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Fiscal adjustment and debt reduction should be top priorities for the government, according to an International Monetary Fund (IMF) mission led by David Moore, which visited Antigua & Barbuda on 17-21 June.

The mission commented that GDP growth in the small Caribbean country – which has a population of nearly 100,000 - has been encouraging. GDP (half of which is tourism-based) grew by 4.2% in 2023 and is set to expand by 5.8% this year, lifted by the Small Islands Developing States Conference (SIDS4) and Antigua & Barbuda’s role co-hosting the T20 Cricket World Cup. Inflation peaked at 6.0% in April, up from 3.3% at the end of last year.

A large part of the IMF press release issued at the end of the mission’s visit deals with the debt problem. The Fund says that the high public debt burden “poses ongoing challenges”. The debt-to-GDP ratio has actually improved from around 100% in 2020 to 76% in 2023, but this is partly due to a revision of GDP statistics: arrears are substantial, and cash constraints continue to be necessary. The mission welcomes the 2024 budget as an important step to build stronger fiscal buffers. The budget includes a range of measures which will improve the fiscal balance by 0.5 percentage points of GDP. One of them is an increase in the ABST sales tax, which goes up to 17% from 15% previously. The base of the tax is also widened; excise taxes on alcohol, tobacco and cannabis products are increased; and property taxes on luxury homes go up.

Bank credit and NPLs

The IMF mission to Antigua & Barbuda notes that bank credit to the private sector rose by 7% last year after contracting in both 2021and 2022. Non-performing loans (NPLs) for banks and credit unions remain “modestly above the prudential level of 5%”. The IMF calls for stronger regulation of credit unions.

MEXICO | Annual inflation slows. On 9 September Mexico’s national statistics institute (Inegi) reported that the consumer price index (INPC) increased by 0.01% in August compared to the previous month. This brought the annual inflation rate to 4.99%, down from 5.57% in July and breaking five consecutive months of annual increases. The core inflation rate, which excludes volatile items, rose by 0.22% in monthly terms and 4.00% in yearly terms, down from 4.05% in July.

MEXICO | Vehicle sales, production, and exports up. On 6 September, Mexico’s national statistics institute (Inegi) announced that 127,684 light vehicles were sold in the domestic market in August, up 11.91% on August 2023. According to the same report, 352,615 light vehicles were produced in August 2024, up 8.27% on the same month in 2023. As regards exports, 292,670 light vehicles were exported in August 2024, up 1.68% from August 2023.

MEXICO | Job creation in August. On 5 September Mexico’s national social security institute (IMSS) released a new report showing it had registered 22.39m jobs as of 31 August – an increase of 58,047 as compared to the end of July. With this figure, the IMSS registered an increase of 392,960 jobs in the past 12 months, equating to a yearly increase of 1.8%.

MEXICO | Unemployment falls. On 3 September, Mexico’s national statistics institute (Inegi) published new figures showing that the unemployment rate of the economically active population – those aged 15 or over who are either employed or seeking employment – was 2.9% in July. This was down by 0.2 percentage points compared with July 2023, equating to a drop of 102,000 people. In seasonally adjusted monthly terms, the unemployment rate fell by 0.1 percentage points compared with June.

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

Mexico: unemployment rate
Economically active population

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

Source (all graphs): National Statistics Institute (Inegi

CHILE | IMF concludes Article IV mission, stresses need for growth. On 26 November the International Monetary Fund (IMF) released its concluding statement from its Article IV mission to Chile, noting that “the economy’s imbalances have largely been resolved” while emphasising that “a boost in Chile’s growth is urgently needed”. The IMF predicts GDP growth of 2.3% in 2024, due to a strong performance by mining and service exports, and of between 2.0% and 2.5% in 2025, when it expects a recovery in domestic demand. However, it highlights that “the recovery has been uneven across industries, the labour market is lagging, and inflationary pressures have not yet fully abated”. Inflation is not predicted to fall below the 3.0% target until early 2026, mostly due to a steep rise in electricity tariffs between June 2024 and February 2025. The IMF calls for structural policies aimed at “boosting medium-term growth and employment, strengthening fiscal, financial sector and international reserve buffers particularly in the context of a challenging global environment, and further reducing inequality.”

ARGENTINA | Central bank lowers interest rates again. Argentina’s central bank (BCRA) announced on 5 December that it is lowering the country’s benchmark interest rate by 300 basis points to 32%. This is the eighth and smallest rate cut since President Javier Milei took office in December 2023, when rates stood at 133%. In a statement, the BCRA attributes the decision to “the observed consolidation of expectations for a lower inflation rate”. Monthly inflation has continued to slow under Milei’s ‘shock therapy’ of austerity measures, standing at 2.7% in October, down from 3.5% in September and 4.2% in August. The annual inflation rate stood at 193% in October, down from 209% in September and 236.7% in August. Economists surveyed monthly by the BCRA expect monthly inflation of 2.8% in November and 2.9% in December, and they forecast that annual inflation will have slowed to 118.8% by the end of the year.

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

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

CHILE | Growth projections increased. Finance Minister Felipe Larraín announced on 10 July that the government had revised up its GDP growth predictions for 2018 from 3.5%, when President Sebastián Piñera took office in March, to 3.8%.

Larraín told a congressional commission that inflation is projected to increase from 2.8% to 2.9% and internal demand from 4.1% to 4.8%.

The revised growth projections are due in part to higher prices for copper, Chile’s main export, but could be brought down once more if the US-China trade war escalates.

A political debate is a rare thing in Venezuela, all the more so when it pits the horsemen of the apocalypse against each other. But this is what happened on 14 November when the five presidential pre-candidates for the opposition coalition Mesa de la Unidad Democrática (MUD) accepted an invitation from a student movement to take part in a debate ahead of primary elections in February for the right to face President Hugo Chávez next October. Chávez himself has no intention of jousting with whichever of the five opposition pre-candidates he compared to the horsemen from the Book of Revelation emerges victorious in the MUD contest next year.

The five pre-candidates competing for the MUD candidacy held the televised debate at the Universidad Católica Andrés Bello (Ucab) in Caracas. For the most part they sought to minimise references to Chávez by name and to focus on their plans for Venezuela. How completely Chávez dominates any political debate in Venezuela and simply cannot be ignored was underlined, however, by the fact that the pre-candidate deemed to have performed best, María Corina Machado, had fewer qualms about attacking him; the current frontrunner in the polls, the governor of Miranda, Henrique Capriles Radonski, who was much more inhibited, and at pains to avoid mentioning Chávez, came over as less inspiring and even a bit insipid. It was not surprising Capriles was more guarded – he is trying to attract dissident Chavistas too – while Machado, who is well adrift in the polls and lacks the backing of a mainstream opposition party, had far less to lose and needed to be more distinctive.

Debates have never really been part of Venezuelan political culture, still less since 1998 when an almost unknown Chávez was involved in a pre-electoral debate. As such it was a new challenge for the five pre-candidates facing questions from students for more than an hour ranging from education, the economic system and employment to drug-trafficking and public security.

It was noteworthy that while all of the pre-candidates suggested that violent crime and impunity was one of the biggest problems Venezuela faced, none of them advocated the iron fist (mano dura) approach employed by Central America. Capriles said he would tackle public insecurity through job creation and working closely with governors and mayors of all stripes as this “is not a political problem” - an implicit criticism of the Chávez administration for not working with the opposition on the issue. Machado, whose campaign bus was shot at by a couple on a motorcycle in Caracas on 12 November, said it was a systemic problem which required the transformation of the police, better education and jobs. Pablo Pérez, the governor of Zulia, said he would offer secure jobs and “a non-politicised education”. Former mayor Leopoldo López promised “jobs, education and sport”.

• The Hague

Diego Arria, a former UN ambassador who has the least chance of winning the MUD candidacy, was, unsurprisingly, the most outspoken. “The end for all of those who abuse their people is a town called The Hague where the International Criminal Court is based,” he said. “This is not retaliation, it is not vengeance, it is justice.” He concluded his closing speech in the debate by saying he would file a suit against President Chávez for human rights abuses on 21 November.

The region as a whole would benefit from further development of financial institutions and markets. However, the gains, in terms of economic growth, would likely be less for Brazil and Chile, where financial institutions and markets are most developed, than in other countries.

In its latest Regional Economic Outlook of the Western Hemisphere, the IMF devoted a chapter to an examination of the financial development of Latin America and the Caribbean¹.

In assessing the financial development of each country considered, the IMF constructed a Financial Development Index, which has two core components: Institutions and Markets. Both components take into account access, depth and efficiency.

The IMF found that, across the region as a whole, access to financial institutions had expanded substantially between 2004 and 2003. Partly for this reason, most countries in Latin America and the Caribbean are assessed more favourably for Institutions than for Markets. However, the countries of the region generally lag behind other emerging markets (but not low income countries) in terms of overall financial development.

Of course, there is considerable variation between the countries. [1] For the 123 countries globally for which the IMF gathers data, the Financial Development Index varies from zero to one, which is the Index for the country with the highest level of overall financial development. The average Financial Development Index for the G7 countries is about 0.6. For Brazil and Chile, the Index is a little less than 0.5. The Index is between 0.3 and 0.4 for each of Panama, Mexico, Colombia and Peru. At the other extreme, the Index is a little over 0.1 for Nicaragua.

The IMF highlighted the positive relationship between financial development and growth. However, Brazil and Chile are nearest the ‘optimum’ level of development beyond which the marginal impact on growth from any further development is negative. Conversely, further financial development in the Dominican Republic, Paraguay, or Honduras could have an increasing – and positive – impact on growth.

The IMF suggests that the fundamental elements of a well-functioning financial system include: strong property rights; an efficient legal system; low corruption; sufficient financial information; and sound prudential regulation and supervision.

It argues that countries that fare poorly in terms of the depth and efficiency of financial institutions (e.g. the Dominican Republic, Jamaica and Peru) could look to improving the rules defining property rights and collateral, as well as strengthening credit reporting systems.

Stronger legal and regulatory frameworks, together with the use of standardised and simple instruments, could help countries in the region with underdeveloped bond markets such as Costa Rica and Uruguay.

Conversely, countries with underdeveloped stock markets could benefit from policies that increase demand for and supply of equities – such as pension reforms, financial liberalisation, improved corporate governance and changes to tax systems.

[1] IMF, Regional Economic Outlook – Western Hemisphere: Adjusting Under Pressure, October 2015

At the same time as water availability is decreasing due to climate change, demand is increasing due to population growth in urban areas and the expansion of economic sectors such as agriculture and manufacturing.

This means more competition for resources between households and industrial users, increasing social conflicts. As shown in Figure 6, the amount of water resources per capita has declined significantly in the region since 1961, at a faster rate than the global average, and countries such as Peru, Colombia, and Chile have seen particularly steep declines.

Agriculture is a massive economic engine for the region and the industry has expanded hugely in recent decades with the proliferation of large scale intensive farming. Water use has increased dramatically as a result, with consumption for agricultural irrigation representing between 35% and 86% of total available water in the region, according to a 2022 study. 

In Mexico, for example, the agricultural sector uses 76% of available water, compared to 15% for households. As shown in figure 7, in some countries in South America that proportion is even higher. Bolivian agriculture represents 92% of total water withdrawals, and that figure is only slightly less in Chile (90.9%). Agriculture uses 86.6% of water withdrawals in Uruguay, 86% in Colombia, and 85.1% in Peru.

Figure 7. Agricultural water as a share of total water withdrawals, 2020
Agricultural water withdrawals as a percentage of total water withdrawals (which is the sum of water used for agriculture, industry and domestic purposes). Agricultural water is defined as the annual quantity of self-supplied water withdrawn for irrigation, livestock and aquaculture purposes.

Source: Our World in Data using data from the World Bank

Some increasingly popular crops such as avocados, which are grown in large and growing quantities in Mexico, Colombia, and Peru, are particularly thirsty. Avocado harvests have increased massively in recent years to keep up with a spike in global demand for the fruit, and Latin America accounts for 75% of global production. Flower agribusiness is also a growing source of tension, with the successful expansion of rose farming in Ecuador and Colombia also creating issues with local communities.

And the massive expansion of soybean farming in South America, which now produces around half of the global supply of soy, commonly used as livestock feed, has transformed the landscape in large parts of the continent in recent decades. Figure 8 shows how production has skyrocketed, particularly in Brazil.

Figure 8. Soybean production by harvest, thousands of metric tons

Source: Americas Quarterly using data from USDA

While the development of agriculture increases water demand, producers are also being affected by drought. In Uruguay, the 2023 drought led to a 60% reduction in agricultural yields, and in Argentina production of soybean, corn, and wheat was 45% lower in 2023 compared to the previous year. In the western Chaco region of Paraguay, drought has forced ranchers to move nearly 1.5m head of cattle further east in hopes of better conditions there.

As well as affecting the power supply in countries reliant on hydropower, water shortages also affect many industrial facilities that require significant amounts of water as part of processes such as washing, diluting, fabricating, cooling, or transporting products, and these demands add to pressure on supplies.

This can lead to social conflicts, particularly in areas suffering from drought, as local communities struggle to secure water for household use. Significant examples include drinks manufacturers in northern Mexico, where companies such as Coca Cola and Heineken are facing growing criticism from locals who say that industry is being prioritised over their needs. In August 2022, then President Andrés Manuel López Obrador floated the possibility of halting beer production in the north of the country due to water shortages, instead proposing that companies set up operations in the southern states where there is more water available.

Tensions between household and industrial use has also been a flashpoint in Uruguay, where protests erupted after authorities asked households to reduce their water consumption during the drought in 2023, while allowing industry to continue as normal. In recent decades Uruguayan authorities have worked hard to encourage the expansion of agriculture and industries such as paper manufacturing. This involves the development of vast plantations of thirsty eucalyptus trees that are grown to provide raw materials to pulp mills, which themselves use significant amounts of water.

Mining, another key industry for mineral-rich Latin America, can also be extremely water intensive. Copper production, which uses significant amounts of water to process ore, is threatened by concerns over water supplies, particularly as large deposits are found in some of the driest places on earth.

In 2021, UK miner Antofagasta revised its production targets down citing drought, and authorities have taken action to limit water use by miners. For example in 2021 a court ordered BHP Group to suspend groundwater pumping at the Cerro Colorado copper mine due to worries over the effects on a subterranean aquifer. The miner ultimately decided to scale down operations at the facility due to the ruling.

Miners in Chile have also been forced to look for new sources of water due to stringent new regulations designed to limit consumption, with some choosing to invest in desalination plants that make seawater usable for industrial processes. While industry heavyweights such as Antofagasta Minerals and Anglo American are committed to reducing freshwater use as part of efforts to improve sustainability, these efforts add to operating costs. 

Increasing water scarcity also increases the risk of more stringent rules in a growing number of jurisdictions in a bid to head off social unrest. In Peru, among the most mineral-rich nations globally and the second-largest producer of silver, copper, and zinc in the world, mining operations have been severely disrupted by protests linked to water.

Waste produced by agriculture and industry also affects remaining water supplies. Mining operations are also associated with water pollution as chemicals enter the water table, and poorly protected tailings leak. Intensive farming methods common in large monoculture plantations of crops such as soya use significant amounts of herbicides and pesticides, which run off into rivers and streams leaving toxic contamination. Industrial processes also produce waste products, and in many countries lax or unenforced regulations mean that they find their way into remaining water sources. This impacts water quality, meaning that it has to be treated more intensively in order to be fit for human consumption, adding to the costs of providing potable water.

With little over a week to go before Colombia’s legislative elections on 8 March, and with presidential polls due on 31 May (with a possible second round runoff, if needed, on 21 June), President Gustavo Petro has started crying foul.

Petro is not the first, and will certainly not be the last, incumbent president to question the integrity of the election process at the end of his term in office: Donald Trump in 2020 and Jair Bolsonaro in 2022 are the two most prominent recent examples. Now, through various posts on social media Petro has made a number of claims. Many were aimed at the role of Grupo ASD, a private electoral contractor which is a subsidiary of Thomas Greg & Sons.

Petro has a history of animosity towards Thomas Greg & Sons; during his term the government withdrew its contract with the company to print Colombian passports. Petro argued that “Thomas Greg cannot manage electoral computing software when at the same time it manages Colombians’ data through its involvement in ID issuance authorised by the Registry Office.”

In the 2022 elections ASD used hired contractors to report early results by telephone, using a form known as an E-14; often this was done while voting was still in progress, something Petro believes implies a lack of security and reduced transparency. Petro added that in 2022 the results of at least 4,200 voting booths were modified through what he called “iterations of the algorithms”, leading to the loss of around 400,000 votes for his left-wing coalition Pacto Histórico.

Petro also claims a subsequent court order from the council of state requiring the use of state-owned (rather than privately-owned) electoral software has been only partially implemented. He now wants the source code of the software to be made available for public scrutiny.

Petro’s sense of foul play is also partly based on events in the 2014 congressional election when the council of state acknowledged that faults in the voting system had harmed the conservative Movimiento Independiente de Renovación Absoluta (Mira), which was awarded an extra three seats to acknowledge an unfair outcome.

Petro’s claims were nevertheless widely rejected by electoral officials and fact-checkers. Commenting on the 400,000 ‘lost’ votes, former electoral registrar Alfonso Portela said they had never gone anywhere: while overlooked in the provisional totals, they were ‘found’ during the manual count. In short, an anomaly was detected and corrected; an error in past polls does not prove a conspiracy to manipulate those in the future.

Ombudsman Iris Marín said it is always legitimate to question electoral integrity, but that any faults or wrongdoing should be reported to the electoral authorities with supporting evidence – something Petro has not done. The national electoral council (CNE) says it regularly carries out audits. Many argued that Petro has confused the process of gathering early results (done rapidly and by telephone) and the formal vote count (done with more time and by hand).

Alejandra Barros, the director of the election observation mission (MOE) criticised what she termed Petro’s “narrative”. She argued that there is little or no risk of fraud in the transmission and consolidation of electoral data, but there is a longstanding and recognised problem around vote-buying and electoral logistics. Other analysts note that Thomas Greg & Sons were also involved in elections when Petro emerged victorious – the mayoral elections in Bogotá in 2012, and the presidential elections in 2022 – and he did not raise any complaints on those occasions.

As to why Petro has chosen this late stage to raise questions, he might be preparing a potential excuse should Petro’s Pacto Histórico coalition perform poorly next month. It is worth noting that Iván Cepeda, the candidate for the Pacto Histórico, is currently leading the presidential race with 37.1% of voter intentions ahead of far-right lawyer Abelardo de la Espriella with 18.9%, according to a survey published by the national pollster Invamer on 25 February.

• Cepeda and De la Espriella

Iván Cepeda’s support climbed from 31.9% in November’s Invamer poll to 37.1%. Abelardo de la Espriella remained stagnant on 18.9%. Invamer also forecast that Cepeda would defeat De la Espriella by 59.4% to 37.4% in a second-round scenario. The findings differ markedly from a recent survey by AtlasIntel, which found that little separated Cepeda and De la Espriella in first or second round scenarios [WR-26-07].

Claudia López, the left-of-centre former mayor of Bogotá, was third, seeing her support increase significantly from 4.1% in the previous poll to 11.7%, as did Paloma Valencia, the candidate of the right-wing Centro Democrático (CD) whose support leapt from 1.1% to 10% as she came fourth. In a separate survey, Invamer found that Valencia was the strong favourite to win the broad consultation on 8 March pitting various aspiring right-leaning and centrist presidential candidates against one another.

PARAGUAY | Nueva legislación disgusta al sector financiero. Viviana Varas, la presidenta del banco Itaú en Paraguay, dijo esta semana que la implementación de una recientemente aprobada ‘ley de tarjetas de crédito’ sería “impracticable”. Desde que el 26 de agosto el Presidente Horacio Cartes sancionó la ‘Ley 5476’, sobre la transparencia y el uso de tarjetas de crédito –que establece líneas directrices para el negocio de las tarjetas de crédito y establece límites sobre el nivel del interés que los emisores pueden cobrar a sus clientes– la ley ha sido fuertemente criticada por el sector bancario local. Las instituciones financieras locales alegan que la nueva legislación distorsionará el mercado de las tarjetas de crédito y que afectará su normal funcionamiento y lo volverá menos atractivo para los proveedores de tarjetas de crédito.

La ley, que fue elaborada por un grupo inter-partidario de legisladores nacionales y estipula que las tasas de interés en las tarjetas de crédito no deben ser mayores a tres veces el promedio de la tasa de ahorros, fue diseñada para abordar la actual falta de regulación del rápidamente creciente mercado de las tarjetas de crédito del país, en el cual las tasas de interés aplicadas a las tarjetas de crédito por los emisores varían libremente y en algunos casos exceden el 50%.

Los proponentes de la ley alegan que esta falta de regulación permite a algunas instituciones financieras tener como presa a los clientes de las tarjetas de crédito, dejándolos con deudas impagables. Pero los directores de instituciones financieras nacionales responden que los límites a las tasas de interés podría conducir a que menos crédito sea ofrecido a la población en general, pues ellos estarán menos dispuestos a ofrecer tarjetas de crédito a algunos clientes si ellos no pueden aplicar tasas de interés más altas. De hecho, ellos señalan investigaciones llevadas a cabo por el Banco Mundial y el Banco Interamericano de Desarrollo (BID), que han hallado que la introducción de medidas similares en otros países latinoamericanos ha conducido a la salida de pequeños actores del mercado de las tarjetas de crédito, para detrimento de la competencia del mercado y a la provisión del crédito en general.

Después de que el proyecto de ley fue aprobado por el congreso, la sociación bancaria local (Asoban), le pidió al Presidente Horacio Cartes, quien posee un banco él mismo, que vete la ley. Pero quizá consciente de cuán popular es la iniciativa, Cartes optó por no ejercer su derecho al veto. Sin embargo, un grupo de 23 instituciones financieras lideradas por Itaú, el actor dominante en el mercado local de las tarjetas de crédito con una porción del 40%, han presentado una apelación ante la corte suprema contra la ley sobre bases constitucionales (por un supuesto abuso de poder por parte del gobierno).

En una entrevista reciente, Varas dijo que haciendo a un lado la cuestión constitucional, la implementación de la ley sería problemática, pues la legislación no es clara sobre cómo será determinado el promedio de la tasa de ahorro, creando confusión e incertidumbre en el sector.

• La OCDE revisa hacia abajo el pronóstico de Brasil

La Organización de Cooperación para el Desarrollo Económico (OCDE) revisó hacia abajo su pronóstico de crecimiento para Brasil este año a -2,8%. Hace solamente tres  meses, la OCDE estaba prediciendo una recesión mucho menos severa, de sólo -0,8%, y esperaba que la economía retorne al crecimiento en el 2016. Ahora, el pronóstico es que Brasil también estará en recesión el año próximo, con la economía contrayéndose un -0,7%. Las estimaciones de la OCDE son incluso peores que el promedio de los economistas sondeados por el banco central (BCB) en su boletín mensual Focus, que predice un crecimiento negativo del -2,55% este año y del -0,6% en el 2016.

The virtual saturation of the tourism market in Uruguay, and its increasing attraction to the international jet-set, may have prompted middle-class South Americans to look north for their summer holidays in 2012. Costa Rica, which saw a noticeable increase in South American tourism in 2011, expects a repeat performance in 2012.

Uruguay’s main tourist destination Punta del Este is straining at its seams. New luxury hotels, charging between US$900 and US$1,300 a night for a room say that they are booked out for the season, which traditionally ends at Carnevale (this year, 21 February 2012). The whole area around Punta has moved dramatically upmarket: caviar restaurants which charge US$500 a dish and offering French wines for US$1,000 a bottle are increasingly common.

Sean Parker, one of the founders of Facebook, used his personal jet to fly down to Punta for a 10 day house rental for which he had, reportedly, paid US$150,000. The local press reckons that US$1bn worth of yachts were tied up in the marina in Punta at the height of the season.

Undeveloped land in and around Punta is now regularly fetching US$1m for a 5,000 square metre plot. This is the usual size for a holiday home.

This surge in prices in Punta has prompted Costa Rica to pitch itself to Brazilian tourists. According to the Instituto Costarricense de Turismo (ICT), Costa Rica hosted 128,911 tourists from South America in 2011, up from 119,167 in 2010. This rate of increase (8.2%) was almost double the overall rate of growth in the tourist industry (4.6%).

There is still plenty of room for growth from South America. In 2011, 2.196m tourists came to Costa Rica, up from 2.1m in 2010. The main South American suppliers of tourists to Costa Rica were:  Colombia, Venezuela, Argentina, Brazil, Peru, Chile and Ecuador.

Allan Flores, Costa Rica’s tourism minister, said that the ICT will invest US$1m in promoting Costa Rica as a tourist destination in Brazil, Chile, Argentina and Peru. Flores said that the campaign will be pitched at the young middle aged (35 to 40) who have degrees and are environmentally-aware.

El Salvador: El Salvador is hoping for a 4% increase in tourist arrivals in 2012. José Napoleón Duarte, the tourism minister, reported that in 2011, the country hosted 1.63m tourists who spent US$616m. This year the industry is hoping for an increase in spending to US$630m. The near term (five year) target is to get revenues up to US$1bn.

The two big tourist investments this year are at a tourist complex at La Libertad (on the Pacific coast), which is budgeted to cost US$4.5m and the construction of an adventure park for US$2m. The tourism ministry is also looking at developing projects at Icacal and Cerro Verde with private sector partners.

The ministry also wants to draw more people to the country’s archaeological heritage.

Duarte said that between 2010 and 2011, around US$70m had been invested in tourism projects nationwide and that there were now three international hotel groups operating in the country. Promar, the leading local tourist group, is planning US$1.2bn in several tourist investments across the country. One project is close to the airport; another is on the La Unión bay on the Gulf of Fonseca.

PERU | Adjusting growth forecasts down. On 6 April Peru’s central bank (BCRP) released the latest instalment of its monthly survey of local economists, which found that the consensus economic growth forecast for the year had been revised down slightly from the 5.6% figure recorded in March to 5.4%.

After remaining stable for the first three months of the year, local analysts’ growth predictions are now moving away from the official forecasts of 6% and closer to the 5% final year result posted by the domestic economy in 2013. Last year’s growth rate was the lowest for Peru in the last four years amid lower global demand for the country’s key mineral exports coupled with a slowdown in domestic consumption.

The projections by the BCRP and Peru’s finance ministry were based on the assumption that global demand for minerals, in particular copper, would pick up again this year to fuel domestic demand once again. However, international demand for copper and other mining products has remained relatively low this year as growth in China continues to be weaker-than-expected. Problematically for the Peruvian government, local analysts have also revised down their 2015 growth forecast from 5.5% to 5.4%, which suggests that the general expectation is that there will continue to be weak global demand for Peruvian exports well into next year. As for inflation, the analysts have also slightly increased the forecast for this year from 2.6% to 2.8%. That the new inflation forecast is also inching closer to the top end of the BCRP’s target inflation rate of 1%-3% will also be cause for concern for government officials.

VENEZUELA | Considering further currency market liberalisation. On 3 April the president of the national assembly’s finance commission, Ricardo Sanguino, revealed that the government of President Nicolás Maduro was “studying” the possibility of adopting a more flexible currency exchange mechanism. For the past 11 years the Venezuelan government has imposed strict controls on the local currency market in order to prop up the Bolívar Fuerte, and boost the domestic economy. But this has resulted in a shortage of foreign currency (which has in turn led to shortages of some basic goods) and invariably rising inflation levels that have seriously impacted on the domestic economy.

Currently Venezuela operates a three-tier foreign currency exchange system which is tightly controlled by the government. The exchange rate in the main currency market (Cencoex), which is accessible to those seeking to import essential goods, is set at BF6.3/US$1; while the rate in the secondary market (Sicad), open to those seeking to import non-essential goods, is set at BF11/US$1. But these two markets have been unable to satisfy the demand for US dollars and last month the government introduced an alternative secondary market (Sicad2) in which interested parties are allowed to bid (with local banks acting as brokers) for a predetermined amount of dollars offered by the central bank. Still it appears that even the latest currency exchange mechanism will not succeed in satiating the demand for US dollars and stabilising the Bolívar Fuerte (the Sicad2 rate has hovered around BF50/US$1 since the mechanism was launched on 24 March).

It is against this backdrop that in an interview with the local daily, El Mundo, Sanguino said that the government was now considering moving towards an “open market without any exchange rate peg in the medium to long term”. Sanguino did not provide full details but said that “we are studying the adoption of a floating [currency exchange] system with set bands […] in order to have a more flexible Bolívar/dollar exchange rate”. Providing added weight to Sanguino’s comments, on 7 April the government published in the official gazette the guidelines for allowing foreign exchange brokerage firms (casas de cambio) access to Sicad2.

Foreign exchange brokers were banned from the official foreign currency exchange markets in 2010 by former president Hugo Chávez (1999-2013), who accused them of speculating with the exchange rate. However, in launching Sicad2 last month the government said that it would allow brokerage firms access to the new mechanism in order to increase the availability of US dollars to the general population. The statement published in the official gazette says that brokerage firms have been “authorised to participate in the alternative secondary foreign currency exchange market […] as specialised intermediaries in retail currency exchange operations”. It adds that in selling currency to the general public they must offer an exchange rate that is 0.25% lower than the Sicad2 rate, which will from now on be published daily by the central bank.

• Cementing presence

Colombia’s cement company Cementos Argos has announced the purchase from the French multinational cement giant Lafarge and Switzerland’s Holcim of assets in French Guiana for 50m euros (US$69m) to consolidate its presence in the Caribbean. Cementos Argos acquired 100% of the company, Ciments Guyanais, which is co-owned by Lafarge and Holcim, and a port located in Dégrad des Cannes, close to the capital, Cayenne. “This new acquisition in French Guiana nicely complements our current network of assets in the region, especially given its proximity to our grinding facilities in Suriname and our cement terminals in the Antilles,” the CEO of Cementos Argos, Jorge Mario Velásquez, said.

Budget for 2016 clears first hurdle: On 29 July Panama’s cabinet council approved the US$20.1bn budget for 2016, up US$534m on the current 2015 spending plan. According to the minister of economy and finance, Dulcidio de la Guardia, US$2.3bn will be spent on education and culture, US$3.6bn on health, US$2bn on security and public safety, US$2.1bn on transportation and communications and US$1.4bn on industry, trade and tourism. Major projects that will be funded in the budget are line 2 of the Metro, the urban renewal of Colón, the fourth bridge over the Panama Canal, the expansion of water and sewer systems, universal scholarships, pensions for indigent seniors and the expansion of English education. The budget was based on a projection of growth of 6.3% of GDP, around US$54bn in nominal terms, including inflation of 1.9%. According to De la Guardia, this level of growth will allow the government to reduce the fiscal deficit to 2% of GDP in 2015 and 1.5% in 2016. The budget will now be presented to the national assembly.

More arrests over corruption

Eight former cabinet ministers in the government of former president Ricardo Martinelli (2009-2014) have now been arrested on corruption charges. The latest, Emilio Kieswatter, a former minister for agricultural development, was arrested in mid-July over a planned irrigation project which was paid for, but never built.

Martinelli himself is starting to feel the heat. In January Panama’s supreme court voted to remove his immunity from prosecution and on 3 July launched a third investigation into the former president, this time for issuing over 350 illegal pardons to his imprisoned allies at the end of his term.

While Martinelli denies the charges against him and blames the politicisation of the supreme court, public support for the investigations is high.

Martinelli’s successor, President Juan Carlos Varela, who won office promising to burnish public sector corruption once and for all, has politically benefitted from Martinelli’s tarnished legacy.

MEXICO | Industrial production down in monthly terms. On 9 February, Mexico’s national statistics institute (Inegi) published new data for its monthly index of industrial activity (Imai), showing that industrial production decreased by 0.7% in December 2023. In seasonally adjusted annual terms, industrial production rose by 1.2% in December 2023 compared to December 2022.

MEXICO | Inflation continues to creep up. On 8 February, Inegi released consumer price index figures for January, showing that monthly inflation stood at 0.89% and the annual rate at 4.88%. This is up from monthly inflation of 0.71% in December, when the annual rate stood at 4.66%. The latest inflation figures came the same day as Mexico’s central bank (Banxico) announced it was maintaining its benchmark interest rate at 11.25%, where it has stood since March. In a statement, Banxico noted the rise in inflation since its previous monetary policy meeting on 14 December, stating that short-term inflation forecasts had also been adjusted upwards.

MEXICO | GFCF up year-on-year. On 2 February, Inegi released figures which showed that in November 2023 gross fixed capital formation (GFCF) was up by 20.1% year-on-year but decreased by 1.3% in monthly terms on seasonally adjusted figures. The monthly decrease was driven by a 2.8% decrease in investment in construction, while investment in machinery and equipment was up 0.4%. The yearly rise was made up of an increase in investment of 21.4% in the construction sector and of 18.8% in machinery and equipment.

MEXICO | Record remittances in 2023. On 1 February, Banxico released new figures showing the country received US$5.49bn in remittances in December 2023, up 2.1% year-on-year. This means remittances to Mexico totalled a record US$63.31bn last year, up 7.8% on the US$58.87bn received in 2022.

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

Mexico: unemployment rate
Economically active population

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

Source (all graphs): National Statistics Institute (Inegi)

On 30 June, Jamaica’s police commissioner Owen Ellington announced his sudden retirement as head of the Jamaican Constabulary Force. Reasons given included distancing himself from the force’s management prior to the start of the West Kingston Commission of Enquiry into the May 2010 Tivoli case (when 76 civilians were killed during the operation to arrest drug lord Christopher ‘Dudus’ Coke), and the Independent Commission of Investigations (INDECOM) enquiry into allegations that a police ‘death squad’ operated within the Clarendon Division. Speculation continues as to the possible role of the US government in Ellington’s departure.

Initially Minister of National Security Peter Bunting said that Ellington’s retirement would remove any danger of influence on his part in either of the enquiries. However, on 15 July Bunting told the House of Representatives that unidentified international partners had withdrawn some support for the Jamaica Constabulary Force.

Ellington has been recognized as a key player in the significant reduction in murder rates throughout the island during his term, which has in turn sparked suspicion as to his decision to leave. Many media sources question whether this could stem from US pressure. On 7 July Television Jamaica reported that the Barack Obama administration had imposed an arms embargo on Jamaica due to claims of human rights infringements within the police force. Under the US Human Rights’ Leahy Act, the Department of State and Department of Defense are prohibited from supplying any form of military assistance “to any unit of the security forces of a foreign country if the Secretary of State has credible information that such unit has committed a gross violation of human rights.

Ellington’s lawyer, Howard Mitchell, has said that ‘pressure at the top of the cliff’ - ie the US government - had likely caused the commissioner to ‘jump’, yet exact reasons remain unclear. Similar speculation has surfaced surrounding whether or not Ellington’s US visa has been revoked, yet equally, details have not been released.

The Puerto Rico government and its various creditors have started using the media for negotiations over debt restructuring. The Puerto Rico House of Representatives has passed a bill that would allow Governor Alejandro García Padilla to declare a moratorium, until January 2017, on payments to creditors. As of 18 April 2016, it was unclear as to whether the US Congress will pass a bill, sponsored by the House of Representatives Speaker Paul Ryan (GOP), that should facilitate an orderly workout for the Puerto Rican government and its agencies, which collectively are burdened by a debt of around US$73bn. Nevertheless, an orderly workout remains the most likely outcome.

On 1 May 2016, the Government Development Bank (GDB) of Puerto Rico is due to make a payment of US$422m to holders of its notes. As the [table] indicates, this deadline has prompted a number of public comments and proposals from the Working Group for the Fiscal and Economic Recovery of Puerto Rico (essentially, the government-backed body charged with negotiations with creditors). In essence, the looming deadline has resulted in a vast increase in the ‘noise’ surrounding the negotiations.

Aside from the deadline, a number of factors have complicated the discussions between the various parties. One is Puerto Rico’s current inability to seek protection from its creditors under Chapter 9 of the US Bankruptcy Code. Chapter 9 protection is available to municipal governments, but not to Unincorporated Territories like Puerto Rico. Another factor is the tendency for the bill in the US Congress supported by House Speaker Ryan to be seen as a bailout. The bill in fact envisages an orderly debt resolution for the government of Puerto Rico and its agencies, under the aegis of an oversight board that would be appointed by the US government: however, it does not envisage the use of US taxpayer money.

Perhaps most importantly, the various creditors have not been negotiating as a unified bloc. In early February this year, holders of senior bonds issued by COFINA (Sales Tax Financing Corporation) suggested that that the agency be allowed to default. This proposal would have given the government a significant boost to its cashflows over the next five years or so. However, a central part of the proposal was that the senior bondholders would be repaid in full before any payments of principal and interest were made to sub-ordinated bondholders, many of whom are residents of Puerto Rico.

In early April, the Ad Hoc Group of Bondholders of the General Obligation (GO) Bonds of the Commonwealth of Puerto Rico (the ‘Ad Hoc Group’) publicly released a restructuring proposal of their own. This included: a deferral of principal payments for the next five years, continued interest payments at contractual rates and US$750m in new financing. The government rejected this, in part because it would still be subject to cash shortfalls in the short-to-medium term: in addition, there would be no surplus with which to make payments on other securities. These securities include bonds issued by COFINA, even though the Ad Hoc Group’s proposal had included Sales and Use Tax receipts in projections of government revenues.

The government of Puerto Rico has published a revised proposal (or ‘counter-proposal’) that it presented to the various groups of creditors in late March. This seeks to meet the comments/ objections that it had received from the creditors in relation to its original proposal, presented in January this year. Whereas the original proposal had envisaged debt service payments rising from US$795m in 2018 to US$3.07bn in 2051 (with a peak in each of the three preceding years of US$3.50bn), the counter-proposal envisages that debt service payments begin in 2017 (at US$456m) and then remain at US$1.85bn annually until 2068.

Subject to certain assumptions, including a 5% yield, the government’s counter-proposal implies significant ‘haircuts’ for the various groups of bondholders. Holders of the GOs and other bonds that are guaranteed by the government should recover around 74% of their investment. Holders of COFINA bonds should recover about 57%, as should holders of bonds issued by the Highways and Transportation Authority (HTA). Holders of bonds issued by most other agencies should recover a little less than this. Worst off are holders of securities issued by the GDB, who should recover 36% of their investment.

The government’s counter-proposal seeks to lower the ratio of debt service payments to revenue on tax-supported debt from the current level of about 36% to around 15% by 2021. ‘The new debt service schedule has been structured to give [the government] the opportunity to further reduce that ratio as a result of economic growth and to develop into a stronger credit over time.’

In this context, the passage of the bill that gives Governor Alejandro García Padilla the ability to declare a moratorium on debt service payments until the beginning of next year is a device that gives the government more flexibility in its negotiations with the various groups of creditors. All parties have a vested interest in an orderly restructuring of the debt owed by the government of Puerto Rico and its agencies. That is the road on which they all remain.

Remittances: In the first five months of 2017, El Salvador received remittances in excess of US$2bn from expatriates living in the US, up 10.8% on the same period last year according to the central bank (BCR). The same can be said for Guatemala, Honduras, and Mexico, according to the BCR, with remittances up by 14.9%, 13.3%, and 6.8% respectively.

El Salvador’s economy minister, Tharsis Salomón López, claimed during a press conference on 30 June that the increase in remittances to Latin America was directly attributable to the anti-immigrant discourse of US President Donald Trump. López said that it was essential that El Salvador’s financial system take advantage of the situation by investing in the domestic economy, principally housing or creating microenterprises.

Two years after coming to power, Trinidad & Tobago’s People’s National Movement (PNM) government, led by Prime Minister Keith Rowley, is facing mounting popular dissatisfaction with its performance. The country’s recent poor economic performance no doubt has a lot to do with this, but so does the perception that the government is not getting on top of the problem of rising crime. Interestingly, corruption, another perennial problem recently highlighted by the arrest of former Attorney General Anand Ramlogan (2010-2015), does not appear to be a major concern for the public even though the government’s performance in combating corruption was considered to be ‘bad’ or ‘very bad’ by 79% of respondents questioned in a recent poll.

The economy has contracted in each of the past three years, largely as a result of the contraction in the energy sector which accounts for 35% of GDP. Prices have fallen dramatically since 2014, but that is not the whole story. There has also been a fall in domestic production volumes. According to data from BP’s Statistical Review of World Energy, in 2016 natural gas production dropped by 13.2%, to 3.3m cubic feet per day (cf/d), down from a peak of 4.3m cf/d in 2010, while oil production fell by 11.2% to 96,500 barrels per day (bpd), compared with a peak of 177,500 bpd in 2006.

In late April both Moody’s and Standard & Poor’s ratings agencies downgraded Trinidad’s credit rating. On 26 April, Moody’s marked it down to Ba1 from Baa3, following S&P’s 21 April markdown from A- to BBB+. The S&P rating is still considered to be investment grade; the Moody’s rating is classified as junk-bond status. For Moody’s, debt was the key issue. However, although the International Monetary Fund(IMF)’s latest review suggests that the economy continued to contract in the first half of 2017, there are hopes that the downturn has now bottomed out. Local data from the central bank indicates that both natural gas and oil production remained relatively stable during the first half of 2017, and the IMF has projected an upturn in natural gas production for the second half.

The economic difficulties have, of course, had adverse repercussions for government finances. As a share of GDP, the IMF estimated that public debt stood at just under 30% in its last full country report in mid-2016. But this is expected to jump to 38.6% by the end of 2017 and to 78.7% of GDP in 2021.

Although in its July review the IMF welcomed government efforts to boost revenue, it cautioned that the impact of things like asset sales will fade over time and that more extensive efforts to contain current spending were nececessary in order to reduce the fiscal deficit – which is already in double-digits as a share of GDP.

This is not a message that the PNM government will be happy to hear given its latest opinion poll ratings. A Louis Bertrand poll, published in the first week of September, found that 83% of respondents believed that Trinidad & Tobago is “going in the wrong direction”. Only 32% said that they thought Prime Minister Keith Rowley was doing a good job, 11 percentage points below the 43% approval rating for opposition leader Kamla Persad-Bissessar.

The most serious problem for the country was seen to be crime and violence, cited by 66% of respondents. The country has the highest incidence of violent crime in the Eastern Caribbean, with 463 homicides in 2016. This equates to 35 murders per 100,000 residents. The prevalence of criminal gangs is behind much of the crime. The police estimated that in late 2015 there were 147 gangs with 1,698 members, and that these gangs were responsible for 34% of all murders in the country. One bright spot, however, has been the reduction in kidnappings from around 100 per year seven years ago to around ten per year now.

After crime, economic issues such as unemployment and the cost of living were cited, respectively, by 15% and 9% of respondents as the most pressing issues. However, corruption was listed as the most serious issue by just 3%.

The government’s performance on all these issues was seen to be wanting, with 75% saying that the government was not performing well with regard to efforts to combat crime and violence, 83% saying the same on unemployment, and 79% on corruption.

If there was comfort for the government it was in the apparent understanding that the country’s poor economic performance was in part the fault of either the previous government or factors beyond government control such as the weakness in oil prices. Corruption and incompetence on the part of the previous government was cited by 39% as the main reason for the economic problems; the fall in oil prices was cited by 31%. The present government’s corruption and/or incompetence was cited as the main factor by 30%.

Another comforting factor for the government was the fact that its own core support seems to be holding up reasonably well. Some 53% of Afro-Trinidadians said that they approved of the job being done by the prime minister as against 16% Indo-Trinidadians. The converse was also true, with 62% of Indo-Trinidadians approving of Persad-Bissessar’s performance as against 43% of Afro-Trinidadians.

The PNM might gain some additional political capital from Trinidad’s latest political drama, the arrest of Anand Ramlogan, who was attorney general in the previous People’s Partnership (PP) government until forced to resign in 2015.

The allegation is that Ramlogan offered government support to David West’s appointment as chairman of the Police Complaints Authority (PCA) if he withdrew as a witness in a defamation case between Ramlogan and Rowley. Ramlogan was contesting Rowley’s allegation that he improperly prevented the extradition on corruption charges of two government-supporting businessmen to the US through the introduction of the so-called Section 34 law which prevented prosecution - except in ‘blood crimes’ - of people whose trial had been delayed for ten years after the alleged offence had been committed.

West reported Ramlogan to the police for attempted witness tampering, and the investigation has been proceeding slowly since January 2015. Following his arrest on 29 August, Ramlogan was released on bail and the case has been adjourned until 11 January 2018.

However, Ramlogan’s arrest has been taken as a positive sign that the government is serious about corruption by only 45% of respondents to the Louis Bertrand poll. The reason for this may be found in some of the press reporting on the issue, which has underlined the murkiness of Trinidadian party politics. For instance, in a report on the latest developments, The Trinidad Guardian noted: “West is said to be closely affiliated to members of the Syrian/Lebanese community who are strong supporters and financiers of the ruling People’s National Movement political party. Some of these individuals have questionable credibility as to how they obtained their massive wealth, with rumours and proven cocaine busts linking them to cocaine transhipment in Trinidad and Tobago.” Public cynicism has deep roots.

On 10 April, Belize will vote in a national referendum on whether to agree to the territorial dispute between Guatemala and Belize being submitted to the International Court of Justice (ICJ) for adjudication. A ‘Yes’ vote is being urged by the United Democratic Party (UDP) government led by Prime Minister Dean Barrow. The opposition People’s United Party (PUP), led by John Briceño, declared on 23 January that, following a ‘listening tour’, it would campaign for a ‘No’ vote.

In his 23 January declaration, Briceño supported the holding of a referendum, saying the PUP “respects the sacred rights of the Belizean people to decide whether or not we should submit the unfounded claim by Guatemala to Belizean territory to the International Court of Justice for final adjudication”. However, he added that “having duly considered all aspects of the education campaign, the state of un-readiness for the ICJ Referendum scheduled for the tenth of April 2019, and the majority ‘no’ position of party supporters” the party would campaign for a ‘No’ vote.

The announcement that the PUP would campaign for a ‘No’ vote came just 24 hours after Prime Minister Barrow issued a statement saying that the Cabinet would support a ‘Yes’ vote, contrary to his earlier suggestions that the Cabinet would be allowed to vote with their consciences.

The opposition’s main reason for opposing the submission of the issue to the ICJ is that the voters are unprepared for such a momentous decision. He said that the vote should only come after a “balanced, fully resourced, and comprehensive education campaign”, whereas – in his view – “the current campaign being conducted by the Government of Belize is disorganised, under-financed, and not sufficiently balanced”. The PUP’s contention is that the education campaign should be “redesigned, managed, and implemented by a well-resourced, independent Referendum Commission”.

The question on which voters will vote ‘Yes’ or ‘No’ is: “Do you agree that any legal claim of Guatemala against Belize relating to land and insular territories and to any maritime areas pertaining to these territories should be submitted to the International Court of Justice for final settlement and that it determines finally the boundaries of the respective territories and areas of the parties?”

On 12 May Guatemala’s congress passed a legislative reform, since sanctioned by the executive, that allows the creation of more free trade zones (FTZs) as part of a post coronavirus (Covid-19) pandemic economic recovery plan. However, critics say that FTZs have not brought sufficient economic benefits in the past and a new strategy is needed.

FTZs are subject to special rules on taxes, exports and customs designed to encourage national and international businesses to set up shop in them. There were previously 17 FTZs in Guatemala, but that number fell to six following a 2016 decree which prohibited 42 industrial activities in the zones and meant companies shut down operations.

Proponents of the latest reform, including economy minister, Antonio Malouf, hope that number will rebound. Malouf said the reforms could allow the creation of 32,000 jobs and attract over US$300m in additional investment. By way of comparison, the country received US$998m in foreign direct investment (FDI) in 2019, according to the United Nations Economic Commission for Latin America and the Caribbean (Eclac), and Malouf has set an FDI target of US$1.2bn in 2021.The reform passed with 84 votes in favour, 15 against and 61 abstentions, with supporters trumpeting it as a step forward in recovering from the pandemic.

However, congressman Samuel Pérez, a member of the Movimiento Semilla opposition party, said the FTZs favour the small number of industries permitted to use them by allowing companies to avoid paying taxes. “What this means is that Guatemala’s economic model becomes competition for a pittance, not competition for qualities or skills of workers, it’s basically competition for poverty wages and avoiding taxes”, Pérez said.

The Central American institute for fiscal studies (Icefi), a Guatemala-based think-tank, echoed these criticisms in a press release published 17 May, calling FTZs “an obsolete and ineffective model of attracting investment and generating jobs based on tax benefits for specific groups of businesses”. Tax privileges have not attracted more investment but reduced fiscal space to finance spending programmes, Icefi added. The think-tank points out that Guatemala has attracted foreign investment worth the equivalent of 1.5% of GDP on average over the last three decades, the least successful country in the region by this measure, despite the use of tax exemptions. Icefi said that tax rates do not solely determine whether or not companies invest in Guatemala, but rather investment decisions are influenced by high levels of crime and corruption, as well as inefficient bureaucracy and poor infrastructure. Icefi said the reform was passed without any serious cost-benefit analysis, and instead recommends a new law on foreign investment as well as a plan for growth and an updated fiscal policy. The reform will allow more tax avoidance and will have a negative effect on tax justice, Icefi argues.

Governments around the world are grappling with how best to get their economies back on track while dealing with the pandemic. While some are attempting to “build back better”, to borrow a phrase from US President Joe Biden, Guatemalan government officials are betting on a strategy which detractors say has a chilling effect on tax collection. Guatemala already struggles to collect taxes, with the second-lowest tax collection rate in Central America after Panama (10.4% and 7.5% respectively in 2020), according to a January report from Icefi. Any policy which makes this harder might seem misguided at a time when the country needs money to pay for measures to address the impact of the pandemic.

The United Nations climate conference summit (COP29) in Baku, Azerbaijan, came to an acrimonious end on 24 November, just salvaging an agreement under which wealthier countries will by 2035 contribute US$300bn a year to help developing countries fund climate change mitigation. This result falls well below the hopes of Caribbean members of the association of Small Island Developing States (SIDS).

The numbers tell a key part of the story.  Previously, wealthy countries had promised to provide public and private funding worth US$100bn a year by 2020, a target they failed to meet until 2022. Arguably, agreeing on US$300bn, an amount that triples the old target, must be an improvement. But the significance of the increase is eroded by the effects of global inflation and dwarfed by the US$1.3trn a year that experts say is really needed to begin to counteract global warming. The Group of 77 (G77) countries, a coalition of developing countries, had been pushing for a US$500bn annual target.

A lot of what happened at the conference was dispiriting for the Caribbean nations. At one point they staged a walkout with other developing countries. A group of climate experts published an open letter saying the COP climate talks are no longer fit for purpose and should be reformed. The Indian delegation rejected the final declaration as an “optical illusion” and the US$300bn target as an “abysmally poor” and paltry sum.  The climate-sceptic Argentine delegation walked out, increasing the chances that it may join the US which, under Donald Trump’s second presidency which is due to begin in January 2025, is again threatening to leave the Paris climate agreement. Oil and gas producing countries such as the host, Azerbaijan, appear to be more assertive about their defence of fossil fuels.

Earlier in the conference Barbados’ Prime Minister Mia Mottley had warned that extreme weather was causing the planet to hurtle towards “catastrophe” and that COP29 should commit to “new collective, quantified goals that enable us to reverse the current trajectory and to fund mitigation, adaptation, and, of course, loss and damage”. Other Caribbean leaders gave the example of difficulties covering the cost of Category 5 Hurricane Beryl which hit the Caribbean in June and July this year. Grenada, one of the countries in its pathway, faces damages equivalent to 16.5% of GDP. Damages in St Vincent & the Grenadines were proportionately higher at over one-fifth of GDP. Jamaica found itself having to fund reconstruction from the government budget because its catastrophic insurance bond (CAT) did not pay out (because the atmospheric pressure criteria were not met).

As a result of earlier COP discussions, it has been agreed that the financial cost of extreme weather events comes under three headings: mitigation, adaptation, and loss and damage. It is calculated that over the last 30 years Caribbean SIDS have incurred loss and damage equivalent to US$45bn for storms and hurricanes, pushing them into debt and placing them among the world’s most heavily indebted SIDS.

Debt

Grenada’s Prime Minister Dickon Mitchell has said that “SIDS have repaid in debt financing 18 times more than they have received in climate financing”. He argues that “the debt we pay to survive is unsustainable in financial terms and in terms of livelihoods and lives”.