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On various criteria Chile is at the forefront of the LAC energy transition. It is one of the highest placed countries in the World Economic Forum (WEF) energy transition index (ETI). In addition, in 2020 it attracted more foreign investment into its renewables sector than either Brazil or Mexico, both of which had led the ranking for the preceding five years. The IEA has described Chile as a “world class” destination for solar and wind developers. Under the country’s National Energy Policy 2050, originally launched in 2015, it aims to generate 70% of its electricity from renewable resources by 2030. This is to be achieved by maintaining the contribution of hydroelectricity at the current 45% while boosting non-hydro renewables (mainly wind and solar) to 25%.

Relative to the rest of LAC, Chile has some advantages, as well as some specific difficulties to overcome. Among the advantages are that the country has one of the world’s highest irradiation rates in the Atacama Desert in the north, and strong winds in the Magallanes region in the south, meaning the potential for solar and wind energy is massive (theoretical solar potential is 1,800GW, with wind at 37GW). However, the country’s geography - long and thin, running along the Andes mountains - means it must invest heavily in electricity transmission and energy storage. That is one of the factors creating strong interest in green hydrogen which can be used as an energy store.

Various aspects of the Energy Policy 2050 have been singled out for their positive effect. One is that Chile opted for technology-neutral power auctions, which allowed renewables to compete directly with conventional fossil fuels and, because of their reduced cost, has lowered average prices from over US$100/MWh in 2012 to around US$30MWh in 2017. Another important development is that Chile was able to interconnect its north and south electricity grids in 2017, allowing for more efficient trading of renewables across the country. In third place, the policy has emphasised an ambitious green hydrogen goal of 25GW by 2030. In pursuit of that development agency CORFO is making US$50m worth of investment support available for renewable hydrogen projects.

One challenging area will be how successive governments meet the target of phasing out around 38 coal-burning power plants by 2040. Replacing these polluting plants will be a key step to meet the overall zero-carbon target by 2050. The plants dominate five areas of the country known as ‘sacrifice zones’ because of high pollution levels and negative impacts on public health. The eight oldest coal-burning plants are due to be closed by 2024, but no specific closure dates have been set for the remainder in 2025-2040. Some believe the government is being too cautious, since a total of six privately owned coal generators have announced earlier than expected voluntary closures. Congress is also considering a bill that would shut down all coal-fired plants much earlier, in 2025. With up to 20,000 potential job losses involved, the government needs to consider retraining, alternative employment, and consultation with local communities. The need to replace old fossil fuel jobs with new ‘cleaner and greener’ sources of employment could become an important theme across the entire region.

Data from the Contraloria General (the local statistics agency) released in early March show that the economy grew by 5.4% year-on-year in 2017, making Panama the region’s strongest-performer last year. With container traffic through the Panama Canal rising strongly following the completion of the Canal’s expansion, the transport sector was crucial to fuelling growth. Moreover, growth prospects for 2018 remain encouraging, with both the International Monetary Fund (IMF) and the Economic Commission for Latin America (Eclac) forecasting a moderate acceleration this year.

Not only did Panama’s economy grow firmly in 2017, but it did so from a high base for comparison: GDP growth has been exceptionally strong since 2010, averaging 7.2% per year since then. That implies a rise in per-capita GDP from around US$8,000 in 2010 to nearly US$14,500 in 2017 – marking unprecedented growth by regional comparison over such a short time-frame.

External-oriented sectors fare particularly well

Although most economic sectors registered firm growth rates, the canal fuelled the overall rapid pace of expansion, with canal-related activity accelerating by 16.1% year on year. Port output, which does not include canal transport but reflects trade-related activity at either end of the canal, as well as at the country’s other Pacific and Atlantic ports, also rose by a firm 10.1% year-on-year. Solid growth in world trade (which the World Trade Organisation estimates at 3.6%, up from 1.3% in 2016) coupled with expanded canal capacity explains this double-digit expansion. Financial services is another sector that tends to be driven by external demand, reflecting Panama’s large offshore sub-sector: this registered growth of 5%, indicating that concerns over corruption related to the Panama Papers scandal did not hamper activity in this sector last year. Another solid performer was the mining sector, which although remains relatively small as a share of GDP, posted growth of 8.3%, which is likely to reflect rising gold output.

However, it is not just externally-oriented sectors that explain Panama’s continued robust economic performance. Sectors more closely aligned with domestic demand also fared well, with government services rising by 10.3%, construction up by 8.3%, education services by 7.8%, telecommunications by 7.4%, wholesale trade by 5.6%, and retail trade by 3.7%. Government services have been rising thanks to higher fiscal expenditure, which in turn has been partly facilitated by larger transfers from the Panama Canal Authority. The ongoing expansion of the Panama City metro system and the construction of a second terminal at the Tocumen international airport are perhaps the most visible emblems of this expenditure (which also help explain firm registered growth in construction activity), but public investment has also continued in improving electricity transmission and drainage systems.

Agriculture recovers after two-year slump

Meanwhile, higher per-capita GDP boosted demand in the telecommunications and domestic trade sectors, lifting growth in these areas. The agriculture sector did not post particularly ground-breaking growth (2.6%), but the result was notable as it came after two consecutive years of contraction and was the firmest growth rate since 2011. It is likely to be explained by strong rises in production of rice, bananas and pineapples, which offset falls in other crops, including maize. Agriculture does not account for a particularly large share of GDP (less than 10%), but its importance in terms of providing employment is much higher, representing around a quarter of the labour force. The government has left in place price controls on a wide range of staple food items, arguing that price stability boosts both consumption and production. The controls are reviewed every six months, with the government last announcing that they will be extended for a further six-month period in January. Given that agricultural production does seem to have picked up, the authorities are unlikely to abandon these controls in the short term.

A rosy outlook

Prospects for 2018 are also very encouraging. The IMF is forecasting real GDP growth of 5.6%, with inflation also set to remain low, at an average 2.1%. Eclac’s GDP forecast for 2018 is very similar, at 5.5%, indicating a broad consensus on Panama’s strong underlying fundamentals. The fact that the global economic backdrop remains solid will undoubtedly work to Panama’s advantage, stimulating demand for its transport and financial services, which will ultimately feed through into lifting domestic demand. Despite political difficulties, with President Juan Carlos Varela struggling to advance his policy agenda in the light of a minority congressional position, the economy is unlikely to be negatively affected. Significant uncertainty remains about the candidates who will contest next year’s presidential election, but given the country’s broad-based consensus about the need to maintain pro-market, business-friendly policies, investors will have few concerns about the potential emergence of a candidate advocating a radical shift to either the left or the right. This will bode well for the likely continuation of rapid GDP growth in the medium term, regardless of the outcome of the 2019 election.

Chinese or China-linked entities are also active in conventional news outlets and social media in Latin America. According to a report by Virginia-based cyber-security company Nisos in July 2023, “China’s government has yet to reach the same level of domestic engagement as Russia, but that does not mean it is not trying to influence political and cultural perceptions in the region, especially to counter unfavourable perceptions of China following the Covid-19 pandemic, which originated in China.” On the other hand, China’s trade and investment links with Latin America far outweigh those of Russia, potentially allowing Beijing to gain greater leverage.

The Nisos report indicates that China is using a similar approach to the Russians, deploying conventional media in print, television, and radio, alongside a more covert online disinformation-oriented operation using bots and influencers. Nisos said it has identified three X accounts called ‘hoy_paraguay’, ‘hoy_chile’ and ‘hoyCosta’ linked to the China News Service, a government-controlled propaganda entity. The accounts appear to have been set up to sidestep X’s policy of labelling “state affiliated media”, a policy which subsequently appears to have been abandoned.

A significant feature is that followers of these accounts are encouraged to download an app which gathers sensitive personal information. Together with links to mainstream Chinese social media accounts Weibo and Weixin the researchers conclude that the apps could be used by the Beijing government to “potentially micromanage narratives and obtain information from dissidents residing abroad”. Nisos researcher Sandra Quincoses commented that light or non-existent social media regulation in Latin America was giving China free rein to “experiment with different strategies that can be implemented elsewhere further down the line, especially in the information space. They are playing the long game.”

There is an interesting comparison to be made between Milei’s initial experience and that of Ecuador’s new centre-right president, Daniel Noboa. Noboa, a prominent businessman, claims like Milei to be a political outsider. By an accident of timing, both took office within little over two weeks of each other. Noboa was sworn in in a ceremony in Quito on 23 November, marking his first 100 days in office on 2 March 2024. Milei took office a little later, on 10 December in Buenos Aires, completing his first 100 days on 19 March 2024.

On the surface, Noboa got off to a stronger start. With an initial popularity rating of around 60% on taking office, by the end of the fist 100 days his approval rating had surged higher to around 80%. Milei also started out with around 60% backing, but over the first 100 days that had dropped back somewhat to a 45%-55% range. While cross-country comparisons can be over simplified and possibly misleading, one explanation of Noboa’s better performance may be that voter sentiment was reacting to a major outbreak of crime and violence (including prison riots and a high-profile gang attack on the TC Televisión station in January). In these extreme circumstances Ecuadorean votes were therefore particularly receptive to the new president’s hard-line response, which included a declaration of a “state of internal armed conflict”.

According to a survey published in February by Ecuadorean pollster Cedatos, Noboa had an 81% approval rating. A total of 79% of respondents said they trusted the new president, 56% said the country was “on the right track”, and 52% said the situation in Ecuador had improved since Noboa took office. Respondents listed crime and violence as their top concern, followed by unemployment, the economy, and poverty. Having articulated a popular security policy, it seemed that Noboa had created a sense of momentum and as a result was able to begin tackling other issues of concern including the economy and jobs, from a position of strength.

Comparatively speaking Milei lacked a strong initial win to lift his popularity numbers within the first 100 days. His top issue – bringing inflation under control and resolving the economic crisis – will, in the optimistic scenario, take some more months before any big-headline progress may begin to make itself felt. In fact, the Argentine economy will be in recession this year. Some estimates suggest the economy could contract by as much as 4%-5%, with a recovery not likely until 2025, when the mid-term elections are due. The government also faces more unpopular decisions down the line, including lifting consumer energy subsidies (which is likely to create another spike in inflation) and coming up with an indexation system for pensions.

An important and possibly critical point is that Milei and Noboa have reacted differently to having only minority support in Congress. As we have seen, Milei’s party controls only 10%-15% of the upper and lower houses in Argentina. In Ecuador, Noboa’s centre-right Acción Democrática Nacional (ADN) controls only 10% of the seats in the single-chamber National Assembly. The big difference is that while Milei’s administration has spent its first three months mired in congressional disputes and deadlock, Noboa’s has moved comparatively swiftly to make deals on an issue-by-issue basis with the left-wing Revolución Ciudadana (RC) and the conservative Partido Social Cristiano (PSC) parties. As a result, there is a greater sense in Ecuador than in Argentina that the administration is moving forward to deliver its electoral mandate.

Electricity consumption in the world’s data centres will double between now and 2030, according to a report by the International Energy Agency (IEA) which says that the growth will be concentrated in the US and China.  The two superpowers will be responsible for around 80% of the growth in data centre energy demand, with the European Union also growing but still lagging in third place. The agency says that under its central forecast, data centre energy demand will rise from 415 terawatts hour (TWh) in 2024 to 945TWh in 2030, representing a 15% annual growth rate.

IEA also estimates that data centres currently represent 1.5% of world electricity use, a share which will double to 3.0% by the end of this decade. Here too growth will be strongest in China, the US, Japan, and Europe, in that order. Per capita electricity demand by 2030 will be 1,200KWh in the US, 270KWh in Japan, 200KWh in China, and 165KWh in Europe. Per capita electricity consumption in India will be much lower, at 15KWh.

Olade, the Latin American Energy Organisation, has similar data for the expansion of data centres. It says there are 455 data centres operating in the LAC region, each using some 50GWh of electric power per annum. Andrés Rebolledo, Olade executive secretary, says AI applications will be competing with residential, industrial, and transport demand for power.

The essential worry is that the expansion of power-hungry data centres around the world could lead to increased power use and pollution and contribute negatively to climate change. In some areas data centre energy growth has been massive: for example, one fifth of all electricity consumed in Ireland is now used to power data centres. The centres have a multitude of activities, including streaming video and financial transaction processing; the AI share of that work is expected to rise exponentially.  

Whether or not data centres have a negative effect on the environment depends on the interplay between various factors. A positive is that AI is already playing a role in reducing pollution and optimising energy use across various industries. A negative is that expanding data centre demand may be met by burning carbon-emitting fossil fuels (oil, gas, and coal among them). On the other hand, some analysts describe the abundance of renewable energy sources in Latin America (hydro, wind, solar, and biofuels) as a comparative advantage, since it may give a boost to the AI sector.  

The idea that Latin America’s strength in renewables gives it an advantage in AI has been backed by Rolando Lemos, a scientist from the Rio de Janeiro-based Institute for Technology and Society. In an article written for the World Economic Forum (WEF) earlier this year, he argued that Latin America “can set new standards in AI” thanks to abundant renewable energy, rich biodiversity, and deep cultural and linguistic diversity. The region, and particularly Brazil, generates most of its electricity from clean sources. In a suggestion echoing a proposal by Unctad (see above), Lemos calls for LAC countries to form a “multi-stakeholder consortium to pool resources, democratise access to AI and promote techno diversity”.

Lemos says that there is a fork in the AI road ahead for Latin American countries. One route will be for them to “follow global AI trends at a distance”, while the other more challenging one is “to set an entirely new standard for how AI is powered and governed”. Lemos has an optimistic message, highlighting a “wave of innovation in areas such as agritech, industrial AI, and health research, all backed by rising venture capital inflows”. For this potential to be captured, however, he says it will be essential to overcome inequities in computer infrastructure and bridge a staffing gap by recruiting some 1.3m technology professionals.  

Various analysts have come up with different reasons for Uruguay’s relative success. Writing in the New York Times in 2016 journalist Uki Goñi claimed the country had a refreshing absence of the type of passionate nationalism that can be whipped up by populist leaders elsewhere in Latin America. He cited Uruguayan historian Gerardo Caetano, who said, “Nation is not a word we often use. We prefer republic.” Goñi also cited the trail-blazing reforms introduced by Colorado President José Batlle y Ordoñez in the early part of the 20^th century, pointing out that among many modernising steps, the country adopted a liberal divorce law in 1913, while it took Chile almost another 100 years, until 2004, to make divorce legal. In the same tradition he cited Uruguay’s legalisation of marijuana consumption in 2013. Caetano argues that Uruguay is set apart by a strong “social contract”, in effect a tacit agreement to resolve differences at the ballot box, not by mass street demonstrations and confrontations of opposing factions. In his Caetano’s words, “We don’t have that sense of epic politics, we just have a boring democracy. In Uruguay the political parties are more important than the social movements.” In Goñi’s opinion, “Uruguayans have a healthy mistrust of charismatic, messianic leaders, which preserves them from the bane of presidents dubiously extending their term limits, as we have seen in Venezuela, Ecuador and Bolivia in recent years.”

In an article written in March 2018 London-based The Economist noted that after 2.7% GDP growth in 2017, Uruguay had achieved a 15-year uninterrupted growth streak, the longest in the country’s history. It credited the FA with seeking to reduce Uruguay’s dependence on its two large neighbours (Argentina and Brazil) and with setting up special tax regimes and economic zones to attract new industries such as software and audio-visual services. The share of exports going to Brazil and Argentina fell from 37% to 21% from 2001-2016. There have also been big increases in public spending on science and technology. FA governments took care to keep taxes low and strengthen an independent judiciary to keep the country attractive for foreign investors. The article noted, however, that the country is far from problem free, with growth still somewhat sluggish, inflation stubbornly high, and an ongoing fiscal deficit.

With water availability decreasing and demand increasing, better management of resources is necessary to ensure equitable access while safeguarding key economic sectors.

There are myriad challenges, but one proposed solution is the implementation of integrated water resources management (IWRM), which is defined as “a process which promotes the co-ordinated development and management of water, land, and related resources, in order to maximise the resultant economic and social welfare in an equitable manner without compromising the sustainability of vital ecosystems.”

While IRRM has been promoted for decades in the region, implementation has been slow. Improving this would help countries implement overarching water management strategies by increasing data collection and monitoring; modernising institutional frameworks; and empowering and strengthening river basin institutions. 

These newly strengthened institutions would then be able to collaborate with each other to better manage transboundary water resources, however such efforts are likely to be hindered by a lack of technical capacity.

The region also requires large investments in water storage systems, such as new reservoirs; water reuse capacity, such as wastewater treatment plants; and distribution, including maintenance to prevent water losses. However there are both financial and technical constraints.

Funding investments will be difficult as public budgets are stretched, and improving water connections is a complex process. This is particularly true in informal settlements that normally lack other basic services, meaning that many aspects of the built environment need to be upgraded at the same time, necessitating significant investment and the involvement of various institutions. 

Given the importance of water to development goals, multilateral lenders could step in to provide funding and expertise for specific projects. At the same time, there is room for more private sector involvement. In Brazil, for example, a new legal framework mandating that near universal access to drinking water and sanitation must be achieved by 2033 has opened the water market for public-private partnerships and increased the pace of investment.

As set out here, water feeds into myriad challenges facing the region. It could lead to a new era of prosperity if governments can figure out ways to secure supplies for industrial users that drive growth, or it could contribute to social unrest and conflict if households, communities, and nations feel that their right to water is being violated.

Taken together, these constraints have limited progress in shifting the region’s energy mix, meaning that decarbonisation and hydrocarbon dependence continue to coexist at a time when the advance of climate change and shifting political coalitions have made the path forward even more complex. In this light, it becomes clearer that the energy transition has not stalled but rather been reconfigured.

As things stand, fossil fuel exports continue and are growing in many producing countries, while these same countries continue to pursue decarbonisation domestically. However while the electricity sector has seen significant progress in this regard, many other parts of the economy remain reliant on fossil fuels, holding back a wider phase out that many had hoped would be possible.

Although the ambition remains, there are considerable structural constraints, including a shortfall in investment in transmission and distribution infrastructure, which has held back the energy transition in transport and other economic sectors. According to the IEA, annual grid investment in the region needs to double to US$30bn in 2035 under the stated policies scenario (STEPS), which is “designed to reflect the prevailing direction of travel for the energy system,” and reach US$47bn under the Announced Pledges Scenario (APS), which forecasts the trajectory “if all national climate and energy commitments…are implemented fully and on time.”

Even $164bn in dedicated sustainable finance has barely shifted the overall energy mix, demonstrating that increased renewable generating capacity has been additive rather than replacing fossil fuels. 

Then there are domestic political concerns. In Mexico, for example, the government is spending considerable public funds to support Pemex despite warnings about the effects on public finances. 

At the same time, the global demand curve for fossil fuels has shifted, with the IEA revising its forecast for peak oil, and the conflict in the Middle East disrupting existing supply chains, making continued investments more viable. Multilateral pressure to advance the energy transition on climate grounds has receded, and the geopolitical environment rewards a hybrid approach.

This enables fossil fuel producers to continue exploiting oil and gas reserves for export while working to boost decarbonisation domestically, as the two systems don’t compete for physical inputs. For example, Brazil continues to develop its large and growing fossil fuel industry while having one of the cleanest electricity mixes in the world. Countries like Chile are also on a hybrid track, but from the opposite angle. Its geographical advantages mean it has some of the cheapest wind and solar power on the planet, but it still relies on imported oil to power almost all of its transportation.

There are, however, various tensions in this relationship. Bueno de Araujo, of the Arayara Foundation, has argued that the hybrid model increases dependence on fossil fuels instead of strengthening the transition, as the two sectors compete for a limited pool of capital. The fact that Petrobras has deprioritised investment in renewables while boosting fossil fuel exploration is a clear example of this dynamic, with a desire to grow exports crowding out much needed investment in the transition. 

As mentioned, De Araujo has also questioned Brazil’s President da Silva’s assertion that fossil fuel exports are used to finance investments in decarbonisation, pointing out that this entrenches a fiscal dependence on oil and gas, making it more difficult to wind down these industries in favour of clean energy alternatives. While the logic follows, at this stage it is impossible to draw a firm conclusion as regional governments may still find ways to resolve these tensions, such as setting up dedicated funds, working on mechanisms to shift capital away from hydrocarbons or forming political coalitions that acknowledge and are willing to absorb some short-term fiscal pain in order to phase out fossil fuels. 

One intriguing existing system is Argentina’s Rigi framework, which covers both hydrocarbons and renewables and is therefore the only formal embodiment of this dual-track approach. Given the fact that projects must be approved by the government before they can receive the benefits of the framework, officials could technically influence the direction of travel in the country’s energy sector. Nonetheless, President Milei’s libertarian ideology means that these approvals will likely be made on technical and economic grounds, rather than a desire to advance any particular policy. On the other hand, the framework could provide an inspiration to other governments more interested in pursuing the energy transition in a more active way.

In summary, significant investment will be necessary to progress the energy transition beyond the electricity sector, where the economic incentives are clear and the funding requirements are most commercially self-funding, but in many countries this low hanging fruit has already been picked. Whether or not the political will exists to try and resolve the tensions around capital allocation and fiscal constraints depends on the specific conditions in each country: the election of a swathe of right-leaning governments in the region makes this less likely on ideological grounds, but economic logic could drive the transition to a certain extent.

NGOs operating in Latin America are so numerous and so diverse that it is difficult to arrive at conclusions that are applicable across countries and very different types of organisations, issues, and campaigns. This report mentions only some of those that have developed in the last few years. However, it does seem possible to make two main points.

The first is that civil society matters, particularly as far as new ways of thinking and addressing problems is concerned. The NGOs that focused on protecting the Amazon, or human rights organisations, have raised awareness and helped change the way societies think about things. While global warning remains an existential challenge, public opinion is now more aware of the problem, thanks in part to the NGOs. Likewise, while Latin American democracies are flawed, civil society activists have helped identify potential ways of repairing them based on respect for human rights and the development of responses to corruption and crime.

The second point is that the future role of NGOs is uncertain but still immensely important. Some may be crushed by authoritarian governments, and some may make errors of judgement. There is no guarantee that NGOs will help necessarily repair the ‘democratic deficit’ in Latin America, but in the next five years some may have an opportunity to try.  

As we have seen, sanctions are expanding, becoming increasingly diverse, covering not only countries but also individual persons or entities, and in some cases are very tightly targeted to prevent particular activities such as drug trafficking or human rights violations. Governments such as the US and others have also sought to calibrate the way sanctions are applied, periodically tightening and loosening them as part of cyclical movements in political and diplomatic negotiations. This has highly significant implications for corporates. It means companies operating in, or trading with Latin America, need to do a lot more due diligence and compliance work than in the past, particularly in areas such as KYC (know your customer). A few examples will illustrate the nature of this challenge.

In January 2022 OFAC revealed it had reached a settlement totalling US$91,172 with Airbnb Payments, part of the US-based online accommodation and rental platform. OFAC stated that Airbnb had violated CACR regulations by processing payments for non-approved categories of travel to Cuba and had failed to keep records of transactions as required under the Obama administration’s travel rules introduced in 2015. Those rules permitted 12 types of travel such as that connected with family visits, journalistic activity, support for the Cuban people, and educational activity. However, they did not allow tourism as a specific stand-alone category.

After conducting an internal review of its compliance programme Airbnb said it had unwittingly facilitated thousands of transactions in violation of the CACR, including those relating to individuals travelling for non-approved purposes. It admitted failing to keep effective records of these trips. The company said this was partly because of the pressures created by its attempt to scale up its booming Cuba business at speed. Significantly, the management also discovered that newer and older versions of its mobile app had been allowed to function side-by-side. The older version of the app allowed customers to book Cuba travel without requiring them to confirm the purpose and official travel category for the trip. Corporate analysts suggest Airbnb’s prompt investigation and cooperation with OFAC led to a comparatively modest settlement (the maximum statutory penalty was US$600m).

In April 2022 OFAC also reached a settlement with US based mining group Newmont Corporation. This time the value of the payment was US$141,442. This case also involved the company admitting to having violated economic sanctions against Cuba as listed in the CACR. The background was that in 2016, operating through its Suriname subsidiary, Newmont had entered an agreement with a third-party distributor to supply explosives for use in a local gold mining project. The distributor in turn had contracted with a Cuban company, Unión Latinoamericana de Explosivos, to supply the explosives: consignments were imported into Suriname on at least four separate occasions. This was a clear violation of the CACR which states that wholly owned subsidiaries of US corporations are subject to the same trade bans as their US parent company.

According to OFAC, Newmont said the illicit transactions had been processed by an employee who had not participated in the company’s export and trade sanctions training programme, and who did not realise the significance of the transaction. Making matters worse, Newmont Suriname’s purchase orders did not include sanctions-related representations and warranties, nor did it require the subsidiary to provide country-of-origin information on goods shipped.

Sometimes corporate risk management systems simply do not work as intended. US-based TD Bank NA (TDBNA) admitted a failure to comply with aspects of the Foreign Narcotics Kingpin Sanctions. It said that over a four-year period it had processed 145 transactions, worth just over US$35,000 for an account holder, Esperanza Caridad Maradiaga López, a Honduran citizen who had been designated by OFAC in 2013 for alleged membership of the Los Cachiros drug trafficking organisation. While opening two accounts in a Miami branch of the bank, an on-screen automatic alert appeared. However, because a sanctions screening databank match was only partial, a bank employee reportedly dismissed it. Four further alerts were generated by the screening system over the next four years but were all over-ridden, until a fifth alert was fully investigated, and the account was finally closed. Highlighting system weakness, after closure TDBNA’s fraud team accidentally credited and re-opened one of the suspect accounts, apparently unaware of the history behind it.

Some economists believe Sheinbaum inherited Mexico’s biggest budget black hole since the 1980s, at an expected 5.9% of GDP this year. She aims to reduce it by over two percentage points, down to 3.0%-3.5% in 2025, but, since she has also promised not to increase taxes, it is hard to see exactly how this will be achieved. Finance minister Rogelio Ramírez de la O, who Sheinbaum is keeping in post (he previously served under AMLO), has sought to reassure the markets by saying that this year’s big deficit largely reflects one-off spending to complete the outgoing government’s big infrastructure projects such as the Olmeca (Dos Bocas) refinery, the AIFA airport in Mexico City, and the Mayan tourist train. Sheinbaum herself has been quick to reassure investors saying, “We are going to maintain a responsible equilibrium between debt and GDP, and we are not going to increase the debt”. The country’s current public debt-to-GDP ratio is 45.5%, low compared to many other countries in the region.  

A report by think tank Centro de Investigación Económica y Presupuestaria (CIEP) says, however, that completing the big infrastructure projects will free up resources next year equivalent to only about 0.5 percentage points of GDP. It also assumes that lower international interest rates will cut the cost of servicing public debt. But it is not clear what else the government can do to secure total savings of over two percentage points of GDP next year. Sheinbaum has explicitly ruled out tax increases, which her predecessor also avoided and which many analysts say are overdue. Under AMLO, welfare programmes, the minimum wage, and state pensions were all increased. It is hard to see how a left-wing government which won the election defending these social programmes could now reverse its position. The new government will have another headache: the poor financial state of Pemex increases the burden on the treasury.

Sheinbaum says her government is considering other deficit-reducing measures. She has hopes for digitalising the public sector and the tax collection agency SAT, which, she believes could significantly reduce operating costs. Revenues from ports and customs could also be increased. However, BBVA Mexico chief economist Carlos Serrano takes a bearish view. He says that in the medium term, Mexico must find a sustainable way to reduce the fiscal deficit to around 2% of GDP. If it fails to do this, towards the end of Sheinbaum’s six-year term the debt-to-GDP ratio could rise to around 60%, increasing the possibility that Mexico may lose its investment grade status with the international ratings agencies.

The second wave of the pink tide is a reality and, as we’ve mentioned, there is a strong possibility that Brazil will add momentum by electing Lula in October of this year. Yet the outlook for the second wave is at best mixed. This is because in Latin America, as a rule, it is easier to win elections than to govern effectively. In addition, there is a fundamental disconnect of time scales. Most of the key problems – from poverty and low competitiveness, through to corruption, high crime rates, and low-quality education – will require persistent attention over the medium to long term, most likely measured in decades. Yet political leaders get elected between every four and six years, and, including mid-terms, elections occur roughly every two years. As a result, politicians face an enormous temptation to adopt populist approaches, using misinformation and ‘post truth’ marketing techniques.

A core forecast therefore is quite pessimistic. This is that governments composing the second wave of the pink tide during the 2020s will perform less well than did those in the first wave. Crudely put, this is because they are taking office in a less supportive international context. These governments will also face bigger problems (for example not just demands for greater equality of opportunity but also the simultaneous need to pursue a wide-ranging climate change agenda). Unlike with the first wave, there is unlikely to be a new commodities boom to give them some extra fiscal room for manoeuvre. And unlike with the first wave, the rise of a new form of populism and political polarisation will make it more difficult to build consensus around much needed reforms, which will also be held back by the traditional political elite.

This is not to say that all will fail. The governments with stronger institutions are likely to do better, together with those leaders able to build consensus, think on a more long-term basis, and who are also able to spot and exploit innovative trade and investment opportunities.

It’s not over yet. Some early thoughts about the post-pandemic world are also worth considering, the first of which is that it’s not over yet. The rapid deployment of Covid-19 vaccines has led in some countries to promising signs that contagion and mortality rates are at last reducing. But, not for the first time, there is a danger that countries can become over-confident and complacent. While mass immunisation does appear to offer a solution, there are still many unknowns, including the emergence of new and more aggressive strains of the virus. Immunisation will take longer and be less affordable for poorer countries. For many, recovery will not come in 2021, with the pandemic stretching into 2022 and even 2023.

Poor disaster planning. Among the lessons learned is the revelation that there are gaps and weaknesses in Latin America’s disaster planning systems. In fact, the tendency has been to consider disasters as fundamentally exceptional events. However, at both national and regional level, climate change, natural disasters, and medical pandemics are becoming more frequent. While hopefully events like the Covid-19 pandemic will remain once-in-a lifetime ‘black swans’, lower impact events happen every year and require more effective coordination between governments, policy makers, and scientific experts.

‘Building back better’. Improving the region’s shaky finances and heading off a new foreign debt crisis will require multi-year efforts by a variety of key players without, at this stage, any guarantee of success. It is clear that LAC governments need a medium-term plan to increase their fiscal resources and to restore depleted financial reserves. This will be needed in part to ‘build back better’, particularly in infrastructure, but also to strengthen resilience to future external shocks. Health spending-to-GDP ratios need to be increased with significant new investment going into public health. International financial institutions and wealthier countries will also need to consider financial assistance and debt reduction or write-off schemes to help the poorest and most heavily indebted countries in LAC avoid defaulting. 

Unhelpful politics. Politicians in a number of LAC countries have fallen short of voter expectations, and even in optimistic scenarios for the future this will continue to be a problem. The current wave of populist leaders largely failed to take scientific advice, failed to understand the severity of the pandemic, and continued to seek short-term political advantage, blaming others for any setbacks.

The optimistic scenario. The optimistic scenario for LAC in the next few years is that mass immunisation will force the pandemic to recede, while a strong economy in China, coupled with an exceptional recovery in the US and a slower revival in Europe, will lead to a new period of global growth. Already the prices of key regional export commodities (copper, soya, petroleum) are picking up, and the idea of a new ‘roaring twenties’ may not be too far-fetched. If that happens the region will have a unique opportunity to recover and invest in more inclusive and sustainable growth. The danger is that, as in the previous commodity boom, politicians will focus instead on short-term consumer booms and prestige projects. How the region manages post-pandemic recovery will be one of the key issues of the decade.

Like Chile, its southern neighbour, Peru has a long history of mining production and expertise. A recent report from consultancy KPMG says Latin America is emerging as a supply-side challenger to Chinese rare earth dominance in production and refining. By KPMG’s assessment Brazil has rare earth proven reserves of approximately 21m tonnes, followed in second place by Argentina with 3.3m tonnes, and Peru as a player with “high geological potential”. Juan Carlos Mejía, energy and natural resources lead for KPMG Peru, says the challenge isn’t just to exploit rare earth reserves, but to “transfer their role within the value chain”.

“Peru has an opportunity to stop being just a base metal exporter, transforming itself into a strategic hub for global technology security”, he says, adding that the real transformative impact of REEs will depend on the country’s ability to build and operate refineries and avoid ending up with a narrower role solely as an exporter of unprocessed mineral ore. He adds that companies working with raw earths will have to meet ESG principles (environment, social, and governance) and be open to scrutiny. It would be advisable to create a view of rare earths as “green and ethically produced”, he suggests. Mejía adds that rare earth demand will outstrip supply in 2026-2030, presenting Peru with an opportunity to enter the expanding market.

Initial finds in the regions of Junín and Puno are said to be promising, but much will depend on a favourable regulatory framework and on political and tax stability to reassure would-be investors. In September 2025 Ingemmet, Peru’s geological survey, said it had found rare earths in deposits in Chanchamayo, Junín, with a TREO (total rare earth oxide) ore concentration of 1.09%-5.03%. Exploration in the Capacsaya project in southern Perú has revealed the presence of rare earths in association with minerals like monazite. Exploration has indicated the presence of both light rare earth elements (LREEs) and heavy ones (HREEs); – the latter are less plentiful and tend to be more valuable. TREO ore grades are considered promising at around 3%.

Peru’s opportunity is not without significant challenges. New mine development may be opposed by local farming communities who have suffered from undesirable side effects in the past, including water shortages and mercury, arsenic, and lead poisoning. Protests could delay the permitting process. Large mining operations also require adequate freight transport infrastructure which may be expensive and slow to put in place.

Colombia depends less on the US economy than Mexico, but it has long standing military and security links with Washington. Colombia is the world’s top producer of coca, the leaf used to manufacture cocaine. It also has one of the largest armies in the region, with direct experience of combat after decades of conflict with various types of armed rebel groups. In fact, the country remains home to Latin America’s longest lasting guerrilla insurgencies. During the presidency of Bill Clinton in the 1990s the US government signed a strategic military cooperation agreement known as Plan Colombia, which allocated around US$10bn to develop counterinsurgency, drug crop eradication, and the strengthening of the state’s presence around the country. Despite that history of collaboration, Trump has favoured an adversarial approach to left wing Colombian president, Gustavo Petro, now in the last of his four-year presidential term.

Petro has had a volatile, largely social media-based relationship with Donald Trump. In September last year the US withdrew Petro’s travel visa after the Colombian leader took part in a pro-Palestinian demonstration in New York. In October Trump called Petro an “illegal drug leader’”. After US strikes on suspected Colombian drug trafficking boats Petro accused Trump of committing “murder”. In January, after US forces captured Venezuelan president Nicolás Maduro, Petro said the US was guilty of kidnapping. Trump responded by saying that Petro should “watch his ass”. On 4 January Trump threatened Colombia with military action, eliciting a 677-word social media response from Petro claiming he would “take up arms” if needed.

Despite these verbal fireworks the two men had what they described as a “cordial” meeting in Washington on 3 February. They said they had agreed to work together to counter narcotics flows from Colombia into the US. Petro said he asked Trump for help to capture drug cartel leaders living outside Colombia. The US president said they had also discussed economic sanctions and collaboration to market Venezuelan gas.

General elections are due to be held on 31 May. Petro cannot stand for re-election because of term limits, but his leftwing coalition is supporting former senator Iván Cepeda, who is currently one of the front runners according to opinion polls. The other front running candidate is a far-right political outsider, Abelardo De La Espriella. Also still in with a chance are the centrist former mayor of Medellín Sergio Fajardo, and a representative of the traditional right, Paloma Valencia. If Cepeda, who is widely seen as less volatile than his mentor Petro, wins he will face multiple challenges. Peace talks with various rebel groups are stalled. The Petro government is unpopular with business. There is also bad blood between the outgoing president and congress. Cepeda might struggle to develop an effective anti-cartel policy that can attract US support and persuade Trump to shelve his threats of military intervention.

While centrists Fajardo and Valencia might achieve a more constructive dialogue with the US on drugs and crime, they are significantly down in the presidential race ranking. the real surprise could come from De La Espriella, a lawyer who supports hard line security measures, harsher sentencing, and building more prisons. He has promised to break diplomatic relations with Cuba and Nicaragua. He champions traditional family values and opposes the ideas of gender identity, abortion, and feminism. He has publicly praised Trump.

INTELLIGENCE RESEARCH HIGHLIGHTS

TO: All Strategic Intelligence Forum members

DATE: 16 February 2007

The Strategic Intelligence Forum is part of the Intelligence Research group, and as a member of the Strategic Intelligence Forum I am very pleased to send you from time to time a selection of reports published recently by Intelligence Research Ltd that I consider to be of particular STRATEGIC significance. Please find below my latest selection of Intelligence Research articles:

1. INDO-RUSSIAN DEFENCE COOPERATION - AsiaInt Political & Strategic Review, February 2007

SUMMARY: Russia and India are increasingly diversifying their partnership in defence matters. As the term of the 1996 agreement covering military to military cooperation expires, a new accord marks the ever-expanding ties between the Indian and Russian ministries of defence. Here we examine in detail Russia’s techniques for marketing its arms to India and the deals currently on the table...

Link to full article: http://www.asiaint.com/arl/arl12988.asp

2. SRI LANKA GEARS FOR WAR - AsiaInt Political & Strategic Review, February 2007

SUMMARY: With Sri Lanka’s peace process now a thing of the past, attention has turned to the government’s preferred solution to the ethnic conflict: military victory. President Mahinda Rajapakse has created a majority coalition wedded to the idea of "peace through war", and his forces have captured a major rebel stronghold. However, this will not be enough to defeat the Liberation Tigers of Tamil Eelam (LTTE)...

Link to full article: http://www.asiaint.com/arl/arl12992.asp

NOTE: Links to these - and other - reports can also be found in the Strategic Intelligence Monitoring Centre, which you may access on a 24/7 basis by going to www.stratintforum.com, logging in as a member, and selecting the Strategic Intelligence Monitoring Centre option.

With best regards

JKC de Courcy
Chairman
Strategic Intelligence Forum

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The surge in sales of Chinese EVs in Brazil is triggering a strategic re-think among some of the incumbent industry players. In June GM announced the launch of a range of new EVs and hybrids on the local market including four electric Cadillacs (Optic, Lyric, Vistiq, and Escalade) a hybrid Corvette and an electric Sierra pick-up. Fabio Rua, GM vice president for Latin America, said the launches were creating a “new GM”. Henceforth the company would seek to offer its Brazilian customers “the best GM models in both the United States and China, to strengthen the Chevrolet brand”.

Rua said the company did not yet have all the import licences it needs but insisted that its future will depend on its ability to import or assemble both North American and Chinese models. The Chinese contribution is expected to come in part through Wulling, a company in which GM has a 45% stake, and which currently manufactures the Chevrolet Spark EUV and the Chevrolet Captiva EV in China. There will also be collaboration via SGMW, a joint venture company formed by China’s SAIC and GM.

Rafael Santos, GM Vice President for Operations, said that China is “fundamental” for the future of GM in Brazil, since its EV technology is more competitive than that used by US and European competitors. Although recognising the importance of hybrids in the Brazilian market, GM is still planning to produce 100% electric models by 2035.

By way of conclusion, it is worth asking – and seeking to answer - four questions that have run through most of the narrative of this report.

Does the Tren de Aragua exist? The answer is yes, definitely so. Over the last decade multiple sources, testimonies, news outlets, and events have all confirmed the organisation’s presence and growth in Venezuela and neighbouring countries. There is also convincing evidence of Venezuelan government complicity in the Tren’s activities, including the contract killing of Ronald Ojeda.

It is also true that no organisation lasts forever and that the Tren suffered a serious setback in 2023 when the Venezuelan government changed position and raided its headquarters in Tocorón prison. The future for the Tren is therefore uncertain. It may be able to rebuild its operations, move its headquarters to Bolívar state and reassert central control of its subsidiary cells in Colombia, Peru, and Chile. On the other hand, however, those cells may fragment and become independent, changing their name along the way. Indeed, the Tren may choose to rebrand itself entirely, adopting a new name for the whole operation.

Is the Tren de Aragua invading the United States? Emphatically no. Neither is the Cartel de los Soles, another Venezuelan cartel identified by Trump. The reality is that it has suited President Trump to talk up the threat posed by the TdA and the Cartel de los Soles, to create a sense of national emergency so as to meet the criteria for invoking the Alien Enemies Act of 1798, itself seen as key to firing up the mass deportations that Trump promised during the election campaign.

US law enforcement agencies say the Tren is present in many cities and states, including El Paso, New York, Chicago, Texas, and Colorado and is involved in drug dealing, theft, sextortion, and shootings. But running criminal operations in another country falls well short of the dictionary definition for invading it. The Tren’s criminal US presence is in any case much smaller than, for example, that of Mexico’s Sinaloa or CJNG cartels. There has been much media coverage of Tren activity in the city of Aurora, Colorado, but this has involved around 12 people in a city of 400,000. According to the Washington Post, a National Intelligence Council (NIC) assessment earlier this year found that the Venezuelan government was not directing an invasion of the United States by the TdA prison gang.

Is immigration driving up crime rates in Latin America? The best short answer is “it depends”. The forced mass exodus of Venezuelans after 2014 clearly created opportunities for criminal groups like the Tren to exploit their vulnerability as they sought refuge in other countries, cashing in on people trafficking and extortion, and from there diversifying into other criminal activities.

However, there is no evidence of a strong and underlying link between migration and increased crime, a talking point much loved by a whole generation of Latin American populist politicians. The available research for countries like Chile, Peru, and Colombia is that immigrants commit fewer crimes than those who are native born, proportionate to population. The situation is complex; there are a number of factors in play and this may yet change. But with general elections due in all three of those countries in the next 12 months, and nationalist sentiment on the rise, it is likely that many politicians will continue to wrongly assert that immigration raises crime rates.

Will the US begin mass deportations of Latin Americans? Probably yes. As we have seen, deportations have increased in the second Trump presidency, but they still fall short of an ambitious target of 1m a year. Stepping up deportations was an election promise which still seems to attract support: 57% in July according to a Marquette University poll (although this was down from 68% in March). The Republican congress is supportive, and the ICE budget has been boosted. However, the courts may still impose legal restrictions on the kind of express deportations the administration is seeking, and depending on his wider performance, Trump could lose next year’s mid-term elections turning one, or both houses of congress against him.  

Intelligence community sources in both the US and Europe are warning that the recent spate of prosecutions of individuals on charges linked to Chinese espionage are likely to represent only a fraction of a much wider threat to the economic and security interests of Western nations. And they are also highlighting the increasing use of ‘non-traditional’ intelligence assets in Beijing’s battle to win economic advantage over foreign competitors.

Key pointers include:

- A marked rise in suspected cases of industrial and technological espionage during 2006

- The rising numbers of Chinese academics, students, and visiting delegations suspected of involvement in information gathering on behalf of the Chinese state

- Reports of pressure being placed on Chinese nationals resident abroad to assist Chinese intelligence agents gather material

- China’s continuing economic growth – an average of 10% per annum over the past four years, with projected growth for 2007 only down slightly to 9.5%

- Beijing’s ambitions to increase its export market share of high technology products and components

Although there has been increasing concern over Chinese economic espionage against the West for a number of years, some intelligence community specialists are now suggesting that the current focus of Western intelligence agencies on what are seen to be ‘more pressing’ issues – particularly counter-terrorism – means that counter-espionage has not been prioritised by domestic intelligence agencies, either in the US or in Europe. However, given the enormous economic threat posed by Chinese industrial espionage there are signs that the risk is now being taken far more seriously.

One recent case was the prosecution of two US-based engineers (one a US citizen of Chinese ancestry and the other a Chinese permanent resident of the US) who have entered guilty pleas on charges of economic espionage to benefit a foreign nation – the first time such prosecutions have been brought by US authorities. Both men were apprehended by US Federal Bureau of Investigation (FBI) agents shortly before they boarded a flight to China.

The case is particularly significant because the FBI actually found highly confidential – and commercially valuable – material stolen from four Silicon Valley companies. According to US prosecutors, the espionage was part of a plan to set up a Chinese government-backed microprocessor operation in China. The two men face maximum terms of 30 years in prison when they are sentenced in late April 2007. However, the actual sentences handed down are likely to depend on the extent of the intelligence they are willing to provide to US investigators.

Similar charges have also been brought in a separate case involving the alleged theft of military equipment data which was to be used to "benefit the foreign governments of China, Thailand, and Malaysia" according to the official US indictment. In this case, the individual concerned – a Canadian citizen of Chinese origin – has denied any wrong doing.

Using students and academics as assets

Another current case in the US involves the alleged sale of microprocessors with potential missile applications by a Chinese academic to the Chinese state. In all, US investigators are currently probing around 400 suspected cases of economic or technological espionage involving illegal transfers to China.

Of even greater concern, however, is that many of those suspected of involvement in these activities are not professional Chinese intelligence agents. Many are visiting academics, students enrolled in Western universities and colleges, or members of official trade delegations. In some cases, investigators have discovered evidence that fake companies are being created to facilitate illicit technology deals. Some estimates have put the number of suspect firms operating in the USA at over 2,600.

Australia also targeted

The recent upsurge in prosecutions and indictments in the US demonstrates that Washington is facing up to a threat that many within the international intelligence community have been warning is escalating. There are wider parallels with events in Australia in June 2005 when Chinese consular official Chen Yonglin defected amid claims that Bejing had "up to 1,000 spies" operating within Australia and was also using its network of agents to "kidnap" Chinese dissidents in order to return them to China.

Although Beijing condemned its former official’s claims as "fabricated" and "purely fictitious", the affair shed rare light on the extent of China’s alleged intelligence activities abroad. Chen’s assertions were backed shortly afterwards following confirmation of certain details by another defector, this time a former security officer named Hao Feng Jun.

Hao’s claims focused mainly on Beijing’s operations to spy on dissidents in Australia. However, whilst the Australian authorities were reluctant to grant either man political asylum – or give their claims any official credence – amid concerns that the controversy might damage Australian-Sino relations, the US appears to be willing to take a much tougher line in order to safeguard its economic interests.

Concern over Chinese espionage activities in Britain have been mounting since warnings were given by the country’s domestic Security Service MI5 in late 2005 that the level of intelligence gathering by Chinese agents was becoming a threat to national economic security. Likewise, a defection in Belgium in 2005 led to the exposure of various front organisations for Chinese espionage activities such as the "Chinese Students’ and Scholars’ Association". Similar concerns have been raised in Sweden, as well as by national intelligence services across the EU.

We predict that with increasing numbers of Chinese students enrolling for courses abroad – one leading UK university’s business school recruits over 60% of its postgraduate students from China, most of whom are sponsored by the Chinese state or firms with close links to the government – the threat posed by Chinese economic intelligence-gathering is likely to remain a key risk. At present, the US seems willing to prosecute individuals involved in economic espionage, but other countries have not yet demonstrated the same determination to launch their own crackdowns against Beijing and its networks of intelligence agents and assets. SIR.

One interesting theme for governments and energy industry players is the concept of a post-pandemic green recovery. The essential idea is that long term investment in green infrastructure will help societies recover from the short-term disruption and lob losses caused by Covid-19, while at the same improving society’s ability to deal with the threat of long-term climate change. Various politicians have sought out slogans to encapsulate the idea, such as ‘build back better’ or ‘build back greener’. While they may not always get it right (since uncertainty over both the pandemic and the way climate change will evolve remains high) the data suggests green investments could play a highly positive role in the LAC region over the next decade.

According to an IDB report, investing in the energy transition could make a significant difference. The report calls for more private investment, decarbonisation, decentralisation and digitalisation, and for more renewable energy contract auctions. It says fossil fuel subsidies should be reduced and carbon pricing should be used to encourage the transition. Fossil fuel energy subsidies are estimated to total around US$171bn a year in LAC, or 4.5% of GDP. They are considered regressive as they tend to favour wealthier energy users, who benefit proportionally more than the poor from price controls on oil, gas, electricity, and coal. The IDB says that modernisation of hydroelectric plants could help them provide roughly 50% of the region’s electricity. There are also gains in efficiency to be harvested from updating equipment and infrastructure, and from policies designed to boost storage and battery technology.

The report cites the IMF, which has calculated that in roughly the first nine months of the pandemic governments around the world paid out US$11tn in emergency funding, half to cover direct losses and expenses, and half in fiscal stimulus through public sector injections of capital and loans. The IDB says: “These stimulus measures are expected to generate investments in renewables and other technologies related to the energy transition, worth US$2tn in 2021-2023, and they will achieve an annual investment of US$4.5tn until 2030. The IDB calculates that for every US$1m invested, 25 jobs in renewables and 10 in efficiencies will be created. There are however obstacles holding back the desired investment in renewables, particularly in LAC economies, namely high levels of foreign debt.