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The latest International Monetary Fund (IM) report card on Belize, released on 28 March following the completion of an Article IV Consultation in mid-September, confirms that GDP growth rebounded to 3.6% in 2014 from 1.5% in 2013. This was well above the five-year average of 2.9% growth and was attributed to a strong performance in tourism, electricity, construction, and services as well as a rebound in agriculture, and growth is forecast to average 2.5% over the short-to-medium term. Growth for 2015, however, is estimated to have been 2.2%.

Another less encouraging figure was the current account deficit of 7.6% of GDP, largely financed by the PetroCaribe arrangement with Venezuela. The fiscal deficit in FY2014/15 (April-March) was also disappointing, at 1.5% of GDP, a deterioration from the 0.2% deficit recorded in FY 2013/14. Overall public debt is 76% of GDP.

The main concern expressed by the IMF is that the primary fiscal balance “will remain in deficit for a while as the political climate further exacerbates spending pressures and hinders revenue-enhancing reforms”. With this in mind, the IMF is urging “prompt and credible fiscal efforts” to boost investor confidence and private investment. As part of this effort, it is calling for the removal of exemptions and zero-ratings from Goods and Services Tax (GST).

But too many tax exemptions is just one side of the fiscal deficit coin. The IMF has also been critical of the government’s profligate spending and its budgetary procedures. In its latest report, the IMF notes that spending had continued to grow “well above budget targets” due to increases in wages, pensions, teachers’ salaries, and capital expenditure. It added: “A significant portion of this additional spending, equivalent to 2.6% of GDP, was executed outside the normal budget process, and approved by parliament in a revised budget only after its execution.”

In urging fiscal reforms, the IMF made the point that there should be no political impediments to taking strong action. The ruling United Democratic Party (UDP), led by Prime Minister Dean Barrow, decisively beat the main opposition People’s United Party (PUP) in the March 2015 municipal elections, taking 62 out of 67 seats and leaving just five to the PU, and it then followed this up with a snap general election in November 2015 to give Barrow an unprecedented third term in power. However, the centre-right UDP has in the past made political capital out of the way in which it has resisted IMF urgings. The UDP government presided over two sovereign debt restructurings (in 2006-7 and in 2012-13) without recourse to the IMF, and when, in mid-2014, the IMF urged Belize to carry out substantial reforms, Barrow responded by saying: “I wouldn’t put too much store by what the IMF says…I am in no program with them, have no need to get into any program with them, and we therefore in this government and in this country are our own masters.”

The IMF is convinced that Barrow’s confidence is misplaced. On its calculations, even if the government moves towards a primary fiscal balance of 4%-5% of GDP (which the Fund is recommending), public debt would still reach around 85% of GDP by 2020, which is well above the recommended level of 70% and puts in severe doubt the government’s own target level for debt of 60% of GDP by 2030. At the very least, the IMF is urging the government to target a primary fiscal surplus of 2% of GDP, which was the level promised to investors during the 2013 debt restructuring.

The competition to secure nominations for the Montevideo mayoral candidacy ahead of Uruguay’s municipal elections on 10 May is producing significant divisions among the country’s main political parties. The capital is the biggest prize up for grabs in the polls and mayoral hopefuls are never in short supply. But the historic defeat suffered by the incumbent Frente Amplio (FA) leftist coalition in last year’s presidential election has led the opposition to believe that it is in a good position to snatch control of Montevideo from the FA for the first time since 1990. This prospect has increased internal pressures to find the best possible candidate, producing divisions among party factions that have threatened to splinter both the FA and the opposition.

The tensions over the Montevideo candidacies emerged when former mayor Daniel Martínez (2015-2019) announced on 21 January his intention to seek the FA nomination once again. Martínez stepped down as mayor in April last year to become the FA’s candidate in the presidential election. Although a popular mayor, Martínez’s announcement fuelled discontent within the FA amid concerns that he could lead the coalition to defeat again. This became evident when the leadership of the Partido Socialista (PS), to which Martínez is affiliated, refused to endorse his candidacy.

The PS had already voted in favour of supporting the mayoral bid of Carolina Cosse, a former industry minister (2015-2019), who competed against Martínez for the FA presidential nomination last year. But believing that Cosse is a weak candidate, and that his party would row behind his bid, Martínez announced his candidacy and called on the PS leadership to back it. Martínez allies threatened to quit the party en masse if it did not back his candidacy; detractors threatened to expel him from the party for ignoring its decision to back Cosse. 

However, after holding an emergency meeting on 21 January, the PS central committee announced that it would continue to back Cosse’s bid, arguing that it could not go back on a previously taken decision. And, in a bid to maintain party unity, it also ruled out Martínez’s expulsion. The central committee’s announcement did not spark mass resignations, but the tensions remain, with Martínez now seeking to secure the support of other FA member parties ahead of the party primaries due later this month.

The divisions in the FA should bolster the chances of the opposition. However, while the so-called ‘multicolour coalition’ of centrist and right-wing parties that supported the bid of President-elect Luis Alberto Lacalle Pou has been discussing fielding a consensus candidate for Montevideo, no candidate has yet been identified. According to Lacalle Pou’s designated housing minister, Irene Moreira, this is the result of political “frictions” between the right-wing Cabildo Abierto and the centre-left Partido Independiente that must first be resolved.

Opportunity

Commenting on the chances that the opposition has of capturing Montevideo in May’s elections, the secretary general of the Partido Colorado in Montevideo department and deputy-elect Felipe Schipani said that the opposition should take full advantage of the opportunity provided by the current “political circumstances”. Schipani explained that, following the Frente Amplio’s defeat in the presidential election, it was clear that the electorate is ready for change and that “we need to offer them that change…and that is why it is a priority to present a single candidate that represents the entire multicolour coalition”. 

BOLIVIA | ‘World class’ silver deposit discovered. On 19 January Bolivia’s mining minister, Ramiro Villaviciencio, described a silver deposit discovered in Potosí department by Canada’s New Pacific Metals Corp as “world class” and said that the government will launch efforts to estimate the total value of the reserves. The CEO of New Pacific Metals, Rui Feng, had said on 18 January that the Silver Sand deposit “can be developed into one of the world’s largest silver mines with a long mine life and high profit margins”. The results of a preliminary evaluation of the deposit were shared on New Pacific Metals’ website on 9 January, with the company predicting a “14-year mine life producing approximately 171m ounces total payable silver metal”. It predicted that “annual payable metal production exceeds 15m ounces of silver in years one through four, with LOM [life-of-mine] average annual payable metal production exceeding 12m ounces of silver”.

PERU | Central bank pauses interest rate hikes. Peru’s central bank (BCRP) has maintained interest rates at 7.75%, marking the first pause in over a year of consecutive monthly rate hikes. In a 9 February statement explaining its decision, the BCRP emphasised that “this pause does not necessarily imply the end of the cycle of interest rate rises”. However, it noted that annual inflation, which stood at 8.66% in January, is predicted to fall from March and return to the target range of 1%-3% in the final quarter of this year.

ECUADOR | Tax reform starts paying off. The director of Ecuador’s tax authority (SRI), Francisco Briones Rugel, announced on 18 January that the government’s tax take increased by 22.8% in 2022 compared with the previous year, totalling US$17.16bn. Briones attributed 16.3% of this increase to the economic reactivation following the waning of the coronavirus (Covid-19) pandemic, and 6.5% to the tax reform which President Guillermo Lasso signed into law in November 2021, which predominantly raised taxes on higher earners.

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Following US President Barack Obama’s historic announcement that the US and Cuba will finally restore full diplomatic relations on 20 July, the US Secretary of State, John Kerry, was due to go toHavana for an official flag-raising ceremony to celebrate the promotion of the US interests section to full embassy status.

It now seems that Kerry’s trip may be delayed, in part owing to his busy schedule, but also due to some final ‘ironing out’ of details in the talks with the Cuban government about operating conditions for the new embassy. It also appears that President Obama will not, for now, move to appoint a new ambassador, in order to avoid a row with the Republican-controlled US Senate, where leading senators have vowed to block any nominee for the Cuban post.

As per a new State Department fact sheet on the re-establishment of diplomatic relations with Cuba, released on 6 July, the current Chief of Mission, Jeffrey DeLaurentis, “will be the senior-most official in the new embassy and will serve as Charge d’Affaires ad interim.” This appears to confirm that President Obama will not appoint am ambassador immediately. Obama potentially could, however, make the appointment during the senate recess in August, which then would have to be approved by the senate by the end of the following session, i.e. by year-end.

The fact sheet said that the embassy “will operate like other embassies in restrictive societies around the world, and will operate in sync with our values and the President’s policy. Diplomats will be able to meet and exchange opinions with both government and nongovernment entities”. Notably, it did not clarify whether US diplomats would be able to travel freely around the island, which had been a key sticking point in the negotiations. DeLaurentis, however, now on his third stint in Cuba (he was as a consular officer in Cuba in 1991-1993, during the ‘Special Period’ after the Soviet Union’s collapse, and was head of the Interests Section's economic and political section in 1999-2002), reportedly prefers to be out from behind his desk and is regularly spotted out and about in Havana, apparently without restrictions.

• No change in migration policy

The new State Department Fact Sheet also said that no change in current US migration policy is envisaged. According to US Customs and Border Protection, 9,371 Cubans arrived in the US, mostly on the border with Mexico and in Miami, Florida, in the first quarter of 2015, a year on year increase of 118%. The surge is due to concerns in Cuba that the special US entry provisions for Cuban migrants might be removed with the restoration of relations.

The Cuban Adjustment Act of 1996 (CAA) gives the US attorney general the discretion to offer any Cuban citizen permanent residence in the US after spending one year in the country, with no yearly quota on immigrants. Under a 1995 revision of the CCA agreed with the Cuban government in the wake of the Balseros crisis, the US agreed to stop admitting Cubans detained at sea. Under the so-called ‘wet foot, dry foot’ policy, Cubans picked up by US authorities at sea are repatriated to Cuba or a third country, while those making it onto dry US land are given leave to remain. Cuba has long decried the CCA as encouraging illegal (and life-endangering) migration and since Cuba in January 2014 significantly relaxed its migration policy, there have been fresh calls for its removal. However the State Department said that the Obama administration “has no plans to alter current migration policy, including the Cuban Adjustment Act. The United States continues to support safe, legal and orderly migration from Cuba to the United States and the full implementation of the existing migration accords with Cuba”. End box

• Finally the US State Department fact sheet noted that “the embargo on Cuba is still in place and legislative action is required to lift it. Additionally, rules for travel to Cuba by U.S. citizens remain in effect. The U.S. Department of the Treasury’s Office of Foreign Assets Control will continue to administer the regulations that provide general licenses for the 12 categories of authorized travel to Cuba.” The US company Carnival Corp may become the first US cruise operator to serve Cuba in 50 years after the US Treasury and Commerce departments approved its request for a licence. Carnival is still awaiting a permit from the Cuban government but hopes to begin offering a service in May 2016 under its new ‘Fathom’ tour brand, aimed at socially-conscious tourists.

PERU | Export surge to be held up by rains. Peru’s exports increased by 38.6% to reach US$6.66bn during the first two months of 2017 compared to the same period last year, the country’s foreign trade & tourism minister, Eduardo Ferreyros, reported on 4 April. The result was driven by a 56.7% increase in traditional exports, whereas non-traditional exports increased by 4.9%. The sectors that registered the most significant increase were the oil and gas sector, which saw exports jump by 140.4%, and the fishing sector, which saw exports increase by 134.3%. Meanwhile exports from other key sectors such as mining (44.2%) and agriculture (34.8%) also registered significant increases.

The growth in exports observed at the start of the year suggests that the severe disruption produced in northern and central coastal areas of Peru by the recent heavy rains and mudslides will damage the performance of Peru’s domestic economy this year. The natural disaster has not only produced significant material damage but has effectively cut all transport links to some areas of the country, which will have a negative impact on production levels and lead to lower exports.

President Pedro Pablo Kuczynski recently said that he expects GDP to grow by 3%-3.5% this year in the wake of the natural disaster, below the previous government forecast of around 4.5%. Nevertheless, the Kuczynski government has put on a brave face announcing the launch of a major reconstruction programme that would not only generate hundreds of jobs but also help to improve the country’s infrastructure.

Labour Minister Alfonso Grados has said that PEN65m (US$20m) has been allocated to 335 reconstruction projects so far, which are due to begin this month. The government will launch a programme on 10 April entitled ‘Trabaja Perú en Emergencia’ to help create more than 20,000 temporary jobs in the worst-affected areas.

Meanwhile, Agriculture Minister José Manuel Hernández said that the government would launch a crop re-planting programme in some of the 8,000-10,000 hectares of affected agricultural lands to assist local producers.

• Bolivia 2016 growth

On 29 March Bolivia’s national statistics institute (INE) reported that GDP growth reached 4.36% up to September 2016. The figure is lower than the year-end 2015 growth figure of 4.86% and it is not clear if 2016 year-end growth will reach 4.5% in which case, under local law, workers will be entitled to a double Christmas bonus. According to the INE report GDP growth up to September 2016 was broad-based with all economic sectors posting positive figures, except the key oil and gas sector, in which activity contracted by 3.71%. This marked the third consecutive quarter of negative growth for Bolivia’s oil and gas sector, which is the main source of government revenue.

MEXICO | Banxico lowers GDP growth forecast. On 1 June, Mexico’s central bank (Banxico) reduced Mexico’s GDP growth forecast for 2022 to 2.2%, down from a previous forecast of 2.4%. Banxico also revised up its forecast for annual inflation, stating inflation will stand at 6.7% at the end of the year, up from a previous forecast of 4%. This came as experts from the private sector surveyed by Banxico revised up Mexico’s GDP growth forecast to 1.76% up from 1.78%, and increased their inflation forecast to 6.88%, up from 6.67%.

MEXICO | US request for labour rights review accepted. On 30 May, Mexico’s economy ministry (SE) accepted a request from the office of the US Trade Representative to review whether workers at a Panasonic auto parts plant in Reynosa city, Tamaulipas state, were being denied the rights of free association and collective bargaining. This is the third time that the US has requested that Mexico review issues related to freedom of association and collective bargaining rights under the US-Mexico-Canada Agreement (USMCA)’s Rapid Response Labour Mechanism (RRLM). The other requests were made on behalf of workers at a plant operated by US automobile manufacturer General Motors (GM) in Silao municipality, Guanajuato state, and a Tridonex automotive parts factory in Matamoros city, Tamaulipas.

MEXICO | Inflation dips but remains high. On 24 May, Mexico’s national statistics institute (Inegi) released its latest figures on the national consumer price index (INPC) which showed that inflation in the first two weeks of May decreased 0.06% as compared to the previous two weeks. This brings annual inflation to 7.58%, a decrease on the 7.68% recorded at the end of April. Jonathan Heath, the deputy governor of Mexico’s central bank (Banxico), noted that the figures represented two consecutive fortnights of decline, but he warned that “headline inflation remains very high”.

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First mining, now hydroelectric projects? Less than a year since indigenous-led popular pressure forced President Ricardo Martinelli to repeal a reform to the 1963 mining law, which would have opened the sector up to foreign government investment [RC-11-03], his decision to revisit the issue is threatening a new political defeat for his pro-business  government. The submission of a Martinelli-backed bill to congress, which apparently ignored the reversal, once again brought indigenous groups (whose territory contains valuable natural resources) back onto the streets. It not only forced fresh reassurances from Martinelli regarding mining but, with his popularity again in free-fall, yielded new government concessions vis-à-vis another key indigenous demand, the suspension of hydroelectric projects.

In late January protesters from the Ngäbe Buglé comarca (an indigenous political administrative region) began blockading roads after the legislature began debating a bill (415), which omitted an article (5) addressing the protection of minerals, water and other natural resources in the comarca. Article 5 had been agreed as part of a 27 February 2011 deal between the government and indigenous groups, ending unrest triggered by the proposed change to the mining code – the repeal of which signified one of Martinelli’s two major policy reversals since taking office in July 2009 after his failed attempt at weakening labour and environmental legislation (the so-called ‘Ley Chorizo’) in July 2010. Indigenous concerns are based on the fact that Cerro Colorado, believed to hold the biggest copper reserves (25bn pounds, worth US$75bn) in the country, lies within the comarca, which spans some 8% of national territory.

Protests rapidly spread around the country, once again illustrating traditional popular opposition to efforts to develop the mining sector (raising questions as to Martinelli’s decision to back-track). After clashes between indigenous groups and police turned violent, with at least two protesters killed, attracting concern from international institutions such as the UN, the two sides struck a deal on 7 February. Among other provisions, the eight-point accord called for bill 415 to be resubmitted to congress in exchange for the protests being called off.  

While Martinelli reiterated his commitment not to touch the country’s mining legislation, his refusal to address the other main indigenous complaint – the construction of hydroelectric power stations in the comarca – on the grounds that it was not part of the original February 2011 deal, led the same groups to resume protests. This, together with Martinelli’s plummeting popularity (see sidebar), forced the government back to the negotiating table. With the final agreement is yet to be signed, preliminary talks have already yielded the pledge that the development of hydropower in the Ngäbe Buglé territory is to be ultimately determined by those living in the comarca via referenda; the parties have also agreed on the suspension  of construction work on the Barro Blanco dam on the Tabasará river, in the Chiriquí province (one of the three provinces comprising the Ngäbe Buglé comarca, along with Veraguas and the Bocas del Toro) until a technical analysis has been carried out. The construction of the dam, which began in 2011 and is expected to generate 28.8MW, was a core complaint of the Ngäbe Buglé protesters, who say that they were not consulted properly and that the dam would displace thousands of local inhabitants.

With hydroelectric energy accounting for 47% of Panama’s total 1974MW installed capacity and 58% of the total 7248.5GWh in net generation in 2010, the country’s hydroelectricity capacity nearly doubled between 1990 (when it was 550.8MW) and 2010. This “boom” took off under the previous Martín Torrijos administration (2004-2009), after he eased the procedures for granting concessions. According to the national public services authority (ANSP), of the 37 authorised concessions currently under design or construction, all but two are in Chiriquí (26), Veraguas (7) and the Bocas del Toro (2) while all of the further 44 concessions being processed are in the same three provinces (30 in Chiriquí, 13 in Veraguas and one in  Bocas del Toro).

• Popularity at all-time low

According to the latest poll by Dichter & Neira, published last month, President Ricardo Martinelli’s approval rating is at 33.3%, his lowest since taking office in July 2009 and a drop of 40 percentage points over the past year. Of the 1,200 people interviewed by the survey, 80.3% disapproved of the government’s handling of the recent dispute over the mining law, while 71.8% considered that there had been an “unjustified use of force” to dispel protesters. Worryingly for Martinelli, the (now opposition) Partido Panameñista (PP) of Vice-President Juan Carlos Varela tops the list of voter preferences with 17.3%, followed by the Partido Revolucionario Democrático (12%); Martinelli’s Cambio Democrático is trailing on 3.1%.

President José Mujica might have expected some ill-feeling but he clearly was not prepared for the outpouring of indignation from the moderate wing of the ruling left-wing coalition Frente Amplio (FA) that greeted his decision to change his cabinet this month. There was nothing moderate about the reaction of the Frente Líber Seregni (FLS) faction of the FA when Mujica dismissed his tourism and sports minister, Héctor Lescano, a close ally of Vice-President Danilo Astori, who leads the FLS. Its main concern was loss of influence in government but it forcefully argued that firing the most successful minister in the cabinet was a serious error of judgement by Mujica, especially when tourism is such an important industry in Uruguay, a Mecca for Argentines in the summer.

Mujica explained his decision to replace Lescano on the grounds that it was sensible to make alterations during good times rather than a crisis. He added that he had to bear in mind that he belonged to a political project which would extend beyond his term in office.

Deputies from the parties within Astori’s FLS responded that Mujica’s explanation defied logic. They said tourism had been positively booming in the seven years Lescano had been in the position (he also served under the previous administration of Tabaré Vázquez). They pointed to opinion polls showing that Lescano had the best image of any government minister and pointed out that during his seven years in the ministry tourism revenue had increased by US$600m. They also argued that Mujica had not even made a fundamental change as he had simply replaced Lescano with his deputy Liliam Kechichian and kept the whole team in place.

Deputies within the FLS also questioned why Mujica would replace a man who had even received praise from the opposition for his achievements rather than several ministers who have come under fire from all fronts (including from within the FA) for their poor performance and who have been rejected by the public.

The interior minister, Eduardo Bonomi, fits into this category: more than 1,000 people demonstrated in front of the government building in Montevideo on 14 May to protest against public insecurity and to demand Bonomi’s resignation. They also demanded concrete measures by the government to tackle violent crime, which is the number one public priority in opinion polls. The protest was organised on social networks after a public outcry over video footage showing a bartender being shot dead in cold blood and robbed after having offered no resistance.

Bonomi was also hauled before the lower chamber of congress on 5 June about prison riots in April, once again showcasing the overcrowding and poor conditions in the Uruguayan prison system, which has been the subject of serious criticism from the UN in the recent past. Compounding Bonomi’s problems was the release of homicide figures which showed a massive 75% in killings in the first five months of 2012 compared with the same period last year: 133 murders in total.

The opposition Partido Nacional (PN, Blancos) was unimpressed with Bonomi’s appearance (he spoke for five hours uninterrupted) and submitted a motion of censure against the minister. The motion was defeated by 52 votes to 46 in the plenary, after the FA got the support of independent representatives against the PN and the other main traditional Partido Colorado (PC). Nonetheless it will serve the opposition’s purpose of keeping insecurity very much in the public eye.

The debate ahead of the vote lasted nine hours, belying the heated sentiment on all sides. In an unprecedented move, the secretary of communication at the presidency announced in the midst of the congressional debate that President José Mujica and the council of ministers had suspended their meeting to express their “total support for Minister Bonomi”. Deputy Javier García (PN) said during the debate that “the only thing that keeps Minister Bonomi in his post is the internal [divisions] in the Frente Amplio and his friendship with President Mujica. If he hasn't left already it is because he doesn't have a pinch of political dignity. He doesn't have the stature to be minister.”

The politics of cabinet reshuffles

Any cabinet change in Uruguay causes at best serious introspection in the FA and at worst serious divisions, as it is very difficult to strike a balance between the 30 constituent parties in the FA, each clamouring for more influence and suspicious that it is being overlooked.

Astori’s allies argued that Mujica was intent on increasing the presence of his party, the Movimiento de Liberación Nacional-Tupamaros (MLN-T), and more radical factions, such as the Partido Comunista, at the expense of the Frente Líber Seregni. Mujica denied that this was the case. He devoted most of his weekly radio broadcast shortly after the change to justifying why he felt the need to reshuffle the cabinet.

He said the change (and future planned changes) was essential to combating bureaucracy, “the most dangerous nightmare” of any political process. He said it was only necessary to see the way big companies changed their CEOs periodically to realise the importance of freshening things up. He said there was “no vaccine or antidote” to “an illness which is much more genetic than it seems”. He also recollected a visit he had made to the former Soviet Union where he said bureaucracy had penetrated practically everything. “If political sectors start to think their members are untouchable, it is serious,” he said.

Mujica’s announcement that there would be further cabinet changes in the coming months prompted extensive media speculation. The housing and environment minister, Graciela Muslera, resigned on 5 June. She did so, according to a statement released by the Uruguayan presidency, after she held a meeting with Mujica. This suggests she was given little option but to go. Muslera is a member of the Movimiento de Participaciόn Popular (MPP) of which the MLN-T forms a part, so her replacement suggests that Mujica always intended to be even-handed or has responded to criticism from the moderate wing of the FA.

Vázquez

The Frente Amplio held primary elections on 27 May, the first ever held in the coalition, to select a president. The success of Mónica Xavier, a member of the Partido Socialista (PS), enhances the prospects of President Mujica’s predecessor Tabaré Vázquez (who belonged to the PS) to seek a second term in power in 2014.

Conspiring against Vázquez is his controversial comment last October that Uruguay had considered war scenarios with Argentina when the dispute over the construction of a pulp mill on its side of the shared River Uruguay reached fever-pitch in 2007. The subsequent furore prompted Vázquez to announce his political retirement. Since then he has kept a very low profile - in marked contrast to other former heads of state in the region, such as Colombia’s Alvaro Uribe and Brazil’s Lula da Silva – but has recently hinted that he might make a comeback.

Curiously, President Mujica's Movimiento de Participación Popular (MPP), though the most voted group, appears to be losing its leading role within the FA. As of 30 June it will have 26 representatives on the movement’s national plenary, down from 36 previously. A large number of blank votes, both for the various internal groups as well as for specific candidates, characterised the election.

• Navy corruption

President Mujica has pushed the commander of the Navy, Alberto Caramés, into retirement for his alleged links to a corruption scandal uncovered in 2010 that had already accounted for his predecessor. Mujica said that Caramés, 59, had retired voluntarily to allow the government to restore confidence within the Navy. Mujica underlined his “total conviction that the chain (of corruption) would be cut here”. Rear Admiral Ricardo Giambruno replaces Caramés, who is being investigated for two irregular purchases in 2007 while he was head of the directorate of naval materiel (Dimat).

The nature and scope of the next stage of  reform was indicated at the National Assembly in July. The main changes will be an increase in the number and role of non-state enterprises, with an emphasis on the promotion of new types of cooperatives; and the rationalisation of state enterprises, administration and services.

The aim of the reforms is to boost productivity within the domestic economy. If they succeed, an improvement in competitiveness will bring higher levels of productive investment, export earnings and import capacity, improving living standards and increased opportunities for international business. However, the pace of change is very cautious, with policymakers wary of economic, as well as political and social, risks. Below is a summary:

Expansion of legalised non-state economic activity

Some types of non-state enterprise – agricultural cooperatives, small private farms and sole traders – have always been a feature of the Cuban economy, even during its most state-dominated phase (1968-1990), but the rules limiting their scope and autonomy are being relaxed. Most of the new enterprises will be in the agricultural and services sectors.

Agriculture

Since 2010 new farms have been created from the redistribution to individuals of parcels of land formerly held by state farms or large cooperatives. The new owners hold the land in ‘usufruct’ (they own the product of the land, but not the land itself) rather than freehold, but the terms of this form of tenure were extended significantly in July, with an increase in the maximum amount of land that any individual can acquire (to 67 hectares), provision for inheritance of the properties and a two- to four-year tax holiday for new landholders. Existing agricultural cooperatives are been granted greater autonomy, in an attempt to improve incentives and streamline decision-making.

So far, the results have been modest, but as agricultural credits expand, distribution networks develop and supplies gradually improve, the reforms – together with plentiful rainfall this summer, which has replenished reservoirs – are expected to bring further increases in the quantity and diversity of food production in the coming year.

Services

Around 400,000 people now work in the non-agricultural private sector, more than double the number before the opening to new forms of business in October 2010. While most of the growth of self-employment and small services businesses so far has been in catering (food stalls and small restaurants) and transport (taxis), the coming year is likely to see a stronger increase in private construction services, thanks to housing sector reforms that allow home owners to sell on the open market, together with the expansion of credit for home improvements and improved availability of materials and fittings. The December 2011 Decree Law 289 allowed for bank lending for householders and small businesses, with total credits of CUP300m/US11.3m to July 2012, on official figures.

The smallest private businesses will also benefit from the introduction of a more progressive tax system in July, with new thresholds, variable tax rates, reduced employment taxes and exemptions. The National Assembly clearly indicated an intention to increase the role of taxation as a means of regulating economic activity, in place of many of the direct controls of the central planning system.

Non-agricultural cooperatives

Since 2010, private businesses have been allowed to employ non-family members. This has created a new class of private sector employees, which raises ideological concerns—about the possibility of exploitation – for the communist government. The official response has been to conduct studies, including pilot schemes, for the creation of new forms of non-agricultural cooperatives. A CUP100m(US$3.7m) investment funds to support these experiments, and legislation to establish the legal framework for this type of enterprise, is being drafted. It is scheduled for submission to the July 2013 National Assembly. In the meantime, the pilot projects will be monitored closely.

Rationalisation of the public sector

State enterprises - In the debates about economic reform, the possibility of privatisation of large state enterprises has been categorically rejected. However, all state enterprises are undergoing a process of review and retrenchment. Over the next three years, financial discipline will be tightened through a combination of ongoing audits and withdrawal of subsidies from ministries. This will be combined with decentralisation of decision-making, including pricing decisions.

The results of improved auditing are already evident in a string of corruption cases, most recently in the nickel industry. Tighter financial control and restrictions on subsidies have also created difficulties in supply chains, as producers of inputs struggle to purchase supplies due to late payments by their customers. There is a risk that liquidity problems may affect output, unless bank lending can be expanded to compensate viable enterprises during the process of rationalising loss-makers.

Public administration - The system of public administration is being restructured, to decentralise decision-making and increase accountability. During this process, the number of people employed in administrative functions will be reduced, although no targets have been announced. Municipal councils, the lowest level of public administration, will assume greater responsibilities for local services. Despite the cautious approach to reorganisation — with changes being piloted in the provinces of Mayabeque and Artemisa, which surround Havana City — the process is unlikely to avoid some disruption to services, as new structures and procedures are developed.

Public services - For the first time since 1959, the reform programme includes plans for major rationalisation of Cuba’s exceptionally extensive health and education services. Major savings are planned for the next three years and, although there is certainly scope for reducing waste and the theft of supplies, these will inevitably involve a reduction in the number of people employed.

Most of those laid off will be in administrative jobs, while the number of teaching and medical staff relatively unaffected. However, the targeted savings of more than 25% are unlikely to be achieved without having some effect on services. It remains to be seen whether the targets will be amended, or the services cut.

Opportunities for foreign business partners

The aim of the rationalisation of state enterprises is to eventually eliminate subsidies and close down loss-making companies. Where this is achieved, existing legislation would allow the newly-viable businesses to become potential partners for foreign companies able to offer finance, technology or markets. However, the procedures for entering into joint ventures remain convoluted, and require the approval of the ministry of foreign trade and investment. There is a discussion within policy circles about the need to attract more foreign direct investment by improving the business environment. In view of the scarcity and cost of external finance, and the problems Cuban companies have in gaining access to technology (as a result of US sanctions), renewed efforts to attract investors are likely in the medium term.

• UBPC’s to fend for themselves

New regulations will allow Cuba’s Basic Units of Cooperative Production (UNPCs) more autonomy, but the government will withdraw subsidies for loss-making co-ops from 2013. Of the 2,000 existing co-ops (all agricultural), up to 75% may fail, according to agriculture ministry officials cited in the daily Granma. A council of ministers resolution 574 (August 13) gives the UBPC’s “judicial autonomy” and states that they “are not state enterprises”. Henceforth, the UBPCs will also be allowed to “freely” sell crops in excess of their state quota and directly purchase supplies from state retailers/wholesalers. Formed in the 1990’s, the UBPC’s control 28% of agricultural land on the island, of which 23% lies fallow, and had accumulated debts of CUP2.1bn as of 2010, according to Granma.

• Food imports continue to soar

Food imports cost Cuba around US$1.7bn in 2011, 13% of total import spending. A series of reforms in the past two years (including the distribution of idle land, creation of new free market outlets for the sale of produce and improvements in prices paid to farmers by the state food distribution enterprise) have aimed to reduce this dependency, but results have been disappointing. Despite some growth in 2011, total agricultural output, according to national income accounts, remained below the 2007 level. According to official figures, in the first six months of 2012, sugar production rose by around 15% and the index of non-sugar crop production by 8% year on year, possibly indicating the start of a long-awaited recovery.

GUATEMALA/EL SALVADOR | Head of MS-13 captured in Guatemala. On 11 April, Guatemala’s interior ministry announced the arrest of Pedro Benjamín Rivas Celaya (also known as José Isaías Flores de Paz, or ‘El Sniper’), the alleged leader of the Mara Salvatrucha (MS-13) street gang in El Salvador. He was arrested along with six others during an operation carried out by the national police (PNC) and the Transnational Anti-Gang initiative (TAG). A press release by Guatemala’s interior ministry notes that the arrests were made as part of an anti-extortion operation with raids taking place in the capital, Guatemala City, Guatemala department, and the nearby municipalities of San Miguel Petapa and San José Pínula, also in Guatemala department. According to the interior ministry press release, Rivas is part of the MS-13 clique known as ‘La Federación’ and is among the 100 most wanted criminals in El Salvador. Also arrested was Cristian ‘El Baby’ Fuentes Ajosal, a second-in-command of the MS-13 and suspected leader of the M-13 clique ‘Los Mafiosos’. While the TAG initiative dates back to 2007, Rivas’s arrest comes amid other recent signs of closer cooperation between the countries of the so-called ‘Northern Triangle’ (comprising El Salvador, Guatemala and Honduras). This includes a new trinational task force launched in November 2016, as part of the Plan of the Alliance for Prosperity (PAP), launched in 2014 in coordination with the US government, aimed at addressing the root causes of the Central American unaccompanied child migrant crisis.

EL SALVADOR | Arrest of ‘Chepe Diablo’. On 4 April, El Salvador's attorney general’s office (FGR) announced the arrest of José Adán ‘Chepe Diablo’ Salazar, a prominent businessman and alleged leader of the local ‘Texis Cartel’ drug trafficking organisation (DTO), on money laundering charges. Salazar has links to Vice-president Oscar Ortiz, the popular former mayor of the municipality of Santa Tecla (2000-2013) in La Libertad department. One of the businesses under investigation in the money laundering probe is the local real estate company Montecristo SA de CV, which Salazar and Ortiz reportedly founded in 2000.

In April 2014, the US Treasury Department added Salazar to its list of designated ‘drug kingpins’. The Texis Cartel (so called after the organisation’s base in the Texistepeque municipality of Santa Ana department) made headlines in 2011 after a local online investigative publication, El Faro, published a report which revealed that it had completely infiltrated the local area, from big business and the security forces to the judicial and political system. On 4 April, El Faro published a report claiming that Montecristo SA de CV remained active until April 2016. Last year, Attorney General Douglas Meléndez confirmed the reopening of an investigation into Salazar and the Texis Cartel after Meléndez’s predecessor, Luis Martínez, who has since been accused of corruption, shelved the case in 2015.

REGION | Fears about Trump policies persist. One of the final acts of the Obama administration was to sign into law the United States-Caribbean Strategic Engagement Act. The legislation requires the Secretary of State and the Administrator of the US Agency for International Development (USAID) to submit to Congress a multiyear strategy for the region, with particular emphasis on energy security, countering violence, and expanding diplomacy.

At the time of its introduction, one of its sponsors, Republican Representative Ileana Ros-Lehtinen, said a key motive was to counter the “negative influence of [Venezuelan president] Maduro’s corrupt regime in the region”.

Since that high point, the advent of the Trump administration has raised fears that the Caribbean could suffer under a reversal of key policies, particularly on climate change, and through increased numbers of deportations.

Asked about Caribbean-US relations under the new administration, the US’s ambassador to the Caribbean, Linda Taglialatela, emphasised the importance that will continue to be attached to security cooperation, in particular. Speaking in late March, she said: “I think it’s been very clear that Mr Trump and his administration have been highly supportive of security, and because of the security ramifications with the Caribbean and the fact that we consider them our third border, there is always going to be an engagement with the Caribbean.”

The ambassador admitted that “there may be some shifts in some of the programmes that we do here in the Caribbean”, but she added that the United States will continue “to maintain and sustain a relationship with the Caribbean” under the new administration.

TRINIDAD & TOBAGO | Deportations. Trinidad & Tobago’s National Security Minister Edmund Dillon has provided figures for deportees from the United States. There have been 1,793 over the past 10 years, with a high point of 325 in 2008 and a low point of 77 in 2015. In 2016, there were 96 deportations from the US to Trinidad, reversing a constantly declining trend since the peak of 2008.

REGION | Preparing for Exercise Tradewinds 2017. The theme for this year’s Exercise Tradewinds, involving the US and regional military and emergency forces, is “Seamless States Partnership for a Secure Region”. Phase one of the exercise will be based in Barbados from 6-12 June. A second stage will conclude in Trinidad on 17 June.

The focus for this year’s exercise will be transnational organised crime, terrorism, and crises developing out of natural hazards. There will be approximately 2,500 participants, including members of the general public. In addition to the US and regional states, there will be contingents from Canada, France, the UK, and the Netherlands.

The national assembly (AN), controlled by the left-wing ruling Alianza Pais (AP), on 31 August approved the revised general state budget (PGE, in the Spanish acronym) for the remainder of 2017 by 75 votes, ignoring loud criticism by the opposition and private economists.

In an election year, the budget from the previous year is carried over until the newly elected government takes up office (in May), after which the new administration prepares a revised plan to year end. In presenting the half-year budget, the new President Lenín Moreno had caused a storm by blaming his predecessor Rafael Correa (2007-2017) for the state of the economy and pledged “truthful and publicly accessible data”. In the view of private economists however, there is little doubt that the half-year budget assumptions presented by the new government led by are at best unrealistic, and at worst totally irresponsible.

The US$36.82bn plan appears contradictory on several levels. First off, it envisages a sharp reduction in the fiscal deficit to 4.7% of GDP in 2017 (or roughly US$ 4.8bn), from a record 7.5% of GDP in 2016. With oil revenues still subdued, the government is banking on increased tax revenues to fill the gap. Total tax income is budgeted at US$14.76bn, a year on year increase of 7% from 2016, even though its latest GDP growth estimate for 2017 has now been slashed to 0.7%, from 1.4% previously.

While first half tax revenues rose by 7.6% year on year, this was from a low year-earlier base. Effectively, it was an adjustment that will not be repeated in the second half. Indeed, overall tax revenues in the first eight months (January-August) rose by a much more moderate 1.7%, with revenues falling in both July and August. The local consultancy Cordes calculates that in order to reach the US$14.76bn target, tax revenues in September-December will have to be 17.5% higher than in the same period of last year, unlikely given central bank projections for a contraction in private consumption.

Elsewhere, the revised budget anticipates capital donations and transfers – namely oil earnings – of US$3.24bn, up 54% on 2016, based on an average oil price of US$41.7/barrel. Yet Cordes estimates that oil earnings to end August were about 5.8% down on the same period of 2016. This relates to still-subdued prices and also reduced sales volumes as per the latest OPEC output quotas – which the new Moreno government in July announced it could no longer comply with for financial reasons. Given that, it is unlikely that the revised budget projection is attainable. Again, Cordes calculates that capital transfers would have to post growth of 142% in the last four months of the year to reach the target.

On the spending side, the revised budget avoids big capital expenditure cuts, on the grounds that continued public stimulus is needed to help Ecuador's economy to recover. Indeed, the revised plan of US$36.8bn now amounts to an 8.1% increase year on year. However, budget execution to date is wide of the mark, with just US$18.34bn spent to August, 10.4% less than in the equivalent period of 2016. To reach the full year target by December, the government will need to spend 36% more in the final four months of the year – which were already expansive in spending terms as the former AP-led administration ramped up spending ahead of the February 2017 election. Cordes calculates that sectors including health, education, and urban development & housing would need to see expenditure increases of between 28% and 70% in the final four months to reach the budget target. With the best will in the world, executing that expenditure is highly unlikely by the various ministries and responsible local authorities.

Cordes and others argue that the final approved budget demonstrates irresponsibility, not only by AN deputies who (predictably) approved the overall spending increase, but also the finance ministry. These alleged inconsistencies – including overestimation of both income and expenditure execution – are such that the final deficit well be lower than projected, however, Cordes and others make the point that a national budget should also act as a reliable policy indicator, and an important reference point for the country’s economic agents. If it does not fulfil this role, then private sector investment decisions likewise become more difficult – affecting the overall economy.

Given this alleged failure by the new Moreno administration to present a ‘truthful’ statement of income and expenditure for what remains of 2017, private economists are now concerned about the shape of the 2018 budget, due imminently for approval by year-end, which will have to cover a full 12 months.

Moreno on 4 September rejected the idea of a ‘paquetazo’, as a fiscal adjustment package is commonly called in Latin America, albeit he recognised that the economic situation was complex. This reluctance to follow through on his earlier pledges to deal with the fiscal difficulties he inherited likely owes to the growing internal splits in the AP between supporters of Moreno and Correa. Ricardo Patiño, one of Correa’s most senior ministers and an AP founding member, quit as an advisor to the Moreno administration in late August, along with two other high profile AP figures, Paulo Pabón and Virgilio Hernández.

With Correa supporters agitating, Moreno is in little position to impose a fiscal adjustment, and in truth he appears a lot less committed to it now than before his election, noting that his government would never take measures that risked affecting the poorest and most vulnerable. At the same time, he rejected the idea of reckless indebtedness. He mooted the idea of a ‘consulta’ – a national plebiscite – to gauge public support for a range of future economic measures.

Weak growth all the way to the next election

The revised 2017 budget projects real GDP growth of 0.4% in 2017, 1.6% in 2018, 2.4% in 2019 and 2.5% in 2020. This is some way beneath the expectations of the previous Correa administration, which had projected an oil boom in Ecuador starting from 2017, once the large new Yasuní reserve started to ramp up output. It is also well shy of the minimum growth rate of 5%-plus needed in Ecuador to meet the country’s continued social and economic development needs. The next election falls in 2020, when many expect Correa to make a triumphant comeback to ‘rescue’ Ecuador with the promise of revived growth. Correa may get lucky and be able to return to office just as oil prices are expected tick up again in line with stronger global demand heading into the next decade.

Downstream troubles reflect the Correa-Moreno tensions

On 25 August, the hydrocarbons ministry announced that international auditors would be brought in to help formally revise the technical and financial terms of five major energy projects in the country. All the contracts were awarded by the Correa government.

These five projects include Ecuador’s main Esmeraldas refinery, which faces closure for 45 days for essential repairs, according to Hydrocarbons Minister Carlos Pérez. Pérez in mid-August said that the refinery, recently upgraded at a cost of just over US$2bn, was in a “critical” state. Most critically, serious problems have been identified with the main catalytic cracking unit, the core of the refinery. Esmeraldas is also reportedly unable to process its sulphur emissions currently, risking environmental pollution, while there have also been rolling problems with the main electric power generator.

Esmeraldas has a refining capacity of 110,000 barrels per day (bpd). Its planned seven-week closure will cost up to US$1.4bn a day, according to Pérez. The stoppage will also oblige the state oil company Petroamazonas to purchase additional imports of oil derivatives to serve the domestic market, which will significantly push up the import bill for the duration.

Also facing audit is the planned Pacific refinery (on which over US$1.5bn has already been spent to date), as well as the US$85m Bajo Alto LNG plant, the US$623m Pascuales-Cuenca multi-use pipeline (awarded to the Brazilian construction firm Odebrecht), and the US$607m Monteverde-El Chorrillo LPG pipeline and gas terminal, 97km west of the coastal city of Guayaquil. In total, these five concessions have cost the state US$5bn to date. Depending on the audit, Ecuador may now seek compensation from those companies that carried out the work. This includes 10 local and foreign companies awarded contracts for the Esmeraldas upgrade. On 31 August, Pérez said that Odebrecht had a month to resolve the problems with the Pascuales-Cuenca pipeline or the state would unilaterally terminate its contract.

Along with the main investigation into Odebrecht’s bribery of senior officials to secure major works contracts, plus other still-emerging suspected cases of public procurement-related corruption, foreign investors may remain wary of doing business in Ecuador. Foreign direct investment (FDI), which remained stagnant at less than 1% of GDP throughout Correa’s decade in office, was just US$176m in the first quarter, according to preliminary balance of payments data from the central bank (BCE). Official efforts to drum up interest in the mining and manufacturing sectors have yet to bear fruit.

Foreign Trade Minister Pablo Campana set off on 31 August for a month-long-tour through China, the US and Europe in search of investment. Campana is seeking new markets for traditional and value-added products, as well as FDI and new sources of financing. The Moreno government is touting a US$33bn investment portfolio, spread across at least 29 potential projects in sectors including basic industries, cellulose and the agro industry, the Pacific refinery, the Paute-Cardenillo and Rio Santiago hydro-electric schemes, plus road projects and various other infrastructure works.

Campana was presenting this portfolio in China on 3-9 September, before continuing in the US on 11-16 September, where talks about an extension of the US Generalised System of Preferences, due to expire in December, is high on the minister’s agenda. Some 300 Ecuadorean items benefit from the GPS. Campana has also mooted exploring talks on a new trade or commercial agreement with the US, albeit given the current protectionist hue of the US administration led by President Donald Trump, not to mention its generalised suspicion of Latin America’s ‘Bolivarian’ governments, this may be an optimistic ambition. Thereafter, Campana will go Switzerland, the UK, Sweden and Norway, with financing for bioeconomy (and biotechnology) on the agenda. Campana will also look to progress commercial agreement talks with the European Free Trade Association (EFTA, comprised of Switzerland, Norway, Liechtenstein and Iceland).

Petroamazonas gets output up

Petroamazonas produced 444,000 bpd of oil on average in the first seven months, 78% of total national output. This reflected the company’s sustained efforts to boost stagnant output by opening up new fields, including the Ishpingo-Tambococha-Tiputini (ITT) protected Amazon reserve. (By contrast, output by private producers remains in sustained decline).

Having announced that it would not stick to its OPEC commitment to lower output by 26,000 bpd to 522,000, Ecuador’s total national output was 541,000 bpd in July, almost the 548,000 bpd it was producing before the OPEC quotas took effect in January. First half export data indicated why the new Moreno government opted to break with its OPEC quota. Oil export earnings came to US$3.3bn, lower than in the same periods of 2016 and 2015. In the first half of 2014, oil export earnings reachedUS$7.3bn (before the global oil price shock hit). Having inherited a fiscal deficit well in excess of 7% of GDP, the finance ministry argued that the government had no option but to increase oil sales beyond the agreed OPEC quota.

• Public debt

According to Moreno, as of end-May Ecuador’s total public debt (external and internal) stood at US$41.9bn (or 42% of GDP), up from the US$27.8bn reported by the outgoing Correa administration, which was based on its (questioned) methodology for debt calculation, introduced in December 2016.

• Current account in surplus to March

The current account managed a fourth consecutive quarterly surplus in Q1 2017, on central bank data. The US$324.7m surplus owed to a stronger trade result. Higher oil export prices lifted the value of overall exports to US$4.9bn, against which imports remained softer at US$4.3bn, amid still-weak domestic demand.

On 26 October, the Mexican Senate approved the revenue side of the 2018 budget proposal, tweaking both the oil price and exchange rate assumptions to gain some extra leeway, in part to accommodate additional spending on earthquake reconstruction.

The upper house amended the draft 2018 budget bill in late October. Senators raised the expected price of Mexican oil exports by 5.4% (from US$46 to US$48.50 a barrel) and lifted the expected peso-dollar exchange rate by 1.7% (from MXN18.1 to MXN18.4). Taken together, the changes add MXN43.3bn (US$2.25bn) to the total budget, making additional funds available for earthquake reconstruction.

The total revenue side of the budget for 2018 now stands at MXN5.3trn (US$276bn). The budget now is back with the lower house, which must approve it by a 15 November deadline. President Enrique Peña Nieto has estimated the reconstruction bill for two earthquakes in September, which left a death toll of 471 people, at MXN48bn (US$2.5bn).

Further amendments on the spending side of the budget, representing around MXN100bn (US$5.2bn) have also been tabled in the lower house, but it is not yet clear whether any will be adopted.

Data for the current year shows that the government has been able to retain fairly tight budget control. The primary surplus in the third quarter was MXN416bn, up from MXN59.1bn in the year-earlier period. In the first nine months of the fiscal year, the primary surplus was 2.0% of GDP, ahead of the target level of 1.4% set by the ministry of finance and public credit (SHCP). The full year target for the primary surplus is 0.4% of GDP. If, as seems likely, this is achieved or over-achieved, it will be the first primary surplus registered in Mexico since 2008. Overall, the SCHP says that the current fiscal performance is “consistent” with the aim of reducing the country’s debt-to-GDP ratio from 50.1% in 2016 to 48.0% in 2017.

Not everyone is impressed. Writing in El Financiero, analyst Luis Pazos argued that in recent years there has been little real attempt to control public spending growth. In his view, the government increased taxes to cover the slump in oil revenue caused by the oil price fall starting in 2015, but it over-corrected, bringing in extra funds totalling around four times the shortfall it was seeking to cover. So while there has been a fiscal improvement, it has all been on the revenue side, and not on the spending side.

In Pazos’ view, the upward tweaks to the 2018 oil price and exchange rate forecasts, together with an over-optimistic growth assumption (the budget predicts real annual GDP growth of 2.5%, compared to the IMF’s 1.9% forecast) are all really designed to allow the ruling Partido Revolucionario Institucional (PRI) to go on a politically-motivated spending spree ahead of the July 2018 presidential election. This implies that the next government, which takes office in December 2018, will have to wrestle with a deteriorated fiscal balance.

Third quarter slowdown

Provisional GDP figures for the third quarter showed that the Mexican economy contracted by 0.2% quarter-on-quarter, while the year-on-year growth rate fell to 1.6%, down from 1.8% in the preceding quarter.

However, much of the slow-down was attributed to one-off natural disasters: Hurricane Harvey in August, which hit oil refineries, and two earthquakes in September, one in the South and one near Mexico City, which caused extensive damage. Weakness appears to have been concentrated in mining and manufacturing (Puebla, one of the regions affected by the earthquakes, is a significant manufacturing centre). Analysts expect that earthquake reconstruction spending will step up in Q4 of this year, stimulating economic activity.

In an important decision for the battle against corruption in Honduras, the constitutional chamber of the Honduran supreme court on 30 May ruled unanimously that the convention founding the Organisation of American States (OAS)-sponsored Mission to Support the Fight against Corruption and Impunity in Honduras (MACCIH), was constitutional. Yet the ruling was not clear cut with regard to the local anti-corruption unit set up to support the MACCIH.

In recent months the MACCIH, which has been operating since April 2016, has seemed on the verge of collapse, under sustained political attack from within the country, most notably from within the national congress itself.

The supreme court in its ruling threw out a case brought by lawyers for five national deputies implicated in alleged acts of corruption in the congress. The deputies were Héctor Enrique Padilla Hernández, Audelia Rodríguez Rodríguez, Augusto Domingo Cruz Ascencio, Dennys Antonio Sánchez Fernández, and Eleazar Alexander Juárez Saravia. However, it remains somewhat unclear as to whether the ruling will affect the Special Unit against the Impunity of Corruption in the Public Prosecutor’s Office (UFECIC-MP), which works alongside the MACCIH to investigate corruption and bring cases to the Honduran judiciary.

The five deputies, having been among the most high-profile officials investigated by the UFECIC-MP, have sought continually to undermine the unit. In the days running up to the court decision, local Honduran newspapers published an alleged ‘analysis’ of the UFECIC-MP (provenance unclear) appearing to question its legality as an institution. The supposed analysis argued that the unit competed with the constitutionally reserved legislative and judicial powers, the public ministry, the office of the attorney general and the High Court of Accounts. The media later reported, “extra officially”, that the UFECIC-MP would be shuttered. That would seriously undermine the work of the MACCIH, whose principal role is advisory, and which lacks prosecutorial powers, and thus relies upon the public ministry unit to advance cases through to the judiciary.

• MACCIH

As an advisory body only, the MACCIH is restricted in its abilities, quite unlike its more established United Nations-backed counterpart in neighbouring Guatemala. The International Commission against Impunity in Guatemala (Cicig), which began operating in 2008, has successfully prosecuted senior officials for corruption and links to organised crime all the way to the highest government levels. To date, the CICIG has survived numerous attempts by domestic opponents – political, business and otherwise – to have its work suppressed and its mandate terminated. It remains in place for now, albeit Guatemala’s President Jimmy Morales has made no secret of his ambition to get rid of it.

On its Twitter account, the Honduran supreme court stated in addition to its main ruling that the constitutional chamber also “expressly establishes in its sentence that all action and accompaniment in the framework of this Convention must adjust to the precepts of the Constitution”. This latter statement appears rather problematic, as it seems to leave open to interpretation the legal validity of the UFECIC-MP. In response, the OAS and the US embassy in Tegucigalpa have reiterated their support of the MACCIH and the UFECIC-MP.

Just ahead of the ruling, the US embassy on 29 May issued a statement via Twitter in which the US Chargé d'Affaires, Heidi Fulton, stressed that “all sectors are in agreement that corruption damages everyone in society” and that, in its short existence, the UFECIC-MP “has shown to be an effective tool for Honduras in the fight against corruption”. The embassy statement continued that the UFECIC-MP is a unit of the public ministry create to fight against corruption and impunity and that it “operates within the law under the supervision of the Honduran judicial authorities” and therefore “should be able to continue its important work”.

Just days earlier, on 15 May, Fulton also took to Twitter to air her concern at the “lack of progress” in nominating a new head for the MACCIH. The previous head, Peru’s former prime minister Juan Jiménez (2012-2013), an internationally-respected jurist, quit in February, alleging that he had not received adequate support from OAS Secretary General Luis Almagro. There is a lack of consensus about who should replace Jiménez. On 23 April, the Hernández government rejected the OAS’ nomination of a Brazilian lawyer, Luiz Antonio Guimarães Marrey, citing concerns about his suitability as a candidate. The MACCIH is currently under an interim head, Ana María Calderón.

The OAS General Secretariat (i.e. Almagro), on 30 May also issued a similar statement, in which it firmly reiterated its commitment to the work of the MACCIH and called for support of its efforts in favour of institutional strengthening in Honduras. In addition, the statement emphasised (in bold font) that one of the Mission’s objectives is “to support, strengthen and actively collaborate with the institutions of the State in charge of the prevention, investigation and punishment of acts of corruption”.

Continuing, the statement also took care to highlight “the active collaboration and the integrated work of the MACCIH with the Special Unit against the Impunity of Corruption in the Public Prosecutor's Office (UFECIC-MP), which has already produced important results” (such as in the case of the congressional deputies accused of corruption, as well as the recent indictment of former first lady Rosa Elena Bonilla (2010-2014), accused (along with other officials) of siphoning off welfare funds worth US$680,000 for personal use.

“This model of collaboration, according to the agreement that created the MACCIH-OAS, establishes that the UFECIC-MP exclusively assumes the cases that were selected by the MACCIH-OAS, with prior knowledge and authorisation from the Attorney General,” the OAS noted.

“Since its foundation, the MACCIH-OAS has actively supported other key steps in the strengthening of Honduran justice, such as the creation of the Criminal Jurisdiction with National Competence in Corruption in the Judiciary, or the certification of the members of UFECIC-MP,” it continued.

The statement concludes that the General Secretariat “appreciates the support received for the work of the MACCIH-OAS from member states and observers, as well as other international institutions”, and calls for “redoubled support for the model of ‘active collaboration’ that is being implemented in Honduras”.

Starting from the events prior to and surrounding the June 2009 coup d’état against former president Manuel Zelaya (2006-2009), the Honduran constitutional chamber has been something of an unpredictable actor. Critics say it has been effectively captured by the executive, which since 2009 has been led by the conservative traditional ruling Partido Nacional (PN).

As former president of congress (2010-2013) and rumoured ‘power behind the throne’, President Juan Orlando Hernández took on the chamber when it questioned former President Porfirio Lobo’s (PN, 2010-2014) hard-line national security strategy (which relied heavily on the military) and re-staffed the chamber with more sympathetic magistrates. Those same magistrates went to remove the constitutional ban on re-election, allowing Hernández to bid for (and win) a second presidential term in late 2017.

While Hernández arranged for the MACCIH in response to nationwide anti-corruption/anti-government protests in 2015, critics have long questioned his commitment to the fight against corruption, accusing him of paying it mere lip-service in order to keep the country’s key partner, the US, on-side. The PN-controlled congress and the local judiciary have continually rejected and/or watered down legislative measures and judicial reforms in support of transparency and corruption, making life very difficult for the MACCIH and the UFECIC-MP. As president, Hernández was able to take a hands-off position, saying that the executive could not interfere with the other state powers. Given his undoubted influence, however, this appeared a rather cynical position.

The latest constitutional chamber ruling again appears quite cynical in that it formally backs the MACCIH, but not explicitly the domestic unit specifically created to support and implement its work (i.e. the UFECIC-MP). As such, the ruling still leaves the future of the MACCIH – still without an active head – shrouded in doubt.

As for President Hernández, the ruling allows him to effectively remain on the fence. Fortunately for him, those US and other foreign investors with a long-established presence in Honduras – some of which are alleged to have close ties to the ruling political and business elite – have shown few signs of concern about the business operating environment in the country, or about the potential reputational risks of doing business in Honduras.

Hernández, who follows orthodox economic policies with the support of the International Monetary Fund (IMF), continues to prioritise Foreign Direct Investment (FDI) in support of export-led growth (largely US-facing). In 2017, real annual GDP growth was 4.8%, with growth of 3.75% forecast for 2018.

However, the IMF in its latest (April 2018) Article IV end-of-mission statement on Honduras also emphasised that “sustained anti-corruption efforts must continue to enhance the rule of law, which is a key determinant for both domestic and foreign investment in Honduras”. In this regard, it added, “it is critical to deepen the advances made in the fight against corruption, including by raising the criminal prosecution rate, enhancing the transparency of the current asset disclosures regime of public officials, and increasing funding and effectiveness of agencies in charge of anti-corruption, anti-money laundering and combating the financing of terrorism (AML/CFT)”. While the Fund made no specific reference to the MACCIH or the UFECIC-MP, the message was clear.

As expected, Trump derogates TPS for Honduran migrants

On 4 May, the US government led by President Donald Trump announced the end of Temporary Protected Status (TPS) for Honduras, effective as of 5 January 2020. TPS, which temporarily allows those fleeing countries afflicted by war or natural disasters to live and work legally in the US, was granted to Honduras in 1999 in the wake of Hurricane Mitch and benefits some 57,000 people.

In a press release, the US Department of Homeland Security (DHS) said that the decision was taken after finding the “disruption of living conditions in Honduras from Hurricane Mitch that served as the basis for its TPS designation has decreased to a degree that it should no longer be regarded as substantial”.

The decision was slammed by US legislators, human rights groups, and think-tanks such as US-based Washington Office on Latin America (Wola), which question whether the country’s conditions are suitable to receive the returning nationals, given Honduras remains one of the most violent countries in the world.

US congressman Jim McGovern pointed out that in its “own description of Honduras, the State Department describes a country where ‘violent crime, such as homicide and armed robbery, is common’ and ‘violent gang activity, such as extortion, violent street crime, rape, and narcotics and human trafficking, is widespread,’ and where ‘local police and emergency services’ fail to respond effectively”.

Wola also points out that violence has been on the rise since President Hernández’s controversial November 2017 re-election amid widespread claims of fraud – with at least 22 victims of that violence. Yet the decision to end TPS for Honduras was not a surprise given similar decisions in recent months with regard to other beneficiaries of TPS – namely El Salvador, Haiti, and Nicaragua.

Agricultural exports: On 18 June Mexico’s agriculture & rural development ministry (Sader) released figures showing that despite the coronavirus (Covid-19) pandemic, Mexico’s agri-food sector trade surplus registered a 11.68% increase in the first four months of 2020 compared with the same period in 2019. In a report, Sader wrote that total agri-food exports, which include livestock and agro-industrial products, exceeded US$14.09bn over that period, making for a trade surplus of US$4.84bn, “which reflects that the sector’s dynamic was not affected over that four-month stretch”. The result was driven by a 4.77% year-on-year rise in agro-industrial exports to a total of US$6.77bn and by the sale of vegetables, fruits, and drinks which together represented 60% of total exports. Amongst these products, highlights include avocados, which registered a 24.77% sales increase to a total US$1.29bn, and tequila and mezcal, which saw a 35.21% rise to a total value of US$738m.

Industrial production: On 11 June Mexico’s national statistics institute (Inegi) reported that industrial production in the country fell by 29.3% year-on-year in April. This result is explained by decreased activity in the construction (-38%), manufacturing (-35.3%), and electricity generation (3.5%) sub-sectors, all of which have been affected by the fallout of the coronavirus (Covid-19) pandemic. With the April data, industrial production has fallen by a cumulative 9.3% year-on-year in the first four months of 2020. Last year industrial production fell by 1.8%, and it now seems likely to fall further this year. Notably, Mexico’s central bank (Banxico) has released a new report noting that the measures adopted to contain Covid-19 heavily impacted manufacturing activity in the first quarter, and warning that the effects of this will still be felt in the second quarter and beyond, as “there is a lot of uncertainty over the foreseen depth and duration of the deterioration of economic activity”.  

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

Mexico: Unemployment Rate
Econimically active population

Mexico: Inflation Rate
Percentage variation (year-on-year)

Trade tensions between the US and China may deliver an important boost to Argentina’s soya farmers.

On 10 September after two decades of on-off negotiations, it was announced that China had agreed to accept imports from Argentina of soy meal, a key animal feed. Up until now the Beijing government has preferred to import raw soya beans from countries like Argentina and Brazil, as a way of protecting its own crushing industry. However, restrictions on trade with the US, itself an important supplier of agricultural goods to China, appear to be driving a shift in China’s strategy. The Chinese ambassador in Buenos Aires, Xiaoli Zou, said his country was willing to widen business with a host of countries to boost global trade.

The news is good for Argentine crushers who have been operating at only 50% of capacity. Both farmers and crushers are encouraged by indications that the meal would be used for chickenfeed, rather than for pigs, since demand for pigfeed may fall because of the impact of African swine fever in China. In any case, China remains the world’s largest importer of animal feeds.

Soymeal is Argentina’s principle export commodity earning roughly US$10bn a year, and shipped to Asia (particularly Vietnam), Europe, and North Africa. Argentine export volume is around 27m tonnes per annum, accounting for 43% of world soymeal trade. The agreement with China foresees export volume to that country raising to 5m tonnes per annum which, according to Argentine industry sources, could be worth US$1.6bn. Next year, soymeal exports to China could reach 2.3m tonnes according to Gustavo Idigoras of Ciara-Cec, the crop export and crushing association.

Simplifying (and also exaggerating a little) Latin America has had a long love affair with the private motorcar, one which now faces an uncertain and possibly even troubled future.

For much of the 20^th century the internal-combustion engine-powered motorcar was seen as one of the most desirable and industrially sophisticated products available anywhere in the world. For Latin American consumers, owning an automobile was seen as aspirational, a badge of progress and middle class identity, and an emblematic product that enabled an entire lifestyle. Society as a whole was deeply influenced by the motorcar, from the spatial organisation of cities through to the design of houses, the arrangement of highways and the location of transport arteries. Most importantly, governments throughout the region put a high priority on developing a locally-based automobile industry. Having one was a sign of development and a mark of prestige. Being able to assemble locally, using nationally-produced steel and other key components, was seen as a litmus-test of the ability to develop a sophisticated manufacturing sector, which in turn was seen as an essential step on the road to development and eventual ‘first world’ status. The larger LAC economies have in fact emerged as significant motor vehicle producers and exporters. Some have built up their industries behind protective tariffs and still find it difficult to be internationally competitive.

Others, particularly Mexico, have successfully used their lower wage costs and an increasingly skilled labour force to encourage international companies to ‘offshore’, setting up local assembly plants to supply the world (but particularly the North American market). Yet just as Mexican production and exports soared, two things have happened. First, the new Trump administration in the US has turned in a protectionist direction. And second, the upheaval in the global automobile industry, with its new emphasis on AVs, digital systems, electronics, IT, and robotics, may be triggering a ‘reshoring’ process where Mexico loses its comparative advantage. Here we look at what the implications of the automobile revolution may be for manufacturing within the LAC region.

The global automobile industry is concentrated in three major productive regions: North America, the European Union (EU), and Asia. A small group of countries dominate production and technological development: they are the United States, Germany, Japan, South Korea and China. China has expanded rapidly to become the world’s largest vehicle producer. Competition has become more intense, with the major car companies concentrating on a small number of new modular production platforms, and passing on increased responsibility to a range of first- and second-tier suppliers. Given the pace of technological change the new paradigm for the industry is to invest more heavily in research and development (R&D). No fewer than five of the 20 global companies that invest most heavily in R&D are from the automotive sector. Auto manufacturers invest around 5% of their sales in R&D, but suppliers of parts, accessories and components invest double that, around 10%. To maintain their contracts with the manufacturers, the suppliers need to be constantly innovating and updating their products.

According to the UN Economic Commission for Latin America and the Caribbean (ECLAC)[1], three major factors are driving what it calls the “far reaching transformation” currently under way in the global auto industry. These are (i) convergence with the digital economy; (ii) changes in the concept of mobility, and (iii) new regulatory requirements in safety, the environment, and energy efficiency. These have already begun to shake up the industry. ECLAC says that traditional auto-industry suppliers will see their share of the market decline from 10% to 3%, while suppliers of new technologies, electronics, and software will grow theirs from 1% to 10%. Today’s vehicles have about 60 microprocessors, four times more than a decade ago. In 2005 electronics and software accounted for 20% of the cost of a vehicle; today that proportion has gone up to 35%, and is expected to reach over 50% by 2030. About three out of every four vehicles sold in 2020 are expected to be connected to the internet in various ways.

Part of this upheaval is that the traditional industry structure, dominated by a handful of global manufactures (including names like Ford, General Motors, Fiat, Daimler, Nissan, Volkswagen, and Hyundai) is beginning to shift. The advent of AVs is creating a whole range of new alliances and players. At least four different types of company are now shaping the new industry. Apart from the traditional manufacturers, the new line-up includes ride-hailing companies, hardware providers, and software providers. Ford fired its chief executive in May 2017, partly because it was deemed to be lagging behind in the development of EVs and AVs; it then invested US$1bn to acquire Argo, an AV start-up, and forged an alliance with ride-sharing company Lyft. Intel, the computer chip-making company, bought Mobileye, an AV systems company, for US$15.3bn in March 2017. Components company Delphi bought AV start-up nuTonomy for US$450m and has since renamed itself as Aptiv. Carmaker Volkswagen has forged an alliance with Aurora, an AV start-up set up by former employees of Google and Uber. These changes mean that Latin American countries seeking to attract inward investment in the auto sector will have to deal with a new set of players.

All this poses a particular dilemma for Mexico, one of the region’s most successful car manufacturers. Through its membership of the North American Free Trade Agreement (Nafta) with the US and Canada, the country was able to invest intensely in developing the industry and has emerged as a privileged supplier to the US, the world’s second-largest vehicle market after China. The Mexican industry now contributes over 3% of the country’s GDP, generates an annual US$52bn trade surplus, and has attracted cumulative foreign direct investment (FDI) of 51.2bn from 1999-2016 (11% of the total). Mexico’s auto industry generates 900,000 jobs directly, and many more indirectly. No less than 80% of the total vehicles produced are exported, and the vast majority of them (86%) are shipped to the US and Canada. Mexico is now the world’s seventh-largest vehicle manufacturer, and the fourth-largest exporter. Starting out mainly as a low-cost assembly operation, the country has become part of a more integrated and sophisticated production chain.

The question is whether these gains may begin to slip back again as the next wave of global auto-industry innovation makes itself felt, perhaps marked by ‘re-shoring’ of important parts of the global automotive value chain. ECLAC notes that Mexico may be vulnerable because, although it has attracted first- and second-tier components suppliers, it still lags behind in terms of third- and fourth-tier suppliers. That means there are still some weaknesses in the local production structure. Mexico is lacking in small and medium-sized, high tech, knowledge intensive companies. In addition, although it has increased the supply of skilled labour and professional capacity (particularly in science, technology, innovation and enterprise development), it has not been able to do so at the same speed as other competing global automobile producers, China in particular.

ECLAC warns that “given the rapid pace of technological change in the motor vehicle industry, the advantages of Mexico’s wage gap with respect to the United States and Canada (which is a major source of competitiveness for the country) will dissipate rapidly. Advances and falling costs in robotics could threaten jobs in the industry in the medium term, at least for some of the best paid workers.” Added to these underlying medium-to-long-term concerns, Mexico has also had to contend with short-term uncertainty over the policies of the Trump administration relating to the auto industry, Nafta, and bilateral trade in general.

If Mexico, one of the most advanced automobile producers in the LAC region encounters a ‘reshoring’ threat to its automobile industry, then the likelihood is that other countries will face similar difficulty. But the future dynamics of the global automobile industry are hard to predict with any degree of certainty. Argentina-based researchers Bianca Pacini (Universidad de San Andrés) and Luca Sartorio (Universidad de Buenos Aires) have focused on the employment and trade impact of increasing use of robotics in production processes[2]. Academic research to-date paints a mixed, even confusing, picture. Different studies have suggested that anywhere between 47% and 13% of existing jobs could be at risk from automation. A 2017 study by McKinsey Global Institute concluded that only 5% of existing occupations are entirely made up of activities that would be technically possible to automate.

What Pacini and Sartorio try and assess is the contention, put forward by various studies (among others by Citibank/Oxford University and by UNCTAD) that growing use of industrial robots in developed countries could replace jobs that were previously offshored to developing and emerging economies, which would erode the latter’s traditional wage-cost advantage. They choose to focus on the automotive industry in particular, since it has the highest concentration of robotics. However, their empirical study of the automotive industry is not conclusive. They say there is some evidence that countries with intense use of robotics in the auto industry may be reshoring, but that their study of the industry from 2006-2015 also showed that “the stock of industrial robots makes a significant contribution to bilateral trade under different econometric specifications”. As they put it, “robots may increase production volume, therefore actually intensifying complementary bilateral trade”.

From a different perspective – that of a components supplier – there is also uncertainty about how changes in the industry will play out. In a speech last year Richard Smallwood, president of Sumitomo Rubber North America, said it was still unclear whether AVs would mean a utopian or dystopian future for drivers, auto-makers, tyre manufacturers and tyre retailers. The one certainty, he believed was that “AVs will still need tyres”, although the existing manufacturing and distribution model would undergo significant changes. Smallwood cited a projection by research group IHS Markit to the effect that AV sales would begin by 2025, and that almost all vehicles will be autonomous sometime after 2050.

One of the big drivers, as he put it, would be safety: “AVs don’t text, don’t get sleepy, don’t drink or do drugs, follow the traffic laws…. AVs don’t need to be perfect, just better than us.” According to Smallwood, the average cost of owning a private car is US$8,698 a year, and for 95% of the time it is not used. The shift to AVs could deliver savings of US$1.3tn annually including US$488bn from accident prevention, US$645bn from increased productivity, and US$169bnb from fuel savings. Because of ride sharing, new car sales might fall by as much as 40%. Cars would become a more utilitarian product with dwindling brand preference, and tyres would also follow that path. He expected commercial vehicles to become completely automated very quickly, except for delivery vehicles where “somebody has to take the packages to the door”. The biggest obstacle to commercial AV introduction would be the trade unions, who would try to save delivery driver jobs.

The political atmosphere in Guyana has calmed somewhat since President David Granger announced 2 March as election day. The president’s long prevarication, and legal wrangling, over holding the election following the 21 December 2018 vote of no confidence had made Guyana’s politics even more rancorous than normal. Officially, an election should have been held within 90 days of passing of the no confidence motion. However, it is widely expected that the slightly calmer atmosphere will last only until the New Year after which both main parties are expected to turn up the heat once again.

One development that has slightly changed the pre-election atmospherics was the surprise announcement on 12 November that Tullow Oil’s discovery in its two Orinduik wells was heavy oil, high in sulphur, and only borderline commercial. No one is suggesting for a moment that Guyana’s oil-rich prospects have been significantly diminished, but the reminder that oil exploration is never risk free may take some of the sting out of the opposition’s claims that ExxonMobil’s contracts were too generous and should be renegotiated.

Another factor that should be playing in favour of President Granger and his A Partnership for National Unity (Apnu)-Alliance for Change (AFC) coalition is that the president seems to have been restored to full health following his brush with cancer. He has been declared free of non-Hodgkin’s lymphoma for which he has been receiving treatment in Cuba.

On the other hand, intra-coalition relations have been tense, with the AFC saying that it would be prepared to contest the general election on its own if its demands weren’t met. Apnu has responded to what it saw as an empty threat (particularly given AFC’s poor performance in the recent local elections) by sticking to its offer of a 70/30 split on parliamentary seats, down from the 60/40 split at the last election.

Doubts also persist about the suitability of AFC leader Khemraj Ramjattan as the coalition’s candidate to be prime minister. Among the doubters are said to be the AFC’s chairman Raphael Trotman.

One area in which the government is being attacked is over its alleged policy of cutting government-paid advertising in the Stabroek News because of unhappiness over its coverage. A Barbados newspaper, the Sunday Sun, claimed in an editorial in November that “for more than three months, the Stabroek News has received virtually zero advertising from government agencies in sharp contrast to other newspapers”. The Sunday Sun is owned by the Trinidad-based One Caribbean Media (OCM) which also has a stake in Stabroek News.

This has been denied by the government’s director of public information, Imran Khan, who described the allegations as “wholly false”. The government says that between 1 January and 19 September, Stabroek News received 30% of government advertising in newspapers, which was second only to Kaieteur News which is considered to be Guyana’s premier newspaper.

Whatever the exact truth over this matter, the government is certainly making use of the power of incumbency as the election nears. In mid-November, President Granger announced generous salary increases for public servants, with 9% for lower tiers and some very large increases in allowances. Public servants are a key constituency for the governing coalition.

Coffee prices have been rising in the last five months to March, according to the London-based International Coffee Organisation (ICO), reaching their highest monthly average since the 2017/2018 harvest. But Central American growers are facing long-term issues which have left them on the verge of a crisis.

On 28 April the Costa Rica-based Inter-American Institute for Agricultural Cooperation (IICA) released a progress report for its Central American coffee management programme (Procagica), which was set up in February 2019. Procagica members include the countries of the Central American integration system (Sica): Belize, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. The organisation aims to address challenges such as low international market prices; climate change; aging plants; lack of access to investment; lack of labour resources; the intensification of disease outbreaks; and the implementation of a regional early warning system for coffee leaf rust (CLR), a disease caused by the Hemileia Vastatrix fungus which decimates coffee plantations.

The IICA trumpeted Procagica’s record in helping over 7,000 farmers rejuvenate coffee plantations; diversify the crops they plant to improve food security; and to use early warning systems and scientific research to improve plant resilience. The organisation said its work has helped to improve Central America’s capacity to deal with CLR by developing models that predict the growth of the fungus and how it will affect plantations, as well as through the development of a platform called ‘Pergamino’, which collates information from coffee farmers throughout the region. IICA also said it is working to help growers adapt to climate change, for example by developing new hybrid coffee beans that are resistant to pests and plagues, as well as developing best practices for water capture and irrigation.

These kinds of long-term efforts will be key in building a sustainable future for Central American coffee growers, but farmers have been pushing for more immediate support. In Honduras and Nicaragua hurricanes ‘Eta’ and ‘Iota’, which hit Central America in November 2020, destroyed more than 10,000 hectares (ha) of coffee farmland. Meanwhile El Salvador’s coffee association (Acafesal) estimates that farmers lost 150,000 quintals (46kg bags) of coffee due to the storms. This means there is a chance that the country could record its smallest harvest in 100 years, according to Acafesal’s president, Omar Flores. Flores has been pushing for financial support from the Salvadoran government, and hailed productive meetings with agriculture minister, David Martínez, who confirmed that the government’s ‘coffee rescue plan’ would include a US$637m fund to provide loans to farmers and restructure their existing debts. This is in addition to a US$45m loan from the Inter-American Development Bank (IDB) designed to strengthen the coffee sector which was announced in January.

In Honduras, coffee farmers will be able to transfer existing debts with commercial banks to the Honduran bank for production and housing (Banhprovi), deputy minister for agriculture & livestock, Rubén Espinoza, said on 22 April. At a regional level, the Central American development bank (BCIE) committed US$15m to a fund which aims to raise US$150m to transform the coffee industry in the region. The idea is to improve the use of technology and increase environmentally sustainable practices with the aim of producing premium coffee that will sell for higher prices. According to BCIE executive president, Dante Mossi, coffee represents 11.2% of Central America’s agricultural GDP. This income is spread across a wide social base, because 90% of producers are small farmers and the bank hopes to benefit the 400,000 families connected to coffee farming by creating extra value.

• Price rises

The president of El Salvador’s coffee association (Acafesal), Omar Flores, predicts that international prices will continue to rise because coffee reserves in the US are low, and Brazil’s coffee harvest could fall by around a third this year. However, a short-term boost in income could only serve to distract from structural problems facing the industry, not least deteriorating growing conditions due to climate change.

Investment: Overall foreign direct investment (FDI) in Costa Rica shrank by 21% to US$2.1bn in 2014, though that figure overshot the government’s goal of US$1.9bn. The US supplied over half of the FDI, with the main winners in the categories of services and real estate, accounting for 35% and 36% of inflows respectively. The manufacturing sector, which has been in decline for years, only received 20% of FDI inflows in 2014.

Costa Rica accounted for around 20% of Central America’s FDI intake in 2014, with Panama the consistent leader. Though Costa Rica was the only Central American country to see a decrease in FDI, it matched Latin America’s performance as a whole: the region saw a 16.4% drop in FDI from 2013 to 2014.

According to the Costa Rican Investment Promotion Agency (CINDE), the country secured 39 more investment projects, worth US$474.4m, ranging from pharmaceuticals to biotechnology to agribusiness, which generated more than 10,000 jobs. One sizeable new project has been announced by US-based American World Clinics, which plans to construct a US$100m health-care complex aimed at attracting medical tourists.

On energy, the Costa Rican government approved a US$958m geothermal project in 2014, financed largely through loans from Japanese and European investment banks. For the most part, electricity generation is controlled by government-owned ICE, but there are also several small private players. The Orosí wind project, developed by the United Kingdom’s Globeleq, will have 50 MW of generation capacity and is currently under construction for at least US$109m. Other investors include Spain’s Gas Natural Fenosa, which is constructing the 50MW Torito 1 hydropower plant, to be completed in 2015, and Italy’s ENEL, which is involved in the 50MW Chucas hydropower plant completed in 2014. In manufacturing, Canada’s Gildan Activewear is investing an undisclosed sum in a new textile factory in Guanacaste, as part of a US$300m expansion plan. Finally, Sysco Corporation (US) announced that it had acquired 50% of the privately held food distributor, Mayca Distribuidores, for an undisclosed sum.