All Categories

Imagine you have just been appointed the finance minister of a (fictional) Latin American country. You desperately need to raise foreign currency loans. For whatever reason, traditional western banks and international financial institutions (IFIs) are cut off to you – perhaps your country defaulted on its foreign debt in the recent past, or your government dislikes the policy conditions imposed by the International Monetary Fund (IMF), or it has a major political quarrel with Washington. You decide to turn to China. What can you expect?

In a February 2012 paper for Boston University’s Pardee Centre, Kevin Gallagher, Amos Irwin, and Katherine Koleski examined the recent pattern of Chinese lending to Latin America. In the paper, entitled ‘The New Banks in Town: Chinese Finance in Latin America’, they sought to investigate three common claims: that the Chinese lend money to Latin America on more favourable terms than Western institutions; that Chinese lending bodies impose no policy conditions; and that they are also less stringent in terms of the environmental impact of the activities they fund.

The paper first establishes some interesting background data. Since 2005, the authors estimate, China has provided US$75bn worth of loans to Latin American countries. The volume of this financing has grown sharply: in 2010, the last year for which reasonably comprehensive data has been compiled, Chinese loans totalled US$37bn, and exceeded the combined lending to the region by the World Bank, the Inter American Development Bank (IADB) and the US Eximbank. Chinese lending growth has followed on a few years behind the rapid expansion of trade links. China is now the number one trading partner of Brazil and Chile, and the number two trading partner of Peru and Mexico.

Most of Chinese lending to the region comes from the China Development Bank (CDB), which is responsible for over 80% of the loans by value, with a smaller amount coming from China Ex-Im Bank and the Industrial and Commercial Bank of China (ICBC). Since 1994 CDB and China Ex-Im Bank have been designated as ‘policy banks’, designed to support Beijing’s regional objectives (as distinct from more commercial Chinese banks). Of the total disbursed since 2005, over 90% has gone to four countries: Venezuela, Brazil Argentina, and Ecuador.  Two thirds of the money has gone to the region in the form of loans-for-oil.

The claim that Chinese institutions lend on ‘sweeter’ terms than their western counterparts is not always true, the paper notes. In fact, it finds that Chinese banks’ interest rates on loans are sometimes above, and sometimes below the rates offered by their Western counterparts. It notes that in 2010 the CDB offered Argentina a US$10bn loan at 600 basis points above Libor, while in the same year the World Bank’s International Bank for Reconstruction and Development (IBRD) granted the same country a US$30m loan at a spread of 85 basis points over Libor. China Ex-Im Bank, on the other hand, often offered lower rates than its Western equivalents. The difference lies in the fact that the CDB is expected to cover the full cost of its loans, while China Ex-Im Bank loans are explicitly seen as including a ‘foreign aid’ element: interest rates are in the 2%-6% range.

While the researchers confirmed the claim that China does not impose policy conditions on its loans, the loans do carry certain ‘strings’. One has been a strong preference for commodity-backed deals. Over half the money lent has been in the form of loans-for-oil, which totalled US$46bn in three years and went mainly to Venezuela, Brazil and Ecuador. Usually, the CDB extends a billion-dollar loan to a Latin American state oil company, which pledges to ship a fixed volume of oil back to China for the lifetime of the loan. The value of these shipments, calculated at market prices, are then converted into loan repayments. Gallagher et al note that these deals are usually a mixture of a conventional supply contract and a loan repayment mechanism. That means that countries like Venezuela export more than would be needed purely for loan repayment purposes. Ecuador, for example, receives 79% of the market value of its oil exports to Petrochina in cash, with the remaining 21% being taken by the CDB for debt repayment purposes.

The paper rejects as incorrect the view often expressed that these are barter deals weighted in China’s favour, with repayments fixed in barrels of oil (volume), an arrangement which would allow China to profit from rising prices. In fact, it says the loans-for-oil arrangements are always based on market prices.  China does of course benefit, but rather than financially, it does so principally because it gains long-term security of supply.

Gallagher has pointed out that while Chinese loans come without the irksome policy conditionalities imposed by the western IFIs (such as trade liberalisation or fiscal deficit reduction targets), there is a different set of requirements. These include commitments from the borrowers that Chinese companies be awarded related supply contracts, whether for commodities or infrastructure work. At worst, it could be argued that the cumulative effect of these deals could be to lock the Latin American borrowers into excessive dependence on raw material exports, limiting their diversification into manufacturing.

The paper also makes the point that the environmental guidelines imposed by Chinese lenders are less stringent than those now demanded by the IFIs. This can be an important issue, since much of the lending goes to oil, iron, soya, and copper projects in environmentally sensitive areas of Latin America.

On 5 October, less than a month after Keith Rowley’s People’s National Movement (PNM) secured victory in the 7 September general election, new finance minister Colm Imbert declared that “our economy is in an even more perilous state than we, the new administration, had envisaged”.

In his 5 October budget statement, Imbert acknowledged that Trinidad & Tobago’s energy sector would experience its “fourth annual decline in the past five years” in 2015. He said that energy exports would likely come in at US$7.5bn in 2015, down from an annual average of US$12.7bn in the 2010-14 period. As a result, the trade balance would be reduced from US$4.6bn in 2014 to US$1.7bn. He added that activity in the non-energy sector would also continue to be weak, particularly in construction, distribution, and manufacturing.

Where Imbert got political was in his assertion that the outgoing People’s Party (PP) administration, led by former prime minister Kamla Persad-Bissessar, “took virtually no action to stabilize public finances” in the face of declining revenues. For instance, Imbert reported, while government revenues from petroleum had fallen by TT$8.0bn in 2015, government expenditure was reduced by only TT$3.0bn. The result was a fiscal deficit of TT$7.0, about 4.2% of GDP, compared with a budgeted deficit of TT$4.3bn, 2.7% of GDP.

Imbert said that the new government would orchestrate an improvement in fiscal year 2016, reducing the budget deficit from 4.2% of GDP to a projected 1.8% of GDP. In part this will come by boosting VAT revenues by an estimated TT$4.0bn, but it will also rely on one-off items which could amount to as much as 11.4% of GDP. This suggests any improvement in the fiscal deficit could be temporary in the absence of an economic turnaround.

For the moment, though, the focus of the United National Congress (UNC), the main component in the ousted PP coalition government, is on its own internal affairs and not on the PNM government’s economic plans. It is to hold a leadership election on 5 December, and challengers are lining up to replace Persad-Bissessar.

The main indictment of the ousted prime minister is that she has become a liability. She led the PP to victory in the 2010 general election when Prime Minister Patrick Manning took the disastrous decision to call an election two years before he needed to, but her record with the electorate since then has been poor. In 2013, the UNC lost four electoral contests. Following those setbacks, she suffered the resignation of two ministers in March and April 2014 for misconduct, and in early 2015 a complicated political scandal cost the jobs of Attorney General Anand Ramlogan and National Security Minister Gary Griffith. Then there was the tumult surrounding former security minister Jack Warner’s indictment on allegations of corruption, and the US’s attempts to extradite him. For the moment Warner is still in Trinidad, and he is still throwing mud at the former prime minister.

Persad-Bissessar’s main challenger at the 5 December UNC convention will be former minister Dr Roodal Moonilal who has relinquished his post as opposition chief whip in order to mount his challenge. He is challenging the former prime minister on the grounds that five consecutive election and by-election defeats under her leadership says all that needs saying. Moonilal argues: “We can’t take this anymore. I’m just fed up with losing…If the same people use the same approach and behave in the same way, nothing will change. We will lose again and again – in 2020, 2025, and beyond.”

ST LUCIA | NEW GOVERNMENT TO END SECURITY ISOLATION. Once again, St Lucia has not participated in the annual Tradewinds maritime exercise which began in Grenada on 5 June. Exercise Tradewinds is a US-backed exercise that supports the Caribbean Basin Security Initiative (CBSI). This year’s exercise has three phases: Phase I comprises land and sea operations in Grenada from 5-14 June; Phase II, land and sea operations in Jamaica from 20-28 June; and Phase III, a seminar for key leaders from 20-22 July in Miami.

Participants include the US, Canada, France and the United Kingdom alongside 13 Caribbean Community countries: Antigua & Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, St Kitts & Nevis, Suriname, St Vincent & the Grenadines, and Trinidad & Tobago. But there will be no St Lucia once again, the country’s participation having been suspended by the US in 2013 following allegations that the Royal St Lucia Police were involved in the extrajudicial killing of 12 people in 2010 and 2011.

The killings were allegedly part of a police operation launched by the then-United Workers’ Party (UWP) government in response to a surge in homicides and violent crime in 2008-2009. An independent Jamaican-led investigation, which reported on the issue in March 2015, appeared to support the most serious allegations, but nothing has so far been done to bring the perpetrators to justice despite strong pressure from the US and European Union (EU), amongst others. The UWP, which lost the 2011 general election to the St Lucia Labour Party (SLP), returned to power at the beginning of June, and Prime Minister Allen Chastenet has promised “within 100 days of assuming office” to appoint a high-level tribunal of former members of the judiciary to review the issue and to recommend “appropriate means of resolving the situation within the parameters of the laws of St Lucia”.

JAMAICA AND GUYANA | VIOLENT CRIME DOWN. On 7 June, the Jamaica Constabulary Force (JCF) announced that there had been a 10% reduction in violent crime in the first five months of 2016. For the period 1 January to 4 June, there was an overall 2% reduction in murders year-on-year. Violent crimes that showed the most significant decreases were rape, down 29%, and aggravated assault which was down by 27%.

Guyana also announced a significant 16% fall in serious crimes in the first five months. Murders were down by 7%, armed robberies by 7%, and rape by 14%. The biggest fall was a 26% reduction in the number of robberies in which violence was used. A Guyana Police Force (GPF) spokesperson explained the improvement by saying: “The police are increasingly gaining the public’s trust, resulting in a higher level of information-sharing and the solving and prevention of serious crimes, inclusive of murder.” He added: “Exposure to training, both locally and internationally continues to be a top priority at all levels of the force.”

TRINIDAD-VENEZUELA | TALKING ABOUT JOINT PATROLS. On 8 June, Trinidad & Tobago’s Security Minister Edmund Dillon said that he was talking to Venezuela about mounting joint sea patrols to halt the influx of Venezuelan nationals coming to Trinidad as a result of the internal difficulties in Venezuela. Dillon said that joint patrols were needed to prevent drug trafficking, gun-running, smuggling, and human trafficking. Dillon said: “Trinidad & Tobago Coast Guard will patrol from north to south and they [Venezuela’s Guardia de Nacional] will patrol from south to north.”

Given that Trinidad is only seven miles from Venezuela, Dillon said that there had been a significant movement of peoples and goods between the two countries, but the problem has escalated with the domestic difficulties in Venezuela, and Trinidad has “intensified our patrols both in the sea and on the land to prevent as much as possible illegal entry into the country.”

PERU | Chancay-Shanghai trade. In the first two months of operation, over 22,000 tonnes of cargo have been transported along the new direct maritime route between the Chinese-funded Chancay mega-port on the Peruvian Pacific coast, and the Chinese city of Shanghai, according to a report from Peru’s state news agency Andina on 5 March. Citing Chinese customs authorities, Andina reported that the total value of goods transported amounted to US$84.06m since the route began operating on 18 December 2024. It notes that the route is used twice a week and has cut transport time between Peru and China from over a month to approximately 23 days, as well as reducing maritime transport costs by at least 20%. In February Andina reported that Peru’s exports to China, its leading export destination, were worth US$25.2bn in 2024, accounting for 34% of total exports.

BOLIVIA | Fuel shortages. On 10 March Bolivia’s hydrocarbons minister, Alejandro Gallardo, blamed renewed fuel shortages on low reserves of hard currency which are restricting fuel imports from abroad. His comments came after long queues began forming outside petrol stations and the agricultural sector warned that the fuel shortages could impact the harvesting of key crops such as soya. Representatives from the mining sector who have also expressed concern. Speaking at a press conference, Gallardo said: “our problem is obtaining hard currency to pay suppliers for fuel imports”. Gallardo called on congress to approve new loans to enable more fuel imports and said that President Luis Arce’s government was also looking at other financing possibilities.

Andean countries: inflation rate
Percentage variation (year-on-year)

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

URUGUAY | Budget contains tax increases. Uruguay’s senate approved the government’s five-year budget in general terms on 26 November and will now vote on the 650 individual articles contained within it, including tax increases. When presenting the budget to the senate finance and budget commission on 21 November, the economy and finance minister, Gabriel Oddone, said the government had “inherited a complex fiscal situation” and warned about the first signs of an economic slowdown and a labour market freeze.

The budget, which received broad cross-party support, securing approval by 26-3, will need to go back to the lower chamber of congress where it was approved with a decisive 84 votes of 98 deputies present on 10 October.

Oddone said the government had forecast that new taxes would increase GDP by 0.75% over the next five years and increase the tax take by an estimated US$600m. Oddone said that 80% of that tax increase would owe to the implementation of the Domestic Minimum Top Up Tax (DMTT), a global minimum corporate tax designed to ensure that large multinational groups with profits in excess of US$750m operating in Uruguay pay a 15% tax, which would help bring down the budget deficit to 1.6% of GDP by 2029.

Oddone expressed confidence that the adoption of the DMTT would not act as a disincentive to investment. He said that Uruguay retained favourable tax incentives for investors and was an attractive destination because of its “stability, clear rules of the game, and functioning political system”.

The budget does not include a proposal by the umbrella trade union Plenario Intersindical de Trabajadores-Convención Nacional de Trabajadores (PIT-CNT) to tax the richest 1% in Uruguay to combat child poverty in the interests of a fairer society. “Uruguay does not lack wealth, what is lacking is just distribution…Some 17% of the country’s population live beneath the poverty line but for our young children the figure is much more dramatic: 32% of infants between the age of 0 and 6 are poor,” Carolina Spilman, the vice-president of the PIT-CNT, said this week while, once again, pushing for the adoption of the initiative, which the union first presented to President Yamandú Orsi in June.

***ABLP RETURNS TO POWER. The opposition Antigua & Barbuda Labour Party (ABLP), led by Gaston Browne, triumphed in general elections held in Antigua & Barbuda on 12 June. The ABLP ejected the ruling United Progressive Party (UPP) led by Baldwin Spencer after two five-year terms in office. According to the final results, the ABLP took 56.39% of the vote and doubled its seats in the 17-member House of Representatives from the last elections in 2009 to 14. The UPP took 41.57% of the vote and the remaining three seats, down from nine in the last election. The UPP’s ally, the Barbuda People’s Movement (BPM), garnered just 1.13% of the vote and lost its single parliamentary seat. Turnout was a convincing 90.06% of the total electorate of 47,720. The victory for the ABLP, which prior to its 2004 defeat had dominated Antiguan politics for three decades under the Bird family, was not a surprise given the poor state of the economy and high unemployment – the main voter concern. GDP growth was just 0.5% in 2013, down from 2.8% in 2012, according to the most recent (April 2014) report by the International Monetary Fund (IMF). This, after GDP contracted 2.1% in 2011; 8.6% in 2010; and 10.7% in 2009. The weak growth comes as the fiscal deficit is on the rise, reaching 4.3% of GDP in 2013, up from 1.4% in 2012, on April 2014 figures from the UN Economic Commission for Latin America & the Caribbean (Eclac).

***GUYANESE LEGISLATIVE IMPASSE CONTINUES. The Caribbean Financial Action Task Force (CFATF) (a regional affiliate of the IMF-backed Financial Action Task Force (FATF)) ‘blacklisted’ Guyana in November 2013 for failing to address “significant strategic deficiencies in its Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regime”. The blacklisting was the inevitable outcome of an ongoing stalemate between the Guyanese government and parliamentary opposition over the passage of a legislative bill directly related to AML/CFT. On 19 June Guyana’s President, Donald Ramotar, took to the airwaves to lay blame for the impasse on the two main opposition parties—A Partnership for National Unity (APNU) and the Alliance For Change (AFC)—that collectively represent a majority in the national legislature. President Ramotar stated that his government had acquiesced to both parties' demands but the joint opposition continues to refuse to cooperate with his government on the matter. This, however, is only partially true. Whilst the government has accepted a key demand shared by both parties—essentially that the AML/CFT regime be more robust and separated from the executive branch of government––a key condition of the APNU for its support is that the President gives his assent to various pieces of parliament-approved legislation unrelated to the AML/CFT Bill including, most significantly, the 2013 Local Authorities Election (Amendment) Bill that mandates local government elections be held by August this year (Guyana has not had local elections since 1994). On this crucial matter, the President was conspicuously silent during his radio address. At the FATF’s 25-27 June plenary in Paris, the watchdog accepted a CFATF referral of Guyana and has committed to undertaking a targeted review of the country with its results, including a potential blacklisting recommendation, to be presented at its next meeting in October.

***GRENADA SECURES INTERNATIONAL LOANS. On 26 June Grenada’s Prime Minister Dr Keith Mitchell, announced that he had secured a US$21.9m Extended Credit Facility programme from the IMF to support the government’s three-year ‘Home Grown Programme’ of structural reform and economic growth. In addition to the IMF assistance, Prime Minister Mitchell claimed that the agreement will trigger an almost immediate flow of further financial assistance to Grenada over three years, to the collective tune of EC$300m (US$100m), from the World Bank, the Caribbean Development Board and the European Union, to fund the programme. Mitchell also explained that some of Grenada’s creditors are prepared to forgive up to 50% of the nation’s debt owed to them in order to assist with the implementation of the government’s programme.

PERU | Growth streak ends. After 127 months of continuous growth, Peru’s economy contracted in March, with GDP plunging by 16.3% year-on-year as a result of the lockdown imposed by the government led by President Martín Vizcarra to contain the spread of the coronavirus (Covid-19). The agriculture sector slumped by 15.2%, the manufacturing sector plummeted by 36.4%, and the service sector declined by 9.2%.

The economy contracted by 3.4% in the first quarter of 2020 compared with the same period last year, but grew by 0.78% in the 12-month period from April 2019 to March 2020, according to the national statistics institute (Inei).

Inei also reported that employment in metropolitan Lima in the three months from February-April fell by 25%, compared with the same period in 2019, some 1.22m fewer people in absolute terms, “a figure never before seen which reflects the impact of the Covid-19 pandemic”.

MEXICO | Remittances continue to rise. On 1 August, Mexico’s central bank (Banxico) announced that remittances to Mexico totalled US$5.57bn in June 2023, an 8.3% increase year-on-year. In the first six months of 2023, remittances totalled US$30.24bn, a 9.9% increase on the US$27.52bn received in the same period last year. Remittances continue to be on track to surpass the record US$58.49bn received last year.

MEXICO | GDP grows for sixth consecutive quarter. On 31 July, Mexico’s national statistics institute (Inegi) released the latest figures on its quarterly estimation of GDP growth, showing that economic activity increased by 0.9% in the second quarter of 2023, as compared to the previous quarter. This represents the sixth consecutive quarter of growth. In annual terms, Inegi estimates that GDP rose by 3.6% in the second quarter of 2023.

MEXICO | Unemployment rate drops in June. On 27 July, Mexico’s national statistics institute (Inegi) published new figures which showed that the unemployment rate stood at 2.7% of the economically active population – people over the age of 15 who are employed or seeking employment – in June 2023, equating to 1.6m people. In monthly terms, the unemployment rate decreased by 0.3 percentage points on seasonally adjusted figures. Year-on-year, the rate dropped by 0.7 percentage points in comparison with June 2022.

MEXICO | Banxico holds interest rates again. On 24 July, Mexico’s national statistics institute (Inegi) released the latest figures for the consumer price index (INPC), which showed that prices rose by 0.29% in the first two weeks of July, compared to the last two weeks of June. This brings annual inflation to 4.79% – the lowest level since March 2021. For the same period in 2022, inflation was at 0.43% compared to the previous two weeks, and annual inflation was at 8.16%.

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

Mexico: unemployment rate
Economically active population

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

Central America received US$11.64bn in foreign direct investment (FDI) in 2023, a 12% increase compared to the previous year, according to a new report by the United Nations (UN) Economic Commission for Latin America and the Caribbean (Eclac).

This is the highest amount of FDI inflows that the region has received since 2018, when it brought in US$12.526bn, according to the latest edition of Eclac’s annual report which was published on 1 August. Every country in the region received more FDI in 2023 than the year prior, with the exception of Panama (-22.4%) and Nicaragua (-4.9%).

Costa Rica was the top performer, with a record US$4.69bn in inflows, up 28% on the previous year. Manufacturing contributed 55% of inflows, up 1%, while services surged by 60% year-on-year and contributed 42% of total inflows. A massive 56% of the total came from the US, followed by Belgium on 9%. The country ranked second in Central America for project announcements in 2023, with 117 projects worth US$1.64bn, but this represents a 35% drop on 2022. 

Panama was the second-largest recipient of FDI in the region, with US$2.33bn in inflows, but this was down 22% compared to 2022. Project announcements also fell, down 80% to just US$866m, the fourth-lowest figure in the last 10 years. 

• Panama

The drop in foreign direct investment (FDI) to Panama comes amid wider investor uncertainty following the shutdown of the massive Cobre Panamá mine last year amid massive unrest over a new contract which has since been struck down by the top court. This has led Panama to be downgraded by international credit ratings agencies Moody’s, Standard & Poor’s, and Fitch [EB-24-08].

Guatemala saw an 8% year-on-year increase in FDI to USD1.55bn, a figure below the country’s 2021 record but above the average of the last 10 years. Manufacturing saw a 75% increase year-on-year, but the sector represented just 21% of the total. Services represented 77% of the total but saw a 1% decrease and natural resources experienced a 55% decrease while accounting for only 3% of the total. Project announcements were worth around the same as in 2022 at US$480m, with renewable energy a significant contributor. One initiative, worth US$180m, will see European firm MPCES launch a project that includes a long-term power purchase agreement from a solar farm. 

Nicaragua received US$1.23bn in inflows in 2023, representing a year-on-year decline of 5%. In addition, only one project was announced last year: a US$137m warehouse to be built by Sri Lanka based logistics company EFL Global.

Next is Honduras with a total US$1.09bn, a 33% increase year-on-year and the country’s highest value since 2018. Manufacturing saw 386% growth to account for 36% of total inflows, while services remained the largest sector at 63% of the total despite a 28% decline year-on-year. As for project announcements, Honduras recorded US$1.73bn in 2023, around eight times more than 2022 and the highest figure in Central America. Most announcements were in natural resource- and labour-intensive industries, according to Eclac, with Chinese firms heavily involved. One example is a US$600m project to build nappy and detergent factories by Chinese firm Guangzhou Sunda International Trading Company.

Inflows to El Salvador increased 345% from US$171m in 2022 to US$760m in 2023, with the services sector contributing 87% of the total and manufacturing making up the remaining 13%. Project announcements fell by 53% to US$218m, but the telecommunications sector saw announcements worth US$150m. This is due to plans for a bitcoin mining site announced by Tether, a cryptocurrency firm based in the British Virgin Islands.

Eclac says that countries must do more to attract investment to take advantage of trends such as nearshoring and the energy transition, and it recommends the use of investment promotion agencies. Costa Rica’s investment promotion agency, Agencia Costarricense de Promoción de Inversiones (Cinde), is held up as an example to follow, and its success is borne out in the figures for both inflows and project announcements in recent years. However, emulating this success is difficult, relying on multifaceted efforts to develop strong regulatory frameworks, attractive tax policies, and an education system that can develop skilled workers. This means that inflows in value-added sectors such as high-end manufacturing will likely continue to flow to those countries such as Costa Rica that already present good conditions for investors, rather than to other countries in the region. 

Ricaurte Vásquez, the administrator of the Panama Canal Authority (ACP), has announced that officials are evaluating plans for a gas pipeline between the Pacific and Atlantic coasts as part of plans to diversify operations beyond ship crossings.

Vásquez discussed the plans at the International Maritime Conference in Houston, US, on 12 November. “We are evaluating different options for diversification, including forms of transport such as gas pipelines, which will allow the canal to look beyond maritime transport and take advantage of its privileged geographical position in order to find alternative sources of income, he said.

This marks a turnaround for Vásquez, who said that he would prioritise ship transfers when he took over as ACP administrator in 2019. He decided against pursuing projects such as a container port and logistics centre which had been considered previously. It comes amid mounting concerns over the future viability of the canal as water availability has decreased due to prolonged drought linked to climate change. This has led to increasingly severe restrictions on the number of ships that can pass through the canal, leading some shippers to seek alternative routes. In his speech, Vásquez underlined that canal operations depend on rainfall. “We don’t control that and that’s why we see an opportunity to diversify our operations and serve the shipping industry in a different way,” he said. A gas pipeline would allow the fuel to move along the canal route without being on board a ship, which would reduce this reliance on rainfall.

The ACP is also looking into other solutions to secure future operations, including reviving plans to dam the Rio Indio and create a new reservoir that would feed the locks on the canal. The project is controversial due to its potential environmental and social impacts, but it would appear to be a key piece of the puzzle in maintaining operating levels at the canal, which is a major contributor to the Panamanian economy. On 25 October the ACP reported total revenues of US$4.99bn for fiscal year (FY) 2024 (October 2023-September 2024), up 1% on FY 2023, despite the severe drought. However, climate change is expected to intensify and continued restrictions on crossings by the largest ships, which fell 21% in FY 2024 compared to the year before, would encourage shippers to seek alternative routes.

These issues have encouraged other countries in the region to build their own routes. Mexico is pouring resources into the interoceanic corridor of the Isthmus of Tehuantepec, an isthmus with the shortest overland distance between the Pacific Ocean and the Gulf of Mexico, and Honduras is seeking investment to build its own coast-to-coast railway.

Nicaragua’s Gran Canal plans

On 18 November, Nicaragua revived plans for its own canal at the XVII China-Latin America and the Caribbean Business Summit in Managua. Although a concession granted to a Chinese businessman in 2014 was cancelled earlier this year, this latest plan comes amid increasing investment from Beijing after the two nations formalised relations in 2021. The new proposal should be taken more seriously than the last, particularly as a contract for the construction of a deep water port in Bluefields, which would sit at the Atlantic end of the proposed route, was signed with Chinese firm CAMC Engineering on 18 November.

A high-level Ecuadorean delegation travelled to El Salvador on 29 April for a tour of the ‘Terrorism Containment Centre’ (Cecot) – the controversial 40,000-capacity mega-prison that is underpinning President Nayib Bukele’s fierce crackdown on gangs. Bouncing into a second term following a solid victory in the 13 April run-off election, Ecuador’s President Daniel Noboa appears to be seeking inspiration for his own hardline measures.

President Noboa has never been shy about his admiration for the controversial security policies implemented by the Bukele administration, which have decimated the power of mara gangs and caused the murder rate to plummet while also stoking massive human rights concerns. Following a meeting between the two heads of state ahead of Bukele’s inauguration for a second term in June last year, Noboa said that he had sought information about Bukele’s ‘Territorial Control Plan’ and said that there would be greater collaboration between the two governments.

With Ecuador’s election out of the way, Noboa now seems to be pushing ahead with this. The Ecuadorean delegation that arrived in El Salvador on 29 April included the interior minister, John Reimberg, the defence minister, Gian Carlo Loffredo, and a police commander, Pablo Dávila (responsible for the crime-plagued ‘Zone 8’, which spans much of western Ecuador). According to an Ecuadorean government statement, they met with El Salvador’s justice minister, Gustavo Villatoro, and defence minister, René Merino, to “learn first-hand about their security strategy and the results it has delivered”.

Noboa’s hopes of replicating the Salvadorean security model in Ecuador face major challenges. These were summarised in a February 2024 report by the US human rights lobby Washington Office on Latin America (Wola). First and foremost, Wola noted that replicating El Salvador’s incarceration rate, which has been the key factor in driving down gang violence, would require Ecuador to raise its prison population ninefold to 288,000, requiring an enormous expansion of prison infrastructure. Wola also noted that Ecuadorean gangs are better armed and financed by their Salvadorean counterparts, have a far larger and more geographically diverse national territory in which to hide their activities, and have the backing of powerful foreign criminal organisations in Mexico and Colombia.

Nevertheless, Noboa seems intent on ramping up his security policies in his second term. A planned constituent reform process is likely to play a key role in this. Whilst Noboa has been vague about his goals, he has hinted that revisions to the constitution could include modifications allowing foreign military bases and harsher prison conditions.

An interior ministry statement following the tour of the Cecot described it as “the most advanced and secure prison centre in Latin America”. It noted Cecot’s strengths, including its rural location, coordinated military and police patrols around the perimeter, and “methods of permanent visual control”.

Meanwhile, Ecuador’s homicide figures continue to move in the wrong direction. Violence surged in the first quarter of this year, with homicides up 65% year-on-year at 2,361. The increase was even more extreme in the Pacific provinces of Guayas, Manabí, and Esmeraldas, which have seen the most extreme gang violence in recent years as various groups battle for control of trafficking routes. Homicides across the three provinces were up by 75% year-on-year, totalling 1,582 – more than two-thirds of the national total.

‘Zero idleness’

The Ecuadorean delegation was also briefed on the ‘Cero Ocio’ (zero idleness) scheme, a plan in El Salvador to put prison inmates to work and support their “rehabilitation and social reinsertion”, according to a statement from Ecuador’s interior ministry. Rehabilitation is decidedly not the aim of the Cecot prison, from which President Bukele has previously declared that inmates “will never leave”. Juanita Goebertus, Americas director at NGO Human Rights Watch, stated in March that “Human Rights Watch is not aware of any detainees who have been released from that prison” since it opened in January 2023.

El Presidente José Mujica logró un notable triunfo esta semana. El gobierno envió un proyecto de ley al congreso el 22 de agosto para crear un impuesto a los propietarios de más de 2.000 hectáreas de tierra. Todo el gabinete aprobó el proyecto de ley, que había sido causa de un desacuerdo público entre Mujica y su Vicepresidente, Danilo Astori, que alegó, junto con otros tres ministros clave, que el proyecto cambiaba las reglas del juego y se corría el riesgo de disuadir la inversión. Sin embargo, la prueba mayor para Mujica, no ha llegado aún. Habiendo unido a su gobierno detrás del proyecto de ley, Mujica ahora necesita asegurar la unidad de su partido, la izquierdista coalición Frente Amplio (FA), en el congreso. Aún subsisten amargas recriminaciones dentro de la coalición  sobre el fracaso de mantenerse unidos para revocar la ley de amnistía del país en mayo último.

El impuesto a la tierra resultaría en unos US$8 de impuesto adicional por hectárea sobre los propietarios de tierras con entre 2.000 y 5.000 hectáreas de tierra; US$12 por hectárea para aquellos que poseen entre 5.000ha y 10.000ha; y US$16 por hectárea sobre aquellos con más de 10.000ha. El gobierno afirma que el impuesto afectará a menos de 1.500 de los 50.000 productores en el país que poseen un tercio de las 17m de hectáreas de tierras productivas en Uruguay. El gobierno dice que recibirá US$60m para los cofres del estado, que serán usados para poner a punto la decadente infraestructura del transporte, y mejorar el acceso en las provincias. También apunta a reunir unos US$20m más a través de la modificación de un impuesto existente sobre la compra y la venta de propiedades rurales.

Mujica propuso por primera vez el impuesto a la tierra en mayo, después de la humillante derrota del gobierno sobre el proyecto de ley para revocar la ley de amnistía, Ley de Caducidad, para ex miembros de las fuerzas armadas acusados de abusos contra los derechos humanos durante la dictadura. El ministro de agricultura y ganadería, Tabaré Aguerre, y el ministro de economía, Fernando Lorenzo, han acusado a Mujica por no haberles consultado. Astori, que argumentó fuertemente que no valía la pena sacudir el bote por unos irrisorios US$60m, y el ministro de transporte, Enrique Pintado, que también se opuso abiertamente al proyecto de ley. Pero Mujica obtuvo lo que quiso. Desde el comienzo él había insistido que no retrocedería si su autoridad y credibilidad estaban en juego. El se reunió con Astori en numerosas ocasiones, pero al final Astori aceptó su oferta que los legisladores podían debatir libremente el proyecto en el congreso y no ser forzados a seguir la línea del partido, que se había opuesto a revocar la ley de amnistía.

Lorenzo aceptó el proyecto y prometió defenderlo en el congreso si fuese necesario; Aguerre fue el más duro de reconciliar, diciendo que él hubiese preferido “una senda diferente” pero que no se ocultaría detrás de la firma de su viceministro”. En el congreso, el Movimiento de Participación Popular (MPP) de Mujica y el Partido Comunista Uruguayo (PCU), que habían estado en el centro de la más seria disputa interna este año, apoyaron por completo el proyecto y deseaban acelerar su aprobación en el congreso, pero el Frente Líber Seregni (un bloque que incluye a la moderada Asamblea Uruguay de Astori, como también a Nuevo Espacio y Alianza Progresista) deseaban discutirlo en detalle y hacer revisiones. La coalición necesitará mantenerse completamente unida para que el proyecto de impuesto seas aprobado por ambas cámaras del congreso, pues los opositores del Partido Colorado y el Partido Nacional (Blancos) lo rechazan.

El presidente de la Asociación Rural, Miguel Sanguinetti, como era predecible, denunció el impuesto como “el peor error de la administración Mujica hasta la fecha”. El alega que los impuestos deben ser sobre la producción y las ganancias, con impuestos no fijos sobre la tierra. Dijo que aquellos que invierten en agricultura ahora lo pensarán dos veces. El llamado “impuesto sobre la concentración de inmuebles rurales” (ICIR), sin embargo, obtuvo apoyo de algunos productores agrícolas uruguayos, que desean la ley, como en los vecinos Argentina y Brasil, restringiendo la extensión de tierra que los extranjeros pueden adquirir.

• ¿Problema legal?
  

La revista semanal de actualidad Búsqueda, alegó la semana pasada que el impuesto propuesto podría terminar en casos legales de millones de dólares contra el estado por el consorcio Montes del Plata, compuesto por la compañía finlandesa Stora-Enso y Arauco, de Chile, por incumplimiento de contrato. Montes del Plata posee más de 230.000 hectáreas de tierra en Punta Pereyra, Colonia, que estarían sujetas al impuesto. Está construyendo una planta de pulpa en Uruguay cerca de la boca del estuario del Río de la Plata, a 200km corriente abajo de la planta de Fray Bentos construida por la compañía finlandesa Botnia en 2007. Cuando esté en operaciones en 2013, convertirá a Uruguay en uno de los productores líderes de celulosa del mundo.

The First Lady of Honduras, Ana García de Hernández, has called out Mexico for failing to protect the flood of unaccompanied Central American minors travelling up through Mexico in a bid to cross into the US illegally in the false belief – being deliberately perpetuated in the region by unscrupulous people trafficking gangs – that as children they will be given indefinite leave to remain in the US.

Along with her Guatemalan counterpart, Rosa Leal de Pérez, García has travelled to the US to witness first-hand the plight of some of the thousands of children being held temporarily by US authorities pending their likely deportation (some 52,000 have arrived since October 2013). She has since accused Mexico of failing in its duty of care. Noting that children travelling through Mexico are harassed by major criminal organisations such as drug gang Los Zetas, García said that Mexico has a responsibility to protect them, noting that “some children have disappeared on the way”. “We do not know what is happening with those who are transiting through Mexico”, she said in early July, in an interview with Mexican daily, El Universal. “We have to ask Mexico for close cooperation to dismantle these gangs, as many of these children are used by coyotes for prostitution and organised crime activities”. Queried about Mexico's responsibility as a transit country, she stated: “Mexico plays a very important role, because many children travel through Mexico and the question is: how can they pass saying that they are on their way to the US if they have no visa nor are legally authorised by their parents? Many of them do not even have a passport. These gangs are dedicated to one of the most lucrative businesses in the world”.

Given that over 14,000 Honduran children alone entered the US illegally between October 2013 and June 2014, on official US estimates, García made the point that ‘coyotes’, as people traffickers are known, are raking in hundreds of millions of dollars in the region. “If people pay, on average, between 5,000 and 8,000 dollars, for each unaccompanied minor, Honduran families have paid over 100 million dollars”, she stressed. “Parents are spending a lot of money that they could have used to give their children a home and a better life. But these families paid to go, and when they are deported, they return indebted, disappointed and feeling defeated because they did not achieve their objective”.

Mexico’s response

Mexico’s deputy foreign affairs minister for Latin America and the Caribbean, Vanessa Rubio, rejected the Honduran complaints, noting – again in comments reported by El Universal – that migrant children transiting through the country are protected by Mexico’s national immigration institute (INM), the national system for integral family development (SNDIF) and local NGOs.

Peña Nieto heads south

On 7 July Mexico’s President Enrique Peña Nieto invited his Guatemalan peer, Otto Pérez Molina, for an emergency meeting in the border state of Chiapas to discuss the plight of child migrants. The two launched a new border scheme, ‘Plan Frontera Sur’ specifically aimed at the protection of migrants transiting Mexico en route to the US. The scheme will seek to provide institutional support for migrants and improve border crossings, while Peña Nieto also pledged additional Mexican support for development and security in the Central American sub-region. Peña Nieto’s two immediate predecessors, Vicente Fox (2000-2006) and Felipe Calderón (2006-2012), both took office pledging more cooperation with Central America, only to be distracted by domestic affairs. Peña Nieto has made more of an effort, making Guatemala the first country he visited after he assumed office in 2012 and backing up his promises by way of funds and technical assistance for the region.

Last month (27 June), Mexico’s interior ministry (Segob) launched a new ‘safe passage’ plan to protect temporary migrants on Mexican territory. Under these provisions, Mexico will share intelligence with its southern neighbours to combat people trafficking gangs, and will attempt to collect biometric information from migrants in collaboration with the Guatemalan and Belizean authorities. The Segob also pledged an information campaign to warn parents in both Mexico and Central America of the very serious risks posed by people traffickers. In announcing the plan, Mercedes del Carmen Guillén Vicente, Segob’s deputy minister for population and migration, said that the government’s priority was to regulate migration flows, and that “in no way will Mexico advocate walls, or the closing of its borders”.

Peña Nieto said that ’Plan Frontera Sur’ would provide more resources for the customs posts on the 1,000km Mexican border with Guatemala (ten) and Belize (two); build five new border security centres and provide migrants with better protection, more medical attention and social programmes. He pledged better coordination and cooperation between the relevant migration institutions, under the overarching control of the Segob. Finally, he said Mexico encouraged all the affected countries to share responsibility for the process. “Every nation must do its part”, he stated, in what sounded like an indirect message to the US, the day before the US Secretary of Homeland Security Jeh Johnson was scheduled to meet Pérez Molina in Guatemala.

Jeh Johnson on message

In advance of his trip south, Johnson reiterated on US TV his uncompromising

message: “our border is not open to illegal migration. There is a deportation proceeding that has commenced against illegal migrants — including children”. In Guatemala City on 8 July he repeated that message, warning that “there is no free passage” and complaining that criminal networks were “deceiving” parents. “We will continue working in favour of repatriation, the reintegration of these children in their countries. We will continue looking at the root causes”, Johnson said, as President Barack Obama requested US$3.7bn in additional funds from the US Congress to deal with the crisis on the US-Mexico border.

Under the president’s emergency supplemental request for fiscal year 2014 (ending 30 September), the Department of Homeland Security would be assigned over US$1.5bn in extra funds, including US$116m to pay for the transport costs of repatriating migrants back home. Other funds would go towards increasing the number of immigration judges, asylum officers and border agents, as well as to expand court capacity and add detention facilities. The Department of Health and Human Services, whose Office of Refugee Resettlement (ORR) cares for unaccompanied child migrants (officially, ‘Unaccompanied alien children’, or AUCs), would be assigned US$1.8bn, while the State Department would be assigned US$300m to help reintegrate Central American migrants in their home countries, examine the root causes of the crisis, and run media information campaigns emphasising that AUCs will not be allowed to remain in the US.

One key goal is to speed up turnaround times for deportations. Under existing US laws, Mexican children entering the US illegally can be immediately deported back across the border. But children from Central American countries, which do not share a land border with the US, must instead be held, and handed over within 72 hours to the ORR, which finds them accommodation pending deportation proceedings. That takes time. As of March 2014 there was a backlog of 366,758 deportation cases in the US court system. The children caught in this system can hope for some kind of amnesty or simply fail to show up in court when summoned and join the 11m or so undocumented migrants already in the US.

Johnson’s visit coincided with the launch of an official program in Guatemala entitled ‘Quédate’(‘Stay’) aimed at informing local families, teachers and students about the dangers of attempting the trip north. Like his Honduran peer, President Pérez Molina has been critical of the US over its long promised but undelivered immigration reform, and has appealed for Guatemalan migrants to be granted Temporary Protected Status (TPS) until such reform is approved.

• Hondurans seeking a better life

“On a daily basis, 90 unaccompanied children and 240 family units [typically mothers and children] enter [illegally] into the US”, First Lady Ana García de Hernández noted in an official statement issued by the Honduran presidency on 4 July. García was clear that “98% of the unaccompanied children…are looking for their mother or father in the US”. If accurate, that will severely complicate the efforts of the US authorities to deport them. According to the US’s Office of Refugee Resettlement in fiscal year 2013, 73% of AUCs were male and 27% female, while 14% were under the age of 14.

• Honduran children preyed upon by State institutions

In early July, the Honduran council of ministers announced the creation of a new ‘national migration institute’ aimed at “guaranteeing a proper migration policy”. The new institute will take over from the official general directorate of migration (Dirección General de Migración y Extranjería), which – shockingly - is under investigation for corruption linked to people trafficking (such as the irregular provision of travel documents to minors).

On 8 June the Institute for Economics and Peace (IPE), an international think tank, released its Global Peace Index (GPI) 2016 report. The GPI 2016 revealed that Costa Rica was the most peaceful nation in Central America ranking 33^rd out of 163 countries, followed by Panama (45^th), Nicaragua (69^th), Honduras and El Salvador (111^th), while Guatemala came in last (117^th). The GPI is composed of 23 qualitative and quantitative indicators.

The report noted that despite the region’s myriad security-related issues, the average score in Central America and the Caribbean improved sufficiently for it to overtake South America in the regional rankings and to position itself slightly above the global average in 2016, scoring fourth place overall.

The top three performers in Central America and the Caribbean were (as usual) Costa Rica, Panama and Nicaragua which the report notes are characterised by low levels of militarisation. Costa Rica in particular has no standing armed forces, although border disputes have occasionally arisen.

Panama had the greatest improvement in the score of any country, jumping 24 places in the global rankings due to a lower likelihood of violent demonstrations and political instability in 2015. The report attributes this to a more stable political environment after the 2014 elections, which contributed to the improvement in internal peace as they coincided with (initially) strong support for President Juan Carlos Varela, as well as the ongoing progress in several large infrastructure projects that are currently sustaining fast growth. The country also appeared less militarised than in the previous year. There was a reduction in military expenditure as a percentage of GDP as well as in the volume of imports of major conventional weapons.

El Salvador also saw an improvement in the rankings moving 12 positions due to a decline in the number of prison population per 100,000 individuals. However, the report indicates that El Salvador still faces challenges for peace since it “has suffered from an escalation in urban violence ever since a truce between rival mara gangs broke down in 2014” and the report mentions that Honduras has similar gang problems. Meanwhile, Guatemala moved up one position in the global rankings and the country improved in internal peace indicators.

The GPI report also found that the national cost of violence in Honduras represented 34% of the country’s GDP in 2014, followed by El Salvador (19%), Guatemala (15%), Panama and Nicaragua (9%), and Costa Rica (6%). The IPE concludes that “Central America and the Caribbean will continue to benefit from the absence of intra-regional conflicts, and minimal nuclear and heavy weapons capabilities, although domestic security issues, mainly in the form of crime, will remain the region’s biggest obstacle to peace.”

Amid broader concerns in international commodity markets about the commitment from members of the Organisation for Oil-Exporting Countries (OPEC) to meet prescribed oil production cuts, Ecuador has become the first country to publically break from its reduced quota. On 17 July, the energy minister announced that oil production would rise immediately, in an attempt to alleviate pressure on the public finances. This has been accompanied by fresh budget cuts by the government.

The previous government, led by the former president Rafael Correa (2007-2017), signed OPEC’s initial agreement to cut oil production in December last (2016). Effective from January 2017, Ecuador agreed to reduce oil output from 548,000 barrels per day (b/d) to 522,000 b/d for a six-month period, as part of the organisation’s wider efforts to bolster oil prices.

In late May, just as the new president – Lenín Moreno – was taking office, OPEC extended the cuts for a further nine months, until the end of March 2018. Less than two months later, Ecuador has announced that it will no longer keep oil production artificially low and that it will gradually raise output, with immediate effect.

Oil output set to rise

Ecuador had never fully complied with the agreed cuts, with data from the central bank indicating that oil production went from 536,000 b/d in January to a 528,000 b/d in April, before increasing to 533,000 b/d in May. The energy ministry justified the decision to abandon the OPEC quota agreement by stating that it had very little impact on OPEC’s overall production, since Ecuador’s production is miniscule compared to the large producers in the Middle East. The ministry also alluded to the financial difficulties resulting from lower oil production. Oil accounts for around 5.5% of GDP, half of total export revenue and one-quarter of fiscal income.

Ironically, Ecuador’s decision to abandon the OPEC quota agreement may well encourage others to follow suit and, in doing so, flood the market with extra supply. Speculation has been rife for several months n ow about the sticking-power of member countries, given that the production cuts have had a relatively muted impact on global oil prices.

Between news of the initial agreement in late November 2016 and January 2017, prices went from US$48/b US$56/b, but the announcement in May of the 9-month extension to the quota deal had a much smaller impact on prices, which rose from US$46/b to US$52/b, but after only a few weeks prices sold off again, sinking back down towards US$42/b in late June.

Government embarks on fiscal consolidation

In this context, Ecuador’s decision may have a muted impact on bolstering the domestic economy, particularly if the OPEC agreement breaks down altogether and global oil supply soars.

The government is likely to be conscious of this possibility and rather than pinning its hopes on higher energy prices, it is embarking on significant efforts at fiscal consolidation.

In late July, President Moreno expanded upon an announcement made by the new finance ministry a month earlier – which indicated budget revisions aimed at dramatically reducing the fiscal deficit, which reached over 7% of GDP last year.

Spending on public-sector wages is expected to fall as a result of the government’s fiscal consolidation efforts. Moreno reiterated the country’s large financing needs, with over US$8bn needed to cover the fiscal deficit and repay domestic and external debt commitments, as well as an additional US$2bn for national development needs. His description of the economy as being in a “critical” state, thanks to the debt inherited from the Correa administration, elicited an angry response from the former president, who made the point that Ecuador’s public debt levels were extremely low by international comparison.

Although the government’s scope for action is relatively limited in the coming months, since the authorities cannot completely overhaul the budget in an election year, more substantive action is likely in the new 2018 budget, to be drafted and presented to the National Assembly in the fourth quarter.

As well as cutting spending, the authorities will also seek to raise revenues more significantly, with the finance minister recently admitting that tax measures were not out of the question, provided that these were accompanied with incentives to ensure that foreign investors were not deterred. This underlines the new government’s realisation that economic growth will be dependent on momentum from the private sector, given the public sector’s tight financial constraints.

Ecuador is far from the only country in the region having to contend with still-low oil prices and rising public debt, but its predicament is complicated by the fact that its economy is dollarised, which makes fiscal orthodoxy increasingly important, since the country lacks an independent monetary policy. The strength of the US dollar has worsened Ecuador’s loss of competitiveness in recent years.

Although the fact that the new government is showing an awareness of the problems facing the economy is positive, it remains unclear whether the Moreno administration will be able to reverse last year’s recession in the short term.

A recent crash in the value of cryptocurrency bitcoin has caused jitters among investors in Salvadorean bonds and has brought ongoing tensions with the International Monetary Fund (IMF) into sharper focus.

El Salvador’s President Nayib Bukele is a cryptocurrency evangelist who made bitcoin legal tender in the country in September 2021, before rolling back on the move as part of efforts to secure a US$1.4bn financial assistance programme from the IMF [EB-25-04]. Despite also promising to stop acquiring bitcoin using public funds, Bukele’s government has continued to do so, buying one bitcoin per day even though the purchases flout the terms of the IMF agreement signed in December 2024. This had been easier to brush off when the price of the cryptocurrency was rising, as it did from January 2023 until a peak in October last year, but the ensuing crash means that concerns have come to the fore once again.

The value of El Salvador’s bitcoin holdings fell from a peak of around US$800m to around US$500m as of early February, according to calculations by business publication Bloomberg in an article published 12 February. This has had a knock-on effect on the country’s bonds, with unease among investors about continued investments in such a volatile asset increasing concerns around a sovereign default after a run in which Salvadorean debt had provided significant returns.

Bukele’s bitcoin policy is also adding to tensions with the IMF at a time when the two parties are already at odds over delays to a key reform to the Salvadorean pension system, which is required to prevent the pension system from running out of money. Potential measures include raising the retirement age or increasing contributions from employers or workers, and a draft proposal was meant to have been submitted by now, according to the terms of the IMF agreement. The delay has added to investor concerns as the IMF agreement is a key backstop against a sovereign default, and Salvadorean debt becomes a lot less attractive as an investment if the financing agreement is no longer present. 

The IMF is currently conducting a second review of the loan programme. “The IMF may take issue with disbursements potentially being used to add Bitcoin,” Christopher Mejia, an emerging markets sovereign analyst at T Rowe Price, a US investment management firm, told Bloomberg in an article published 12 February. “Bitcoin being down also doesn’t help to ease investors’ concerns.” Jared Lou, who manages the William Blair Emerging Markets Debt Fund, agreed that the continued purchase of bitcoin “does create some potential challenges for the IMF reviews” in an interview with Bloomberg.

Thus far the IMF has remained tight-lipped, saying that discussions around pension reform and bitcoin continue. Talks are “centred on better understanding purchases and on enhancing their overall transparency and governance, in line with programme commitments,” an IMF spokesperson told Bloomberg. However. if the reviews are not completed, the loans will not be disbursed as planned, adding to concerns over the state of El Salvador’s public finances. “The market would react quite poorly if the anchor provided by the IMF were no longer present,” Lou told Bloomberg. 

Looking ahead, the Salvadorean government appears to have no plans to row back on bitcoin purchases. El Salvador’s vice-president Félix Ulloa has said that the government will continue to acquire bitcoin as part of efforts to build up a strategic reserve. The aim is not to generate short-term profits, but rather to prepare the country for possible changes in the international financial system, said Ulloa in an interview with local media outlet ElSalvador.com published 21 February. Although this will raise eyebrows at the IMF, it is possible that the Salvadorean government is banking on the close relationship between Bukele and US President Donald Trump to smooth out any problems, as the US is the IMF’s largest contributor. 

However, this is a high stakes gamble by Bukele, with Bloomberg calculating that El Salvador must make US$450m in bond payments this year, rising to almost US$700m next year, making external financing extremely important. As a result, there are considerable incentives for Bukele to reach an agreement with the IMF and unlock further disbursements under the agreement, although he may be hoping that US pressure helps him to do so without having to give up on his bitcoin gamble.

Cuando Alejandro Vanoli, el nuevo presidente del banco central de Argentina (BCRA), asumió en reemplazo de Juan Carlos Fábrega, hace poco menos de dos meses, muchos analistas esperaban una devaluación del peso, la segunda en un año. En cambio, Vanoli ajustó los controles sobre el mercado de cambio de divisas, y el peso se ha fortalecido levemente contra el dólar de EU. Sin embargo, aún falta ver cuánto tiempo duraran las ganancias obtenidas.

Hablando con los periodistas el 12 de noviembre, Vanoli dijo que el BCRA está “decidido a profundizar la cantidad y la calidad de los procesos de supervisión, concentrados sobre el lavado de dinero y las regulaciones en el cambio de moneda”. Vanoli añadió  que el público y el mercado habían respondido positivamente a los nuevos controles, y que la confianza había sido restaurada por la decisión del gobierno de descartar una devaluación.

Uno de los elementos clave en el sistema de controles del banco incluye a la agencia fiscal (Afip) conduciendo redadas sorpresivas en los bancos y las casas de cambio y aplicando severas medidas sobre los sospechados de comercio ilegal de divisas. El 11 de noviembre, 71 instituciones financieras fueron allanadas simultáneamente a través de la Argentina. Entre las compañías afectadas estaban el Banco Mariva, Banco Columbia, Transcambio, y Caja de Valores. La Afip dijo que había detectado “inconsistencias” en las cuentas de cuatro compañías que comerciaron Ar$120 millones (US$14,1m a lasa de cambio oficial), lo que sugería que habían estado actuando como frentes que permitieron la fuga de capitales. Dos firmas operadoras de valores, Arpenta y JR Bursátil, fueron suspendidas. El presidente de la unidad de información financiera, José Sbatella, dijo que las redadas continuarían en un futuro previsible. “Siempre y cuando funcione, continuaremos con esta investigación”, dijo Sbatella.

Las redadas de la Afip se produjeron después de la suspensión de las operaciones de multinacional Procter & Gamble (P&G), en Argentina, por sospechas de fraude fiscal y fuga de capital en sus operaciones de importación desde Brasil por US$138m que fueron facturados a través de una subsidiaria suiza. De acuerdo con la Afip, con esta maniobra, la compañía de EU cometió una evasión de impuestos criminal al transferir moneda extranjera a sus subsidiarias en el exterior, lo que podría constituir contrabando agravado. P&G ha sido suspendida preventivamente  del registro de importadores/exportadores que impide a la compañía operar en el mercado de cambio de divisas local. Una reunión inicial entre los directores de la compañía y funcionarios de la Afip ya se ha realizado, pero no se ha llegado aún a ninguna solución.

En las últimas dos semanas el peso en el mercado negro se ha fortalecido un 14% contra el dólar de EU, a unos Ar$13/US$1, cayendo de alrededor de Ar$16/US$1. Por otro lado, la tasa oficial de cambio  ahora es de alrededor de Ar$8,50/US$1. Alfredo Piano, el presidente del Banco Piano, dijo que él esperaba  que la tasa del mercado negro caiga aún más, a unos Ar$10/US$1. En una entrevista radial, Piano urgió a los inversionistas a que recurran al mercado legal para obtener dólares, a fin de ayudar con el desarrollo de la economía formal, y dijo que si la actual represión en marcha sobre el mercado paralelo continúa, el mercado negro del dólar ya “no existirá más”.

Pero los analistas no están convencidos de que un peso más fuerte ha llegado para quedarse. Ellos dicen que otros factores de corto plazo han ayudado a mantener las reservas y estabilizar los mercados cambiarios. Estos incluyen la primera fase del acuerdo de canje de moneda con China, que trajo US$814m a la Argentina; un nuevo préstamo de US$650m del Banque de France; un esperado flujo de US$3,8mm de pagos por las exportaciones agrícolas; flujos de dólares vinculados con las recientes subastas de frecuencias de telefonía móvil 3G y 4G; y la reciente venta del el gobierno de bonos indexados en dólares de EU. De acuerdo con un estudio del banco local, el Banco Ciudad, el flujo de dólares debería ahora ser bastante estable hasta fines del 2014. Pero el estudio también señala que el gobierno enfrenta vencimientos de deudas por un total de US$15mm en el 2015, más una considerable y aún desconocida cantidad para saldar su actual disputa con sus acreedores holdout.

• Decisión incoherente de Griesa

El 10 de noviembre el juez Thomas Griesa de la corte del distrito de Nueva York dictaminó que Citigroup puede distribuir el pago de intereses de US$85m hecho por Argentina a algunos de sus tenedores de bonos que vencen el 31 de diciembre. La movida del juez Griesa, quien ha bloqueado otros pagos de intereses sobre bonos argentinos, puede ser vista como un intento por acercar a las partes para lograr un acuerdo en la larga disputa sobre la deuda externa del país. Pero la decisión de Griesa fue descrita como “incoherente” por el ministerio de economía de Argentina.

ECUADOR | CAF abre línea de crédito. El 14 de julio el ministerio de finanzas de Ecuador anunció que el Banco de Desarrollo de América Latina (CAF) abrió una nueva línea de crédito para proyectos relacionados con la electricidad en el país. Una declaración del ministerio, explica que los fondos serían utilizados para ayudar a lograr el objetivo del gobierno de cambiar la matriz energética del país alejándose del uso de combustibles fósiles, en particular el gas natural, hacia el uso de la energía eléctrica. Lograr esto ha sido descrito como “vital para el futuro desarrollo del país” por el Presidente Rafael Correa.

Mientras que Ecuador es un exportador neto de petróleo crudo, su producción de gas natural ha quedado rezagada por años, debido a los menores niveles de inversión en este sector y el país actualmente consume toda su producción de gas natural (que llegó a los 600m de metros cúbicos por día en el 2014). Consciente de que el desarrollo de la infraestructura necesaria para expandir la producción de gas natural del país podría tomar años, y que la demanda por este combustibles fósil podría dejar atrás la provisión nacional para ese entonces, el gobierno de Correa ha estado persiguiendo un ambicioso plan bajo el cual planea que unos 3m de hogares cambien de cocinas alimentadas con gas natural, a cocinas que funcionan por inducción de electricidad. De hecho, María Soledad Barrera, la presidenta de la Corporación Financiera Nacional de Ecuador (CFN), ha dicho que parte del dinero del crédito de CAF será utilizado en este específico proyecto durante los próximos tres años. De acuerdo con Barrera, la línea de crédito también será asignada a otros programas diseñados para promover la sustitución de combustibles fósiles con fuentes de energía renovables.

BOLIVIA | Planta procesadora de litio. La Gerencia Nacional de Recursos Evaporíticos (GNRE), una firma estatal, firmó el 13 de julio un contrato con la firma china, Camc Engineering Co. Ltd., que está afiliada a la corporación nacional de industria de maquinarias de China, para la construcción de una planta procesadora de litio en las llanos salinos de Uyuni, localizados en el departamento de Potosí en el sudoeste. El presidente de Bolivia, Evo Morales, el Vicepresidente Álvaro García Linera, y el embajador de China en Bolivia, Wu Yuanshan, estaban entre los presentes en la firma del contrato.

Según Morales, la firma del contrato marca un momento histórico para Bolivia, pues representa un paso significativo en la industrialización de la producción de litio en el país. De acuerdo con Luis Alberto Echazú, gerente nacional de GNRE, Potosí tiene la mayor reserva de litio del mundo, y será la industria más grande en la municipalidad de Uyuni. También estará entre las 10 más grandes del mundo y será la cuarta más grande de América Latina. Se estima que llevará 30 meses construir la planta, a un costo de US$178m. El objetivo es que este operacional para el 2018. De acuerdo con GNRE, una vez totalmente operacional, la planta producirá 700.000 toneladas de litio por año.

COLOMBIA | IED neta se desploma en junio. El 14 de julio el banco central de Colombia (Banrep) difundió sus cifras de inversión nacional, que muestran que la inversión extranjera directa (IED) en el país cayó por un agudo 94% año en año en junio. De acuerdo con las cifras del Banrep, la IED en Colombia, en junio, fue de US$166m, comparado con US$2,98mm registrados en junio del 2014. Esta caída se explica principalmente por el decrecimiento en la inversión en el sector de petróleo y minería. Mientras que hubo un incremento del 13,4% en la IED en otros sectores para alcanzar los US$261,6m, la inversión en el sector minero y petrolero cayó un 40,1% año en año a US$746m. Por otra parte las cifras del Banrep también muestran que los inversionistas extranjeros retiraron US$490m netos del país en junio.

A medida que la seguridad en Colombia ha mejorado, el país ha disfrutado de un incremento en las IED en la última década, en su mayoría conducido por la inversión en el sector petrolero y minero. Sin embargo, como resultado de la significativa reciente caída en los precios internacionales del petróleo, los flujos de IED a Colombia han disminuido, lo que ha dado como resultado un menor crecimiento en la economía interna. Todo esto es problemático para el gobierno liderado por el Presidente Juan Manuel Santos, dado que se ha embarcado en un ambicioso plan multi-anual de inversión en el desarrollo de la infraestructura. El menor nivel de inversión y actividad económica está ahora trabajando en contra de esto. De hecho, el mismo día, el Consejo Nacional de Política Económica y Social (Conpes) aprobó el presupuesto propuesto para el 2016 de Col$167,2bi (US$62,3mm), una modesta reducción del 2,3% comparado con el presupuesto del año pasado. El ministro de finanzas, Mauricio Cárdenas, explicó que la reducción en el plan de inversión es “una consecuencia de la austeridad resultante de la caída en los precios internacionales del petróleo”. Entre los sectores más afectados por los recortes están las áreas clave de agricultura y vivienda.

• AAE Colombia-Japón

El 14 de julio representantes colombianos y japoneses se reunieron en Bogotá para iniciar la XII ronda de negociaciones para el Acuerdo de Asociación Económica (AAE) Japón-Colombia, que durará hasta el 17 de julio. La ministra de comercio de Colombia, Cecilia Álvarez-Correa, destacó la importancia de negociar un acuerdo comercial con la tercera mayor economía del mundo, y el mayor importador de alimentos. De acuerdo con datos del ministerio de comercio de Colombia, el comercio bilateral de productos entre Colombia y Japón, llegó a US$1,86mm el año pasado. De acuerdo con Álvarez-Correa, una vez que se concrete el AAE, las exportaciones agrícolas y industriales, así como también los servicios, serán diversificados. En la ronda de negociaciones del año pasado, que tuvo lugar en Tokyo, en mayo, se hicieron progresos en áreas  tales como el comercio en bienes, adquisiciones del gobierno, y normas de origen.

ARGENTINA | Keeping lid on inflation. Inflation in January was 1.3%, up marginally on the 1.2% registered in December last year, the national statistics institute (Indec) reported.

President Mauricio Macri argued this week that his government had successfully brought inflation under control and that it was now on a downwards trajectory. But the Macri administration faces an uphill task keeping inflation within its ambitious target of 12%-17% in 2017, not least because the country’s individual trade unions are agitating for wage increases in excess of 20% in collective salary negotiations with employers. After staging a 72-hour strike the bank workers’ union Asociación Bancaria (AB) managed to secure 23.5% for members on 16 February.

BRAZIL | Copom powers ahead with another 75-point cut. The monetary policy committee of Brazil’s central bank stuck with its aggressive pace of monetary easing in its latest decision on the benchmark interest rate (Selic). As in January, Copom decided to slash 75 basis points off the Selic, bringing it down to 12.25% on 22 February.

Inflation data released earlier in the day confirmed the slowdown in price rises over the past year, though in the last month prices rose above analysts’ expectations. Twelve-month inflation is now down to 5.02%, its lowest level since mid-2012. Speaking on 22 February Finance Minister Henrique Meirelles expressed confidence that inflation would hit the 4.5% target by the end of this year. Both the central bank and private-sector economists expect the same.

• World Bank study

In a recent study, the World Bank estimated that because of the continued economic crisis in Brazil, an estimated 3.6m people will drop back below the ‘poverty line’ (R$140,00 [US$45.70] per month) into extreme poverty. If there is a small amount of economic growth in 2017 then ‘only’ 2.5m would fall back below the poverty line.

La ex presidenta, Michelle Bachelet (2006-2010), y su rival por la presidencia, Pablo Longueira, lanzaron esta semana sus salvas de apertura en la campaña que conduce a las elecciones de noviembre. Bachelet prometió reforma fiscal y de la educación, y una nueva constitución, pero por encima de todo, ella dijo que el sistema político debía prestar atención a la voz del pueblo y cambiar. En una respuesta indirecta, Longueira advirtió contra irresponsablemente elevar las expectativas.

“Los sistemas deben adaptarse al pueblo y no el pueblo a los sistemas. Esta fue la gran lección que yo recibí de Transantiago”, Bachelet dijo en una entrevista con el diario nacional, La Tercera, el 6 de julio en referencia al sistema de transporte metropolitano, que había tenido un desastroso comienzo durante su mandato. “El gran peligro es [...] oír lo que pasa y no poner atención a estos cambios”, ella dijo. Esta fue una crítica implícita al actual gobierno, que ha producido un sólido crecimiento económico y más empleos, pero ha tenido dificultades para comunicar sus logros, y a menudo parece estar a la defensiva, reaccionando ante problemas que surgen de una política mal comunicada en vez de anticiparse a los mismos.

Bachelet apeló a los chilenos no sólo para que la elijan a ella, sino para dar a su Concertación de centro-izquierda una fuerte presencia en el congreso debido a que todas sus prometidas reformas al sistema fiscal y el de educación eran contingentes a esto. Ella también aclaró que le gustaría cambiar la constitución en el congreso y no a través de una asamblea constituyente, pero que esto dependía de cuán receptivo fuere el congreso: bajo el sistema electoral existente es muy difícil que la Concertación obtenga una mayoría. “Si el mundo parlamentario no se mueve con los tiempos [...] si no podemos canalizar esa expresión en las calles, el pueblo buscará otros mecanismos. Optar por un mecanismo institucional [existente] significa exigir más de nuestras instituciones; para que ellas respondan a las necesidades de hoy”, ella dijo.

Cuando se le preguntó que sentía acerca de la Presidenta de Brasil, Dilma Rousseff, perdiera 27 puntos porcentuales de apoyo en tres semanas, Bachelet admitió que ella estaba consciente de que estaba elevando las expectativas, pero señaló la culpa por adelantado: “Si somos incapaces de producir cambios y el pueblo sale a las calles esto no será responsabilidad de la presidenta, sino de un sistema político incapaz de responder a los desafíos de Chile”.

Bachelet siente que ella fue frustrada en parte de su agenda de reforma durante su primer mandato por una oposición obstructiva en el congreso, pero sus detractores alegarán que al buscar eludir esto entreteniendo una asamblea constituyente, en vez de buscar un consenso con la oposición, y ofreciendo compromisos, es antidemocrático. Los partidarios alegarán que es imposible esperar de los legisladores, que deben sus posiciones al sistema electoral binomial, que permite a las dos principales coaliciones dominar la política, quieran reformar el sistema. Varios ajustes han sido sugeridos en el último par de años, y tan recientemente como esta semana en el senado, pero sin ningún progreso tangible hasta ahora.

Longueira, de la derechista Unión Demócrata Independiente (UDI), respondió a Bachelet alegando que ella estaba absolutamente correcta en que “es más difícil gobernar” ahora mismo debido a que “la realidad internacional es dura”. Él dijo que el público tenía que prepararse a enfrentar el hecho de que “el precio del cobre que hemos tenido durante un período muy largo, no continuará, y debemos ser responsables desde un punto de vista macroeconómico y fiscal y también ser muy responsable en las expectativas que creamos entre los chilenos”. Esta fue una crítica indirecta dirigida a Bachelet y la idea adelantada en las protestas de estudiantes de que el cobre de Chile podría financiar la educación universal gratuita. Longueira puede estar en lo cierto acerca de los precios del cobre (ver más abajo), pero la cautela, que bordea el pesimismo, no tiende a ganar elecciones. Él necesitará crear un mensaje más optimista en poco tiempo más.

• Socios incómodos

Michelle Bachelet buscó minimizar las diferencias entre el partido más centrista en la Concertación, el Partido Demócrata Cristiano (PDC), y el Partido Comunista de Chile (PCC) que ella ha llevado a su coalición electoral. Ella dijo que había “diferencias conceptuales en términos de análisis político o económico” pero que hablando con amplitud ellos están en la misma página. Una página muy grande quizá, pero después de su pobre desempeño en las elecciones primarias de la semana pasada, el PDC no está en una posición fuerte como para dictarle términos a Bachelet. Bachelet, que está decidida a usar al PDC para atraer a chilenos moderados, insistió en que ella no da bandazos hacia la izquierda: “Yo no me he movido a la Izquierda o la Derecha, sino hacia el pueblo”.