneda Extranjera) is where importers buy dollars with Bolívares to pay for imports that are not covered by the Cadivi system which allows importers of essential goods to pay for imports at the official rate of B$4.3 to the US dollar. Cadivi imports account for about 46% of the country’s total imports.

The increase in the availability of Sitme dollars suggests that the government will do everything it can to ensure adequate supplies of food and other consumer goods in the run up to the election. One consequence of the increase in the dollars available for imports will be that inflation may well come down before the election, despite the authorities’ lax monetary policy stance.

The Sitme is partly designed to soak up excess Bolívares because it is the market where importers have to buy either government or Pdvsa bonds in Bolivares to exchange back for US dollars (at the central bank) at a rate that is closer to the official rate than the black market rate. Importers can sell these bonds for dollars at B$5.3/US$1 to the central bank. The government issues the government and Pdvsa bonds as a way of trying to control the volume of Bolívares in the economy and discouraging the use of the black market where the Bolívar trades at about B$8.7 to the US dollar.

The central bank reported that, in the first seven weeks of 2012, it sold US$1.099bn of dollars to importers who bought the bonds. This was 44% up on the same period of 2011.

Despite the increase, the index of goods’ scarcity has risen. In January 2012 the index hit 16.2%, the highest for 44 months.

The government’s determination to control the exchange rate has led to it almost doubling the country’s foreign debt. Between 2008 and the third quarter of 2011 the country’s US dollar debt increased by 86.5%, despite the strength of oil prices over this period.

Inflation: In January consumer prices rose by 1.5%. High though this is by regional standards it represents a considerable improvement on what happened in 2011 when inflation was 27.6%, up slightly on 2010’s 26.9%. The January figure is also an improvement on December when the consumer prices index rose by 1.8%.

Another encouraging aspect of the January inflation figure is that, of the 13 sub-indices that compose the index, only four rose by more than the average; the four were healthcare (1.8%); restaurants and hotels (1.9%); food and non-alcoholic drinks (2%; alcoholic drinks & tobacco (3.3%).

Even so the lagging 12 month rate is still 26%.

The government’s inflation target for 2012 is for a rate of between 20% and 22%.

Price controls: The vice president, Elías Jaua, said that the new controls on all personal care and other basic products will come into force on 1 March, unless the private sector can demonstrate that the new controls are unfair. In November 2011 the government froze the prices of 18 common hygiene products under the Ley de Costos y Precios Justos.

President Hugo Chávez said that the government would keep a sharp eye on the prices of products produced by Colgate, Palmolive, Pepsi-Cola, Nestlé, Johnson and Johnson, Coca-Cola and Unilever Andina (among multinationals). He added that the government would also monitor the prices Alimentos Polar is charging. Categories of goods whose prices are to be monitored include: bottled water; fruit juice, bleach, soap, washing-up liquid, cleaners, shampoo, deodorants, lavatory paper and disposable nappies.

With the constitutionally determined deadline of 30 November looming, Costa Rica’s lawmakers were obliged to participate in a rare, Saturday session of the 57-member unicameral legislature to vote on the government’s budget. It passed, with 27 votes in favour and 22 against, much to the relief of the leftist Partido Acción Ciudadana (PAC) administration of President Luis Guillermo Solís. However, a ruling is still pending on the constitutionality of the budget’s passage following a complaint by an opposition legislator.

The final text set out a budget of C$7.9tr (US$14.5bn), with just over half (C$4.2tr) financed by government revenues and C$3.7tr requiring financing. The budget is almost 20% higher than the spending plan approved last year, in the final budget of the Partido Liberación Nacional (PLN) administration of President Laura Chinchilla. The deal was passed thanks to the votes of the PAC, the left-wing Frente Amplio, the Partido Renovación, the Partido Accesibildad sin Exclusión and, crucially, four votes from the Partido Unidad Social Cristiana (PUSC).

Solís won over those four votes after promising to adhere to a series of rules set out by PUSC legislators to ensure fiscal responsibility and spending efficiency. It has taken over three months to negotiate the budget and it is possible that there may be further wrangling down the road. On 26 November, 14 legislators, led by Otto Guevara, from the libertarian Movimento Liberal party, filed a complaint questioning the approval of the draft budget bill in a first round vote on 25 November.

After lawmakers voted down all three budget proposals, the assembly president, Henry Mora, from the PAC, passed the government’s original proposal. Citing Article 178 of Costa Rica’s Constitution, he argued that given the rejection of all of the spending plans, only the government’s proposal had validity. The constitutional court now has a month to decide whether Mora’s actions were justified.

Gloom descends

Shortly before the budget’s approval, a survey conducted by the private sector umbrella group, Unión de Costarricense de Cámaras y Asociaciones del Sector Empresarial Privado (UCCAEP), found Costa Rican businesses were gloomy about their prospects for next year. Increases in the costs of production and the apparent lack of a clear strategy from the government to improve the business environment in the country were cited as the principle reasons for a loss of confidence in the private sector.

Published on 26 November, the survey found that six out of ten companies reported significant increases in production costs over the past year, mainly due to rises in the cost of electricity and fuel. Over 60% of those surveyed ruled out taking on new staff or increasing investment in the short-term. “The loss of confidence in the sector is worrying,” Ronald Jimenez, the president of UCCAEP, said. “Without confidence there is no investment, without investment it is impossible to create the jobs that the country needs.”

The “Business Pulse” survey interviewed 460 directors of small, medium and large companies between the middle of October and the middle of November. It found that 28% had been obliged to lay off staff during the course of 2014; 61% ruled out new hires in 2015. The survey showed a 5% fall in confidence from the same period of last year.

National Development Plan

Tackling social inequality was one of the president’s campaign promises. On 17 November Planning Minister Olga Marta Sánchez unveiled a national development plan (PND) to reduce poverty and tackle Costa Rica’s rising levels of inequality. Health, education and infrastructure projects form the backbone of the 164 programmes Sánchez announced. The government has also promised to prioritise domestic food security over cultivating crops for export as a way of reducing the number of households in extreme poverty.

Drug trafficking making in-roads into Costa Rica

At the end of November, Costa Rica’s judiciary created a new court system designed to tackle drug trafficking in the country. The move is arguably the most glaring admission that over recent years, drug trafficking has become a serious issue in the Central American country. In May this year a judge in the Caribbean port city of Limón, Rosa Elena Gamboa, was accused of charging C$20m (US$40,000) to free a drug trafficker.

According to Carlos Chinchilla, a supreme justice court (CSJ) magistrate, the thinking behind the new system is to concentrate all investigations, search warrants and wiretaps in a specialized part of the judiciary in order to prevent leaks. “[Currently] Much of the information is leaking and investigations are ruined. Today, judges are vulnerable in the communities in which they live. The idea now is to have determined judges, who want to do their job properly and without fear of losing their lives,” he said.

On 13 November Costa Rica’s attorney general, Jorge Chavarria, said that Mexican drug cartels are supplying the country’s criminal groups with machine guns and grenades. A week earlier, the public security minister, Celso Gamboa, said that police had seized nearly 23 tonnes of cocaine in 2014, more than any other country in Central America.

Guatemala, El Salvador and Honduras have long been the preferred transit countries for Mexican traffickers but as some governments have cracked down on the problem with hardline security policies, Costa Rica, which has no standing army, has become an increasingly attractive stopover.

On 25 November, new data released by the Office of Judicial Investigations showed San José remained the most violent part of the country, with 58 reported homicides so far this year. In second place, Limón had been overtaken by Desamparados, a suburb of the capital. So far this year 38 murders have been recorded in the area, the vast majority of which appear to have links to drug trafficking.

• San Juan River tensions

On 18 November Costa Rica’s foreign minister, Manuel González, and Public Security Minister Celso Gamboa presented video and photo footage supporting claims that Nicaraguans have been removing trees and widening the bank on the Costa Rican side of the San Juan River that divides the two countries. Earlier, Nicaragua had denied the charge, arguing any activity in the area was part of essential maintenance of the area. The area is the subject of a dispute brought by Costa Rica before the International Court of Justice (ICJ) in 2010.

MEXICO | Sheinbaum announces minimum wage hike. Mexico’s President Claudia Sheinbaum announced on 4 December that the minimum wage will rise by 12% in 2025, bringing the general minimum daily wage to M$278.80 (US$13.75) and the daily wage in the country’s northern border free zone (ZLFN) to M$419.88.

The government said this was in line with its objective of raising the minimum wage to cover the cost of 2.5 so-called basic food baskets by 2030 – when Sheinbaum’s term is due to end.

The announced minimum wage rise is in line with a reform introduced by Sheinbaum’s predecessor, Andrés Manuel López Obrador (2018-2024), earlier this year and passed in September.

The reform dictates that the minimum wage must be increased at the beginning of each year by more than the prevailing inflation rate. Annual inflation stood at 4.55% in November, according to Mexico’s national statistics institute (Inegi), well under the proposed wage hike.

MEXICO | Vehicle sales surge in November. According to Mexico’s national statistics institute (Inegi), 147,971 light vehicles were sold in Mexico in November, a 14.3% rise on the same month of 2023. Vehicle production was also up year-on-year, with 351,535 vehicles produced, up 6.74% from November 2023 whereas vehicle exports were up 2.85% year-on-year at 289,309.

In the first 11 months of the year, 1.35m vehicles were sold, up 10.68% on the same period of 2023. Production and exports were also up, with 3.76m vehicles produced (+5.65%) and 3.21m exported (+6.45%) between January and November.

The figures provide a boost for Mexico’s automotive sector at a time when uncertainty is high following threats from US President-elect Donald Trump to impose steep tariffs on imports from Mexico [WR-24-45]. Some 80% of Mexican vehicle exports go to the US.  

MEXICO | Gig worker reform. Mexico’s lower chamber of congress approved a reform on 10 December to regulate working conditions for delivery drivers working for digital platforms such as ride-hailing app Uber and food delivery app Rappi.

The reform, which amends the federal labour law, received cross-party support with all 462 deputies present voting in favour. The reform would introduce regulations for work done through such platforms, ensuring basic labour rights for workers who earn at least a monthly minimum wage through the app such as social security, the right to unionise, and access to pensions, maternity leave, and a Christmas bonus.

Workers that earn less than the monthly minimum wage will be considered self-employed and will not have access to all the benefits, although the reform stipulates that the companies must offer accident insurance.

Banxico releases biannual report

In its biannual report released on 11 December, Mexico’s central bank Banco de México (Banxico) highlighted the “strength and resilience of the financial system” in Mexico in the face of significant external challenges. Banxico said the economy showed signs of weakness in the second quarter, expanding by just 0.4%, but recovered to grow by 1.1% in the third quarter.

Nicaraguan officials have proposed a new route for an interoceanic canal across the country, hoping to take advantage of burgeoning relations with China to bring a long-held ambition to fruition.

Plans for the new route were greenlit following constitutional changes approved by the legislature on 22 January, allowing the state to authorise concessions for the construction of the “Gran Canal”. This came after President Daniel Ortega unveiled the new proposal for the canal at the XVII China-Latin America & the Caribbean (LAC) business summit in Managua on 18 November.

The route will link Bluefields, Nicaragua’s main Caribbean port, in the South Atlantic Autonomous Region (Raas), to Corinto port, Chinandega department, passing through Lake Managua (Xolotlán), rather than running from Bluefields to a proposed port at Brito, on the Pacific coast in the southern department of Rivas via Lake Nicaragua (Cocibolca), the largest freshwater lake in Central America, as per previous proposals.

The original plan was floated more than 10 years ago but appeared to have been abandoned after Hong Kong Nicaragua Canal Development Investment Company (HKND), the Chinese company which won the US$50bn concession to build, operate, and manage the initiative, was dissolved.

Ortega has been preparing the ground for a revived project for some time. In May 2024 the 92-member unicameral legislature, which is completely controlled by Ortega’s Frente Sandinista de Liberación Nacional (FSLN), approved reforms to the law regulating the Gran Canal. These revoked the law (840) which granted the concession to HKND and amended the law (800) establishing the autonomous authority of the Gran Canal Interoceánico de Nicaragua (AGCI), the oversight body for the project.

This appears to be an effort to strengthen control over the project, which is highly controversial due to concerns about the environmental impact, violation of property rights, and lack of transparency surrounding it.

The legitimacy of these concerns was recognised in November 2024 by the Costa Rica-based Inter-American Court of Human Rights (Corte-IDH), an arm of the Organization of American States (OAS). The court issued a ruling which found that the Nicaraguan state had violated the rights of indigenous people in relation to the Gran Canal initiative. These included violations of the rights to property, judicial guarantees, and a healthy environment through failing to carry out appropriate prior consultations or environmental and social impact studies.

The ruling is unlikely to have any impact on Ortega’s plans, and the president is now in a stronger position to put down any opposition. Nicaragua withdrew from the OAS in 2023, accusing it of meddling in the country’s domestic affairs, and Ortega has become even more authoritarian since. Recent constitutional reforms give him and his wife, Vice President Rosario Murillo, extraordinary powers and further increased their ability to repress internal dissent.

Building a Gran Canal is also made more likely by Ortega’s rapidly strengthening relations with China since the two countries established bilateral relations in December 2021. For example, the government has announced a string of agreements with Chinese companies, including an engineering, procurement, and construction contract for Bluefields port which was signed by the transport & infrastructure ministry and Chinese firm CAMC Engineering. 

China has shown an increasing interest in interoceanic links in Central America in recent years. It is reportedly considering investments in a rail and road project across Honduras, as well as in the Gulf of Fonseca, a natural harbour on the Pacific shared by El Salvador, Honduras, and Nicaragua. This interest has also been spurred by increasing concerns over the viability of the Panama Canal as recurring periods of drought have led to transit restrictions.

However, while conditions may be more favourable this time around, building such a canal would be a massive undertaking. The proposed route is 445km long, all of which would need to be newly built aside from a 55km section that would run through Lago Xolotlán. It would also involve two sets of locks, one close to the Pacific coast and another on the Caribbean side, which would create a huge artificial lake. 

Other considerations:

Even if financing for the Gran Canal can be secured it would take years to build. At the same time, Panama is working to secure water supplies for its canal to maintain operability, and Mexico is investing heavily in an interoceanic railway across the Isthmus of Tehuantepec, which links the ports of Coatzacoalcos on the Atlantic coast and Salina Cruz on the Pacific coast. While Nicaragua has not released details on the estimated cost of the Gran Canal, it is likely that improving on these existing interoceanic routes will be cheaper and arguably more cost effective than a brand-new canal. However, if US President Donald Trump follows through on threats to “take back” control of the Panama Canal and starts to restrict access for Chinese shippers, Beijing may be incentivised to invest in a Nicaraguan alternative.