All Categories

JUDICIARY | Martinelli honours his pledge. On 26 June President Ricardo Martinelli of Panama announced the approval by his cabinet council of a resolution leaving without effect the designation of three magistrates for the proposed fifth chamber (chamber of constitutional guarantees) in the supreme court. The move comes six days after Martinelli pledged to back down over the initiative, which along with proposed reforms that would allow the State to sell its shares in the telecoms and energy sectors, had proved highly unpopular.

Attorney General Roberto Gurgel has done the unthinkable - he has opened an investigation into the allegations of financial impropriety levelled at the former president, Lula da Silva (2003-2010) by one of the convicted ringleaders of the mensalão, Marcos Valerio. The government led by Lula’s successor, Dilma Rousseff, has mounted a damage-control campaign.

Lula himself is contemptuous of Valerio’s claims that not only did he know about the congressional cash-for-votes bribery scheme, for which his former number two José Dirceu is facing a 10-year prison sentence, but that he himself profited from it, using some of the public cash siphoned off for the scheme for his own personal expenses. Valerio, a former publicist charged with overseeing the money side of the mensalão, was sentenced to over 40 years in jail and fined US$1.3m. Convicted early on in the trial, Valerio vowed not to go down alone and he has sought to reduce his sentence by cooperating with the authorities.

On 19 December Gurgel said he would give Valerio’s testimony his “attention”, although he stressed that Valerio has made misleading statements in the past. “Marcos Valerio has frequently made statements that he considers bombastic and when we analyze them in depth, there’s nothing there. But we’re going to see what’s behind this statement and whether it could be the basis for other investigations. As always, nothing will fail to be investigated.”

Apparently, Valerio originally made his allegations against Lula in testimony to federal prosecutors in September, and the file later made its way to a leading opposition daily, O Estado, which ran the story in November. Critics note that Valerio gave his testimony after his conviction by the supreme court but before he was sentenced.

Lula, who has always denied the very existence of the mensalão, maintaining it was an opposition-concocted conspiracy against his left-wing labour government, has previously called Valerio a liar. Announcing plans to tour the country in 2013 in a bid to reinforce support for President Rousseff ahead of the 2014 general elections, Lula said the attacks on him were electorally motivated (see sidebar).

• Lula

“There is only one chance of them beating me; by working harder than me. A hobo, speaking ill of me from an air-conditioned room, is going to lose,” former president Lula da Silva quipped in response to accusations made against him by one of the convicted ringleaders of the mensalão, Marcos Valerio.

COLOMBIA | Se elevan las exportaciones de café. El presidente de la Federación Cacional de productores de Café de Colombia (FNC), Luis Genaro Muñoz, reveló esta semana que las exportaciones de café se incrementaron un 58% año en año en agosto, llegando a 920.000 bolsas de 60kgs. El resultado es sorprendente considerando que desde mediados de agosto, el sector rural de Colombia, liderado por los productores de café en pequeña escala, ha estado en una huelga nacional en demanda de mayor asistencia económica del gobierno nacional.

La huelga ha sido doblemente dañina para el sector, pues ha estado acompañada por extendidos bloqueos de carreteras que virtualmente han paralizado al país. Esto ha sido particularmente cierto en Colombia central donde están .localizados los departamentos mayores productores de café tales como Risaralda, Quindío, Tolima, y Huila (que en años recientes se ha convertido en el mayor productor).

Sin embargo en una carta abierta dirigida a todos los afiliados de la FNC, Muñoz dijo que “a pesar de las dificultades logísticas de los últimos días en agosto”, las cifras de exportación han probado ser “muy positivas”. De hecho, las cifras de la FNC muestran que las exportaciones durante el periodo de 12 meses hasta agosto fueron de 8,2m de bolsas, un 20% más que en el comparable periodo anterior.

En su carta, Muños urgió a sus colegas productores a concentrarse en mantener los niveles de producción y no continuar con la interrupción. “Una vez que la tormenta haya pasado, y el país comience a reflexionar sobre lo que ha pasado en las últimas semanas, la idea de retornar el foco sobre lo que es sustancial en vez de lo que es meramente transitorio, circunstancial, se volverá más fuerte, permitiéndonos concentrarnos en los resultados”, Muñoz concluyó.

En un impulso más para los productores de café colombianos, el 9 de septiembre el ministro de desarrollo, industria & comercio de Brasil, Fernando Pimentel, reveló que Brasil actualmente está analizando la posibilidad de permitir a los productores del país importar granos de café colombianos en un intento por mejorar la calidad de la mezcla local. Brasil es el mayor productor y exportador de café del mundo. El director de la Companhia Nacional de Abastecimento (Conab, la agencia estatal a cargo de aplicar la política agrícola del gobierno), Silvio Porto, explicó que la idea de importar granos colombianos había sido propuesta por productores locales de grandes escala como una manera de encontrar nuevos mercados extranjeros: “El sector industrial del café cree que dentro de las políticas de nuestro gobierno podríamos autorizar la importación con la visión de hacer [nuevas] mezclas para así exportarlas a nuevos mercados”, Porto dijo.

ECUADOR | Déficit comercial. El 10 de Septiembre el Banco Central de Ecuador (BCE) difundió sus últimas cifras económicas mostrando que el país tuvo un déficit comercial de US$425,6m en el periodo que cubre enero-julio de este año. El resultado contrasta con los superávits comerciales registrados por Ecuador en los periodos comparables en el 2011 y el 2012. De acuerdo con las cifras del BCE, el déficit representa una sustancial caída de US$725,4m del superávit de US$299,8m registrado en el mismo periodo del año pasado.

Preocupantemente para el gobierno del Presidente Rafael Correa, las cifras del BCE también muestran que el déficit es una consecuencia del resultado negativo en la balanza comercial del sector petrolero que exhibió un superávit de US$4,77mm, un 12,4% menor que en el periodo comparable del 2012. Esto fue consecuencia de que las importaciones de combustibles y lubricantes refinados que se incrementaron un 11,9% en volumen  y un 12,3% en términos de valor durante el periodo. Por otro lado, el sector no-petrolero registró un déficit comercial de US$5,196mm, un incremento del 1% comparado con el mismo periodo del año anterior.

El déficit comercial –particularmente en el sector petrolero, uno de los pilares de la economía del país– es motivo de preocupación para Correa y podría explicar su súbita decisión de estimular la producción de petróleo buscando más agresivamente explorar en áreas previamente inexploradas, incluidas las regiones amazónicas del país.

PERÚ | Líder de crecimiento emergente. El ministro de economía de Perú, Luis Miguel Castilla, dijo la semana pasada que pese al desfavorable ambiente económico global, la economía peruana liderará el grupo de economías emergentes registrando una tasa de crecimiento de entre el 5,5% y el 6% este año.

En semanas recientes, muchos en Perú han expresado preocupaciones de que la economía podría experimentar una prolongada declinación después de que la economía interna registró un desempeño más débil de lo esperado en la primera mitad del año. Sin embargo, hablando durante su presentación del borrador del presupuesto 2014 al congreso, Castilla dijo que solamente seis de las 21 grandes economías emergentes presentarían tasas de crecimiento económico mayores del 5,5% este año, y que “Perú es uno de ellos”. Castilla siguió para agregar que “necesitamos relativizar las cosas. Estamos enfrentando un ajuste [hacia abajo] pero no un colapso”.

• Déficit comercial de Perú

Perú ha registrado su más grande déficit comercial del año en julio, en US$550m, reveló el banco central esta semana. En el mismo mes del 2012, Perú informó de un déficit comercial de sólo US$46m. Las importaciones subieron pero sólo levemente año en año de US$3,7mm en julio del 2012, a US$3,8mm en julio pasado. Las exportaciones, sin embargo, cayeron 13% año en año a US$3,2mm en julio, debido primariamente a la tendencia a la baja de los precios internacionales del cobre y el oro. Perú informó de un déficit comercial de US$1,2mm en los primeros siete meses del año, comparado con un superávit comercial de US$2,9mm en igual periodo del año pasado.

For 40 days now the usually active Twitter feed @CFKArgentina has fallen silent. After 32 days out of public view, President Cristina Fernández did finally reappear at a ceremony in the Casa Rosada palace on 22 January. However, her prolonged absence, and uncharacteristic silence, during the police strikes, looting, power cuts, dollar flight and debt negotiations that have dominated the headlines in Argentina over the past month have led many to speculate that Fernández may be in office, but not in power.

Jorge Capitanich, the cabinet chief whose daily press conferences have taken the place of Fernández’s commentaries, has had to reassure the Argentine media, and opposition politicians, that Fernández “continues to govern the country with absolute dedication”. He also criticised those who questioned whether, given the medical leave the president recently required following brain surgery, she was fit enough to do the job.

In her absence, however, Capitanich himself has repeatedly been left floundering, as he announces policies subsequently contradicted by officials close to Axel Kicillof, the economy minister. Kicillof, who has just returned from France where he was attempting to renegotiate Argentina’s debts with the Paris Club, appears to have the ultimate say in government policy. Other influential figures, such as Fernández’s son, Máximo, and her legal secretary, Carlos Zannini, are less prominent.

While some ministers, such as the interior and transport secretary, Florencio Randazzo, are openly talking about a run for the Casa Rosada in 2015, though “only with the approval and support of the president”, Kicillof has remained wisely silent on the issue. He has, however, let others talk up his prospects of becoming the candidate of Kirchnerista loyalists.

Peso devaluation

Whether an economy minister who presides over a rapidly unravelling economy stands a chance in becoming president is open to question. In the latest attempt to stop the flow of dollars out of the country, the tax office (Afip) has expanded controls on on-line purchases. Now the tax-free limit of goods bought on-line from outside of Argentina is just US$25; any more than that will be subject to a 50% tax. All goods will also have to be collected from a customs office, rather than being delivered to customers’ homes. Capitanich defended the measure as a means of encouraging Argentine production.

Meanwhile the government is taking increasingly drastic steps to bridge the gap between the official value of the dollar and the black market rate, known as the ‘blue dollar’. The gap between the two rates was around 50% at the end of 2013; in January the difference widened to around 65%. A wide gap between the two rates prompts public fears of a violent devaluation of the peso.

On 22 January the government allowed a sharp readjustment, with the official rate falling 3.4% in a day to Arg$7.125/US$1, the biggest drop in 12 years. The ‘blue dollar’, however, continues to slide: by the end of the day it was Arg$12.10 to buy and Arg$12.15 to sell. A day earlier the central bank’s foreign currency reserves fell to a new low of US$29.5bn amid continued interventions in the exchange markets.

Paris Club

Kicillof returned from Paris on 21 January “optimistic” over the possibility of Argentina rescheduling its debt with the Paris Club of debtors. Argentina stopped servicing its debts to the group at the end of 2001, and now owes over US$9bn. Though details of the deal are sketchy, the Argentine media claim the Club will demand Argentina “normalise” its relationship with the IMF. Last week Indec, the official statistics agency, released its last inflation data under the old, discredited methodology. From now on, it has to comply with IMF methods. Indec said inflation was 10.8%; a group of opposition legislators said it was 28.3%.

• Argentina has highest tax-to-GDP in region

Argentina has the highest tax-to-GDP in Latin America, the Economic Commission for Latin America and the Caribbean (Eclac) revealed in a report published in conjunction with the Organisation for Economic Co-operation and Development (OECD). The report, ‘Tax Statistics in Latin America, 1990-2012’, put Argentina at 37.3%, just ahead of Brazil, the region’s largest economy, which generated tax revenue of 36.3% of its GDP in 2012.

Few cities better exemplify Argentina’s struggle to contain rising levels of crime and drug-trafficking than the port city of Rosario, some 300km north-west of Buenos Aires. Homicides rose 76% from 2012 to 2013 as fighting over the drug trade intensified. Last year the head of the city’s police force, and its anti-drug czar, were arrested over their links with traffickers. Three lynchings by civilian mobs, including one which ended in the death of a teenager, had put the city in the media spotlight again in March this year. On 9 April, in a massive show of force that bore many of the hallmarks of the pacification programme being implemented in the favelas of Rio de Janeiro, some 3,000 federal security agents carried out the country’s largest ever drug raid in the city, resulting in the arrests of 20 people.

Agents from Argentina’s federal police, border patrol, coast guard and airport security launched 89 raids on the slums around Rosario’s periphery. The operation was the result of several months of judicial investigations carried out by the security ministry, and aimed at dismantling drug groups operating from hundreds of “bunkers”, tiny brick structures where drugs are sold. According to the deputy security minister, Sergio Berni, the objective was not to look for drug traffickers or to determine the quantity of drugs in circulation, but to occupy the territory. Around 2,000 officers, including 1,500 gendarmes and 500 coast guard officers, will remain in the city to help the local security forces. “This does not end here,” Berni said. “It’s only just begun.”

The operation was a rare example of close cooperation between the federal government and the Socialist-run province of Santa Fe. The governor of the province, Antonio Bonfatti, thanked President Cristina Fernández and Berni for their work, particularly for the professional way the operation had been carried out, with no warnings leaked in advance of the raids. Berni and the security minister, María Cecilia Rodríguez, toured the city on 14 April and announced that a further 500 provincial police officers would move to Rosario in early May in order to take control of a further 10 neighbourhoods.

If the raid follows the script of the pacification programme in Rio, the initial success may prove hard to sustain. Occupation of Rosario by such large numbers of federal agents is costly, and once traffickers have overcome their initial surprise at the state’s sudden interest in their turf, they are likely to resurface elsewhere. Juan Monteverde, leader of Santa Fe’s left-wing opposition group, Giros, welcomed the recent measures, but warned that using only “the repressive force of the state” would be a strategic mistake. “We must investigate money laundering and the other economic crimes that sustain drug trafficking,” he said.

• Government cooling over penal reform?

With insecurity dominating the list of worries of Argentine voters, the government appears increasingly unsure of whether to push ahead with its plans to reform the penal code. Though many agree, even among the opposition, that the inconsistent code needs reform, this close to an election it could prove too controversial. The recommendations, overseen by supreme court judge Raúl Zaffaroni, have been seized on by opposition politicians (Sergio Massa from the Frente Renovador, in particular) for being overly lenient to criminals, as they would see life sentences and punishment for recidivism eliminated. The reforms would also result in the inclusion of crimes against humanity; torture “by omission”; rape within marriage; and environmental crimes included in the Argentine criminal code.

Conscious of the government’s nervousness over the issue, Patricia Bullrich, a congresswoman for the opposition Unión por Todos and the leader of the congressional criminal law commission, has announced a debate on the reforms to begin on 22 April. The debate is likely to test the public’s appetite for reform and might dampen the government’s enthusiasm to send a draft version of the law to congress.

• Capitanich denies resignation

On 14 April, the Argentine media reported that Jorge Capitanich, the ubiquitous cabinet chief, was to resign following disagreements with the Kirchnerista youth movement, La Cámpora. On 15 April, Capitanich denied the story, calling it part of a systematic media attempt to attack the government and “create distrust among Argentine society”.

Mientras que la economía interna de Brasil continúa deteriorándose, el sector bancario privado del país continúa prosperando. Las ganancias del tercer trimestre en los bancos Itaú, Bradesco y Santander Brasil, excedieron las expectativas de la mayoría de los analistas, con una ganancia combinada de R$11,8mm (US$3,11mm) durante el periodo de julio a septiembre de este año, elevándose un 9.6% sobre el mismo periodo del 2014. Cualesquiera sean los horrores que aún le esperan a la economía brasilera en los próximos meses y años, una crisis bancaria parece extremadamente poco probable.

El primer informe financiero bancario difundido fue el de Bradesco, el 29 de octubre, que reveló ganancias de R$4,533mm (US$1,16mm), subiendo un 6,3% sobre el año pasado. Itaú, unos pocos días más tarde, informó ganancias de R$5,94mm (US$1,54mm) subiendo de R$5,4mm en el tercer trimestre del 2014; un incremento del 10%. Santander Brasil, el banco extranjero más grande del país, mostró ganancias de R$1,708mm (US$438m).

Con algunas de las más altas tasas de interés del mundo –la tasa de interés de referencia de Brasil, el Selic, actualmente es del 14,25%– los bancos se están beneficiando de tasas de préstamos más rentables y del dinero ganado en el comercio por cuenta propia. En tiempos de incertidumbre económica, las compras de bonos del gobierno por parte de los bancos brasileros tienden a crecer. Más de un cuarto de la deuda nacional ahora es propiedad de la industria bancaria de Brasil. El tesoro de Brasil vende bonos que protegen contra la inflación, así como también otros que incrementan sus pagos cuando se incrementan las tasas de interés o se devalúa la moneda.

La falta de competición entre los bancos también asegura la rentabilidad. A inicios de este año, Bradesco compró el holding brasilero de HSBC, un acuerdo que aún debe ser aprobado por el ente regulador del sector bancario. Pero desde la crisis bancaria de mediados de los ’90, las autoridades brasileras han estado dispuestas a alentar las fusiones y adquisiciones. Los cuatro bancos más grandes de Brasil ahora controlan más del 70% de los activos totales del sistema bancario. Actualmente, en el mercado de crédito libre, los consumidores brasileros están pagando en promedio, un 58,6%, mientras que las empresas pagan un 27,5%.

Mirando hacia delante, el futuro podría ser levemente menos brillante. Los tres mayores bancos privados esperan que crezca el nivel del desempleo, que actualmente es del 8,7%, llevando a más defaults en los préstamos. La mayoría de los analistas de los bancos no esperan significativas mejoras en la situación económica de Brasil hasta la segunda mitad del 2016. “Mientras que el escenario económico aún no es claro, las compañías y los individuos probablemente se vuelvan más cautos y pospongan sus decisiones acerca de la inversión y el consumo”, dijo Marcelo Kopel, el director de relaciones con los inversionistas en Itaú. Un posible incremento en el impuesto sobre las transacciones financieras también está preocupando a los ejecutivos bancarios.

• Participación de Petrobrás en reservas ‘pre-salinas’ podría reducirse

El 31 de octubre el ministro de finanzas de Brasil, Joaquim Levy, dijo que las actuales reglas que aseguran que Petrobrás debe tener una participación de al menos 30% en los yacimientos ‘pre-salinos’ en las costas del estado de Rio de Janeiro, podrían ser revisadas. Los descubrimientos pre-salinos fueron los hallazgos petroleros más significativos en cualquier parte del mundo en años recientes. Sin embargo, la crisis que afecta a Petrobrás, debido a la ‘Operação Lava Jato’, la investigación de la corrupción en la firma, han forzado a la compañía a recortar de nuevo su plan de inversiones.

The countries and territories of the Eastern Caribbean Currency Union (ECCU)[1] are benefiting from growth in numbers of visitors and lower oil prices. However, they will continue to be hampered by structural challenges such as high levels of indebtedness, over-dependence on tourism and vulnerability to natural disasters.

On 11 August[2], the IMF published its evaluation of the common policies of the ECCU. It noted that “the regional recovery is gaining ground, supported by continued low oil prices, strong tourism arrivals, and robust [receipts from Citizenship By Investment Programs – CBIPs]. Three failed banks have been resolved with no spill-overs to the rest of the region and fiscal management has improved.” This assessment followed a number of generally upbeat statements following four Article IV consultations with ECCU governments since April.

However, latest published statistics highlight the risks and challenges facing the ECCU. [1] For the sub region as a whole, economic growth is accelerating, but from a low base. In part because of the fall in oil prices, and in part because of the currency peg managed by the Eastern Caribbean Central Bank (ECCB), which fixes the Eastern Caribbean dollar to the US dollar at a rate of EC$2.70/US$, inflationary pressures have been minimal. Commercial banks have been very cautious, with the result that lending to the private sector has contracted over recent years. Although the details vary from country to country, the region as a whole would be running a fiscal deficit of about 4% of GDP this year if it were not for the revenues from CBIPs (see box). Public debt is moving downwards slowly relative to the overall economy, but is still a long way from the 60% of GDP target for the region in 2030. Tourism remains the key industry, with receipts accounting for nearly a fifth of GDP. Finally, although the region’s current account deficit with the rest of the world is small in absolute terms and relative to many benchmarks, it is still significantly larger than 10% of GDP.

Debt dynamics vary markedly. Six of the ECCU countries have had a major debt restructuring since 2010. Thanks in part to stronger economic growth (which has been boosted by revenues from its CBIP), St Kitts & Nevis has achieved a substantial reduction in its debt/GDP ratio over the last 15 years. For the ECCU as a whole, though, the ratio has risen by 19.5 percentage points to 88.7%. Interest payments equate to about one tenth of government revenues across the ECCU. However, in St Lucia, they equate to nearly one fifth. [2]

The tourism industry has been growing, but slowly and unevenly. [3] Across the ECCU countries, total receipts in Q1 16 amounted to EC$1.27bn, up from EC$1.16bn in Q1 15 and EC$1.12bn in Q1 14. The numbers of tourist arrivals have been growing. However, the more valuable ‘stay over’ visitors, who arrive by air (as opposed to day trippers from cruise liners) continue to account for about one sixth of the total.

The ECCU countries remain vulnerable to natural catastrophes. The probability of a hurricane striking in any one year ranges from about 9% in Grenada (the southernmost of the ECCU countries) to over 16% in St Lucia, according to the IMF and the EM-DAT database. By these metrics, the ECCU countries are among the 50 most disaster-prone countries globally.

Through 2015 and 2016, the ECCU countries have benefited from three trends. One is fiscal reform, which generally has not boosted growth but has improved the risk profiles of some countries. The second is the fall in the price of imported energy, which appears likely to persist. The third relates to the economic recoveries in the US, Canada and the UK, which has provided a boost to the tourism industry, if not a dramatic (nor necessarily sustainable) one.

Nevertheless, the main structural challenges remain unresolved. The ECCU countries are overly dependent on tourism, and face strong competition from nearby countries with similar offerings that are cheaper for North American and European tourists. Commercial banks are taking a cautious approach to lending, and are vulnerable to a further erosion of correspondent banking relationships.

The ECCU countries generally do not have reserve funds to provide a buffer against the impact of major natural disasters. The small size of the countries (given that their combined population is around 600,000) and geographic situation (essentially an archipelago, but without a single shipping company that serves all destinations) means that commercial costs are relatively high in the sub region. Further, it is not really feasible for the ECCU to consider diversification into high value-added financial services, given that Bermuda, the British Virgin Islands (BVI), The Cayman Islands and, to an extent, The Bahamas, Barbados and Trinidad & Tobago have already made that transition.

In short, 2016 will be a year that, in terms of economic conditions, is better than recent times. However, there has not been a decisive improvement in the fortunes of the ECCU countries, where per capita annual incomes range from around US$7,000 in Grenada to about US$16,000 in St Kitts & Nevis and Antigua & Barbuda.

A possible and partial exception is St Kitts & Nevis, where the burden of public debt is falling quite quickly. However, even that economy depends on continuing revenues from the CBIP – which cannot be taken for granted. Overall, the ECCU countries remain stuck in the economic slow lane.

Recent IMF Article IV Consultations with ECCU governments

In mid-May, the IMF completed its annual Article IV consultation with the government of Grenada, and approved the disbursement of US$2.8m under the Extended Credit Facility (ECF) in place since mid-2014. Resources made available to the government by the IMF through the ECF now amount to about US$14m. At the end of 2013, when the government paid arrears owing to Kuwait and multilateral creditors, debt amounted to about 107% of GDP. Thanks mainly to a successful restructuring in Q3 15 (with a debt exchange, an agreement with Paris Club creditors, restructuring of amounts owing to the National Insurance Scheme (NIS) and clearing of arrears in budgeted spending), the ratio is now around 94% of GDP.

The IMF was upbeat in its assessment of Grenada. It noted that the government had met all the requirements for the ECF to the end of 2015. Thanks to an expansion of agriculture and tourism, as well as a surge in construction, real annual GDP rose by an estimated 4.6% in 2015. The IMF is looking for growth of 3% this year. Fiscal reforms include “strengthened tax administration, improved public finance management, an overhaul of the tax incentives regime, and a new rules-based fiscal policy framework, which now need to be made fully effective”. The government is also taking steps to control the public sector wages bill and to improve the general business environment.

In early July, the IMF concluded its Article IV consultation with the government of St Kitts & Nevis. The Fund noted that the country had successfully completed its Post-Program Monitoring Framework in October 2015. With real GDP growth of 5.0% in 2015 (following increases of 6.1% in 2014 and of 6.2% in 2013), St Kitts & Nevis has had one of the region’s strongest economies. Growth has been boosted by construction, tourism and ‘surging’ receipts from the country’s Citizenship By Investment Program (CBIP). The current account and fiscal balances have been trending downwards. The IMF believes that St Kitts’ & Nevis’ debt/GDP ratio will fall to 60% in 2017, which is the target that the ECCU as a whole is looking to achieve by 2030. The IMF expects GDP growth of 3.5% this year, settling at 3% annually in the medium-term.

Relative to the other countries, the Fund discussed potential reforms in greater detail. For instance, it suggests that CBIP receipts could be channelled into a new fund to provide a contingency buffer for future shocks. It argued that more could be done to improve financial management, including through an improvement to the budget framework of the Nevis Island Administration (among other measures). It also recommended that the government do more to improve oversight of the financial system and to lift the quality of published statistical data.

The IMF’s mid-July statement following its Article IV consultation with the government of Dominica highlighted the impact of Tropical Storm Erika, which contributed to a 3.9% contraction in activity through 2015. The tourism sector is now largely operating normally. However, agriculture is still recovering. Lower fuel prices ensured that the current account deficit fell from 11.2% of GDP in 2014 to 9.4% of GDP in 2015. The IMF expects real annual GDP growth of 1.3% this year, rising to 1.7% annually over the medium-term. The Fund also looked favourably on the Dominican government’s measures to improve its fiscal position and strengthen the financial sector.

In mid-July, the IMF also concluded its Article IV consultation with the government of St Vincent & the Grenadines. As is the case in Dominica, activity was hampered by natural disasters in 2015, and real GDP rose by just 1.6% (having contracted the year before). However, lower oil import costs contributed to a reduction in the current account deficit from 29.6% of GDP in 2014 to 24.8% in 2015.

The IMF highlighted the impact of a new airport to be completed in 2016, and the development of geothermal energy. Thanks to growth in tourism, GDP growth is expected to accelerate to 2.2% this year and to 3.1% annually over the medium-term. It commented favourably on the soundness of the country’s banks and its regional leadership in terms of supervision of credit unions.

The IMF completed its Article IV consultations with the governments of Antigua & Barbuda and St Lucia in late 2015 and early 2016 respectively. According to its World Economic Outlook, the IMF is looking for real GDP growth in Antigua & Barbuda of 2.0% this year, or a little less than the 2.2% posted in 2015. Over the medium-term, annual growth should be about 2.7%. Growth in St Lucia is expected to slow from 1.6% in 2015 to 1.4% in 2016, with medium term growth of about 2%.

Citizenship By Investment Programs (CBIPs)

Four ECCU countries offer High Net Worth Individuals (HNWIs) the opportunity to purchase citizenship.

According to a report published in 2014 by consultants Wealth-X and Arton Capital, citizenship of Antigua & Barbuda is available to anyone who donates at least US$250,000 to an approved charity, invests at least US$400,000 in a government-approved real estate project, or US$1.5m in a business. Antigua & Barbuda’s CBIP was launched in 2012. Antigua & Barbuda’s CBIP is the only one which requires people who buy citizenship to maintain a physical presence in the country, albeit for a minimum of five days over five years.

Citizenship of Dominica is cheaper to acquire. Applicants must donate between US$100,000 and US$500,000 to a charity (depending on the number of family members) or invest US$200,000 in a government-approved real estate project. Dominica’s CBIP commenced in 1993.

Grenada offers citizenship to people who buy an approved property for at least US$1m, or a quarter interest in a property for at least US$250,000. The newest of the four CBIPs, it began in 2014.

Citizenship of St Kitts & Nevis can be purchased for a contribution of US$250,000 (for a single applicant) to the Sugar Industry Diversification Foundation of via investment of at least US$400,000 in a government-approved real estate project. St Kitts & Nevis’ CBIP was introduced in 1984.

Arton Capital assessed the ECCU CBIPs in relation to those offered by governments in other part of the world. Its criteria included: the overall cost of purchasing citizenship; the speed of the process; the number of countries that the holder of the (new) passport can visit with or without a visa; the general quality of life; and simplicity (in terms of not having to learn the local language, not having to be physically present and meeting other requirements). The four ECCU countries were rated more highly than the US, but less highly than certain European Union countries such as Bulgaria and Cyprus.

Guatemala’s 158-member unicameral congress failed to approve the 2018 budget by the required end-November deadline, reflecting deep and ongoing political divisions between the government led by President Jimmy Morales and opposition parties. This means the government will have to roll over its budget allocations from 2017, and increases the potential for new clashes over fiscal policy.

Perhaps reflecting the comparative political inexperience of President Morales, who took office in January 2016, the government made a mess of getting the 2018 budget bill approved. The budget bill was ambitious, proposing a 12.4% increase on 2017 spending levels to Q$87.922bn (US$11.97bn). It also offered a multitude of easy targets for critics and opponents. Since presidential elections are due in 2019, many accused Morales of seeking a bloated budget to increase spending for purely populist and electoral purposes. Economists said that the proposed increase in tax revenues required to fund the extra spending was unrealistic, meaning there would be an increase in levels of debt.

One of the biggest spending increases – a gigantic 42% – had been proposed for the ministry of communications, infrastructure, and housing. Although Guatemala clearly needs more investment in infrastructure, this ministry has been notoriously slow moving. The ministry was described bluntly by newspaper Prensa Libre as “a traditional source of corruption and immorality”. Importantly, the ministry had been under-spending its 2017 budget allocations, raising doubts over why such a large increase was deemed necessary for the following year. The Guatemala-based think tank Central American Institute of Fiscal Studies (known by its Spanish acronym Icefi) said that in any case provisions in the 2018 budget bill for carrying over previous year under-spends were unclear and inappropriate. Opposition members of congress said the entire budget offered a series of what they called “open padlocks” inviting corruption and waste.

In the end the bill did not even get as far as a full vote. Its political weakness was demonstrated by the fact that only 61 out of 158 deputies supported the order-of-the-day that would have triggered a third full and final reading. Finance minister Julio Estrada said failure to approve the bill was a defeat for the political system as a whole. He went on to further anger his critics by saying cutbacks in the justice and defence spend were now more likely (even though neither of the two departments had been particularly favoured by the budget bill). President Morales said that despite the setback, his government would “swim against the current” to ensure adequate public funding this year.

One additional reason why the 2018 budget bill came to grief was that its approval was closely tied up with plans by the ruling Frente de Convergencia Nacional (FCN-Nación) to get a new congressional leadership elected. The government lacks a majority in congress, so it must seek out coalitions. The proposal had been for FCN Nación deputy Javier Hernández to steer the bill through the legislature and as part of a package deal to also get multi-party support for the election of a new congressional leadership team, headed by Francisco Tambriz of Alianza Ciudadana (AC) as the new speaker. But Hernández fell short. Apart from running up against the budget troubles, his group also lost support as it was said to be linked to the failed September 2017 attempt by deputies to pass legislation that would have protected them from corruption investigations (notorious in Guatemala as the “auto-immunity pact”).

• Leadership battle

The struggle to elect a new congressional leadership continued during December and spilled over into January. There are now at least seven candidates for the role of speaker, and the negotiation process – where cross party coalitions are formed to gain the necessary majority for one of them – is taking longer than usual. The current speaker, Oscar Chinchilla, says a congressional commission will try to elect a new leadership body in the second week of January, but if it remains deadlocked, he will approach Guatemala’s highest court, the Corte de Constitucionalidad (CC), to ask for guidance.

Minimum wage increase

At the end of December President Morales announced a 3.4% increase in the minimum wage for 2018. The decision came after the national salary commission (Comisión Nacional del Salario), a tripartite body formed by representatives of government, business, and trade unions, failed to agree on an increase. The new monthly minimum wage for agricultural and non-agricultural workers will be Q$2,992 (US$407.8). Those working in the export sector including in-bond assembly plants (máquilas) will be paid Q$2,758 (US$375.7) a month.

• Criticism of wage rise

For different reasons, both labour and business criticised President Jimmy Morales’s increase in the minimum wage. Labour unions pointed out that the new minimum wage is still insufficient to buy a basic basket of goods and services for a household, priced at Q$3,548 (US$483.4) by INE, the national statistics institute. Employers in the private sector lobby Cámara de Industria de Guatemala (CIG) on the other hand, said the decision was “political” and would only lead to unemployment and higher prices.

Morales takes a Jerusalem gamble

On 24 December President Morales, following the lead taken by US President Donald Trump on 6 December, said Guatemala would be recognising Jerusalem as the official capital of Israel, and moving its embassy there.

President Morales is notoriously uneasy with journalists, and gives very few press conferences. Typically, perhaps, the announcement that Guatemala is to break with diplomatic consensus and move its embassy to Jerusalem was brief, and made through his Facebook page. It said only that the president (who paid a state visit to Israel last November) had spoken with Israeli Prime Minister Benjamin Netanyahu, and, in view of the “excellent” relations between the two countries, had agreed to move the embassy. No time scale was given.

The decision was welcomed by both the US and Israel, but is otherwise widely unpopular. The United Nations General Assembly had earlier rejected Trump’s move by 128 votes with only nine (including Guatemala and Honduras) voting against.

The president’s rationale for involving Guatemala in the politics of the Arab-Israeli conflict is not clear. Foreign minister Sandra Jovel said the president had not been motivated by religious considerations, nor did Guatemala seek anything in return from either the US or Israel. Despite this, both the US and Israel are in a position to help Guatemala with significant economic and strategic support. The US is a major aid donor. During the long Guatemalan civil war (1960-1996) Israel provided significant military advice and equipment to Guatemala. Military officers involved in that conflict founded the current ruling party, FCN Nación. Many, like Morales himself, were or are evangelical Christians well-disposed to the Israeli cause. It might be speculated that Morales is gambling that for Guatemala, the benefits of pleasing Trump and Netanyahu will outweigh any negative effects.

But it is also conceivable that the costs may exceed the gains. There is a potentially large economic cost. Guatemala is one of the world’s largest exporters of cardamom, with sales of around US$300m a year, much of which is shipped to Arab countries, including Saudi Arabia. Cardamon is a high-value spice, and a key ingredient of cardamom coffee, which is traditionally consumed throughout the Middle East. Palestinian leader Mahmoud Abbas has called for an economic boycott of countries that recognise Jerusalem as the capital of Israel, so there could be a negative impact there.

The decision may also create some diplomatic isolation for Guatemala in Latin America. Apart from Honduras, all major Latin American countries are keeping their embassies in Tel Aviv. Bolivian President Evo Morales (now admittedly one of a minority of centre-left leaders in the region) accused Guatemala of “selling its dignity for a few crumbs”. Former Guatemalan Vice President Eduardo Stein (2004-2008) pointed out that similar plans to move the embassy to Jerusalem in 1994, during the presidency of Ramiro de León Carpio (1993-1996), had to be quietly dropped after the Arab League threatened a cardamom boycott.

The issue of narcotrafficking has been central to US-Colombia relations for decades. Since 2000, the two countries have been united by a US foreign aid initiative ‘Plan Colombia’ (‘Peace Colombia’ since 2016) to combat drug trafficking organisations and insurgent groups in Colombia. When President Iván Duque of the right-wing Centro Democrático (CD) assumed office in August last year, he was clear that he shares a common focus with US President Donald Trump: reducing illegal drug production in Colombia. However, Trump’s condemnation of Duque’s efforts in fighting narcotrafficking this week (“he has done nothing for us [the US]”) flies in the face of their prior understanding.

In a statement given to US press on 29 March, President Trump lambasted President Duque’s efforts to quell the drug trade. Despite calling Duque “a really good guy”, Trump said he had not delivered on his promise “to stop drugs”, saying that “more drugs are coming out of Colombia right now than before he was president, so he has done nothing for us”. Given the positive meeting held between the two presidents on 13 February in the White House, the comments have come as a surprise for the Duque administration. After his meeting with Duque, Trump had responded to a question on Colombia’s efforts to eradicate illegal coca plantations and reduce its cocaine-producing capability by saying that they were “working together” on it, but that Colombia was not yet ahead of schedule. Meanwhile, Duque made his position very clear: “Mr. President. In the first four months of our administration, we have eradicated 60,000 hectares [of coca] – more than was eradicated in the previous eight months. We have a goal – and we will commit to that goal – because it is our moral duty to have Colombia free of illegal crops and free of narco-trafficking”.

Duque appeared to respond to Trump’s latest comments when he defended his government’s approach to Colombia’s drug problem during a speech before the US-Colombia Chamber of Commerce in Bogotá, that was attended by the US ambassador to Colombia, Kevin Whitaker. Duque said that in his first nine months in office his administration has destroyed over 4,000 cocaine labs, and that it has increased the number of manual coca eradication units from 23 to 100, which have destroyed 16,000 hectares (ha) of coca crops. However, Duque recognised that his government faces “adversity” in eradicating coca given that its ability to rely on aerial coca eradication has been limited. Aerial eradication, which involves the spraying of a herbicide from an aircraft onto the plants, was banned by Colombia’s constitutional court (CC) in 2015, after studies conducted by the World Health Organization (WHO) found the chemical used, glyphosate, to be carcinogenic. Since then Duque has appealed to overturn this ruling – an appeal that is currently being considered by the CC.

Duque’s defence of his government’s actions was backed up by the CD’s main leader and Duque’s political mentor, former president Álvaro Uribe (2002-2010). In a series of tweets, Uribe rejected Trump’s accusations and placed the blame for the increase in coca plantations on the lenient eradication policies pursued by the previous government led by Juan Manuel Santos (2010-2018), which “allowed coca plantations to increase 200,000 hectares”. Uribe went on to criticise Trump for not moving to decertify Colombia as a country that had upheld its international obligations to combat drug trafficking under Santos. The reaction against Trump’s comments in Colombia prompted the US Secretary of State, Mike Pompeo, to phone Duque on 1 April in an apparent attempt to mend fences. According to a press release by the US embassy in Colombia, Duque and Pompeo “discussed the importance of continued joint actions to reduce coca cultivation and cocaine production in Colombia, including increased eradication and operations against trafficking networks”.

• Coca

According to statistics from the United Nations Office on Drugs and Crime (UNODC), the number of coca plantations in Colombia has skyrocketed since 2013, reaching an all-time high of 171,000 hectares in 2017.

Brazil’s state-owned oil and gas giant Petrobras announced record profits for 2019, enhanced by various asset sales. Yet amid this good news there are worries that the company lacks a credible strategy for renewable energy.

The numbers are good. Despite falling a little short in the fourth quarter, for 2019 as a whole Petrobras announced total profits of R$40.1bn (US$8.48bn), the highest it has ever achieved. This represented growth of 288% on 2018. Significantly, it was also a dramatic turn-around from four terrible years of consecutive losses in 2014-2017. In those years the company was at the centre of the ‘Lava Jato’ corruption scandal. In 2015 Petrobras had suffered its largest-ever financial loss, totalling R$34.8bn (US$7.36bn).

However, fourth quarter results for 2019 were somewhat below expectation, with quarterly net income of R$8.15bn (US$1.72bn). This was attributed to impairments caused by revised price estimates, refinery construction delays, and higher administrative costs. The company said its fuel exports had increased because of their low sulphur content at a time of tighter environmental controls, particularly on marine bunker fuel. Total revenues last year were US$69.32bn, down by 2.6% on 2018. Oil and gas production exceeded 3m barrels of oil equivalent per day (boepd), helped by production from the company’s ‘pre-salt’ offshore oil fields. Petrobras gross debt rose by 3.3% to US$87.1bn (still an improvement on the US$100bn-plus levels of a few years back).

Petrobras strategy under Roberto Castello Branco, the chief executive officer appointed last year by the government led by President Jair Bolsonaro, has been to refocus on core upstream exploration and production, divesting from a range of non-core assets. Total Petrobras asset sales last year are estimated at US$16.3bn. In March Petrobras said it would be selling its distribution assets in Colombia, including 124 petrol stations there. Other planned divestments this year include selling eight of its 13 refineries as well as its stake in petrochemicals giant Braskem. Petrobras has also reached an agreement to reduce its direct gas purchases from Bolivia’s state-owned oil firm (YPFB,) as part of a commitment to deregulate the gas market. The Brazilian company has announced plans to sell gas subsidiary Gaspetro and to divest its 10% stake in the Nova Transportadora do Sudeste (NTS) gas pipeline.

In line with the government’s promise to shrink the size of the Brazilian state, in February it was announced that the state-owned development bank, BNDES, had sold its equity stake in Petrobras for R$22bn (US$5.2bn). The sale, at a small discount to market prices, is seen as giving Petrobras shares a little more upside during the course of this year. There are some clouds on the horizon in 2020. A big maintenance programme on offshore platforms may impact production levels in the first quarter. More seriously, the coronavirus (Covid-19) pandemic is expected to hit global oil demand and has already driven prices down. No less than 65% of Petrobras crude oil exports go to the Chinese market, where demand has been falling due to Covid-19 shut-downs. Company officials estimate that global oil demand will fall by 435,000 barrels per day (bpd) because of the disease but hope that the fall will be only temporary. 

• Covid-19 and the oil market

The coronavirus outbreak, now a pandemic, drove a dramatic slump in oil prices in early March, after the breakdown of an agreement on crude production levels between the Organization of Petroleum Exporting Countries (Opec) and Russia – following proposed changes to adapt production to the impact of Covid-19 on demand – prompted concerns over a price war, with the price of crude falling below US$35 per barrel on 9 March.

A concern expressed by some analysts is that unlike other oil majors, Petrobras is not preparing a move out of fossil fuels and into renewable and alternative energies. In January the company said it was selling its stake in a wind farm in northern Brazil. Presenting the financial results, Castello Branco criticised companies like BP which announced earlier this year that it is aiming to achieve net zero-carbon emissions in its operations by 2050. He argued that long term targets were unrealistic, joking “I could announce various goals for 2050, such as that I could be a billionaire”.  Officially, the company says that over the next two years it will focus on becoming more competitive in its core crude oil business before turning to research “renewable energy competencies, focusing on wind and solar energy in Brazil”. While this may reflect the climate change scepticism of the current government, analysts question the wisdom of deliberately lagging behind in the search for green alternatives. Sergio Barros, an environmental professor at the Universidade Federal Fluminense (UFF), told the Financial Times “getting out of businesses like bio-fuels suggests you are not paying attention to what lies in store for the environment. Focusing on oil is not a forward-looking strategy”. 

Brazilians will elect their mayor and municipal councillors for the next four years in the country’s 5,568 municipalities on 15 November, with a second round planned for 29 November. This is the first electoral test for President Jair Bolsonaro, although he has kept his distance from electoral talk. Held in the context of the coronavirus (Covid-19) pandemic and with a number of new electoral rules in place, these elections – for which campaigning began on 27 September – will be unlike previous municipal votes. But familiar problems, most notably the issue of corruption, have already cropped up.

Electoral reforms passed in 2017 will apply for the first time to municipal elections this year. One of the main changes is a ban on electoral coalitions in elections through proportional representation (that is to say, elections for the country’s legislative bodies). Coalition lists for electoral purposes between parties with no shared agenda or ideology was a common practice in Brazil’s fractured political landscape, with the idea behind ending this being to reduce the number of parties elected to the country’s legislatures.

The end of electoral coalitions means that rules on gender quotas will have to be met within each party rather than within a coalition, something which the supreme electoral court (TSE) hopes will increase female participation. As well as being legally obliged to register a minimum of 30% female candidates, since 2018 parties must also allocate public campaign funds and free radio and TV advertising airtime proportionally between male and female candidates. Similar rules guaranteeing the proportional distribution of public funds and publicity airtime to candidates of colour were passed by the TSE in August this year. Initially due to come into force for the 2022 general elections, the supreme court (STF) ordered that these rules be applied in this year’s municipal campaign.

At first glance, these attempts to diversify political candidates appear to have been successful. According to the candidacies registered with the TSE as of 26 September, this year has the highest proportion of female candidates and candidates of colour ever (as well as a record number overall of candidates for the mayoral and municipal council positions). Women make up 34% of the more than 540,000 registered candidates, while 51% of all candidates identify as black or mixed race (‘pardo’), meaning that candidates of colour outnumber white candidates (48%) for the first time. These numbers are to be read with caution, however; the proportion of women amongst just mayoral candidates falls to one in ten, while several thousand candidates reportedly changed the race to which they identify between 2016 and now.

Voting and campaigning will also be impacted by the context of the pandemic. With recommendations against public gatherings, campaigns are expected to play out online, a factor which some political scientists think could favour incumbents seeking re-election, as they are already known to the electorate (although this advantage could be reversed if their perceived management of the pandemic is negative). In a speech on 26 September TSE Justice Luís Roberto Barros called for campaigns to be run without “lies [or] hatred” and warned against fake news and misinformation – not a new problem in Brazilian elections, but one magnified by the pandemic.

Another familiar issue to have already reared its head is corruption, the shadow of which continues to hang over local politics. Last week, the federal police (PF) arrested four mayors for suspected crimes against public administration in the northern border state of Rondônia, the result of an investigation begun last year into bribes for public contracts. A more visible case has been that of the incumbent mayor of Rio de Janeiro, Marcelo Crivella.

In the most recent of a series of scandals, prosecutors have accused Crivella of leading a kickback scheme in the Rio municipality. Crivella has avoided impeachment proceedings, but on 24 September Rio’s electoral tribunal (TRE-RJ) voted unanimously to declare Crivella ineligible until 2026 for abuse of political power, relating to a misdemeanour committed in 2018. Crivella has said he will appeal the TRE-RJ’s decision, which does not currently prevent him from campaigning for re-election. Crivella’s main opponent is his predecessor as mayor, Eduardo Paes (2009-2017), who currently leads the polls with 26% of voting intentions according to an Exame/Ideia poll published on 30 September, but who might also face electoral impediments over corruption allegations. Crivella is in second place with 17% of voting intentions.

Although President Bolsonaro, who is not currently affiliated with a political party, previously said he would not get involved in the municipal elections, he has begun to give signs of where his support lies in some cities. Crivella, who represents the conservative Republicanos party and the Evangelical vote, is believed to be Bolsonaro’s candidate of choice in Rio. That is in any case the message Crivella has tried to project, using the president’s image in his campaign materials, in an attempt to take advantage of Bolsonaro’s popularity – a widespread electoral practice.

• Political nicknames

Candidates in Brazilian elections can register with the name of their choice – allowing them to use the name or nickname by which they are best known, rather than their legal name. The result is that many candidates adopt the names of better-known figures in the hopes of boosting their profile; this year, 84 candidates have registered under ‘Bolsonaro’ and 185 under ‘Lula’. There are also three candidates with the name ‘Trump’, 18 ‘Obamas’ and 99 ‘Tiriricas’ – a well-known federal deputy who is a clown by profession. Candidates also often include references to their profession or affiliation to, for example, the security forces or religious sector in their name. Almost 9,000 candidates have registered with a religious title such as ‘pastor’.

In São Paulo, Bolsonaro has indicated that he stands behind Celso Russomanno, a federal deputy also from Republicanos, who is on his third attempt to dispute the mayoralty of Brazil’s largest metropolis. A 24 September poll by Datafolha puts Russomanno in the lead, with 29% of voting intentions, ahead of the incumbent Bruno Covas (20%) from the Partido da Social Democracia Brasileira (PSDB), who took over the post from João Doria in 2018 when the latter stepped down to run successfully for São Paulo state governor.

Sanitary measures

The TSE has issued basic guidelines on sanitary measures to adopt during the elections due to the coronavirus pandemic: asking candidates to avoid attracting crowds and recommending social distancing and the use of facemasks at all time. Stricter restrictions on campaigning will depend on local rules, as coronavirus restrictions have been implemented at state or municipal level since the start of the pandemic. Most restrictions have now been lifted (although some states and cities have begun tightening them again) – despite the country’s 4.8m cases and almost 144,000 deaths, the public discussion in Brazil has largely moved away from Covid-19. However, the polarising debate over the pandemic and authorities’ response to it could be a feature of the campaign in some cities.

DOMINICAN REPUBLIC | Inflation soaring. President Luis Abinader has urged the Dominican public to make “a national effort” to confront inflation after it hit double figures in May. Abinader held a meeting in the presidential palace on 21 June with cabinet ministers and representatives of the public and private sectors to discuss ways in which to keep prices down.

The meeting was called in response to figures released by the central bank showing that annualised inflation in May reached 10.48%, more than doubling the official government annual target of 4%.

Abinader said that the government was evaluating the introduction of subsidies to curb the increase in prices of basic products and guaranteed that it would retain fuel price controls. He attributed the surge in inflation to external factors, principally an increase in international freight costs, associated with fuel price increases, as well as primary commodities, grain products, oil, and meat products.

Speaking at the meeting, the governor of the central bank, Héctor Valdez Albizu, expressed confidence that the inflationary pressure would be “transitory” as it had been “imported”. Annual inflation has not exceeded 5% since 2011. The economy minister, Miguel Ceara-Hatton, the agriculture minister, Limber Cruz, and the industry and commerce minister, Víctor Bisonó, will coordinate talks to try and come up with a recommended course of action by the end of June.

CHILE | Inflation continues onward march. Inflation reached a 28-year high in Chile in May, the national statistics institute (INE) reported on 8 June. The consumer price index (CPI) for May was 1.2%, bringing 12-month inflation to 11.5%, its highest level since 1992. There is no sign of it abating. Inflation has already reached 6.1% for the first five months of the year.

May’s CPI was driven by food and drink prices, which climbed by 1.8%, and transport (2.2%). The central bank raised the benchmark interest rate yet again last week from 8.25% to 9% in an effort to contain inflation.

ARGENTINA | IMF approves review. The International Monetary Fund (IMF) agreed the second review of Argentina’s Extended Fund Facility (EFF) arrangement on 19 September. Luis Cubeddu, the IMF deputy director of the Western Hemisphere department and mission chief for Argentina, said that “most of the revised quantitative program targets” had been met with the exception of international reserves, which he said were being rebuilt “following decisive policy steps to correct earlier setbacks and rebuild credibility”.

Cubeddu said that “inflation pressures remain strong” but that “a gradual moderation is expected during the remainder of 2022 and 2023”. That is one way of putting it. Inflation is at a generational high, reaching an annualised figure of 78.5% in August, according to figures released by the national statistics institute (Indec). Not since 1991 has inflation been so high.

Cubeddu also said that the primary fiscal deficit target of 2.5% of GDP in 2022 remained “unchanged”. Argentina’s primary fiscal deficit in the first eight months of the year totalled Ar$967bn (US$6.66bn), up 124% on the same period last year, according to official Argentine figures released on 21 September.

The economy is growing but the pace of growth is slowing. On 20 September Indec revealed that the economy grew by 6.9% year-on-year in the second quarter of 2022, marking six consecutive quarters of growth. But third quarter growth is likely to be much slower after two changes at the helm of the economy ministry in quick succession, leading to market turmoil, inflation scaling new heights, and the erosion of international reserves, prompting import restrictions. All of this will impact growth. The government is predicting 4% GDP growth in 2022.

BRAZIL | Central bank holds back on rate hike. The monetary policy committee (Copom) at Brazil’s central bank (BCB) decided on 21 September to keep the benchmark interest rate, the Selic, unchanged at 13.75%. This is the first time in over a year and a half that the Copom has not raised interest rates.

The BCB’s decision – a split one, with two of the Copom’s nine members voting in favour of a 25 basis-point hike – was not unexpected, but neither had it been guaranteed. Brazil has seen one of the most aggressive monetary tightening processes in the world, with the Selic going from 2% in March 2021 to 13.75% now, as the BCB sought to tackle the country’s soaring inflation.

Inflation has now slowed in Brazil, with two consecutive months of deflation in July and August bringing the 12-month consumer price index down to 8.73% in August, the first time it has fallen below double digits in a year. This decline has been driven by falling fuel prices, largely the result of government intervention, while inflation is still high in other areas, notably food prices.

Private sector analysts surveyed weekly by the BCB for its Focus bulletin expect the Selic to be kept at 13.75% until the end of 2022, and gradually lowered to 11.25% throughout 2023. In its statement, the Copom said it would “remain vigilant, assessing whether the strategy of maintaining the benchmark interest rate unchanged for a sufficiently long period will be capable of guaranteeing the convergence of inflation.”

The bank further stressed that it would stand by its contractionary policy not only until the deflation process is confirmed, but also until inflation is back on target. Projections for annual inflation this year remain far off the BCB’s target of 3.5% +/- 1.5 points, with the latest Focus bulletin forecasting 6% inflation by year’s end.

URUGUAY | Exports drive growth. Uruguay’s GDP grew by 7.7% in the second quarter of 2022 compared with the same period last year, the central bank (BCU) reported on 16 September. Exports were up by 16.3%, outstripping an increase in imports of 9.7%.

A separate report by Instituto Uruguay XXI showed that exports will remain the main driver of growth in the third quarter. Exports of soybeans increased by 176% in August on the same month in 2021 to US$303m; cellulose exports jumped by 21% to US$157m over the same period.

Chile’s senate has approved the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP-11, which had been mired in congress for four years. The trade agreement, which supersedes the Trans-Pacific Partnership (TPP), from which the US withdrew under former president Donald Trump in 2017, was approved by Chile’s lower chamber in April 2019 when it was opposed by then-deputy Gabriel Boric. Since assuming the presidency Boric has been more equivocal, expressing reservations about a dispute settlement chapter of the trade deal but suggesting he would ratify it if this were addressed. His ruling coalition, however, is divided.

The senate voted by 27-10 to approve the deal on 11 October. The CPTPP is comprised of the 11 countries that had negotiated the original TPP with the US. It was strongly backed by the right-wing opposition Chile Vamos coalition as a means of driving economic growth, but the ruling coalition was split. Boric’s own Apruebo Dignidad is predominantly opposed to the CPTPP, while the Socialismo Democrático alliance of traditional leftist parties is more open to the idea.

• CPTPP members

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is comprised of Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam. It seeks to remove 95% of tariffs between member states.

President Boric wants congress to approve a series of ‘side letters’ to modify the compulsory Investor State Dispute Settlement (ISDS) chapter, which his government is negotiating with the other 10 member states, before he ratifies the agreement.

Constitutional deadlock

It is now three weeks since the presidential spokesperson, Camila Vallejo, prematurely announced that an accord had been reached between the country’s political parties on a new elected body to draft another constitution, earning a rebuke from the opposition for jumping the gun.

Negotiations are advancing at a snail’s pace and could be complicated by the decision by the far-right Partido Republicano (PR) to withdraw from the talks on 6 October and set up a ‘parallel’ negotiating table with the populist Partido de la Gente, members of the centre-left Democracia Cristiana, and independents; the PR objects to the idea of convening another constituent assembly to draw up a new constitution and would rather see congress reform the existing constitution instead. The president of the lower chamber of congress, Raúl Soto, responded by saying there was “only one legitimate and constitutional dialogue table”.

BRAZIL | Record grain harvest forecast. The Companhia Nacional de Abastecimento (Conab), the logistics arm of Brazil’s agrarian development ministry, released its forecast for the 2022/2023 grain crop harvest on 13 June, predicting a yield of 315.8m tonnes (t). This would be a record harvest for grain production and mark an increase of 43.2m t from the 2021/2022 yield, or 15.8%.

The harvest is expected to be mainly driven by soybean production, which is predicted to total 155.7m t, up 30.2m t (+24%) from the previous harvest cycle. The central-western state of Mato Grosso had the highest soybean yield with 45.6m t. Conab attributed the positive results to advancements in agricultural technology and favourable climate conditions compared with last year.

Maize production is predicted to hit a new record in this harvest cycle with 125.7m t, up 12.6m t (+11.1%) from the previous harvest. Other standout figures include the forecasts for rice (10m t), beans (3m t), cotton (2.89m t), and wheat (9.8m t).

BRAZIL | Americanas admits to fraud. The Brazilian retail giant Lojas Americanas, which filed for bankruptcy in January, presented a report on 13 June confirming that the company’s massive accounting gap was the result of fraud.

Presenting the report to a congressional select committee inquiry (CPI) investigating the company’s crisis, CEO Leonardo Coelho Pereira admitted that the “evidence which was brought to me yesterday no longer allows me as CEO of Americanas to treat this as an accounting inconsistency”.

The bankrupt retail giant, with over R$41bn (US$8.5bn) in debt, declared that it had dismissed 30 employees who had been involved in manipulating the company’s earnings results.

Coelho Pereira blamed the company’s former directors for the fraud of over US$25bn (US$5.2bn). The report carried out by independent investigators confirmed that the company’s profits and other results had been inflated and that various artificial contracts with advertisers and other similar contracts accounted for over R$20bn of the falsified earnings. 

In June, the International Monetary Fund (IMF) concluded an Article IV mission to Dominica highlighting a strong economic recovery but cautioning over the need for tighter fiscal management.

With a population of around 80,000 people, and an economy largely based on agriculture and tourism, the IMF says Dominica has been recovering strongly after the coronavirus (Covid-19) pandemic with GDP growth of 6.9% in 2021 and 5.7% in 2022. Further growth is expected based on construction of climate-resilient infrastructure, a pickup in tourism, and a rise in agricultural output. However, the mission says that “scarring effects” from the pandemic remain visible. High global commodity prices have pushed up inflation to 7.5% last year, while the current account deficit has ballooned to 26% of GDP. The primary fiscal deficit rose to 6.2% of GDP in the 2021-22 fiscal year. Public debt stands at 106% of GDP.

There was also some concern of potential overreliance on the Citizenship-by-Investment programme (CBI), which brought in government revenue equivalent to nearly 30% of GDP last year. This was highlighted later in July when the UK government announced it was suspending visa-free access for nationals of various countries including Dominica, amid concerns over CBI. Prime Minister Roosevelt Skerrit described the decision as “unfortunate” saying several changes had been made to the functioning of CBI to “strengthen the programme”.

Positives

The IMF mission to Dominica highlighted the positive contribution of various investment programmes, including the transition to geo-thermal energy, and the construction of a new airport which would sustain economic activity and reduce dependence of fossil fuels. The IMF Executive Board called for a “redoubling” of fiscal consolidation, targeting a primary budget surplus of 2% of GDP by 2026.

On 6 October Trinidad & Tobago’s Prime Minister Keith Rowley presented the government’s 2023/2024 budget, which, according to finance minister Colm Imbert, will ensure that “the economic recovery is anchored on sound and stable economic conditions”. Opposition leader Kamla Persad-Bissessar retorted that it was a “painful” document that perpetuated the country’s over-reliance on the energy sector.

The new budget totals TT$59.2bn (US$8.7bn) and is built on the assumptions that international oil and gas prices (the country’s key exports) will average respectively US$85/barrel and US$5 per million Btu (British thermal units), assumptions which seem reasonable given current market conditions, influenced by the global repercussions of the Israel-Gaza crisis that broke out in early October. The government is projecting a fiscal deficit of TT$5.19bn, equivalent to 2.7% of GDP. Annual inflation currently stands at 4% while GDP growth in Q1 2023 year-on-year eased down to 3% (from 3.6% in Q4 2022).

By government departments, the top three budget lines have been proposed for education and training; health; and national security, with social development spending coming in fourth position. Imbert sought to highlight good news items, such as a recent fall in unemployment (down to 3.7% in the quarter to June, from 4.9% in the quarter to March). He also noted that public service workers will be receiving promised back-pay, and that plans are underway to increase the minimum wage by 17%.  Less popular may be the government’s proposal to raise the age of retirement to 65 years from 60 years currently. Work is also in progress to introduce a 3% annual property tax. Given widespread concern over crime, the police service is to triple its annual recruitment drive and receive extra funds for vehicles, equipment, and new container scanners for the country’s main port.

Reactions were mixed. Persad-Bissessar said the budget failed to fully address the surge in crime and that the fiscal statistics were being manipulated to create a false sense of security. The Tobago House of Assembly (THA) said its regional budget was insufficient. On the other hand, the Trinidad and Tobago Manufacturers’ Association (TTMA) was upbeat, welcoming the introduction of e-payments and promises of expanded access to foreign exchange through the Exim Bank and for small and medium-sized enterprises.

TTMA response

TTMA head Roger Roach said he welcomed a government push for growth led by the non-energy manufacturing sector and supported by an environment favouring increased business competitiveness.

The dollar problem

Some analysts accuse the government of failing to resolve a long-running problem: the scarcity of US dollars. Barbados-based economist Marla Dukharan says the problem exists because the government subsidises its dollar sales, pricing them at below the black-market rate, something which boosts demand and causes scarcity at the official rate. In her view this creates speculation and economic distortion. Subsidised dollars have artificially boosted imports and created a “perverse and harmful incentive to hold or transfer US dollars overseas”, she wrote in an October report.

Dukharan has likened Trinidad and Tobago’s split exchange rate system to the multiple rates used in Argentina which have also exacerbated dollar shortages. She argues that the government could fix the problem by moving to open-market dollar auctions and a single free-market rate. But in his budget speech Imbert said the government intended to “move aggressively to develop strategies to increase the repatriation of foreign exchange earned overseas by local and foreign businesses operating in T&T”. Dukharan described this as “gun talk” warning that “preferential access creates perverse incentives and corruption opportunities”.

ARGENTINA | Economy slumps. The Argentine economy contracted by -1.6% in 2023, comparing unfavourably with 5% growth in 2022, according to figures published by the national statistics institute (Indec) on 20 March.

The economy contracted by -1.4% in the final quarter of 2023 year-on-year, Indec reported, impacted by economic and political uncertainty, a devastating drought pummelling the agricultural sector, galloping inflation destroying domestic consumer confidence, and restrictions on imports amid a scarcity of US dollars.

Eight out of 17 economic sectors contracted, led by agriculture (-20.2%). Other major sectors of the economy to experience a contraction included financial activity (-3.7%), industry (-2.1%), and retail (-0.5%).

Private economists consulted on a monthly basis by the central bank (BCRA) are forecasting a heavier economic contraction of -3.5% in 2024. Various official indicators have shown a sharp decline in economic activity in the opening two months of the year as the harsh fiscal adjustment and austerity measures introduced by the government led by President Javier Milei, which have spurred inflation to ever-greater heights, begin to bite.

BRAZIL | Monthly growth in services sector. The national statistics institute (Ibge) released its figures on 15 March on Brazil’s services sector activity, which showed a 0.7% monthly rise in the volume of services provided in January. This marks the third consecutive monthly rise for the sector.

The country’s services volume increased by 4.5% in January compared with the same month in 2023. The accumulated volume registered for the 12 months until January 2024 saw an increase of 2.4% from the previous 12-month period.  

Of the five categories of services measured, four registered a monthly increase in January this year. The category which saw the greatest rise was information and communications services (1.5%).

In a press release, the Ibge pointed out that audio-visual services were the main driver of the monthly rise in the information and communications category, as cinema attendance and demand for TV and streaming services increased during holidays in January.

CHILE | Lithium battery park. The largest lithium battery park in Latin America was inaugurated on 19 March in Chile’s northern region of Antofagasta in the Atacama Desert. Engie Chile, the local subsidiary of the French company Engie, inaugurated the 139MW/638MWh battery energy storage system (BESS) Coya Park, which will supply energy to the national grid capable of powering 100,000 homes.

Engie Chile is currently undertaking a further two BESS projects in Antofagasta, together about two-thirds the size of the Coya Park, which will be located with solar PV plants.

Two days after taking office President Claudia Sheinbaum announced a package of reforms designed to strengthen women’s rights and tackle gender-based violence.

The reforms involve modifying six articles of the constitution and seven secondary laws. They recognise the principle of equal pay for equal work, affirm the right to a life free from violence, and provide universal pension support for women over the age of 60. They also introduce the concept of “substantive equality” which requires positive action, for example by requiring that all laws must consider “the particularities of women and their human rights”.

Gender inequality is a major factor in Mexican society. Official statistics showed that 76% of men but only 47% of women were employed in August 2024. On average women are paid 65 pesos for every 100 earned by men. Whether employed or not, women spend over 40 hours a week doing household chores. They are also vulnerable to domestic abuse. On average between nine and ten women die every day as victims of femicide (gender-based killing). Very few of the perpetrators are brought to justice.

Improving observance of women’s rights is likely to be popular and, with a two thirds majority in congress, the government package is expected to be approved. However, financial markets are concerned over the rising fiscal cost, particularly of the universal pension enhancement.

Minimum wage

Sheinbaum has also supported a reform, approved in the lower chamber days before she took office, which mandates that minimum wages, currently set at M$16,777 (US$865) a month, must be increased every year by at least the prevailing rate of inflation. The fiscal cost of this will be significant even though it does not affect the four out ten employees who work in the informal labour sector and are paid less than the minimum wage.