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A wave of deadly violence has hit northern Paraguay this week. There has been a series of armed attacks that the authorities have attributed to the Ejército del Pueblo Paraguayo (EPP) insurgent guerrilla group and its spinoff organisations that are said to operate in the area. This is putting pressure on the government led by President Mario Abdo Benítez to redouble its efforts to reinforce public security in the north of the country.

The violence began on 29 July when the Paraguayan authorities reported that three soldiers from the military-policy task force (FTC) created to combat the EPP had been killed in a bomb attack in the northern department of San Pedro. The soldiers were killed when they were out on patrol and a roadside bomb exploded as their vehicle was traveling through a rural road near Santa Rosa del Aguaray. Unidentified gunmen also fired shots at the second vehicle making up the patrol but there were no casualties. The authorities said the incident had been an ambush likely carried out by the EPP or one of its spinoff groups.

On 29 June an EPP spinoff group, the Agrupación Campesina Armada (ACA), abducted a cattle rancher from the area and the FTC had been increasing its operations there to try to rescue him. As part of these operations, on 1 August the FTC reported that two suspected members of the Ejército Mariscal López (EML), another EPP spinoff group, had been killed in a shootout with an FTC patrol in the neighbouring Concepción department.

One of those killed was identified as Alejandro Antonio Ramos Ramírez, the son of the suspected main EML leader, Alejandro ‘Teniente Joel’ Ramos Morel. This produced concerns that the EML could launch a new campaign of violence in retaliation. Signs of this emerged on 3 August when the authorities reported that two police officers and a private security guard were shot dead by unidentified gunmen as they travelled in a police patrol on a rural road in San Alfredo, Concepción. Officers that survived the attack said they came under fire from 10-12 heavily armed assailants and that these stole three Galil automatic rifles before making an escape. This has raised suspicions that an armed insurgent group was responsible for the attack.

BRAZIL | Figures highlight shrinking industrial sector. On 21 July, Brazil’s national statistics institute (Ibge) released new figures from its annual industrial survey which reveal how the country’s industrial sector has shrunk over the last decade. In 2020, Brazil had 303,600 industrial companies employing one or more people, of which 6,300 were in the extractive sector and 297,300 in manufacturing – but these figures were lower than a year earlier for the seventh consecutive year. From 2011-2020, 9,579 companies in the industrial sector went out of business (3.1% of the total), while 1m jobs in the sector were lost (11.6% of the total). The majority of lost industrial jobs were in the clothing and accessories sector (258,400), in shoe and leather manufacturing (138,100), and in the manufacture of metal products other than machinery (134,200). The best performing industrial sector over the 2011-2020 period was the food industry, which grew by 5.9 percentage points over the 10-year period, with more than half of this growth taking place between 2019 and 2020.

URUGUAY| Country to seek adhesion to Trans-Pacific trade deal. President Luis Alberto Lacalle Pou announced on 26 July his intention for Uruguay to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Inked in March 2018 in Chile, the CPTPP has been signed by 11 of the 12 countries that had negotiated the Trans-Pacific Partnership (TPP) regional trade deal after the US opted to abandon it. In a speech given at an event organised by local export lobby, Unión de Exportadores del Uruguay (UEU), President Lacalle Pou said his administration is seeking to join the CPTPP as part of its efforts to “open up to the world”. Lacalle Pou stated he is backed by “the entire political system” in his pursuit of FTAs with other regional blocs. The CPTPP members are Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam.

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

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

On 23 April leading teachers’ union Asociación de Profesores (Asoprof) began strike action in protest against Panama’s President José Raúl Mulino’s controversial reform of the social security system (CSS) – protests which other unions have since joined. Here we look at the approved legislation which has stoked discontent.

Upon taking office in July 2024, President Mulino made it clear that reforming the CSS would be a priority as the pension system, known as Invalidez, Vejez, y Muerte (IVM), has been running massive shortfalls which have been highlighted as a major concern by international credit ratings agencies. Strengthening the CSS without privatising it was also a key demand of protesters during the 2022 protest wave.

During the legislative process, critics such as trade unions pushed back against proposals to increase the retirement age in order to save money, and reiterated demands that the CSS remain in public administration. 

The new legislation maintains the existing retirement ages of 62 and 57 for men and women respectively, and it reaffirms that the CSS is non-privatisable. Under the approved bill, employers’ contributions will gradually rise from 4.25% to 7.25% while workers’ contributions will remain the same. It also forms new bodies such as a directorate for oversight and institutional responsibility and the insured persons’ observatory, as well as introducing transparency and compliance standards, as part of efforts to improve efficiency. 

In addition, it stipulates that actuarial reports will be commissioned periodically to assess the sustainability of the pensions system, while retaining a government commitment to contribute US$966m a year to cover the IVM’s annual deficit. The bill also aims to strengthen coordination between the CSS and the health ministry (Minsa), as well as mandating that IT systems should be updated, with accessible digital platforms to be introduced for beneficiaries as well as the incorporation of telemedicine.

Despite the fact that the law meets demands to retain the existing retirement age and public administration of the CSS, unions such as Asoprof and the powerful construction workers’ union, Sindicato Único Nacional de Trabajadores de la Construcción y Similares (Suntracs), have staged protests and engaged in strike action in the wake of it being passed. Union leaders have promised to continue their protests, while Mulino has said that there will be no changes made to the new law, saying that “a decision has been made”.

Continued anger over the CSS reform has also been worsened by outrage over recent security agreements signed with the US (see our sister publications, the Latin American Weekly Report and Latin American Security & Strategic Review for more discussion of this) as well as Mulino’s decision to authorise copper exports from the country’s largest mine, Cobre Panamá, which was shut down in 2023 following massive protests over a new contract. There is mounting speculation that Mulino is negotiating with owner First Quantum Minerals, which also announced at the end of March that it was dropping arbitration proceedings against Panama, to restart operations at the mine which represented around 5% of Panama’s GDP.

Former president Tabaré Vázquez (2005-2010) might be preparing to have another tilt at the presidency in 2014. Vázquez retired from political life last October after making a serious gaffe by candidly, and publicly, admitting that he considered war scenarios with Argentina when the dispute over the construction of a pulp mill on the Uruguayan side of the shared River Uruguay reached fever-pitch in 2007. According to a survey published by local pollster Equipos Mori in early September, however, Vázquez is by some distance the most popular politician in Uruguay. In the absence of any clear candidate to succeed President José Mujica, Vázquez is the strongest option to unite the disparate ruling left-wing coalition Frente Amplio (FA).

Vázquez enjoys 63% popularity in the Equipos Mori poll. The most popular opposition politician was Jorge Larrañaga of the centre-right Partido Nacional (PN, Blancos) with 36%, followed by Pedro Bordaberry, the leader of the right-wing Partido Colorado (PC; Colorados) with 33%.

Vázquez announced his retirement from public political activity last October on the grounds that he had inadvertently caused diplomatic tensions. Speaking to 20 former pupils of the Colegio Monte VI School in Montevideo, he had explained that in 2007, at the height of tension over the Botnia (now UPM) pulp mill being constructed on the banks of the River Uruguay, he had asked the-then US President George W. Bush and Secretary of State Condoleezza Rice whether the US would back Uruguay in the event of hostilities breaking out with Argentina (see sidebar).

The reaction within the FA at the time was telling: it appeared more incensed at the appeal for assistance from the US than a hypothetical war with Argentina. The FA leadership committee actually argued that Vázquez should be honoured for his honesty. But the opposition leapt on his infelicitous remark, with Bordaberry commenting that “the years are clearly catching up with Vázquez; you cannot glibly say these things in chats with school children; there is a reason why serious countries declassify archives 20 years after the event.”

The decision by Vázquez to withdraw from public life demonstrated that he had not entirely lost his shrewd head for politics, however. He calculated, correctly, that the dust would settle in time. The FA is still agonising over who could lead the coalition into the next elections in 2014, with the consensus being that Vázquez stands alone in being able to unite the disparate groupings. If he were to run, he would certainly not be a popular choice in Buenos Aires, but this could well stand in his favour. There is growing irritation with the protectionist course pursued by the administration of President Cristina Fernández and President Mujica is under mounting pressure to stand up to his peer across the River Plate.

The Equipos Mori survey suggests that the only other FA politician who could conceivably win public support for a presidential bid is the incumbent Vice-President Danilo Astori, who polled 48%. But, Astori, who is the standard bearer for the moderate leftist parties in the coalition, would never be able to unite the heterogeneous FA in the way that Vázquez can. A separate poll by Equipos Mori showed that the approval rating of President Mujica sank to just 39% in July, its lowest level since he took office in March 2010, although it is worth noting that Vázquez’s approval rating also hit a nadir at this point of his presidency before steadily climbing afterwards. In April, the previous poll conducted by Equipos Mori, Mujica enjoyed a 47% approval rating.

Equipos Mori put forward any number of possible reasons for the erosion of Mujica’s support. It highlighted Paraguay’s suspension from the Southern Common Market (Mercosur) and the rear-door entry of Venezuela into the bloc, which put Mujica and Astori at loggerheads and left the sensation that the FA might be eschewing more moderate for more radical leftist politics – a source of constant tension within the coalition. The polling firm also flagged up the Mujica administration’s proposed legalisation of marijuana, which is currently before congress; the replacement of the most popular minister in the cabinet Héctor Lescano, the tourism and sport minister, for no apparent reason; and a feel-bad factor surrounding the bankruptcy of the flagship carrier Pluna (see sidebar), which the government was unable, or unwilling, to rescue, as possible reasons for the decline in Mujica’s support.

All of these factors could have influenced his approval rating, but there is also a concern that the public is growing weary of Mujica’s failure halfway through his mandate to deliver on key promises, such as a sweeping reform of the State to improve efficiency and reduce red tape. Uruguay has been growing at an impressive rate for more than five years now, but excessive bureaucracy is probably one of the main obstacles to sustained high growth. Mujica is aware of it. But, despite enjoying a majority in both the lower chamber and the senate, he has been unable to push through what he himself describes as “the mother of all reforms”.

Uruguay slipped in the latest annual report of the Global Competitiveness Index (GCI) of the World Economic Forum (WEF) which was released this month, finishing in 74^th out of 144 countries worldwide, down from 63^rd last year. In certain sub categories Uruguay performed woefully, for instance finishing in 136^th place for ‘labour market efficiency’, with restrictive labour regulations deemed to be by far the most problematic factor for doing business. It also performed poorly in terms of wastefulness of government spending and the burden of government regulation, coming in 95^th and 89^th place respectively.

Frustration at Mujica’s failure to push through a meaningful education reform despite winning broad cross-party political consensus for such a reform will also have been intensified by the country’s performance on this front in the GCI. Uruguay finished in a lowly 107^th place for the quality of the educational system and in 118^th place for the quality of maths and science education.

Bolivia in Mercosur?

President Mujica argued last month that Mercosur was going through “an institutional crisis”. He demanded greater flexibility, given the protectionist trade barriers erected by Argentina. He said Uruguay was negotiating a trade deal with Peru and was keen to cement further trade deals bilaterally.

Roberto Conde, Uruguay’s deputy foreign minister, welcomed Bolivia’s application for full membership of Mercosur after meeting his peer Juan Carlos Alurralde in early September. Conde said that Uruguay would offer all its support for Bolivia’s incorporation and, pointedly, help the country “not to lose any of the trade preferences it enjoys through other accords with third countries”. Alurralde added: “We can’t forget that Uruguay will be holding the chair of Mercosur next year and starting in January 2013 a host of activities are going to be defined including a critical path for Bolivia to join the group as a full member”.

• Vázquez’s gaffe

Former president Vázquez also revealed during his frank presentation to Montevideo school pupils last October that he had discussed Uruguay’s military capabilities with the heads of the three branches of the armed forces, and received this unequivocal response from the commander of the air force: “we have five planes and fuel for 24 hours; if our five planes leave, none of them will return”.

• Pluna

The Mujica administration liquidated Pluna, the country’s flag carrier airline, on 9 July, putting an end to its 76-year history. The airline was first established in 1936 and fully nationalised in 1951. The government found private sector partners in 1995 to help it run the company but it continued to be plagued with financial problems. On 15 June the government reached an agreement with the Argentine firm, Leadgate, which owned 75% of Pluna, to leave the airline in an “orderly fashion” to allow the State to find a more suitable partner. It failed to find such a partner in the month it gave itself and sold off all Pluna’s assets, including its seven planes, in order to raise funds to pay off the company’s debts

As he prepares to take over the reins of power, President-Elect Horacio Cartes has signalled that he is not a traditional Asociación Nacional Republicana-Partido Colorado (ANR-PC, Colorados) politician and that he will try to practice consensus politics instead of merely relying on the support of the Colorados to govern. Given that the ANR-PC secured majorities in both chambers of congress in the April general election [RBS-13-04], Cartes’s decision to establish a working relationship with the political opposition might at first glance seem odd. But upon closer inspection it becomes clear that doing so may be a necessity for the incoming government.

Days ahead the establishment of the new congress on 30 June, Cartes, who is to be sworn-in on 16 August, unexpectedly announced that he had reached a political agreement with four of the five opposition benches in congress in the name of working together to develop joint initiatives.

After being proclaimed president elect back in April, Cartes began a series of private meetings with leaders from across the political spectrum including the ANR-PC’s traditional rival, the Partido Liberal Radical Auténtico (PLRA), and the Frente Guasú (FG) leftist coalition led by the impeached former president and now senator, Fernando Lugo (2008-2012). Political animosity between the ANR-PC and the PLRA has historically dominated Paraguayan politics. Lugo (with the PLRA’s backing) made history by defeating the ANR-PC in the 2008 elections, ending its long rule of over 60 years uninterrupted. Needless to say, Cartes’ conciliatory stance towards these opponents, and in particular towards Lugo, raised some suspicion within the ranks of the ANR-PC.

Cartes said that his decision to hold talks with the opposition was a conscientious attempt to achieve national political reconciliation in the country after the crisis surrounding Lugo’s lightening impeachment. He stressed that his efforts to build bridges with the country’s political forces would also help to ensure governability. He said that this rapprochement should be taken as a sign that his political movement, Honor Colorado, and his incoming administration would be different to past, politically authoritarian, Colorado governments.

‘Pacto Azulgrana’

On 21 June Cartes announced that he had reached a deal with the PLRA, the main opposition bloc in the new congress. The so-called ‘Pacto Azulgrana’, in reference to the traditional colours of the ANR-PC (red) and the PLRA (blue), calls for a “national legislative agenda” to be focused on “fighting poverty and inequality… developing human capital, public security, economic development and stability”. It would act in support of a “serious and responsible government […] that will be open and will combat corruption, promoting unrestricted access of information to citizens”. All very lofty goals, which Cartes said would create a “historic” political alliance for the benefit of the country.

Cartes’ announcement immediately led many to draw comparisons between his Pact and the Pacto por México agreement forged by Mexico’s President Enrique Peña Nieto with the country’s three main political parties before he assumed office in December 2012. In a clear parallel, Peña Nieto’s July 2012 election victory in Mexico marked the return to power of the traditional Partido Revolucionario Institucional (PRI), which had held a monopoly on power in Mexico even longer than that of the ANR-PC until it was finally defeated in the polls in 2000. Peña Nieto’s Pacto has proved highly successful, allowing his government to push through several big structural reforms long impeded by party-political considerations in congress. That Cartes might looking to imitate Peña Nieto in this respect looks encouraging.

However, the Pacto por México is a very thorough document setting out all the initiatives to be pursued, along with a detailed schedule. For all the talk of transparency and openness, there are only vague details about the contents of the Pacto Azulgrana.

Moreover, given that neither Cartes nor the PLRA leaders have been forthcoming about the terms of the pact, there is some suspicion that it merely amounts to a deal to divvy up leadership posts in congress (and possibly also in the cabinet) so as to ensure governability. Cartes acknowledged that the agreement did involve some political negotiations, but stressed that they had nothing to do with “impunity, or a distribution of posts”.

‘Acuerdo por Paraguay’

On 29 June, Cartes announced that the right-wing Unión Nacional de Ciudadanos Eticos (Unace), the leftist Partido Encuentro Nacional and the FG splinter group, Avanza País (AP), also had decided to sign up to the Pacto Azulgrana, which was duly rebranded as the ‘Acuerdo por Paraguay’.

Tensions in congress

Cartes’s successful deal with the opposition raised questions as to what sort of backroom deals might have been involved. As the newly elected senators and national deputies assumed their seats, some clues began to emerge. In the senate, where the ANR-PC has a narrow majority, it secured the presidency with Julio César Velázquez, while the first vice-presidency went to the PLRA’s Ramón Gómez Vernlangieri and the second vice-presidency to the ANR-PC’s Víctor Bogado.

However, in the lower chamber (where the ANR-PC secured a commanding majority of 44 seats in the 80-seat chamber), the PLRA’s Juan Bartolomé ‘Ancho’ Ramírez became the new president, with ANR-PC’s Mario Soto Estigarribia as first vice-president and AP’s Karina Rodríguez as second vice-president. Many within the ANR-PC bench bitterly complained that they had been ordered to vote for Ramírez and Rodríguez. Having to vote for Rodríguez was particularly unpalatable for ANR-PC deputies, who bemoaned that giving him such a leadership position was “too big of a prize”.

The ANR-PC grumblings over the congressional commissions. Although the ANR-PC took the helm of 10 of 19 commissions in the senate, deputies bemoaned the fact that both the AP and Unace secured one each; while the remaining seven all went to the PLRA.

In the lower chamber, the fact that the ANR-PC will head 16 of the 26 commissions, while the PLRA will head nine, did little to ease discontent at the fact that the remaining two went to the AP and the Partido Patria Querida (PPQ).

Cartes is not a member of the ANR-PC’s traditional leadership, leading to some questions about the level of support he can expect from the ANR-PC bench. The ‘Acuerdo’ thus might be viewed as an ‘insurance policy’ should the new president fail to secure the full backing of his own party for his initiatives. The problem is that in doing this at the outset, Cartes is already upsetting ANR-PC legislators.

• People remind congress of duties

On 30 June, as the new senators and national deputies were being sworn-in, some 500 people from various civil society groups staged demonstrations outside congress to remind legislators that must be accountable. Alejandro Gonzi, one of the organisers, said that congress should be aware that citizens were ready to conduct a ‘citizens’ audit’ to “stop them from passing all those bad laws that congress usually attempts to introduce” and he warned congressionals “to legislate for the people and not for their own benefit”.

• Cartes responds to ANR-PC grumbling

On 5 July, President-elect Cartes responded to complaints by Colorado deputies about his new pact with the opposition. Speaking to reporters, he said the new congress “should concentrate on drafting laws to benefit the country instead of continuing to bicker over posts”. He added that the goal of his new cross-party agreement was for “harmony” in congress so that it could “put the country first”. “If members of congress are still fighting, that has more with personal ambitions”, he quipped. His comments did not go down well with the ANR-PC bench, with some complaints that they were “inopportune” and should have been made in private, rather than in public.

A number of Paraguayan officials have begun talking of Paraguay as a country that can pursue a ‘Little China’ strategy within Latin America. The aim is to diversify an agriculture-based economy, and develop competitive industrial assembly plants known as máquilas in border areas. In the short term at least, the economy is looking resilient, with Central Bank President Carlos Fernández Valdovinos lifting the real annual GDP growth forecast for this year to 4.0%, up from 3.5% previously.

Deputy Economy Minister Lea Giménez has described the ‘Little China’ strategy as offering companies operating in Latin America an attractive manufacturing base with a young labour force, low tax rates, and cheap energy (generated from hydroelectric plants such as the giant Itaipú complex, operated in partnership with Brazil).

Paraguayan government officials say that neighbouring Brazil has been importing US$70bn worth of manufactured goods from China every year. Located right on Brazil’s border and with a number of comparative advantages, they suggest that Paraguayan máquilas could realistically aspire to produce and sell around 10% of that total to Brazil, which would help diversify the economy and reduce its dependence on the export of agricultural commodities such as soya, cotton, and sugar. According to Finance Minister Santiago Peña, “Paraguay could very well be a province of China”.

Fernández, the central bank president, argues that Paraguay should now focus less on short-term macroeconomic management of the business cycle, and much more on longer-term strategic issues, such as investing in the country’s infrastructure and seeking to move into the production of higher value-added goods. Doing this is perhaps easier, because Paraguay has so far been conservative in its fiscal and monetary management and has therefore emerged from the end of the commodities boom without major economic imbalances.

In fact, a recent World Bank study identifies Paraguay, along with Chile and Peru, as one of only three countries in South America that are deemed to have completed their post-commodities boom macroeconomic adjustment process and which are therefore now free to seek out new drivers of growth.[1] “The level of and composition of our exports, or the level and composition of our productive matrix, is still below the one in Asia”, Fernández says. “For that, you need to attract investment, of course, to bring in new technology, which is going to enhance productivity in the end.”

Paraguay’s economic growth rate rose to 6.2% year-on-year in the second quarter, despite the fact that its two largest neighbours, Brazil and Argentina, have both been in recession. It has been helped because the prices of its commodity exports have held up better than those of some of its neighbours, on the whole.

Moreover, it has also become evident that Paraguay can profitably produce and sell manufactured goods, even to a Brazil that is still mired in recession. X-Plast, a plastic injection mould company making toys and garden chairs, notes that energy is cheaper and salaries are lower than in Brazil, while payroll taxes are also lower. With low inflation (of around 3%-4%), domestic demand has also held up, and has benefitted from an earlier halving of the poverty rate in the 11 years to 2014, from 40% down to 20% of the population.

Lingering development challenges still an obstacle

Yet the country still struggles with many development issues. Up to two-thirds of the population still earns a living in the informal sector, paying little or no tax and receiving no benefits. In this sector, salaries are ever lower. Education and health provision is also insufficient. According to the Global Competitiveness Index (GCI) produced by the World Economic Forum (WEF), Paraguay is ranked 117^th out of 138 countries, and deemed to be particularly weak in technological readiness, and education and training. Corruption, inadequate infrastructure, and a poorly educated workforce are all identified as key problems.

That said, the direction of travel for the economy is largely seen as encouraging. At a briefing earlier this month, the IMF’s Western Hemisphere director, Alejandro Werner, was asked to explain why the country was still growing despite the Argentine and Brazilian recessions. His answer was that Paraguay had consolidated macroeconomic conditions, improved access to international financial markets, strengthened the banking system, and begun to invest in infrastructure. This meant it had been able “to generate counter-cyclical forces that have enabled it to maintain its dynamism”, he noted.

The announcement by the IMF on 11 November that its Executive Board had approved a three-year US$1.64bn Stand-By Loan Arrangement (SBA) with the Jamaican government is a reflection of the progress made by the Jamaican authorities in stabilising the economy since the previous Extended Fund Facility (EFF) agreement was signed in 2013. The IMF praised the government’s efforts at fiscal consolidation, including the continued generation of large primary surpluses and a reduction in the large public debt stock. Although real GDP growth remains weak, it is nevertheless showing signs of acceleration. Coupled with wide-ranging and ambitious reform plans for the coming year, the government hopes to continue its recent impressive track record.

The government led by Prime Minister Andrew Holness of the Jamaica Labour Party (JLP), elected in February this year, has stated that it plans to use the US$1.64bn available under the new SBA as precautionary financing, not drawing down from the funds unless external conditions deteriorate sharply. This also marks a sea change from recent years, when disbursements from the EFF were vital to supporting the balance-of-payments position, as well as financing the overall fiscal deficit.

As in recent reviews under the EFF, the IMF was extremely positive about macroeconomic developments, highlighting low inflation, the accumulation of foreign reserves and a fall in the current-account deficit as particular factors that have engendered greater economic stability.

Purse strings will remain tight

Like the preceding EFF, the new SBA will maintain a tight focus on continued fiscal discipline. One of the main quantitative targets will remain the primary balance (the balance before debt interest payments). Jamaica has run very high primary surpluses of 7-7.5% of GDP for the past three financial years, in line with IMF targets, reflecting both spending cuts and higher revenues.

Combined with proactive debt management, including fresh sovereign bond issuance designed to buy back more expensive debt falling due in the short term, the public debt to GDP ratio has fallen. According to the IMF, this ratio stood at 141% in the 2013/14 financial year (April-March) but this had fallen to 120% by 2015/16.

The IMF’s primary surplus target remains unchanged at 7% of GDP until 2019/20; if the government continues to meet this target, the Fund estimates that this will bring public debt below the 100% of GDP threshold. The long-term aid is to reduce debt further, to 60% of GDP by 2025/26.

To achieve these goals, the Fund recommends a mixture of spending constraint and reforms to boost the revenue base. On the expenditure side, there will be continued efforts to reduce spending on public-sector salaries, which at 10% of GDP currently is above average compared with the rest of the Latin America region.

Spending on wages has come down in recent years, mostly through natural attrition, but the government hopes to make further cuts in the coming two years by reducing the number of public-sector employees, as well as capping salary increases. The government has outlined a timeline for shrinking the size of the public sector and is expected to unveil plans for consolidation of several departments early next year, ahead of implementation mid-year.

On the revenue side, the IMF applauded the decision by the JLP government to follow through on an election campaign pledge to raise the personal income tax threshold. From the start of July, the threshold nearly doubled, from J$592,800 to J$1m, with a second step scheduled for April 2017, which will raise this to J$1.5m.

Given that this will exempt the majority of taxpayers from paying any income tax, there had been speculation that the IMF might criticise the new government’s move on the grounds of veering from the previous administration’s commitment to fiscal discipline. However, this has not been the case, with the IMF praising the fact that the government has successfully identified replacement sources of revenue, and even went so far as stating that the shift from direct to indirect taxation will support medium-term economic growth.

Government acknowledges the need to boost growth

That said, the IMF acknowledged that important challenges remain. The most immediate is the prospect of still-weak economic growth and high levels of unemployment, which could threaten public support for the IMF programme, particularly given the fact that fiscal austerity has already been in place for so long.

According to the Statistical Institute of Jamaica, GDP has either contracted or recorded weak (below 1%) growth for most of the 2010-15 period (peak growth was a rather uninspiring 1.7% in 2011). The pace of growth has picked up marginally in 2016, from 0.8% year on year in the first quarter to 1.4% in the second, and the government has indicated that it expects a further acceleration to over 2% in the third quarter.

However, this is mainly due to a recovery in agricultural production after several years where drought hampered output. There is little concrete sign of stronger consumer demand or increased investment and unemployment – at 12.9% in July – remains high, if somewhat improved from levels of over 13% earlier this year.

In order to maintain broad public backing for the IMF-mandated measures, the government is placing a greater emphasis on improving the social safety net through adjusting the conditional cash transfer payments system (a pro-poor subsidy). Known as the Path of Advancement through Health and Education (PATH), it provides payments to pregnant women and new mothers, the poor, families with children of school age, the elderly and the disabled. The government has stated that it plans a significant increase in PATH benefits in the 2017/18 budget, as well as renewed efforts to improve coverage only 55% of households in the poorest quintile receive PATH payments).

Security also remains a major concern

Improvements in security are also paramount to maintaining public support for the IMF programme, as well as boosting potential growth rates (the ministry of national security has previously estimated that the impact of violent crime costs the economy up to 7% of GDP annually, through the medical costs and productivity losses of injuries, as well as additional security spending). The government has stated that it will devote more financial resources to security and has outlined plans to table a comprehensive reform of the police force to parliament by next October. Few details are yet available, as detailed discussions have yet to begin in earnest, but this may involve a wholesale replacement of the much-troubled Jamaica Constabulary Force (JCF).

The key question is whether the government will be able to make good on this ambitious economic and political agenda. In its favour, the JLP commands a working (if extremely narrow) parliamentary majority, which should facilitate continued progress on the reform front. The opposition People’s National Party (PNP), which lost the February general election, remains preoccupied by internal differences, including an ongoing debate about whether the former prime minster, Portia Simpson Miller (2012-2016), should step down as party leader.

As a result, there has been very little opposition to the JLP since it took office, and little criticism of its planned legislative programme. For as long as the PNP remains weak and the economy shows tentative signs of improving, the public is likely to remain broadly supportive of the new government. However, in the medium term there remains a risk that public opinion could turn against the JLP, particularly if the gradual economic recovery reverses amid a deterioration in external economic conditions.

Having replaced its long-traditional economic patron – the US – for Russia in the early 1960s, Cuba then replaced Russia with Venezuela at the turn of the century. Almost 20 years later, the perennially cash-strapped Communist regime is switching course again, circling back to Russia once more as bankrupt Venezuela loses utility to the island as an economic and financial partner. Meanwhile, Russia is slowly but surely building up its economic and commercial presence in the region, with the state oil company Rosneft key to this strategy.

Rosneft, which is slowly gathering up oil schemes (and potentially other assets) in Venezuela as the Russian government led by President Vladimir Putin plays lender of last resort to the Caracas government, is also looking to increase business with Cuba. In a press statement dated 6 October, Rosneft confirmed that CEO Igor Sechin had discussed the matter at a working meeting in Moscow with a visiting Cuban delegation including Cuba’s minister of energy and mines, Alfredo López, the Cuban ambassador to Russia, Emilio Lozada García, and the Cuban embassy’s commercial attaché, Vivian Hitchman Miranda. The two parties discussed “extension of supplies volume, joint production projects, as well as prospects for cooperation in modernization of Cuban refinery Cienfuegos”, the statement noted. Rosneft may be looking to step into the breach left in Cuba by Venezuela’s state oil company Pdvsa, which might allow it to expand further into the Caribbean. Notably, Rosneft in recent times has been acting as a reseller of Venezuelan oil in the region, building up a commercial presence.

Russia already supplies some oil and oil products to Cuba and latterly has begun shipping “large quantities of oil to Cuba for the first time this century”, Reuters noted in May. Rosneft in May announced an agreement with Cuba’s state-run Cubametals to supply 250,000 tonnes of oil and diesel fuel. Jorge Piñon, an oil expert at the University of Texas at Austin, told Reuters that he estimated the valued of the deal at some US$105m (for a total oil supply equivalent of 1.9m barrels). Russia previously reported that it had shipped oil products valued at US$11.3m to Cuba in 2010-2015 – so this new deal is worth almost ten times that.

For almost two decades, Cuba – which consumes 22,000 barrels per day (b/d) of diesel and 140,000 b/d of oil products (for a total of just over 160,000 b/d) – has relied on Venezuela for about 70% of its total fuel needs, including oil for refining and re-exports. In return for cheap oil, Cuba exported services to Venezuela, in the form of thousands of doctors, nurses, teachers and professionals – reportedly including military and intelligence services. But Venezuelan oil shipments, previously averaging over 100,000 b/d and supplying two-thirds of the island’s daily fuel needs, have fallen by an estimated 50% since 2014, when global oil prices collapsed, bringing down Venezuela’s petro-economy.

President Raúl Castro in July 2016 publicly admitted to the difficulties caused by the waning Venezuelan oil supply, with electricity and fuel rationing imposed on state companies. “It is very clear that Cuba is diversifying its long-term supply contracts in the event that its October 2000 oil agreement with Venezuela is terminated,” Piñon noted of Rosneft’s May announcement of its new supply deal with Cuba.

The latest talks in Moscow between the Cuban officials and Sechin – a very close associate of Putin – followed earlier rather secretive visits to Moscow by senior Cuban officials. In late July, the former head of North American affairs at the Cuban foreign ministry, Josefina Vidal, travelled to Moscow for a meeting with Russia’s deputy foreign minister, Sergei Ryabkov. A short statement from the Russian foreign ministry said that, “during the meeting, the officials noted the steady development of friendly relations between Russia and Cuba” and “also exchanged views on current issues on the international agenda”. Following his meeting with Vidal in late July, Ryabkov days later met with the Cuban ambassador Lozada García, at which “current economic bilateral cooperation matters as well as plans for upcoming bilateral contacts were the subjects of discussion”, according to a one-line Russian foreign ministry statement.

The sonic attacks

While US conservatives have been waving red flags about ‘the return’ of Russia to the Western Hemisphere, pointing to Moscow’s expanding political and commercial relationships with various countries including Cuba, the mystery sonic attacks on US and Canadian diplomatic personnel in Cuba has escalated this disgruntlement into a state of heightened paranoia. Cuba’s stout denials of any knowledge of the attacks simply doesn’t wash with these factions, who spy the hand of Russia behind the mystery.

On 3 October, US Secretary of State Rex Tillerson announced the expulsion of 15 officials from the Cuban embassy in Washington, DC. Four days earlier, on 29 September, the State Department had ordered the departure of all non-essential personnel assigned to the US embassy in Havana, plus family members. While acknowledging that “investigators have been unable to determine who or what is causing these attacks”, the Department said it had moved to act because of a Cuban government failure “to take appropriate steps to protect our diplomats, in accordance with its obligations under the Vienna Convention”.

The State Department also issued a new travel warning, advising US citizens to avoid travel to Cuba and “informing them of our decision to draw down our diplomatic staff”. While acknowledging that “we have no reports that private US citizens have been affected…the attacks are known to have occurred in US diplomatic residences and hotels frequented by US citizens”. Since then however, some reports have emerged suggesting that some US tourists staying in top Havana hotels including the emblematic Hotel Nacional may also have been affected – albeit these reports remain unconfirmed by official US sources.

In a background telephone briefing on 3 October, an anonymous State Department official revealed that: “Regarding the attacks, there are now 22 persons medically confirmed to have experienced health effects due to the attacks on diplomatic personnel in Havana.” “Our position on assurances does not presume Cuban culpability,” the official noted. “What it does is require the Cuban Government to be able “to fulfil its treaty obligations for the safety, well-being, and protection of foreign diplomats in their country”. And until they can give that assurance, “our personnel, we have judged, are not safe and secure in the country”.

The Cuban foreign ministry in response repeated that it “categorically rejects any responsibility of the Cuban Government in the alleged incidents, and reiterates once again that Cuba has never perpetrated, nor will it ever perpetrate attacks of any sort against diplomatic officials or their relatives, without any exception”. It protested the “unfounded and unacceptable [US] decision, as well as the pretext used to justify it”, noting that it was taken “without conclusive results from the investigation…[and] has an eminently political character”.

This echoes a conspiracy doing the rounds that shadowy US elements long bent on removing the Cuban government could in fact be to blame, in the process giving US President Donald Trump further justification to revert to a hard-line US stance on Cuba. Meanwhile Tillerson – who on 26 September met Cuba’s foreign minister Bruno Rodríguez Parrilla to discuss the issue – was clear that “we continue to maintain diplomatic relations with Cuba”. Tillerson’s continuance in his role, however, is now also under some question, amid apparent tensions with Trump.

• The roving diplomacy of Josefina Vidal

Josefina Vidal, one of the most visible Cuban government representatives in recent years, was key to the Cuba-US political rapprochement instigated (with Canadian and Vatican support) by the former US president Barack Obama (2009-2017) – now on ice under President Donald Trump. In May, not long after President Trump moved to roll back some of Obama administration’s rapprochement measures, it was announced that Vidal would move to become Cuba’s ambassador to Canada. Reportedly, Vidal officially left her post as director of the North American affairs division on 23 July, apparently making her trip to Moscow shortly afterwards.

• Díaz-Canel

Speaking at a high profile ceremony in Santa Clara for the 50^th anniversary of the death of Che Guevara, Cuba’s First Vice President and purported successor-in-waiting to President Raúl Castro, Miguel Díaz-Canel, accused the US government and right-wing US media of “propagating unbelievable tall tales, without any evidence, with the perverse purpose of discrediting the impeccable performance of our country”. “Overall, these events are a clear example of what Che warned us, you can’t trust imperialism, not even a little bit, not at all,” he declared. He added that “Cuba will not make concessions inherent in its sovereignty and independence and will not negotiate its principles or accept constraints.”

At a time that Haiti’s political situation remains very complex, the economy is slowing. Activity should be boosted slightly by the central bank’s easing of monetary policy in June. Nevertheless, there are no signs that the country’s structural problems will be resolved anytime soon.

In its review of monetary policy for the second quarter, ending in June, the central bank (Banque de la République d’Haïti, BRH) forecast real annual GDP growth of about 1% in the current fiscal year (ending in September 2016). GDP growth in the 2015 and 2014 fiscal years was 1.2% and 2.8% respectively.

Latest data from the national statistics agency (Institut Haïtien de Statistiques et d'Informatique, IHSI) confirmed that the deceleration has been broadly based [1]. Overall industrial production in first quarter rose by 4.1% year on year. However, it was down by 2.3% quarter on quarter. In the 12 months to March, industrial electricity consumption had fallen by 1.5%, even as overall consumption had risen by 15.5%. Overall energy consumption dropped in the first quarter (by 3.0%), as did construction activity (by 2.7%), construction employment (by 3.1%) and domestic commerce (-6.9%).

The dramatic fall in hydroelectric power production in the first three months of 2016 highlights the brutal impact of drought, which has curtailed food production for much of the last two years. Higher food prices have contributed to inflationary pressures. Latest IHSI data indicated that the national consumer price index (CPI) increased by 0.7% month on month in May, and by 15.1% year-on-year. For food, drink and tobacco, the corresponding rises were 0.9% and 16.7%. The general softness in the currency has also contributed to this. Over the year to May, the gourde weakened from HTG48/US$ to HTG62/US$1. Imported food prices were 0.9% higher in May, and were up by 20.4% year-on-year.

At its meeting on 8 June, the BRH eased monetary policy. Interest rates on the benchmark bonds issued by the central bank were cut by 200 basis points. Rates on 91-day bonds were cut from 16% to 14%. Rates on 28-day bonds were lowered from 12% to 10%, while rates on seven-day bonds were trimmed from 10% to 8%. The BRH also eased reserve requirements that pertain to credits to the agricultural sector (a major source of employment and an important element of GDP). The central bank was responding to the impact of the drought on an already weak economy, and the fall in assistance available to Haiti through its membership of Petrocaribe, including preferential oil imports from Venezuela. The BRH expects that the annual inflation rate will slip to 12% by the end of the year.

The central bank also commented on the conservatism of Haiti’s banking sector. As of May, the loan/deposit ratio stood at a little over 37%. Over the preceding year, loans grew significantly more slowly than deposits. The BRH’s policy settings also need to take into account the high and rising trend of dollarisation of the banking system. US dollar deposits accounted for 54% of M3, the broadest monetary aggregate, at the end of March, from about 48% a year previously.

Low imbalances, but low competitiveness

Fortunately, the BRH’s scope for action is not constrained by the current account, the fiscal balance or the government’s external debt. The IMF, for instance, is looking for the current account deficit to slip from 2.4% of GDP in 2015 to 1.9% of GDP this year. The deficit is expected to stabilise at around 2.5% of GDP over the medium term. In absolute terms, the IMF expects a current account deficit of US$155m in 2016. In June, the central bank’s net foreign assets amounted to US$820m, having risen marginally since the end of March. The IMF thinks that the government’s overall and primary (i.e. before interest payments) deficits this year will equate to 1.8% and 1.3% of GDP, respectively. Gross public sector debt is growing a lot faster than nominal GDP. Nevertheless, the debt/GDP ratio has increased from 26.5% in 2014 to 30.4% in 2015 and is expected to rise this year to 35.2% in 2016.

That this ratio is very low by the standards of other countries in the Caribbean (or Central America) is a sign of weakness and the reluctance of foreign creditors to lend to the government of Haiti. The country has long been seen as one of the hardest in the world in which to operate. In the World Economic Forum’s Global Competitiveness Report for 2015/2016, Haiti was ranked 134^th out of the 140 countries assessed. In the three preceding Global Competitiveness Reports, Haiti’s rankings had been 137/144, 143/148 and 142/144.

The World Economic Forum’s survey of businesses operating in Haiti confirms that lack of credit from local banks is the largest single problem. [2] Unsurprisingly, given the complex and uncertain political situation, policy instability is seen as the second most serious challenge. Other problems include the inadequacy of infrastructure, persistently high inflation and the instability of governments.

Chart 2: The most problematic factors for doing business in Haiti
Weighted numbers of responses over five factors

Source: World Economic Forum, Global Competitiveness Report 2015-2016

Just over a year ago, in June 2015, we noted that the prospects for Haiti were uncertain. This remains our view. The economy is not expanding at a rate that can have an impact on the country’s entrenched poverty. There are no signs of improvement in the business environment. Regardless of trends in the prices of food and oil, the weakness of the currency will probably contribute to inflation for at least some months to come.

Nevertheless, we the positive wildcards that we identified in mid-2015 also remain in place. One is a renewed downturn in the international price of oil for this oil-import dependent country. Another is higher-than-expected remittances from Haitian expatriates working in the US. The third is growth in employment, trade and investment thanks to the opening in early July 2015 of Port Lafito by the local conglomerate, GB Group. GB Group sees the port as a central element in the development of Lafito Global, an economic zone that will include a business park, an industrial free zone and a residential precinct.

The number of mergers and acquisitions (M&A) in the Latin American energy sector dipped a little in 2019, but the overall value of transactions surged upwards, according to research company Transactional Track Record (TTR).

According to TTR the number of major energy sector deals in six key Latin American countries dipped by 5% to 232, while their value soared by 153% to US$54.26bn. The biggest player was Brazil, which accounted for 129 M&A transactions (up 3%) worth US$38.4bn (up 151%). Many of these were associated with the government privatisations and oil and gas licensing. Almost half of the total by value relate to the November auction of oil and gas exploration licenses to two Chinese companies, CNODC and CNOOC, as well as to state-run oil company Petrobras [EB-19-11].

By value, the most active markets after Brazil last year were Peru (up by 152% to US$5.01bn), Chile (up by 190% to US$4.01bn), Colombia (up by 135% to US$3.29bn), Mexico (down 65% to US$1.86bn), and Argentina (down 48% to US$1.63bn). The fall in Mexican M&A activity may reflect the centre-left government’s lack of enthusiasm for oil and gas deregulation, as well as the relatively low priority it has given to wind and solar energy auctions. The fall in Argentina may relate to the policy uncertainties of an election year (the new government is of the centre/nationalist left but is still eager to attract foreign investment in energy, particularly in the ‘Vaca Muerta’ shale and oil deposits).  

Marcela Chacón, TTR’s business intelligence analyst for Latin America, said she expected 2020 would continue to be “an attractive year for investment in Latin America in the energy sector”. Last year oil and gas sector transactions dominated in terms of volume everywhere except for Chile and Peru, which saw more electricity sector deals. The largest group of inbound buyers came from the European Union (53 acquisitions) followed by North America (33) and Asia (15). The US was the biggest player in Brazil, Colombia and Mexico; while the United Kingdom led in Argentina, Colombia, and Peru; and France led in Chile.  

Latin America’s energy transition – a move away from fossil fuels towards renewable energy – does not yet figure prominently in the M&A landscape. Chile has announced plans to phase out coal-fired power plants by 2040 and to achieve net carbon zero emissions by 2050. Chacón says “In general the energy sector is experiencing a transformation process towards clean energy”. Luiz Octávio da Motta Veiga, a former president of Brazil’s Petrobras, has commented that “Although it is true that companies and investors are looking with more interest to the clean energy area, the oil segment will continue to be important in the portfolio of global investors”. He suggested most big renewable energy projects are likely to come onstream after 2030, with fossil fuels still in demand during a long transition period. 

It is necessary to go back more than 30 years to see so many departmental intendants (governors) representing Uruguay’s centre-right Partido Nacional (PN, Blancos) come to power. In 1989 the PN lost in only three of 19 departmental elections, including Montevideo, where Tabaré Vázquez launched his political career by becoming the first governor for the left-wing coalition Frente Amplio (FA). The PN is now the big winner again. On 27 September, in departmental and municipal elections postponed from May because of the coronavirus (Covid-19) pandemic, it lost out on just four governorships. It was another electoral setback for the FA after losing control of the presidency for the first time since 2005 in March to a five-party coalition led by the PN’s Luis Alberto Lacalle Pou. But the FA did retain three departments, including Montevideo, which between them comprise nearly two-thirds of the national population of 3.5m inhabitants.

The PN expanded its presence at the FA’s expense. Retaining the 12 departments it won in 2015, the PN added a further three that had been in the FA’s hands: Paysandú, Río Negro, and Rocha. The victories owe in part to the positive evaluation of President Lacalle Pou in his first seven months in office, particularly his government’s handling of the pandemic. But the PN also got a decisive boost from the support of other parties in Lacalle Pou’s multi-colour coalition. The FA won more votes in the three departments it lost to the PN, for instance, than it managed in 2015. But the PN benefitted from the backing of its national coalition partners. In Paysandú the PN allied with the right-wing Cabildo Abierto (CA), the populist Partido de la Gente (PG), and a faction of the right-of-centre Partido Colorado (PC) to win by a margin of some 6,000 votes over the FA, and it took Rocha, which had been held by the FA since 2005, by just 1,000 votes thanks to the CA contributing 4,000-odd votes.

This borrowed support was a key factor in the PN winning nearly 60,000 more votes in the interior of the country than in 2015. It was noteworthy that where it was absent, the FA held on. In Salto, for instance, the PN and PC presented separate candidates, splitting the right-of-centre vote and allowing the FA to win.

CA, meanwhile, besides assisting the PN in reconquering Rocha, and elsewhere, fared poorly, failing in the local elections to replicate the success of its candidate, former army commander Guido Manini Ríos, in last October’s presidential elections. CA won just six departmental councillors. It was also a new nadir for the PC, an electoral titan of yesteryear. The PC retained Rivera, its northern departmental fiefdom, but it fell from seven to just three of the country’s 125 mayoralties. All of the parties lost ground at a municipal level except for the PN, which added 21 to its 2015 haul to finish with 91.

The FA gained four but lost nine mayoralties, including several strongholds, such as Chuy in Rocha. It also lost Montevideo’s F municipality. Crucially, however, the FA won convincingly in the department of Montevideo, which it has held since 1990. The left-wing coalition won by 13 percentage points in Montevideo in 2015 and the margin of victory was similar this time over the multi-colour coalition candidate Laura Raffo. Carolina Cosse, representing the FA’s Partido Comunista del Uruguay (PCU), was elected after receiving most votes of the three FA candidates on the ticket, seeing off previous incumbent Daniel Martínez (2015-2019) and Álvaro Villar. Cosse promised “dialogue, dialogue, and dialogue” with the Lacalle Pou administration. The FA also won the governorship of Canelones, confirming its control of the country’s urban and metropolitan areas.

PN entrenches interior dominance

There are some departments which the PN has not lost in seven decades (Cerro Largo, Durazno, Flores, and San José), and it preserved its stranglehold on much of the Uruguayan interior even during the FA’s heyday. In Cerro Largo the PN achieved a record victory, with 81.5% of the vote, 20 percentage points more than in 2015; in Treinta y Tres, it took 70% of the vote (up five points); and in Artigas 65% (up 15 points).

After a strong recovery post-coronavirus (Covid-19) in 2021 and 2022, the International Monetary Fund (IMF) is predicting a slowdown in Caribbean growth in 2023 and 2024.

In the latest IMF World Economic Outlook (WEO) published on 13 October, growth in Latin America and the Caribbean (LAC) this year is revised up a little to 2.3% after a stronger performance in Brazil and Mexico. Regional growth for 2024 is also predicted at 2.3%. The IMF is cautious in what it has to say about overall factors affecting the region, citing a “normalisation” of growth because of tighter monetary policies alongside a “weaker external environment and lower commodity prices”.

For prediction purposes the IMF has split the Caribbean in two. Eleven countries are in the “Caribbean: Tourism dependent” group. Here, the fastest growth is predicted for St Vincent & the Grenadines (6.2% in 2023 and 5.0% in 2024). Antigua & Barbuda, Dominica, and The Bahamas also do well. The second group of “Non-tourism dependent” countries sees much greater variation. Crisis-struck Haiti is expected to contract by 1.5% this year and to achieve only 1.4% growth in 2024. In dramatic contrast, oil-boom Guyana is expected to grow by an eye-watering 38.4% this year and 26.6% in 2024.

MEXICO | International tourism up. On 10 October Mexico’s national statistics institute (Inegi) released its latest figures on tourism, showing that 3.45m foreign tourists visited the country in August 2024, up 6.6% year-on-year. However foreign exchange income from international tourism was down 0.4% year-on-year in August, standing at US$1.95bn.

MEXICO | Annual inflation slows. On 9 October, Mexico’s national statistics institute (Inegi) released the consumer price index for September, showing monthly inflation of 0.05%. This was up from 0.01% in August. Annual inflation in September was 4.58%, down from 4.99% in August. The core inflation rate, which excludes volatile items, was 0.28% in monthly terms, up from 0.22% in August. In annual terms, the core rate was 3.91%, down from 4.00% in August.

MEXICO | Strong job creation in September. On 7 October, Mexico’s national social security institute (IMSS) reported that 456,417 formal jobs were created in Mexico from January to September 2024. According to the IMSS, 90,968 jobs were created in September, up from 58,047 in August and 12,344 in July. The economic sectors with the highest annual percentage growth in jobs were transportation and communications (+5.4%;), trade (+3.2%), and social & communal services (+2.3%), as reported in the local media. As of 30 September 2024, the IMSS had registered a total of 22.48m formal jobs.

MEXICO | September vehicle sales down. On 4 October Mexico’s national statistics institute (Inegi) announced that 116,543 light vehicles were sold in the domestic market in September, down 1.45% as compared to September 2023. According to Inegi, 378,583 light vehicles were produced in September 2024, up 11.71% on the same month in 2023. In terms of exports, 315,706 light vehicles were exported in September 2024, up 4.77% from September 2023.

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

Mexico: unemployment rate
Economically active population

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

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

The economy probably grew 4% in 2011, and, according to the central bank, had an inflation rate of 27%. Of the two rates, GDP growth is more important: Venezuelans are inured to high inflation but they are not used to recessions.

The Marxist finance & planning minister, Jorge Giordani, said in mid-January that it “was perfectly possible” for the economy to grow 5% in 2012. Indeed as there is a presidential election in October this year, it will be surprising if the growth rate is anything less.

The 2011 GDP growth figure was well above what independent economists had expected and double what the government had budgeted: the 4% figure comes from the central bank. The higher than expected GDP figure shows that public spending was significantly above what the government had budgeted, reflecting the surge in international oil prices.

Currently (the average for the first three weeks of 2012), Venezuelan crude is selling for US$108 a barrel, up from an average of US$101 a barrel for the whole of 2011.

The central bank said its preliminary data showed that the non-oil sector grew 4.3% in 2011 while the oil sector grew 0.6%.

The government hopes that it can bring inflation down by imposing more price caps: it will cap the prices of 19 consumer goods from February.

The central bank’s reserves ended 2011 at US$29.9bn, showing that the government had already worked its way through the 2011 oil windfall.

In Giordani’s view: “the first motor of Venezuela's economy is oil and the second is construction. The latter took off in 2011 and is not going to diminish [in 2012]”. In October the government launched a huge programme to build new affordable family houses. Giordani claimed that the construction industry increased output by 10% in 2011. That compares with a 3.8% growth in manufacturing and a 5.8% growth in services.

Brazil trade: Bilateral trade increased by 25% in 2011 to US$5.86bn. Brazil exports to Venezuela came to US$4.59bn while Venezuela shipped US$1.27bn worth of goods to its neighbour, up 50% on 2010. A thumping 55% of Brazil’s exports to Venezuela are manufactures.

Tourism: The tourism industry also had a good 2011, seeing a 12% increase in the number of tourists to 581,910. The tourism minister, Alejandro Fleming, is hoping for 1m tourists “in the medium term”. Most come from: Colombia, the US, Brazil and Spain. Domestic tourism also increased with 18m Venezuelans taking at least one holiday in another part of the country. Nevertheless, 1.7m Venezuelans also took at least one holiday outside the country: this was 16% up on 2010.

• The state oil company, Pdvsa, expects to produce another 100,000 bpd of oil from the Orinoco tar belt thanks to a joint venture with Energía Argentina S.A. (Enarsa), a state-owned Argentine company. The project is costing US$2.2bn and the refinery will be built in Argentina. It is not clear when the oil will start to flow.

CHILE | El gobierno congela los salarios. El 21 de septiembre el gobierno chileno anunció que después de haber llegado a un acuerdo con la legislatura nacional había decidido congelar por un año los salarios de la Presidenta Michelle Bachelet, sus ministros del gabinete, y otros altos funcionarios del gobierno, como parte de sus esfuerzos para promover la austeridad en medio de la desaceleración económica del país.

El ministro de finanzas, Rodrigo Valdés, dijo que el acuerdo sin precedentes significa que esta es la primera vez que altos funcionarios del gobierno chileno, incluyendo legisladores nacionales, no verán un incremento en sus salarios junto con los de otros trabajadores del sector público comenzando el 1 de diciembre.

De acuerdo con Valdés, los ahorros excepcionales producidos por esta medida serán utilizados para pagar los esfuerzos de alivio de emergencia en las áreas centrales del país afectadas por el gran terremoto del 16 de septiembre.

At the macro-economic level the Venezuelan economy has since 2013 suffered a series of major and closely inter-related problems. An understanding of how they have developed and how they might be solved is important for any forward-looking recovery plan. We have identified six interlocking problems that will need to be addressed. They are hyperinflation, foreign debt, the collapse of the productive sector, poverty, emigration, and the Covid-19 pandemic. Brief comments on each are made in the following section of this report. A general comment covering all of them, and in fact applicable to almost all of this report, is that Venezuelan economic data is unreliable and published only intermittingly. In many cases data series only cover developments up to 3-4 years ago.

Hyperinflation

Broadly speaking hyperinflation occurs when prices for goods and services rise at over 50% per month. Since 2013 Venezuela has had one of the world’s highest inflation rates. The government seldom publishes inflation data, although the opposition-led legislature (Asamblea Nacional – AN) compiles its own index. In its World Economic Outlook report for April 2020 the International Monetary Fund (IMF) published estimates of inflation running up to 2019, as well as forecasts for 2020 and 2021. These show that end of period (eop) consumer prices rose by 56.1% in 2013 increasing further to 274.3% in 2016 and to 862.6% in 2017. In 2018 true hyperinflation began, with prices rising by 130,060% in that year. In 2019 the IMF measured a reduction to 9,585%, but it was still predicting an incredible 15 million % inflation rate for both 2020 and 2021.

The explanation for Venezuelan hyperinflation is relatively simple. The Venezuelan government consistently spends much more money than it is able to raise from exports or through taxes, and it therefore runs a massive fiscal deficit. Estimates for the size of that deficit run up to nearly 30% of GDP in both 2018 and 2019. The government has also manipulated multi-tier exchange rates to ration scarce foreign currency, which has inevitably caused distortions and created a black market. In essence, the Central Bank has simply printed money to try and cover domestic and currency deficits, thereby fuelling an intense cycle of price rises and relentless currency depreciation. When inflation is so high there are leads and lags in the rates of price increase experienced for different goods and services. This, coupled with rationing, encourages short term speculation, known in Venezuela as bachaqueo. It is reputed to be practiced by a large proportion of the population as an economic survival technique.

In reality both government and opposition know that hyperinflation has destroyed the national currency, the Bolívar Soberano. The government has experimented inconclusively with a crypto currency, the Petro, but in 2018-2020 it implicitly accepted a growing dollarisation of the economy. Many opposition recovery plans are also based on the idea of dollarisation or the creation of some kind of strong new currency. 

Foreign debt

In simple terms there are two overriding problems connected with Venezuela’s foreign debt. First, it is not clear how much the country actually owes, since the government has been opaque about its borrowing and used funding from a number of sources (including China) without revealing the exact amount involved, the repayment terms, or the interest rates agreed. Second, the country’s capacity to service its foreign debt is also unclear, given the rapid contraction in the economy and uncertainty over future foreign currency revenues from oil exports. Venezuela obviously struggles to service its debt and is considered by western ratings agencies to have fallen into technical default on a number of loans.

According to investment bank Torino Capital, at the end of 2019 Venezuela’s debt was in excess of US$135bn. Of that total some US$13bn was owed to China, with US$3bn owed to Russia. In addition, foreign investors held around US$24bn of sovereign bonds and a further US$28bn of state oil company (PDVSA) corporate bonds. Moises Rendón and Gerver Torres, Venezuela experts at the US-based think tank Centre for Strategic & International Studies (CSIS), have estimated that Venezuela’s current foreign debt is higher, in the range of US$170bn-US$200bn, distributed among sovereign bond holders, bilateral lenders, and other creditors. They say that if the real size of domestic GDP, bearing in mind recent years of drastic shrinkage, is around US$60bn, this would suggest that the true debt-to-GDP ratio is around 300%, way above the most heavily indebted Latin American borrowers (most of which have debt ratios of under 100%). Looking further afield Japan is notorious for its heavy debt burden, which stood at 200.6% in 2019, but that is still significantly below that of Venezuela.

In theory foreign loans and other capital inflows invested in a developing economy are designed to increase its productive capacity and, over the long term, generate new hard currency revenue streams which are sufficient to repay the capital and interest on the debt as well as leaving a surplus for reinvestment. However, Torres makes the point that most of the money that flowed in promptly “disappeared” through corruption and mismanagement, meaning the country’s capacity to repay remains extremely weak. The legal situation is also complicated because some as-yet unpaid creditors have initiated legal action to seize Venezuelan overseas assets (such as US-based PDVSA refining subsidiary CITGO) to offset their losses.

Poverty

As has been mentioned previously, in the early years of chavismo windfall export revenues received at times of high international oil prices were used to redistribute income and boost the government’s popularity among the poor. When the PSUV first took office, the population living under the poverty line stood at 43%. Despite a setback during 2003 and 2004 the government was able to reduce poverty down to a point where it affected something like 26%-29% of the total population in a six-year period from 2007-2013. This was a comparative high point in its performance. However, here too 2014/2015 stands out as a negative turning point in Venezuela’s fortunes. According to household survey census data the proportion of the population living in poverty in those years began to surge upwards reaching 87% by 2017. Everything suggests that poverty will have increased further in 2018-2020.

Population under Poverty Line

Source: CSIS

Other data confirms the dramatic drop in Venezuela’s standard of living. Given the dramatic depreciation of the Bolívar Soberano, Venezuela’s monthly minimum salary now stands at around US$6, compared to US$407 in Chile, US$294 in Brazil, US$60 in Haiti, and US$9 in Cuba.

The productive sector

Reporting on Venezuela often overlooks, or otherwise takes as understood, the sharp contraction of the country’s non-oil sector. In the 1990s Venezuela had well-developed mining (including bauxite/aluminium, iron ore, and cement), manufacturing (including auto-assembly and equipment plants), agriculture and food processing, construction, real estate, and tourism sectors. While not self-sufficient in agriculture, food exports included rice, maize, fish, tropical fruit, coffee, pork, and beef. In the 1990s Venezuela produced around 70% of the food it consumed, relying on imports for the remaining 30%. That ratio has now almost completely flipped around, so only 30% of food is produced locally and 70% is imported.

This non-oil sector has suffered accelerated deterioration for a number of reasons. One is that the business environment has been lethal. Private sector companies have been squeezed by an uncompetitive currency, sharp drops in demand caused by volatility in the oil sector, and, for much of the last 20 years, price controls that have made it difficult, if not impossible, to operate profitably.

The government responded to economic difficulties by blaming the private sector on ideological grounds, often expropriating privately owned companies in leading economic sectors. Among companies expropriated or nationalised were ConocoPhillips and Exxon Mobil (oil), Sidor/Ternium (Venezuela’s largest steel producer), Cargill (food processing), Fertinitro (fertilisers), Vestey Foods (meat packing), Banco de Venezuela/Banco Federal (finance), Gold Reserve (gold mining), CANTV (telecoms), AES Corp (power), and Los Roques (a tourism resort). In most cases nationalisation led to falling production due to corruption, a failure to invest, and the introduction of politically appointed managers completely lacking in appropriate industry experience. One sign of the destruction of the private sector is that the number of industrial companies has fallen by two-thirds in 1999-2017.

Industrial Companies in Venezuela

In theory at least there is a simple solution. The last decades have seen the growth of green parties and environmental movements across Europe and the Americas. If saving the Amazon is acknowledged as one of the world’s top challenges, then why not look to a green party or coalition to win power in democratic elections, achieve a mandate for radical change, and begin rapidly implementing environmentally responsible policies? Answering that question will require a small detour to look at the history of the green movement.

Green parties emerged mainly in Europe in the early 1970s, initially as single-issue organisations focused on the environment. They have since moved from the political fringes into the mainstream. This was evident when the Green Party won parliamentary representation in Germany the 1980s. In the late 1990s they became junior partners in the ‘red-green’ ruling coalition with the Social Democrats (SPD). Their leader at the time, Joschka Fischer, played a key role in phasing out nuclear power and opposing the US-led invasion of Iraq. The party became divided, however, between the ‘fundis’ (radicals) and the ‘realos’ (moderates). Traditionally green parties were pacifist in outlook and opposed to nuclear power as well as critical of the militarism represented by the defence industry. However, as current members of the German government, and in response to the Russian invasion of Ukraine, the Greens have supported increasing German military spending and sending heavy weaponry (including Leopard tanks) to assist the Ukrainian armed forces.

It is estimated that globally there are around 80 functioning green parties. Most of them say they seek ecological sustainability, grassroots democracy, social justice, and non-violence. They are seen as organisations of the left (although some conservative parties have developed their own pro-environmental policies).  Amid economic uncertainty following the 2008 financial crisis there has been a rise in authoritarian populism in the US and parts of Europe. In that context the greens have profited from dissatisfaction with traditional parties. To attract more voters they have in some cases moved towards the political centre and even towards the right. In a surprising move the Austrian greens formed a coalition with the right-wing Peoples’ Party combining anti-immigration and tax cutting policies with the pursuit of ambitious environmental protection targets.

In policy terms the greens have a long-standing opposition to nuclear power, but this is beginning to be questioned. The Green Party in Finland has been reconsidering its policy on nuclear power, given the urgent need to reduce carbon emissions. On the economy, some parties support ‘green growth’ – which relies on technology to reduce carbon intensity, while other are more radical, calling for degrowth – a sharp reduction in output down to sustainable levels.

Green parties have had a mixed performance in the Americas. In the United States their electoral high point came in the year 2000 when veteran consumer rights activist Ralf Nader, leading the Association of State Green Parties, came third in the presidential elections with 2.7% of the popular vote. Despite this lack of top-level success, green movements have however exerted considerable political influence, helping for example to shape proposals for a Democratic Party Green New Deal – a series of major climate change and clean energy investment initiatives.

In Latin America the pattern has been similar with green parties lacking the necessary strength to win presidential and congressional elections under their own steam, but nevertheless playing an important role as influencers and coalition partners. Green parties have achieved congressional representation in a number of countries. In Mexico, the Partido Verde Ecologista de Mexico (PVEM) is a junior partner in the ruling Movimiento Nacional de Renovación (Morena) government, holding 42 out of 500 seats in the lower house, and six out of 128 in the Senate. However, some critics question whether the PVEM is really a green party at all, accusing it of being no more than opportunistically pro-government. The PVEM has failed to challenge the government’s heavy reliance on fossil fuels, while aligning itself with conservative social policies such as supporting the death penalty and opposing same-sex marriage.

In Brazil the main green party is Rede Sustentabilidade (REDE) which is led by high-profile environmental activist Marina Silva (currently minister for the environment as part of the ruling coalition led by President Luiz Inácio Lula da Silva). However, rather like Mexico there is also a conservative green presence in the country though the Partido Ecológico Nacional, recently renamed as ‘Patriota’ which is in fact a far-right religious party that has supported privatisations and pro-market economic policies. Colombia also has a long history of green political parties, which have gained seats in Congress. Mayors of important cities including Bogotá and Medellín have identified with the green cause to varying degrees.

It does, however, appear that prospects of a single green party winning elections, gaining a comfortable majority in congress, and implementing unambiguous policies to save the Amazon in any of the nine Amazon countries are low, certainly for the next 5-10 years. In part, this reflects the global reality of green parties. As we have seen, in Europe and elsewhere the greens have lacked the strength to go it alone and instead have advanced through coalition-building. It was not until 2004 that any national government was led by a green party member (Indulsis Emsis, who became prime minister of Latvia). A future wave of majority green governments looks unlikely, although it cannot be entirely ruled out.

ARGENTINA | Potassium mine to fire again. The governor of the western province of Mendoza, Rodolfo Suárez, announced the conclusion of a public tender process on 4 September to reactivate a potassium mining project, entailing investment of some US$1bn.

The Río Colorado potassium mine is located near the city of Malargüe in southern Mendoza. The project has been suspended since 2013 when the Brazilian mining giant Vale pulled out, deciding that it was not economically viable. But with the surge in the cost of fertilisers in recent months it has become a much more attractive proposition.

Vale spent some US$2.2bn constructing 45% of the mine. Completing construction is expected to take five years. Potassium reserves at the mine are in excess of 300m tonnes (t), with potential annual production of 1.5m t of the mineral per year.

Thirty domestic and international companies participated in the bidding process. Suárez, who said the project would double provincial exports, said the result of the selection process could not be revealed until a contract had been finalised, although it is being reported in the local press that Minera Aguilar, part of the private equity firm Integra Capital, whose president is the Mendoza businessman José Luis Manzano, won the bid.

BRAZIL | Continued decrease in unemployment. Brazil’s national statistics institute (Ibge) released latest employment data on 31 August, showing a jobless rate of 7.9% for the May-July quarter. This marks a decrease from to the 8.5% unemployment registered in February-April 2023 and from the 9.1% registered in May-July 2022.

The unemployed population stood at 8.5m people, a 6.3% decrease compared with the previous quarter and a 3.8% decrease compared with the same period in 2022. The number of people with jobs came to 99.3m, up 1.3% from February-April.

The sectors which saw the most significant quarterly increases in employment were public administration, education, health, and social services (+593,000 new hires) and information, communication & professional services (+296,000).  

*** A WORD OF CAUTION TO ST KITTS & NEVIS. At the 23-24 October International Monetary Fund (IMF) forum in Jamaica on Unlocking Economic Growth (see pages 5-6), the IMF identified St Kitts & Nevis as an ‘outlier’ among the slow growing Eastern Caribbean Currency Union (ECCU) countries. St Kitts & Nevis is projected to grow by 3.5% in 2014.

One of the reasons for the robust growth in St Kitts has been the success of its Citizen-by-Invitation (CBI) programme, which has generated significant income for the country. However, speaking about the success of the CBI programme at the growth forum, Alejandro Werner, the IMF’s director for the Western Hemisphere, warned: “Prudent management is key to containing the risks associated with these programmes as large and volatile CBI inflows may increase macro vulnerability”. He warned in particular against “reduced fiscal discipline”.

The IMF’s pleasure with St Kitts is understandable. In the three years between July 2011 and July 2014, it has converted a fiscal deficit of 7.6% of GDP into a surplus of 12.3%, and it has reduced its debt-to-GDP ratio from 159.3% to 103%. This was achieved in part by the CBI programme, in part by imposing a three-year hiring and wage freeze, and in part through a debt-for-land swap. Further use of the debt-for-land swap mechanism is expected to reduce the debt-to-GDP ratio to 86.2% by end-2014.

*** CRICKET WOES. Cricket is one of the great unifying forces in the Caribbean, so there is more than just sport at stake in the latest debacle for West Indian cricket. From the mid-1970s until the early 1990s, West Indian cricket reigned supreme. In recent years, West Indian cricket has been a poor shadow of its former self – but in the past month it has reached a point so low that no-one could have predicted it.

On 17 October, the West Indian cricket team abandoned a tour of India because of a pay dispute between the cricketers and the West Indian cricket board. As a consequence, five matches were left unplayed: a one-day international, a 20-20 international, and three five-day Test Matches. The Board of Control for Cricket in India (BCCI) has said that it might sue the West Indies for lost TV revenues amounting to US$65m. It has also suspended all bilateral tours to the West Indies. Before this debacle, India was scheduled to play five series against the West Indies during the next eight years, including four tours to the West Indies.

West Indian cricketing legend Sir Andy Roberts believes that the key move for the West Indies to make now, even before conducting its own full post-mortem, is to send a high-level delegation to India to mend fences. Highlighting how important this matter is for the region, Roberts said: “We should [send]…maybe one or two prime ministers because I think we may need governmental intervention.”

The abandonment of the tour of India by the West Indian cricketers is set to dominate the meeting of the International Cricket Council on 10 November. The West Indies’ planned December-January tour of South Africa and its participation in the World Cup next February will be high on the agenda.

• Trinidad turns to China for military aid

On 13 October, Trinidad & Tobago signed an agreement with China for TT$30m (US$4.7m) in military aid. This was the eighth agreement for military aid from China since 2000. Ahead of the signing of the latest agreement, Gary Griffith, the minister for national security, held discussions with China’s deputy chief of staff General Wang Guanzhong covering the reciprocal exchange of military personnel, training of Trinidadian officers in Beijing, and training for disaster preparedness.