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On 8 August, former Minister of National Security Peter Bunting, of the opposition People’s National Party (PNP), participated in a video entitled Chinese Take Over? Bunting’s contribution included the assertion that China was operating “a form of economic colonialism” in Jamaica. Inter alia, Bunting asserted that 14 Chinese companies operating in Jamaica controlled 50% of the construction sector.

Recent significant Chinese investments in Jamaica include the purchase of the Alpart alumina refinery for US$299m by the Jiuquan Iron and Steel Company (JISCo), which is expected to invest a further US$200m in the plant. The plant had been closed from 2009 to 2015. JISCo is also planning to invest US$1.5bn in establishing an industrial zone around the plant, creating 3,000 new jobs.

Other recent Chinese activity in Jamaica includes the provision of US$384m in loan funding for the upgrading of Jamaica’s road system. The US$730m North-South Highway, built by the China Harbour Engineering Company (CHEC), has already opened.

Bunting’s main point, however, is that China is squeezing out the local competition, and that its activities are not sufficiently regulated. He said: “They come into Jamaica, typically, on the basis of concessionary financing for government projects…and they get all sorts of duty concessions on imported machinery and equipment. And they get to buy local inputs free of GCT (general consumption tax)…so they have an advantage over local contractors.”

Rather untactfully, back in April China’s ambassador to Jamaica, Niu Qingbao, responded to earlier similar complaints by saying that local companies needed to stop complaining and make themselves more competitive. He said: “Trade is about competitive advantage. Make foreign visits, make foreign friends, make use of your contacts; don’t just sit at your comfortable home and hope to get things done at your cost.”

He also denied that the Chinese government subsidised companies or engaged in dumping. He said: “The Chinese government does subsidise companies; they do not get any concession of labour or material.” He added: “Dumping is not something to be allowed.”

Niu’s response to Bunting’s criticisms was a bit more considered, albeit robust and unapologetic. An embassy statement issued on 11 August stated that “the Embassy of the People’s Republic of China in Jamaica is offended by these unsubstantiated claims”. The statement warned that such allegations could encourage a backlash “and create an unsafe environment for Chinese Nationals working in Jamaica”.

The statement then went on to refute four specific allegations made by Bunting. It claimed, for instance, that there are “clear separations” between the Chinese government and the management of Chinese state-owned enterprises. The statement said: “State-owned enterprises operate independently under business rules and assume sole responsibility for their profits and losses. The government does not underwrite losses of state-owned enterprises.”

The statement also addressed Bunting’s other allegations such as not employing sufficient local staff, a lack of transparency, and engaging in allegedly unfair competition. And it concluded by asserting: “Our aim is not to ‘colonise’ Jamaica but always to find areas of cooperation and mutual benefit that will improve the lives of both our people.”

On the question of employing locals, the statement said: “The number of Jamaicans on staff at all Chinese companies far outnumber Chinese staff.” To back up this assertion, it said that the Pan-Caribbean Sugar Company employed 800 local staff and just 26 Chinese; that JISCo employs 730 locals and 151 Chinese; and that CHEC has 268 local staff and 151 Chinese.

The numbers do look conclusive, but numbers are not the only issue. In April, the country’s two main trade unions, the Bustamante Industrial Trade Union and the National Worker’s Union, complained about working practices, saying that Chinese companies do not abide by Jamaica’s labour laws. Kavan Gayle, president of the former, added: “We have situations right now plaguing the construction industry, where they have failed to recognise trade unions representing the workers.”

Bunting was unimpressed by Niu’s response. He said: “The Embassy’s statement confirms the essential thrust of the episode – that the Chinese companies are State-owned enterprises against which local Jamaican contractors cannot be expected to compete effectively.”

He also dismissed the idea that there could be a backlash against Chinese nationals as a result of his comments. He said: “It is highly unlikely that this type of internet current affairs programme will place Chinese nationals at risk in Jamaica, which has always been very open to people of every ethnic background.”

The trouble for Bunting is that not only has the Jamaica Labour Party (JLP) government rejected his arguments against China, but his own PNP has also rejected them.

The government’s response came from Prime Minister Andrew Holness, who emphasised the long-term benefits of Jamaica’s engagement with China. He said: “I want to give you the guarantee that we are not wasting this money. We are leaving major legacies behind so that your children can say that the engagement of your government with the People’s Republic of China left long-lasting benefits that showed the partnership and the spirit of engagement.”

On the other hand, the prime minister did sound a bit defensive when he admitted that the government “is very sensitive to what is happening”. He added: “I want to reassure the people of Jamaica that the Government of Jamaica will always act in the best interests of the people of Jamaica.” He also emphasised that the government wants to see “a diversified portfolio of investors coming into this country”.

The PNP, for its part, issued a statement that sought to play down the remarks by Bunting, its national security spokesman, and it sent Peter Phillips, the party’s president, round to see the Chinese ambassador “to reaffirm its commitment” to maintaining friendly relations with China.

A PNP statement said: “We continue to pursue mutually respectful and friendly relations with the People’s Republic of China based on the principles of sovereign equality, respect for the laws of each country, and non-interference in the internal affairs of each state.”

BRAZIL | Petrobras. President Jair Bolsonaro used a social media livestream broadcast on 5 May to launch an attack on the “unacceptable” and “criminal” profits of the state-owned energy company Petrobras. Bolsonaro anticipated that Petrobras would announce first quarter profits of around BRL40bn (US$7.95bn). In the event, Petrobras actually released official results later in the day showing profits of BRL44.56bn, one of the best quarterly results in the company’s history.

Bolsonaro, who is ramping up the populist discourse ahead of his re-election bid in October, appears keen to deflect political responsibility from any further fuel price increases, especially in the midst of an acute cost of living crisis, with 12-month inflation hitting 11.3% in March. Petrobras last announced large petrol and diesel price increases in March.

The presidential race is widely seen as a battle between Bolsonaro on the right and former president Lula da Silva (2003-2011) on the left. Despite their ideological differences both men favour some form of intervention in Petrobras to damp down energy prices.

Panama’s supreme court (CSJ) has struck down a revised contract between the Panamanian government, led by President Laurentino Cortizo, and Minera Panamá S.A. (MPSA), the subsidiary of Canadian mining company First Quantum Minerals (FQM), regarding the copper mine Cobre Panamá, the country’s biggest mine. Ahead of the 28 November ruling, international ratings agencies had already downgraded Panama’s outlook amid uncertainty sparked by major unrest in response to the new contract.

Cobre Panamá is Panama’s biggest single private foreign investment, representing some 5% of the country's GDP and most of its export revenue. Wrangling over a new contract for the mine has been rumbling for years following an earlier 2017 CSJ ruling against the mine, which nonetheless had been permitted to continue operating while a new deal was being negotiated.  

An updated version of the contract was finally approved on 20 October by the 71-member unicameral legislature which guaranteed a minimum annual revenue of US$375m for the government from the mine and gave MPSA the rights to the mine for 20 years, with the possibility of extending it for a further 20 years. However, this led to nationwide protests beginning 23 October as civil society organisations called for the contract to be revoked citing environmental fears and other concerns (for more discussion of this unrest see our sister Weekly Report).

This led the country to be downgraded by various international credit ratings agencies. Most recently, on 7 November, Standard & Poor’s revised its outlook to negative from stable, citing uncertainty around Cobre Panamá and the moratorium on new mining concessions approved on 2 November by congress in a bid to placate protesters. The new law orders the government to reject all current and future requests for metal mining permits and renewals but would not have applied to the new contract. S&P was clear that “the uncertainty generated by these events could pose risks to the country's still favourable medium-term GDP growth prospects, potentially weakening its economic resilience”.

S&P predicts average growth of 4.4% over the next few years thanks to “a diversified economy and a robust pipeline of private- and public-sector projects.” The agency also forecasts a fiscal deficit of slightly more than 3% of GDP through 2026 and government debt of around 52% of GDP, underlining that these forecasts “incorporate the hit to government revenues from the potential cancellation of the contract with Minera Panamá”.

At the end of September, Fitch also downgraded Panama’s ratings outlook to negative from stable, citing “persistent fiscal pressures and uncertain prospects for consolidation”. Fitch highlights that the government has relied heavily on one-off measures and accounting manoeuvres to reduce the fiscal deficit in the last 12 months, with further pressure to come due to fuel and electricity subsidies and a rising interest bill. Fitch also predicts a wide 2024 budget that will break fiscal rule targets, as well as a gradual increase in debt in the coming years. And while the agency says it is forecasting “robust economic growth” of 6.5% of GDP this year, driven by continued high investment in sectors such as construction, it raises concerns of downside risks in the medium term as “uncertainty remains as to what other economic sectors will continue to drive high growth rates as the construction boom fades”.

While a negative outlook could be considered a downgrade warning, which would make it more expensive for the Panamanian government to borrow money on the international markets, Fitch analyst Carlos Morales told Reuters that Panama’s investment grade credit rating remains safe for now. “We would have to take a broader view of the government's capacity to improve its fiscal deficit,” Morales said in an article published 2 November, highlighting that the negative outlook took into account what he called “noise” around Cobre Panamá. Agencies like Fitch can take one to two years before making another move, according to Reuters.

However, another major ratings agency, Moody’s, also downgraded Panama’s debt to its lowest investment-grade rating on 31 October, citing social and political unrest as well as structural fiscal issues. A report by the UK’s Financial Times published on 4 November cites investment bank JPMorgan as saying that there was now a “sizeable risk” that Panama would lose its investment-grade rating. The FT cites JPMorgan analysists as saying that “If the contract is revoked, we think that the probability that Panama loses its investment-grade rating in the short term rises significantly, as lower trust in the country’s institutional framework would likely drive in lower investment and lower medium-term growth”.

Since the CSJ ruling on 28 November which deemed the new contract to be unconstitutional, the Cortizo government has announced that the mine will be closed. This has raised major questions given its significant contribution to the country’s economy. FQM has previously noted that the mine contributes “approximately 5% of Panama’s GDP and makes up 75% of the country’s export of goods” as well as “accounting for over 2% of Panama’s total working population”. On 20 November Economy & Finance Minister Héctor Alexander also warned that “necessary adjustments” to the proposed 2024 state budget were being made to reflect the expected drop in revenue.

• CSJ ruling

In the unanimous decision, the supreme court (CSJ) found that the new contract violated 25 articles of Panama’s constitution. These include, among a string of others, the right to live in a pollution-free environment, the obligation of the state to promote the economic and political engagement of indigenous and rural communities, and the state’s obligation to protect the health of minors.

It also leaves the country facing the prospect of international arbitration. Even ahead of the ruling, on 26 November the government revealed that FQM had informed it of its intention to start arbitration against Panama before the World Bank’s International Centre for Settlement of Investment Disputes (Icsid) under the Panama-Canada free trade agreement (FTA). This followed FQM’s announcement days earlier that it would be halting production at the mine, citing disruption to supplies as a result of unrest. In response to the ruling, on 1 December FQM announced that it had initiated arbitration before the International Court of Arbitration (ICC) to protect its rights under the 2023 concession agreement to which the Panamanian government had agreed. An FQM statement notes that Cobre Panamá has invested US$10bn in the mine and associated infrastructure, including a power plant, cross-country transmission lines, roads, and a port.

With the Partido Revolucionario Democrático (PRD) government having come under fire over its handling of the contract, it has increased the likelihood that the opposition will win general elections scheduled for 5 May 2024, with former president Ricardo Martinelli (Cambio Democrático, 2009-2014), who is running for his new party Realizando Metas, the current frontrunner, despite being sentenced in July to 10 years in jail on money laundering charges, which he continues to appeal. The charges relate to the acquisition of the Editora Panamá América media group, which prosecutors allege was purchased with money made from state contracts.

Martinelli called the current government “dysfunctional and non-existent” in a post on X on 16 November. “What Panama is going through is not an environmental problem or a contractual one linked to mining,” he wrote. “This is just the beginning of a huge social and political crisis stemming from the progressive decline in Panamanians’ quality of life. The current system is not working and either we change it ourselves or they will make us do it.” However, Martinelli has not released details on how he plans to deal with either the mining contract or the wider issues with the economy.

If Martinelli is elected it could raise further questions around Panama’s business climate due to his conviction. On the other hand, efforts to boost financial transparency have seen the country removed from the Organisation for Economic Cooperation and Development (OECD)’s Financial Action Task Force’s (FATF) grey list which could improve perceptions of corruption.

Money laundering watchdog rewards Panamanian efforts

On 27 October the FATF removed Panama from its grey list, which denotes countries with deficiencies in these areas. In a statement, the Panamanian government said that the FATF determined that it had “strengthened its anti-money laundering and counter-terrorist financing prevention system and implemented substantial regulations and actions that have allowed the country to take an important step forward in international transparency.”

Panama had been on the grey list since June 2019, and its removal means that the country could see increased foreign investment, as well as an uptick in activity in the insurance and securities industry as firms can establish offices in the country, according to the government statement.

Panama Canal

In its revised outlook published on 7 November, Standard & Poor’s also highlights potential shortfalls in dividends from the Panama Canal due to the impact of drought on the Canal's revenues. It highlights that the Canal recently announced it will gradually reduce the number of guaranteed booking slots per day, with 18 slots by February 2024, down from a previous expected cap of 31 slots (and compared with the Canal's maximum sustainable capacity of 38-40 transits per day). However, it notes that transfers from the Panama Canal Authority - which represented about 19% of general government revenue in 2022 - are likely to remain resilient at over US$2bn.

ARGENTINA | GDP growth. Argentina’s GDP grew by 8.8% year-on-year in 2011, maintaining the average of almost 9% annual growth since 2003, the national statistics institute (Indec) reported. Economic activity is showing clear signs of slowing down amid global uncertainty, however, Indec claimed, as GDP growth in December was just 5.5%. GDP growth was just 0.9% in 2009 as a result of the international financial crisis and economic slowdown.

Global competitiveness index: On 4 September the Geneva-based World Economic Forum (WEF) released its 2013-2014 Global Competitiveness Report which showed that “after three years of sharp rises in the competitiveness rankings, Panama consolidates its position at 40^th place as the most competitive economy in Central America, and second in Latin America, behind Chile”. The report notes that Panama has been “relentlessly improving its infrastructure (7^th), with one of the best port (6^th) and airport (5^th) networks, closely aligning with its overall economic development strategy of becoming a major transport hub for the region. Its financial market (16^th) and an assessment of its technological adoption (11^th) are also persistently improving, especially via foreign multinational corporations setting up operations in the country”. The report also highlights that Panama has made progress “in addressing some of its most pressing challenges, notably in terms of improving the quality of education, where it has moved to 75^th place from 112^th last year”.

Teachers’ strikes: The WEF’s praise vis-à-vis education follows teachers’ unrest which began in late July and continued off and on until 24 August when a deal was reached between nine teachers’ unions and the education ministry (Meduca). The nub of the dispute, which affected over 20,000 students, was over an executive decree (D-920) issued in October 2012, which unions like the Asociación de Profesores de la República de Panamá (Asoprof) claimed could lead to the privatisation of the sector. Unions complained that D-920 would establish a new “subjective” system of teacher evaluations that could jeopardise job security as well as introduce other changes indicative of a ‘market-oriented’ approach to education. The repeal of D-920 was published in the official gazette on 12 August, but unions continued the strikes until the government agreed in writing that the teachers would not face sanctions for the unrest and would be paid for making up for lost time.

• Challenges for Panama

In its 2013-2014 Global Competitiveness Report, the World Economic Forum (WEF) notes that Panama still faces important challenges in terms of “strengthening the functioning of its institutions (66^th), fighting corruption (80^th) and crime (115^th), and improving trust in politicians (94^th) and the independence of the judiciary system (118^th)”.  The WEF also highlights as important the need to “continue improving the quality of education, notably in terms of math and science (114^th), which will be necessary in order to better develop local technological capacity”.

BRAZIL | 2019 trade balance battered by global difficulties. On 2 January, the secretariat for foreign trade and international affairs (Secint) in Brazil’s economy ministry released the annual figures for the country’s 2019 trade balance. The result is disappointing, with trade flows totalling US$401.36bn and the trade surplus standing at US$46.67bn – a 20.5% decrease on the 2018 result, and the smallest trade surplus that Brazil has registered since 2015.

Exports totalled US$239.26bn over the course of the year, 7.5% below the value of exports in 2018; while imports also fell in 2019, by 3.3%, to a total value of US$181.23bn. China, the US, the Netherlands, Argentina, and Japan were the principal destinations of Brazilian exports as measured by value. Brazil’s principal import partners were China, the US, Argentina, Germany and South Korea.

The Secint notes that these results are a reflection of the “adverse” international scenario, marked by low global growth and diminished trade flows amid the US-China trade war. An outbreak of swine fever in China negatively affected Brazil’s soya exports there, at a cost of US$6.7bn, while lower demand in Argentina cost the manufacturing industry (notably automobile parts) US$5.2bn. Meat exports, notably beef, performed well driven by demand from China, but the Secint notes that this was not sufficient to counterbalance the poor performance of soya. 

Brazil’s exports to the Southern Common Market (Mercosur) fell by 30.6%, driven by a 35.6% reduction in sales to Argentina as a result of the economic crisis there. This means that Brazil registered a trade deficit with Argentina in 2019, totalling US$838m according to the Secint’s figures. Abeceb, an Argentina-based consultancy, notes that if Argentina’s national statistics institute (Indec) confirms these figures, this would be Argentina’s first annual trade surplus with Brazil since 2002.

NICARAGUA | IMF upbeat. Following an official staff visit to Nicaragua, the International Monetary Fund (IMF) issued a statement on 16 November. It said that, after contracting by about 9% during 2018-2020, Nicaragua’s “economic activity is recovering well, supported by appropriate macroeconomic and financial policies and substantial pre-crisis buffers from government deposits and international reserves”. It adds that “international official financing, including IMF emergency assistance”, also helped the economy to cope with the coronavirus (Covid-19) pandemic and reconstruction efforts after the two consecutive hurricanes of November 2020. The IMF estimates that Nicaragua’s real GDP grew by 10.3% in 2021, and is expected to grow by 4% in 2022, sustained by private consumption and exports, given favourable export prices. It adds that strong remittances, large foreign direct investment (FDI) projects, and the allocation by the IMF of special drawing rights (SDRs) in August 2021 allowed the continued accumulation of gross international reserves to about US$4.2bn by end-September 2022. The IMF states that Nicaragua’s economic outlook is “favourable” although GDP growth is expected to moderate to 3% in 2023, due to weaker external demand and tighter external financial conditions.

DOMINICAN REPUBLIC | US blocks sugar imports from leading Dominican firm. On 23 November the US Customs and Border Protection Agency (CBP) announced it would detain imports of raw sugar and sugar-based products produced by Dominican firm Central Romana Corporation Limited, based on information that “reasonably indicates the use of forced labour in its operations”. The US is the most important market for Dominican sugar and Central Romana, the largest local private producer, dominates the Dominican sugar market; it is responsible for approximately 59% of total production.

Central America & Caribbean: inflation rate
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Central America & Caribbean: GDP growth (%)
Quarterly figures are year-on-year growth

The European Union (EU) and the US are starting to take a more pronounced stance vis-à-vis the 6 November election, which was controversial due to alleged fraud committed prior to, during and following election day as well as the illegality of President Daniel Ortega’s candidacy. Last month Germany revealed that it was cutting aid as a direct result of these allegations while the US warned that multilateral loans would be subject to “aggressive scrutiny”. How far the measures, which echo the international response to the highly questioned 2008 municipal vote, will impact Ortega remains to be seen, especially given the aid he continues to receive from his close ally, Venezuela’s President Hugo Chávez, which accounted for US$344.6m out of a total US$585m in foreign cooperation.

On 19 January Germany’s ambassador to Managua, Betina Kern, told the local press that, as of next year, Germany would only provide Nicaragua with cooperation for ongoing water treatment projects (worth US$15m), with all other aid (largely for the environment and governability), worth a further US$15m, to be suspended. In no uncertain terms, Germany’s minister of foreign cooperation, Dirk Niebel, told the German media that “the Nicaraguan regime must assume the consequences of its increasingly autocratic form of government”. While the absence of high-level European delegates at Ortega’s inauguration suggest a distance from the new government (only Spain’s crown prince, Felipe de Borbón, turned up), the new head of the EU delegation for Central America, Spain’s Javier Santodomingo Núñez, refused to comment on Germany’s decision, having pledged commitment to EU-Nicaragua relations upon receiving his credentials on 16 January.

Germany’s stance nonetheless comes on the heels of the suspension or phasing out of cooperation by other European countries on an individual basis, during the previous Ortega administration (2007-2012), which also owed in part to transparency concerns. Among others, these include: Norway, which, according to the most recent report by Nicaragua’s central bank (BCN), cut cooperation to US$3.4m in the first half of 2011, down from US$18m in 2007; Sweden, which has completely phased out cooperation, having provided some US$46m in 2007; and Switzerland, which provided US$0.6m in the first half of 2011, down from US$15m in 2007.

Less than a week after Germany announced it was cutting aid, the US Secretary of State, Hillary Clinton, issued a statement in which she dubbed the elections “a setback to democracy”. She also warned that “aggressive scrutiny” would be applied to “project loans at the Inter-American Development Bank [IDB] and World Bank”, which came to US$45.4m and US$16.7m in the first half of 2011 (out of a total US$87.6m in multilateral cooperation) on BCN figures. Clinton’s remarks were prompted by the release of the final report from the Organization of American States (OAS) observer mission, which reiterated familiar concerns: the refusal to authorise local electoral watchdogs to monitor the election; doubts over the legal status of the opposition Partido Liberal Independiente (PLI); the accreditation of electoral officials; the distribution of voting papers; and the composition of polling stations.

Yet, while Washington failed to send a high-ranking official to Ortega’s inauguration, the response of the Barack Obama administration has revealed divisions within the US which, for all Ortega’s rhetoric, remains a key ally for Nicaragua both in terms of trade (as its main market, accounting for roughly one third of exports via the US-Central America-Dominican Republic Free Trade Agreement [Cafta-DR]) and security. Cooperation between US and Nicaraguan armed forces is among the best in the isthmus and a factor in Nicaragua's relative success vis-à-vis the security problems afflicting its neighbours. Thus, while US Republicans such as Ileana Ros-Lehtinen (R-FL), Chairman of the House Foreign Affairs Committee, who slammed the OAS report as lacking “any concrete solutions or actions to condemn Daniel Ortega’s raid on the Nicaragua constitution”, are calling on Obama to take a stronger stance, other Ortega critics appear to reject the possibility of assuming a more extreme position. A former US envoy to Managua, Robert Callahan (2008-2011), said at the end of 2011 that despite the “illegitimacy” of the new government, it was necessary to maintain relations in order to “encourage” and “bear witness for those Nicaraguans who share our political values”.

• Opposition ends uncertainty

The PLI, which received 26 seats in the 92-member national assembly in the legislative vote, to 62 for Ortega’s Frente Sandinista de Liberación Nacional (FSLN), initially said it would not take up its seats in protest at what it maintains was a fraudulent and illegitimate election. The party has since back-tracked, arguing that a legislative presence is necessary to “denounce abuses and serve as the voice of the democratic people”. Even so, the futility of boycotting institutional process as a protest tactic was suggested with regard to the 9 January election of the seven-member congressional directorate. The PLI’s refusal to participate in the contest, following the FSLN’s failure to bow to its demands for three seats, allowed the FSLN to award itself five seats. The remaining two went to its former ally, the Partido Liberal Constitucionalista (PLC), which has just two deputies in the new congress, having won just 6% of the legislative vote. This effectively leaves the FSLN with control of the legislative agenda.

• Patchy regional attendance

Breaking a long tradition of perfect attendance in the sub-region, only three of President Daniel Ortega’s Central American peers - Guatemala’s then president, Alvaro Colom, (along with his successor Otto Pérez Molina), El Salvador’s Mauricio Funes, and Honduras’s Porfirio Lobo – turned up to Ortega’s inauguration on 10 January. Laura Chinchilla, President of Costa Rica, with whom relations are strained over the San Juan territorial dispute, sent a lower-level official. Panama’s President Ricardo Martinelli cancelled at the last minute, without providing any explanation, sending his foreign minister in his stead. While Venezuela’s President Hugo Chávez attended, other members of his left-wing regional Alianza Bolivariana para los Pueblos de Nuestra América (Alba), including Bolivia and Cuba, sent their vice-presidents.

BRAZIL | Unemployment rising

One of the few bright spots for the government led by President Dilma Rousseff over the past year has been the persistently high level of employment, despite warning signs from other economic indicators. Now, unemployment is rising: up to 6.7% in May. Many economists believe it will continue to rise over the next two years. A recently announced government scheme to encourage manufacturers to reduce work time and salaries before cutting jobs, the ‘Plano de Proteção de Emprego’, appears to have had little take up so far.

BRAZIL | Petrobras cuts 2015-2019 investment plan

Brazil’s state-owned oil company, Petrobras, has announced that it has decided to reduce its US$220.6bn investment plan for 2015-2019 by 37%.

In a statement to the São Paulo stock exchange (Bovespa), Petrobras, which is still struggling to overcome the major corruption scandal uncovered at the firm, said that it now plans to invest US$130.3bn over the period.
According to the Petrobras statement, the investment plan will prioritise oil exploration and production projects, for which US$108.6bn have been earmarked.

CHILE | Copa América revenue

On 6 July Chile’s sports minister, Natalia Riffo, said that according to preliminary calculations by the national chamber of commerce (CNC), the Copa América regional football tournament hosted by Chile between 11 June and 4 July produced between US$55m and US$88m in revenue for the country. According to Riffo this was mostly the result of more than 200,000 football fans from across Latin America that visited the country during the tournament. However, Riffo also conceded that the government had spent US$83m to improve stadiums in the cities of Antofagasta, La Serena, Viña del Mar and Concepción ahead of the tournament. Riffo added that the government would now “make sure that these stadiums are intensively used and remain accessible to [local] communities”.

ARGENTINA-URUGUAY | Pain relief. Argentina’s President Alberto Fernández, and his economy minister, Martín Guzmán, last week announced that the government was preparing a programme of extraordinary bonuses for informal workers and low income earners to insulate them against accelerating inflation. Inflation in the first quarter of 2022 was as high as 16.1% and reached 6.7% in March alone. Fernández admitted that inflation was devouring the income of the most vulnerable sectors in the country.

Guzmán said the war in Ukraine was causing not just inflationary pressures but “an income distribution crisis”. He announced that the government was planning a windfall tax on “unexpected” profits of certain companies that enjoyed “abnormally elevated” income in 2022 in order to provide financial assistance to the country’s neediest. Business associations warned that this would have a detrimental impact on investment, job creation, and economic activity.

Uruguay’s President Luis Alberto Lacalle Pou also announced measures this week to mitigate the impact of inflation, promising to increase pensions by 3% and civil servant salaries by 2% in July. Parties in the ruling coalition are pushing for food products in the basic basket of goods to be exempted from value added tax (VAT).

Illness may have moderated the frequency of President Cristina Fernández’s outbursts, but it has not mitigated their vitriol. In a speech on 4 February, in which she announced increases to pensions and school allowances, Fernández excoriated Argentine businessmen who “take their foreign currency earnings overseas” and attacked even supportive trade unionists whose wage demands apparently show they “don’t understand what is going on”. Politically, this was very rash, prompting opposition trade unionists to rally to the support of their slighted brothers.

Conscious she had overstepped the mark, President Fernández invited Antonio Caló, leader of the pro-government wing of the Confederación General del Trabajo (CGT), to a clear-the-air meeting at the Casa Rosada on 6 February. Caló had provoked her wrath by suggesting inflation was so high some people could no longer afford to eat. But lashing out at her rapidly diminishing support base suggests Fernández is starting to feel the pressure.

Reality bites

Earlier this week, the Anglo-Dutch oil company, Shell, announced its decision to raise prices by 12%, prompting howls of outrage by the government. “They accuse us of greed,” Juan José Aranguren, president of Shell’s Argentine subsidiary, said. “If suppliers increase costs by 23% and we increase petrol prices by 12% the next month, is that greed?”

Following a meeting with Axel Kicillof, the economy minister, the government agreed to allow oil companies to raise petrol prices by as much as 6% in February. Shell will reduce its prices; YPF, Oil, Axion (the local subsidiary of the US's ExxonMobil), and Petrobras will now raise theirs. The price rise will inevitably further fuel inflation, estimated, unofficially, at around 28%. This month’s set of official data will use new methodology which will almost certainly show a sharp increase, prompting more exorbitant wage demands.

Meanwhile the central bank tried a different tack to stabilise the peso by ordering banks to release foreign holdings. It reinstated a rule that restricts the amount of foreign currency a holding bank can hold to a maximum of 30% of the institution’s financial liability or its liquid equity, whichever is lower. At the same time, a 10% limit was set for the futures currency market. The official rate of the peso climbed six cents on news of the rule, to Arg$7.96/US$. The unofficial, ‘blue’ dollar rate, remained stable, at Arg$12.55. But as the banks’ dollars are already accounted for, it did not succeed in reversing the decline in the central bank’s foreign currency reserves, now just US$27.8bn.

Nuestros hermanos bring bad news for Brazil

Argentina is Brazil’s third-largest trading partner; just over 8% of Brazil’s exports head there. In 2013 Argentines imported US$19.6bn worth of Brazilian products, mainly cars, equivalent to 0.9% of Brazil’s GDP. As the wheels begin to fall off the Argentine economy, Brazilians have started to wonder how much their own sluggish growth is likely to be hampered by the economic disorder.

Itaú, the Brazilian bank, estimates that each 10% decline in exports to Argentina could reduce Brazilian GDP growth by as much as 0.2 percentage points in 2014, with manufacturing bearing the brunt. Small businesses in Brazil’s south, which account for 45% of the trade with Argentina, are also expected to suffer.

The greatest concern for many Brazilian economists is that Brazil may be tainted by association. Despite the clear differences in the two economies, not least in the amount of foreign currency reserves they hold, Paulo Márcio Mello, an economics professor at Rio de Janeiro state university, fears investors could act “emotionally and irrationally” and lump the two neighbours together. Last week the finance minister, Guido Mantega, said that Brazil was prepared to help its hermanos down south, should they be willing to ask.

• The last sachet?

On 2 February McDonald’s Argentina apologised to customers for a lack of ketchup. Though it promised to resolve the issue quickly it declined to specify the exact nature of the problem. The suspicion among social media users in the country, however, is that the country’s foreign exchange controls are to blame. While individuals may have been liberated to purchase dollars (up to US$2,000 each), companies have not. The ketchup sachets are made in Chile. Given the dramatic depreciation in the value of the Argentine peso, the Chilean suppliers could be demanding dollars. No dollars, no ketchup.

With less than a week until the 9 August first round of legislative elections electoral concerns – not just regarding the legislative vote but also the 25 October presidential first round – are multiplying. Last month a local civil society group, Observatoire Citoyen pour l’Institutionnalisation de la Démocratie (Ocid), released its first report since the official launch of campaigns on 8 July which warned of a “significant deterioration” in the electoral process.

The Ocid – which comprises a consortium of civil society groups including l’Initiative de la Société Civile (ISC) and Centre Œcuménique des Droits Humains (Cedh) - carried out an evaluation of the electoral environment between 29 June and 7 July. In its report it flags up two major concerns – insecurity and the slow pace of recruiting polling staff. As regards the former point, the report pointed to attacks against Bureaux Electoraux Communaux (BEC) – the official body tasked with resolving electoral disputes at the communal and departmental level. In particular the Ocid report noted attacks against BEC offices in the towns of Petit-Goâve in Ouest department; in Terrier-Rouge, Nord-Est Department; and in Grande-Rivière-du-Nord and Quartier-Morin in Nord department.

These concerns add to existing security fears regarding the electoral process. On 7 July Sandra Honoré, the head of the United Nations Stabilisation Mission in Haiti (Minustah) issued a statement expressing such concerns after an employee of the provisional electoral council (CEP), Wikenson Bazile, was shot dead two days earlier while walking in the capital, Port-au-Prince with his son and nephew. Honoré called for the police to launch a full investigation.

As regards the Ocid’s other chief concern - the slow pace of recruitment of electoral staff, the report also notes that just three of ten local electoral councils – Bureaux Electoraux Départementaux (BED)- and 19 of the 34 BEC offices visited confirmed that the recruitment of members for polling stations was underway. It also notes that “delays were even more marked in the case of the registration of supervisors (only two of 10 BEDs observed and one of 34 BECs visited had begun the process)”.

Funding concerns

As well as the concerns raised by the Ocid, doubts as to whether there is sufficient funding to cover the cost of staging the elections (which include a second round of legislative elections, two rounds of presidential elections and local elections) have also emerged in recent weeks.

On 16 July Haiti’s Prime Minister Evans Paul met senior international officials like Honoré at the UN headquarters in New York where he said that the government led by President Michel Martelly, had allocated US$6m for election security and another US$10m for political party financing, “in addition to the other substantial financial contributions made in support of the electoral process”. However, on 22 July the local press reported that the government only published the formula for the money’s disbursement, with no timeline for the distribution of funds.

There have been more general concerns about covering the costs – at the same meeting, the international press cited Pierre-Louis Opont, the CEP president, as saying that Haiti needed US$31m to cover the costs of the elections. Meanwhile the previous week Thomas Adams, the US State Department’s special coordinator for Haiti told the Senate Foreign Relations subcommittee on Western Hemisphere that US$50m would be necessary to cover the elections.

• Observer missions

Both the Organisation of American States (OAS) and European Union (EU) are sending delegations to observe Haiti’s elections.

ARGENTINA | Budget. On 28 December 2017 Argentina’s congress approved a draft 2018 national budget for Ar$2.72trn (US$145.5bn), a 1.5% increase compared with the 2017 budget. The draft budget plan seeks to increase government spending by 15.1% compared with 2017 but at the same time reduce the primary fiscal deficit from the 4.5% posted last year to 3.2% by stimulating increased domestic economic growth and private sector investment.

The 2018 budget is based on a GDP growth forecast of 3.5% after the country posted growth of 3% last year on official figures. The budget’s inflation forecast for year-end 2018 is 15.7%, while the average exchange rate projection is Ar$19.30/US$1.

BRAZIL | Petrobras. Brazil’s state-owned oil company Petrobras has agreed to pay US$2.95bn to settle a class action lawsuit in the US. The case was brought by US investors who say their holdings lost value after Petrobras became embroiled in a bribery scandal exposed by ‘Operation Car Wash’. This is subject to review by the US District Court for the Southern District of New York (SDNY).

The settlement could spark another lawsuit in Brazil from local shareholders demanding similar reparations from Petrobras to the US settlement.

BRAZIL | Meat exports. Despite a public backlash from the food sanitation scandal ‘Operação Carne Fraca’, meat exports remained roughly the same in 2016 and 2017. This shows the sector has made a robust recovery after 70 countries imposed some kind of trade restriction on Brazilian meat products after the scandal implicating major companies such as JBS and BRF broke last March.

In 2017, Brazil exported 6.557m tonnes of meat compared with 6.558m tonnes in 2016. The value of exports rose to US$15.06bn last year, up from US$13.89bn in 2016. 

Colombia provides a unique example, with former-president Gustavo Petro (2022-2026) the only regional leader who actively tried to advance a fossil fuel phase out.

Petro announced a moratorium on new contracts for the exploration and extraction of coal, gas, and oil in January 2023, delivering on a campaign promise, and published a national development plan that provided a framework for advancing the energy transition. Although the government did promise to honour existing contracts, this was a bold gambit in a country in which fossil fuels make up 35% of total exports and contribute 10% of fiscal revenues. 

There were some signs of progress, including the fact that non-hydroelectric renewables’ share of electricity generation increased from around 2% of the total to 16% during his term, largely thanks to new solar projects, and state run oil firm Ecopetrol dedicated more resources to the energy transition, hitting 40% of the budget in 2024. Petro was also able to advance the conversation around phasing out fossil fuels at the First Conference on the Transition Away from Fossil Fuels conference in Santa Marta in April, setting out his stall as a thought leader on the matter, but ultimately his plan ran into a number of issues. 

First, his lack of a congressional majority and cabinet instability meant that further efforts to advance the phase out, such as by banning fracking or new open-pit coal mining, were unsuccessful. The government also defended the exploitation of natural gas as a transition fuel, and granted exemptions for the development of the Sirius offshore gas fields due to concerns over energy security, with supply from existing fields dwindling and forecast to run out in around six years.

Much like Pemex and other NOCs, Ecopetrol is a source of pride for many Colombians. The company also supports more than 100,000 jobs, according to oil workers union Unión Sindical Obrera (USO), as well as tens of thousands more indirect jobs, underlining the political and economic risks of attempting to bring change to the sector. Petro’s cause was not helped by a governance scandal involving Ecopetrol President Ricardo Roa, who managed Petro’s campaign finances for the 2022 election, which affected operations at the company, nor the fact that other significant contributors to the Colombian economy, such as mining, are still highly reliant on fossil fuels. 

But perhaps the most significant factor was the finances. Modelling carried out by the IMF revealed that a steep decline in oil production alone would reduce Colombia’s royalties and income tax revenues by 0.9-1.2 ppts of GDP per year through 2030, with lower dividends from Ecopetrol adding a further reduction and resulting in “serious fiscal implications”. 

At the same time, securing the level of investment needed to advance the energy transition quickly enough to replace this steep decline in fossil fuel output would have been an incredibly difficult task. According to a peer-reviewed paper published in the journal MDPI, supporting projected energy demand in 2035 solely using renewables would require US$123bn-$267bn in investment, equivalent to 36%-77% of the nation’s 2022 GDP. “This immense capital requirement demonstrates that the current roadmap is not only overly ambitious but economically untenable, posing significant risks to the country’s fiscal stability and energy security,” wrote the authors.

And it appears that these fears were shared by Colombian voters too, with right-wing populist Abelardo de la Espriella beating the Petro-backed candidate in June’s presidential election run-off. Colombia’s next leader has promised to push ahead with fracking and restart fossil fuel exploration, setting the scene for a rapid rollback of the region’s only serious attempt to make the energy transition national policy. 

De la Espriella is therefore set to put an end to Petro’s failed attempts to override the structural constraints of the energy transition with concerted political will. And good relations with fossil fuel-advocating US President Donald Trump, who endorsed his candidacy, could make Colombia an attractive bet for US energy companies looking for opportunities to take advantage of the policy reversal.

In May this year national senator Eduardo Carlos Merlano refused to take a breathalyser test when stopped by traffic police in Barranquilla, the capital of the Colombian department of Atlántico. His refusal cost the commander of the metropolitan police, General Oscar Pérez Cárdenas, his job within days of the episode. A few months later, Merlano himself was sanctioned by the office of the prosecutor general, who removed him from office and banned him from holding an elected post for 10 years. His removal from the congressional upper chamber means the Partido de la U (PU) must replace him with the candidate who came in second place during the 2010 elections, which inadvertently has created another potential scandal: the ‘remedy’ may be worse than the original ‘illness’.

The Merlano scandal broke when a video recorded on a mobile phone in the early hours of 13 May was released to the press. In it, Merlano refuses to take a breathalyser test when he is stopped at a roadside checkpoint by police, asking them, “Do you not know who I am?” and claiming that national senators cannot be subjected to these checks. He then made several phone calls and left the checkpoint without showing a valid driver’s license. The senator renewed his license a few days after the incident, on 16 May.

Eduardo Merlano is the son of Jairo Merlano, a former PU senator sentenced to eight years and three months in jail by the supreme court of justice in August 2011 for his links to the (now defunct) paramilitary Autodefensas Unidas de Colombia (AUC). Merlano’s replacement is expected to be Astrid Sánchez Montes de Oca, a member of one of the most influential families in Chocó politics since the mid 1970s. Astrid is the sister of former congressman Odin Sánchez Montes de Oca who was sentenced to nine years in prison for his ties to the AUC, and the former governor of Chocó Patrocino Sánchez Montes de Oca, who is currently being investigated for committing irregularities when he served as mayor of Quibdó.

According to the local daily El Tiempo, the PU wants to avoid yet another embarrassing episode and will ask Sánchez Montes de Oca not to take her seat because of ethical questions surrounding her close family members that may taint her own ability to perform her duties properly. There is no legal impediment to Montes de Oca taking Merlano’s seat - she is eligible by the number of votes she received in 2010 - but the party wants to avoid an avalanche of criticism because she is the sister of a convicted parapolitician. The PU already faced similar criticisms when Merlano refused to take the alcohol test – though his father had not been convicted in 2010, by the time the scandal broke the Colombian press argued that “the apple hadn’t fallen so far from the tree”, evidenced by the senator’s refusal to respect authority and abide by the law, like his father before him.

• Peace talks in Oslo delayed

A combination of bad weather and the addition of a last-minute representative on the side of the Fuerzas Armadas Revolucionarias de Colombia (Farc) resulted in a delayed launch of the peace dialogues with the Juan Manuel Santos government in Oslo, Norway. The Farc has included as one of its negotiators ‘Alexandra’ or ‘Eileen’ (Tanja Nijmeijer), a Dutch woman who voluntarily joined the Farc after completing her university degree in The Netherlands and has spent slightly over a decade in its ranks. But Nijmeijer’s transportation is more complex than that of other guerrilla leaders and it is unclear if she was able to travel to Oslo before the two sides met for the first time on 17 October.

• The Dutch guerrilla

Tanja Nijmeijer gained notoriety when in a 2003 radio interview she said she had not been kidnapped by the Farc, but had joined its cause voluntarily; just four years later after a bombing raid, the Colombian army discovered a diary in which she no longer appeared fully convinced by the Farc’s internal workings and the way in which women and lower-ranked combatants were treated by their own commanders. The files seized by the Colombian armed forces following the 2008 raid in Ecuador, in which ‘Raúl Reyes’ (Luis Devía Silva) was killed, showed that the publication of Nijmeijer’s diary had been taken very badly by her own comrades who demanded she be subjected to a guerrilla trial that could have handed down a death sentence. Reyes, however, believed the Dutch woman could be more valuable 478alive, by helping improve its image overseas, than if she were executed for her violation of guerrilla conduct codes.

On the face of it, the People’s Partnership (PP) government led by Prime Minister Kamla Persad-Bissessar is having a torrid time, losing a previously safe seat in a late-July by-election to ousted minister Jack Warner and having to seek consensus with opposition People’s National Movement (PNM) leader Keith Rowley following a mid-August upsurge in violence.  In an attempt to regain the initiative, on 5 September Persad-Bissessar announced her third major cabinet reshuffle in three years.  But the underlying position may not be quite as bad as it seems.

Warner, it will be recalled, easily won the 29 July Chaguanas West by-election [RC-13-08], running against the United National Congress (UNC), for which he had held the seat before being ousted from the cabinet following a damning report on alleged corruption during his time as a hemispheric football administrator.  He forced the by-election by resigning his parliamentary seat, and then he astonishingly won the contest by 12,631 against the UNC’s 5,126 votes under the banner of his new Independent Liberal Party (ILP).

That this was a major setback and embarrassment for the prime minister and her UNC party (the dominant element in the coalition) cannot be denied; but there was comfort nevertheless in the fact that the PNM garnered just 422 votes, or 2% of those cast.  Equally, Warner has shown no sign of wanting to make common cause with the opposition.  After his success, while Warner said that he had increasingly little in common with the ruling coalition he also pointed out that the one thing they still do have in common is opposition to the PNM.

Following on quickly from the by-election setback, the government was forced into crisis talks with the opposition following the killing of six people within 24 hours in the second week of August.  The government also felt it necessary to launch two major police operations leading to the arrest of over 100 suspects.  The second of these operations included the deployment of 100 soldiers alongside 300 police officers and the arrest of 90 people.

The talks between Persad-Bissesar and Rowley took place on 22 August and led to an agreement for the deployment of a new rapid-response unit, the acquisition of 300 new police cars, a review of the Anti-Gang Act and procedures for the selection of the police commissioner, and a partial abolition of trial by jury for those charged with gun or drug offences.

But, as with the by-election result, not all is quite as bad as it seems on the security front.  The latest figures show that despite the mid-August surge, murders were still down by 22% compared with last year, at 236 in total.  This suggests that the homicide rate, after a rise to 32 per 100,000 in 2012, could be back down to the 2011 rate of 26.  This is considerably below the peak of 41 murders per 100,000 inhabitants reached in 2008.

The other piece of relatively good news from the government during August came from the International Monetary Fund (IMF).  In its 12 August summary of its 2013 Article IV Consultation, the IMF reported that Trinidad & Tobago is “poised for a modest recovery in 2013” after a disappointing 2012.  The IMF is projecting growth of 1.5% for 2013.  It records unemployment as being 5% and core inflation (excluding food) as low as 2.2% in March.  In 2012 core inflation was 3.1%, with headline inflation reaching 9.3%.

The IMF noted that the government realized a deficit of 1.1% of GDP in fiscal 2011/12 as a result of a decline in energy revenues due to output shortfalls.  It also noted that gross government debt increased by six percentage points to 39% of GDP.  However, the lender described this as “manageable” and “agreed that the authorities’ macroeconomic policies are appropriately supporting the recovery in the near term given downside risks”.  This is just as well, as on 9 September Finance Minister Larry Howai presented another budget deficit, the fifth in five years.

But even if the news on the political, security, and economic fronts is not as bad as it could be, or as it has been presented in certain circles, Persad-Bissessar has still felt it necessary to reorganize her government, including appointing Gary Griffith as her fourth National Security Minister after Brigadier John Sandy, Jack Warner, and Emmanuel George.  Three other new ministers were introduced and eight changed portfolios.  In one surprise, Attorney General Anand Ramlogan held on to his post.

Whatever goodwill had been generated by cooperation between the prime minister and the leader of the opposition over the mid-August security crisis however was immediately dissipated by Rowley’s reaction to the reshuffle.  He said the prime minister was now “in her fourth year of chaotic government” and accused her of being “a lame duck operating now on incredulous utterances and insulting assertions”.  For good measure, he added: “It is clear that we are in the throes of the most severe political and governance crisis that our country has ever seen.  The country has lost all confidence in this government and this prime minister.”

The prime minister’s response was to promise to sleep less, saying: “If 18 hours a day isn’t enough for us to deliver then we shall have to give 20, find a way to power nap to recharge and deliver, deliver, delivery.  No excuses.  No explanations.  Just execution beyond the call of duty.  That is our mantra now.”

• “The talks between Persad-Bissesar and Rowley took place on 22 August and led to an agreement for the deployment of a new rapid-response unit, the acquisition of 300 new police cars, a review of the Anti-Gang Act and procedures for the selection of the police commissioner, and a partial abolition of trial by jury for those charged with gun or drug offences.”

President Michelle Bachelet has emphatically rejected any illegal financing of her re-election campaign in 2013. Bachelet’s public comments last week followed several days of finger-pointing by politicians, primarily on the Right, embarrassed by the scandalous allegations of illegal campaign contributions made by the investment bank Penta. The Bachelet administration is promising a new law to make campaign financing more transparent. While both congress and the judiciary have launched parallel and overlapping investigations, the episode has merely reinforced the public perception of politicians as untrustworthy, deceitful and self-interested.

‘Pentagate’, as it has rapidly become known, materialised in late September when the newly created Fiscalía de Alta Complejidad (prosecutor’s office for high complexity) [WR-14-39] began investigating Penta for tax evasion. A former executive at Penta, Hugo Bravo, who is fighting a legal case for wrongful dismissal, subsequently revealed that the banking group had financed electoral campaigns, especially of politicians from the conservative Unión Demócrata Independiente (UDI) but also Bachelet’s former finance minister, Andrés Velasco (2006-2010), who ran as an independent in the last elections. It allegedly did so with money from phantom business transactions for which they filed fake invoices in order to reduce taxable income and evade the electoral law on campaign finance.

Chile’s tax agency (SII) presented a legal request to investigate alleged irregular campaign financing by Penta on 8 October. The lower chamber of congress agreed to form one investigative committee for the Penta case and another to study the entire system of political campaign financing. Then, on 13 October the Partido Socialista (PS), part of the ruling coalition Nueva Mayoría, presented charges of aggravated bribery and lack of administrative probity before a court in Santiago against public officials implicated in ‘Pentagate’ (see sidebar).

The UDI immediately accused the government, through Bachelet’s PS, of seeking to unduly influence the legal proceedings; politicians from other parties in the Nueva Mayoría also expressed unease, arguing that the judicial investigation should run its course without any political involvement. The UDI, under intense pressure after Bravo’s remarks, demanded that several cabinet ministers who participated in Bachelet’s campaign appear before the congressional investigative committee to face questions about sources of financing, including the cabinet chief, Rodrigo Peñailillo; the labour minister, Javiera Blanco; the government spokesman, Alvaro Elizalde; and the finance minister, Alberto Arenas.

Bachelet parried the UDI’s thrusts by claiming that her government “is not intervening in any way [in the judicial investigation] for any political objective”, and that the prosecutor’s office would have total autonomy. She also insisted that “All the contributions to my campaign were approved by Servel [the electoral authorities],” adding that “I cannot tell you who gave me anonymous contributions because I don’t know but in my campaign there was not one single illegal peso.”

The very fact that private companies can make anonymous contributions in Chile, however, raises transparency concerns and is likely to be redressed. Elizalde has promised to send to congress in the coming days a law “regulating more strictly not just campaigns but also all political activity”. The secretary general to the presidency, Ximena Rincón, said on 18 October in an interview with the national daily, El Mercurio, that outlawing anonymous contributions would be one of the main aspects of the bill sent to congress. Rincón, somewhat disingenuously, also denied that the planned bill had any relation to the Penta case.

• Divided opinion

The president of the Partido Socialista (PS), Deputy Osvaldo Andrade, justified filing the lawsuit in the Penta case on the grounds that “serious institutions” (read congress) should get involved in the legal process rather than “looking on from afar”. But the head of the senate bloc of the more centrist Democracia Cristiana (DC), Jorge Pizarro, questioned the sense of the lawsuit, arguing that keeping the judicial and political investigations entirely separate conferred greater credibility on the whole process. The fact that the Nueva Mayoría has not united to exploit the UDI’s discomfiture suggests that there may be some unease about campaign financing within the ruling coalition, especially as Andrés Velasco, President Bachelet’s former finance minister (admittedly running as an independent) has also been ensnared in the scandal.

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

COLOMBIA | Unemployment rises. Colombia’s national statistics department (Dane) released the latest employment figures on 29 July, putting the unemployment rate in June at 11.3%. This was down 3.3 percentage points in year-on-year terms, but up 1.2 percentage points in seasonally adjusted monthly terms. The largest year-on-year employment increases in June were in the category ‘artistic activities, training, recreation, and other services’, in which 508,000 more jobs were recorded compared to June 2021. This was followed by industrial manufacturing, which saw a year-on-year increase of 269,000 jobs. In contrast, Dane recorded 64,000 job losses in the ‘vehicle trade and repairs’ category, compared to June 2021. Broken down by gender, the unemployment rate in June was 9.2% for men and 14.1% for women.