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The cabinet chief, Marcos Peña, has admitted that Argentina is at its “worst moment” amid stubbornly high inflation and rising utility tariffs, which hits low-income sectors hardest. Peña, like his cabinet colleagues, insists that the government is trying to correct the structural distortions in the domestic economy that, if not removed now, would create an even worse situation down the line. With poverty rates on the increase, the call by President Mauricio Macri on Argentine consumers to be patient, risks wearing thin.

“We are conscious [of the difficulties] and we are working on all possible measures so that it doesn’t deepen”, Peña declared at a 24 May press conference. Finance Minister Alfonso Prat-Gay, has been insisting on almost a daily basis that the second half of the year would see lower inflation. Both Peña and Prat-Gay emphasised efforts to boost investment and job creation, with Prat-Gay noting that the government was “identifying various projects, and this year we think that it [investment] could be around 20% of GDP”. The press conference had been called to announce a US$1.5bn investment by Axion Energy (controlled by the Argentine group Brindas and China’s CNOOC), to expand the Campana oil refinery, located 70kms northwest of the city of Buenos Aires. Prat-Gay said the project would receive an input of US$378m from the International Finance Corporation and would create some 1,600 jobs. The minister also expressed confidence in future prospects, noting that “externally, there is a decision to invest in Argentina”. Peña reiterated that “we received a very badly damaged economy” but insisted that “the worst of this is now” and that “this is the end of the crisis”.

With the national statistics institute (Indec) still trying to reconstruct the country’s national inflation index, the inflation index for the city of Buenos Aires (IPCBA) is being used as a gauge of price movements. In April, the IPCBA rose by a strong 6.5% month-on-month, taking the annual inflation rate in the capital to 40.5%, the highest in 14 years.

Likewise, the IPC Congreso price index, which is compiled by the federal congress, rose by 6.7% month-on-month in April, almost double the March result (3.2%) and the highest since 2002. While the latest utility tariff adjustments made by the government accounted for over two-thirds of the IPC Congreso increase, food and drink prices were up by 2% month-on-month, while there was also an increase in education prices. The inflation nucleus remained above 2% in the month, indicating continued pressure on the index. With the April result, accumulated inflation in the first four months was 19.4% on the IPC Congreso index, compared with 8% for the same period of last year; while the annual rate was a painful 41.7%, the highest since January 1992.

Prat-Gay explained that most of the April increase was due to the “correction” of utility tariffs, which he said had been ‘hyper-subsidised’ during the preceding 12 years under the successive Kirchnerista governments in 2003-2015. Between March and April, some utility tariffs increased by as much as 300% on average. Private economists estimated that up to 80% of the April inflation figure was due to the one-off effect of higher utility tariffs.

Likewise, the head of the central bank (BCRA), Federico Sturzenegger, insists that the efforts to control inflation are working. He notes that on BCRA data, underlying inflation in March-April was lower than in the preceding two months (January-February). Sturzenegger has expressed confidence that end-2016 inflation will be close to the government’s target of 25%. He adds that the majority of independent economists do expect inflation to slow in the second half. However, the private sector consensus is for a slower pace of decline, to about 36% by year-end. Partly, this is on base effects, as inflation was relatively low in 2015.

• Lebac movements

On 24 May, Argentina’s central bank (BCRA) cut the benchmark interest rate (Lebac) from 36.75% to 35.25%, citing reduced inflation pressures and noting that its focus is now on switching to efforts to re-stimulate domestic economic activity. The move, the second consecutive reduction in interest rates, should also help slow the influx of US dollars into the country seeking to take advantage of the high interest rates, which has recently put upwards pressure on the peso, leading to some complaints by local exporters.

Prosecutor Germán Juárez of the attorney general’s office dropped a bombshell this week when he requested the pre-trial detention, for up to 18 months, of former president Ollanta Humala (2011-2016) and his wife Nadine Heredia in order to prevent their flight from the country. Juárez said that charges of money laundering and illicit association with criminal intent were being prepared against the pair.

Juárez cited evidence that the couple took illicit funds from the late Venezuelan president Hugo Chávez (1999-2013), as well as the Brazilian construction company Odebrecht, which was then used both to bankroll Humala’s election campaigns, but also for personal gain, according to the prosecutor’s written request, which was made public on 11 July.

Judge Richard Concepción Carhuancho said he would announce a decision as we to press on 13 July. If he approves Juárez’s request, Humala would become the second former Peruvian president wanted for arrest in relation to the Odebrecht scandal. Alejandro Toledo (2001-2006) is currently in Stanford, California and has refused to return to Peru to face charges of taking US$20m in Odebrecht bribes, on the grounds that the charges are politically motivated and that he would not get a fair trial. Judge Concepción was also the magistrate asked to issue a detention order for Toledo, which he did. The Peruvian authorities have issued a request for his extradition, which Foreign Minister Ricardo Luna, on 19 May, said “was advancing” through the US system. President Pedro Pablo Kuczynski has reportedly discussed the matter with his US peer Donald Trump. In the meantime, Toledo appears to be living quite openly in Stanford (where he shares a residence with his wife) and US authorities have not moved to detain him.

Humala said Juárez’s request was “abusive” and denied any wrongdoing. Outside his Lima home, Humala stated: We are complying with all of the prosecutor’s orders. We have been collaborating all along with the investigation, because we have the biggest stake in all this being cleared up.”

However, Juárez said in his request that two former Odebrecht company executives had testified (under plea bargain arrangements in Brazil) that they had arranged to send US$3m to Humala’s 2011 election campaign on behalf of Brazil’s ruling Partido dos Trabalhadores (PT), then in office under president Lula da Silva (who as we go to press has been handed a nine-year prison sentence for corruption). Juárez also alleges that Humala’s first presidential campaign, back in 2006, was part-financed with money siphoned from Venezuela’s treasury and sent to Peru on the orders of then-president Chávez.

Juárez also claimed that Humala and Heredia had opened accounts in Banco de Comercio in the names of their young daughters (Illariy and Nayra Humala-Heredia), in which some PEN40m (US$12m) in illicit funds was deposited. The bank apparently notified the attorney general of suspected money laundering through the accounts in January 2017, after 13 account ‘renewals’ in the period from September 2016. Humala and Heredia had fiercely complained after two prosecutors from the attorney general’s office turned up at their daughters’ private school in Lima in early July, accusing the authorities of abusive behaviour. The ministry for women and vulnerable populations (MIMP) also complained, stating that an investigation into parents should not trample on the rights or emotional well-being of children. The two children are now believed to be in Chicago, Illinois, apparently visiting relatives. Wilfredo Pedraza, Heredia’s lawyer, has accused Juárez of using that fact to justify his argument that the couple were a flight risk and accused him of “excess”.

• Kuczynski meets Keiko

President Kuczynski met the leader of the main opposition Fuerza Popular (FP), Keiko Fujimori, in the presidential palace this week. Prime Minister Fernando Zavala said Kuczynski had told the council of ministers on 12 July that the meeting had been “positive” and “constructive” and would allow the country to “move forward with optimism” in coming weeks. First up is the appointment of a new comptroller general by the opposition-controlled congress, after the removal of Edgar Alarcón for corruption and abuse of his position.

TRINIDAD & TOBAGO | Crime and terrorism. Two episodes this month have ensured that crime and terrorism remain at the top of the political agenda in Trinidad & Tobago. The first was the thwarting of an alleged terrorist plot to disrupt Carnival; the second was a day of near anarchy in East Port of Spain on 19 February. On 12 February it was announced that a ninth man had been detained by the security forces in connection with a feared terrorist plot to attack revellers during Trinidad’s famed Carnival. The man, detained on 12 February, was said to have been in possession of books on Islamist terrorism, including one titled Justification for Jihad. On 19 February, residents in East Port of Spain blocked streets and torched property in protest at the police killing of a local man. The government responded by calling on the opposition to support the proposed new anti-gang legislation, but the opposition is insisting on the inclusion of a 24-month ‘sunset clause’ in the legislation to ensure draconian new measures do not become permanent. The political wrangling continues.

JAMAICA | State of emergency extended. Jamaica has extended the state of emergency around the important tourist area of Montego Bay until 2 May. The measure is intended to damp down a surge in violence by providing military support to the police.

Central American economies generally have high rates of labour market informality, which makes it more difficult for states to handle pandemics such as the ongoing coronavirus (Covid-19) outbreak.

Interestingly for a term that gets a lot of attention from economists, the exact definition of labour market informality is not universally agreed upon. However, it commonly refers to undeclared labour, tax evasion, and unregulated or unlicensed activities. In less developed countries like those in Central America, these activities are likely performed for subsistence on a small scale, according to the Organisation for Economic Cooperation and Development (OECD).

Informality rates are higher in countries where economic development is low, and people engage in informal labour as a survival response in the face of poverty. Those rates are also linked to the quality of regulation and the capacity of the state to enforce those regulations. 

Most economists believe that a high informality rate decreases productivity and holds back national economic growth. Governments generally do their best to bring informality rates down, but Central American nations have struggled to do so. This has been thrown into sharp relief by the Covid-19 pandemic, which has shone a light on informality as a major social issue. With so many people unable to respect lockdown measures because they need to earn cash each day in order to survive, it has been even more difficult for Central American nations to fight the virus than other countries where rates of formal employment are higher. 

Honduras is one country that continues to struggle with high levels of informality and low levels of female employment which restrict economic growth, according to a new World Bank (WB) report released in February. According to the ‘Jobs Diagnostic Honduras’ report, 58% of all jobs in the country are “informal”, one of the highest rates of informality in Latin America. Most informal jobs are in services (28%), agriculture (19%), and industry (11%).  Many of informal workers are self-employed, but a significant proportion of wage earners (41%) are also employed “off the books”.

Employment informality is closely linked to the country’s persistently high poverty and disappointing economic growth over the last two decades. Honduran per capita GDP remains one of the lowest in the region at US$2,500 in 2018, according to the WB. The proportion of the population in extreme poverty halved from 30% to 15% in 1996-2008 but has begun to creep up since then.

According to WB officials, Honduras’s economic growth potential is being undermined by the fact that a large proportion of the workforce, particularly women, is inactive. No less than 38% of the working age population (WAP) is inactive. Only 47% of working age women are active compared to 88% of men. Most people (88%) not in employment, education, or training (known as Neets in English or Ninis in Spanish) are women. This very high proportion is explained by the existence of multiple barriers to formal female employment. They include the demands of childcare duties, social conventions that require women to carry out unpaid housework, the threat of violence in public transport, and gender discrimination in places of work.  

The private sector contribution to increased formal employment has been disappointing. Formal private sector employment grew by 2.5% in 2012-2015, according to the WB report, compared with 10% in Nicaragua and to an average of 5% in other Central American and Caribbean countries such as the Dominican Republic and El Salvador. A survey of local companies showed job creation was limited by a lack of credit (18%), competition from companies using informal workers (16%), taxes (11%), and red tape (8%).

Many of these characteristics are shared by other Central American nations. Statistics from the International Labour Organisation (ILO) published in 2018 show that the proportion of informal workers is higher in Central America (58.0%) and the Caribbean (57.6%) than South America (50.8%). In Guatemala and Nicaragua, the informality rate hovers around 80%.

Several important disparities are apparent in the regional figures. For example, the rate of informal employment is higher among Central American women (61.8%) than men (55.6%), and higher for 15-24 year-olds (70.5%) than adults aged 25 and over (55.5%). The rate of informality falls as the level of education rises from 78.5% for those with no education to 74.5% for people with primary education, 58.0% for those with secondary and 33.5% for those with tertiary.

Figures for Central America also show a rural-urban divide, with informality rates of 67.4% in rural areas compared to 50% in urban areas. It’s also interesting to note that 70.5% of agriculture workers are informally employed, compared to 53.7% in industry and 56.2% in services, according to the ILO.

Costa Rica has traditionally had lower rates of informal employment than its Central American neighbours, but a 2018 report from the International Trade Union Confederation found that the rate rose from 36% in 2010 to 45% in 2016. Panama is another country that has seen increasing rates of informality in recent years, from 43.6% in August 2018 to 44.9% in 2019, according to a report from the country’s statistics institute. In this case, slowing economic growth led to job losses in the formal sector, pushing more people into informal employment.

Informality means fewer contributors to social security programmes and lower rates of education, as well as labour unionisation. It also makes for lower tax takes, according to the OECD, and research shows that both individuals and companies in Central America show low rates of compliance with income taxes. This means that the redistributive income of personal income tax is low, and there is less money to spend on social policies.

In July 2019 the Guatemala-based think-tank Central American institute for fiscal studies (Icefi) issued a report decrying the poor performance of tax collection across the region in the first half of 2019. Icefi forecast that if this continued in the same vein for the rest of the year, Central America’s average tax revenue would fall for the second consecutive year to 13.7% of GDP.

The informal economy makes it impossible for workers to improve their skills, consigning them to poorly-remunerated, low-productivity jobs. It also means that many people reach retirement age without a pension, leaving them with no choice but to keep working. Those in the informal sector work until they physically cannot do so any longer because there is no social security system. While Central America still has a generally youthful population, it is starting to age. Even in Guatemala, which has had the highest fertility rate in Latin America for decades, the number of children born per woman has been declining rapidly, from 4.60 in 2000 to 2.87 in 2018, according to the WB. This means that without reforms, Central America will be left with an ageing population and poorly remunerated workers that aren’t paying the necessary tax bills to provide for the inactive population.

Another threat

Reducing informality and enacting reforms that allow workers to develop their skills will be increasingly important with the advent of artificial intelligence (AI). Research by the Inter-American Development Bank (IDB) published in 2018 found that countries with greater inequality and lower GDP per capita are most at risk of losing jobs to AI. In 2018, an estimated 75% of workers in Guatemala and El Salvador were in jobs at high risk of being lost to automation. In Costa Rica that figure is 68%, falling to 65% in Panama and Nicaragua.

At the same time a 2017 report from consultancy firm, McKinsey, found that technology could encourage firms to re-shore manufacturing to the US as its decreasing costs negate Central America’s low wage advantage. This could affect the maquiladora textile factories that proliferate in the region. It also means that a huge number of formal jobs are at risk, and these workers could be pushed into the informal economy if they do not ‘reskill’ using education and training programmes.

In 2016 the ‘Future of Jobs’ report from the World Economic Forum said that 65% of current primary school students will do jobs that do not yet exist. It is up to Central American governments to ensure that they get the education and training they need to take advantage of this ‘digital dividend’ and prevent the labour market from being polarised as low-skilled workers are stuck with old technology and the highly-skilled monopolise the rewards.

The most important takeaway here is that the impact of new technologies will depend largely on the policies that govern them, according to the WB. Instead of restricting the spread of technology, governments should encourage the development of skills that will allow workers to benefit as equitably as possible from digital transformation. Whether they can do so relies on education and training systems that appreciate the new realities of the labour market.

Governments in Central America already knew that encouraging informal workers to join the formal economy was an important task. The coronavirus pandemic has magnified the negative effects of having a large informal sector, and these issues are only going to become more pressing as technology impacts the world of work and the population of Central America starts to age. Regional leaders should look to use technology for their own benefit in similar ways to Peru, which has reduced informality by moving to an online tax system or incentivise the move to the formal sector 1y extending certain benefits to registered workers. Of course, these initiatives have a limited impact without a holistic plan to develop industries and train people to work in them, but so far too little is being done.

World Bank proposals

The World Bank report outlines options to increase growth in well-paid formal jobs. It recommends measures designed to increase agricultural productivity, and reforms of education and skills training to better match company needs. It also emphasises the need to improve childcare and increase safety on public transport so as to encourage more female employment. Another policy proposal is that the government should focus on investing in labour-intensive industries. 

REGION | IDB warns of unemployment. A working paper published last month by the Inter-American Development Bank (IDB), which estimates redundancies in the formal sector per country and job type in Latin America, has warned that the coronavirus (Covid-19) pandemic will have a severe impact on employment and social security in Central America. According to the IDB study, El Salvador will be the country worst affected in Central America, warning that it could lose between 8.6% and 23.9% of formal sector workers depending on different timescale scenarios; Panama could loose between 8.4% and 23.7% formal sector workers. Meanwhile the estimates for Costa Rica (7.9%-22.4%), Guatemala (7.5%-21.1%), Honduras (7.9%-21.7%) and Nicaragua (7.5%-20.9%) are similar and far exceed the projections for elsewhere in Latin America such as Argentina (1.2%-4.8%), Brazil (4.2%-14.8%) and Peru (3.3%-11.8%).

REGION | Fecamco survey warns of impact of pandemic on businesses. On 11 May the Central American federation of chambers of commerce (Fecamco) made public a survey of local businesses, the findings of which warn that the coronavirus (Covid-19) pandemic is having an “unsustainable impact” on Central American firms. The survey polled 1,079 companies across the sub-region, of which 91% were small and medium-sized enterprises (SMEs). Of the firms polled, 40% said that they were not operating while 47% were operating ‘partially’, of which 57% were operating below 40% of capacity. The survey also showed that 92% of firms polled had registered a drop in sales, while on average companies had cut 42% of personnel and suspended 52% of their workers, figures which are likely to increase as the pandemic continues.

Central America & Caribbean:​ Inflation
Monthly year-on-year figures

The inauguration in late January of Xiomara Castro as Honduras’s first female president stoked considerable hopes that her left-wing Libertad y Refundación (Libre) government would deliver on women rights. However, a recent hearing by a United Nations (UN) committee of experts highlights that there is considerable work to be done.

On 19 October the UN Committee on the Elimination of Discrimination against Women (Cedaw) concluded its consideration of the ninth periodic report of Honduras, flagging up grave concern regarding violence against women. A Cedaw press release reporting on the hearing cites statistics highlighted by a Cedaw expert that every 23 hours there was one female death in Honduras, which in 2019 had the highest femicide rate in Latin America, while 60% of these women died at the hands of partners. A Cedaw expert also flags up as “alarming” the high numbers of more than 46,000 cases of domestic violence reported in 2021. Among other things, the panel highlighted reforms prohibiting abortion (currently outlawed in all circumstances) and which supported the prohibition of the emergency contraceptive pill although there are some efforts underway to address this latter point (see box). In March 2021, under the previous conservative Partido Nacional (PN) government led by Juan Orlando Hernández (2014-2022), congress approved legislation making it more difficult to legalise abortion which stoked considerable outcry [SSR-21-03].

Headed up by Doris Yolany García Paredes, the head of Honduras’s national women’s institute (INAM), the Honduran government delegation which participated in the hearing acknowledged the need for a plan to combat femicide and the violent deaths of women. García also was cited by the panel as saying “the code of impunity would be amended”, and there was a “firm will to change impunity, which represented repression on the rights of women in Honduras”.

While the situation facing women in Honduras remains dire, the government delegation highlighted some progress made. It said that after 70 days, INAM was granted ministerial status, which it described as an “historic decision”. It noted that the office became the governing body of women’s rights and public policies, and its budget was increased from L43m (US$1.74m) to L53m by 2022. The government delegation also underlined the installation of a high-level commission tasked with agreeing on a consensual version of the first comprehensive law against violence against women. It notes that the government was in the process of finalising the national action plan against violence against women from 2023-2033, and was in the process of establishing a plan for gender equality and justice during the same period. Among other achievements (see sidebar) the government flagged up the fact that the first specialised national survey on violence against women and girls over 15 years of age was in the process of being prepared, coordinated with the national statistics institute, with support from the UN Development Programme.

• Moving to legalise morning after pill for rape victims

At the end of October Honduras’s health minister José Manuel Matheu said the ministry was looking to authorise the morning-after pill for rape victims although the complete ban on abortion would remain in place. During an event with women’s organisations on 31 October he was cited by reporters as saying “we are going to make the pill available for rape victims because it is not a contraceptive method”. The morning-after pill was outlawed in 2009. Matheu’s announcement has failed to impress women’s rights groups who continue to call for abortion to be legalised. According to a September 2022 document submitted by US-based NGO Human Rights Watch (HRW) to Cedaw, UN human rights experts estimate that the number of unsafe abortions in Honduras could be between 51,000 and 82,000 per year. According to HRW in 2021, the health ministry reported 10,233 hospital discharges for abortion, which may also include miscarriages classified as abortions.

• Other achievements

In its report to Cedaw, the Honduran delegation cites as other achievements, the fact that the criminal code was being revised to “achieve significant changes in access to justice, especially for women” while under the gender policy of the national police, 70% of new leadership positions at the inter-departmental level were represented by female police officers. It cited as other signs of progress the creation of a draft law for the immediate search for disappeared women while for the first time, a budget for the national protection mechanism for human rights defenders (HRDs) had been allocated, and was currently dealing with 53 cases.

Brazil’s federal police (PF) have launched Operation ‘Ponte de Ouro’, which will investigate individuals suspected of involvement in a network of illegal gold suppliers, who have profited from the gold extracted within the official demarcated territory (TI) of the Yanomami indigenous people in the northern states of Roraima and Amazonas. This police operation sees a continuation of the current government’s efforts to clamp down on the violations of the legally protected TIs. In February, authorities had begun to clear out illegal gold miners, known as ‘garimpeiros’, but the next steps will be to clean up the murky supply chain of the illegally extracted gold, as well as to grant land rights to more indigenous territories.    

The 4^th Federal Criminal Court in Roraima state has issued eight search and seizure warrants, as well as the blocking of the suspects’ assets. Police investigators have estimated that the group had moved over R$30m (US$5.92m) in the last four years and, by using front companies or other legal activities unrelated to mining, had managed to launder the profits from the illegal gold through several states around the country. 

During the four years of the right-wing government led by Jair Bolsonaro (2019-2023), there was no shortage of allegations of neglect in relation to the protection of TIs. On 30 January, Brazil’s supreme court (STF) had even ordered an investigation into whether the Bolsonaro administration’s abandonment had caused the humanitarian and environmental crisis afflicting the Yanomami people.

In stark contrast, the current government led by Luiz Inácio Lula da Silva has promised to defend the demarcated territories, having sent security forces (joint operations of police units and the armed forces) to forcibly remove the garimpeiros and destroy their equipment. However, there remains the risk that the miners have simply relocated and the problem has just been moved from Yanomami land onto other indigenous territories around the country, some of which might not have the constitutional rights to protection enjoyed by the officially recognised TIs.   

In theory, Brazil’s government is obliged by the 1988 Constitution (specifically Article 231) to demarcate and protect indigenous lands. But, in practice, the process for creating an official demarcation can be long and complex, with some applications taking decades to complete. According to the latest figures produced by the government’s indigenous affairs agency (Funai), 483 indigenous territories have been registered, and 281 are still going through regulatory checks. In addition to police crackdowns on illegal supply chains and money laundering networks, speeding up the demarcation process is another prong in the government’s plans to protect indigenous peoples from the depredations of garimpeiros.

Proposed evidence of genocide

The STF investigation against members of the Bolsonaro administration has taken into account evidence presented by the leading indigenous rights lobby group Articulação dos Povos Indígenas do Brasil (Apib), which includes reports of widespread malaria and other diseases among the Yanomami, high levels of mercury contaminating water in the territory, thus compromising more than 57% of the fish, and an expansion of illegal mining activity during the coronavirus (Covid-19) pandemic, among other alleged problems. 

Mexico’s national statistics institute (Inegi) on 27 April published its most recent trade figures, which show that the country recorded a trade surplus of US$1.17bn in March 2023, compared to a surplus of US$104m in March 2022. This was largely the result of record export levels.

Exports reached US$53.56bn in March, equivalent to a 3.2% year-on-year increase, while imports totalled US$52.39bn, a yearly increase of 1.1%. Non-oil imports grew by 2.23% year-on-year, while oil imports fell by 8.2%. Non-oil exports totalled US$50.98bn – up 5.5% year-on-year – while oil exports totalled US$2.58bn, a yearly decrease of 27.6%. Importantly, non-oil exports to the US grew by 6.2% year-on-year, which suggests that nearshoring is having an impact.

Having said that, according to an analysis by Bradesco financial services company, despite microeconomic evidence of growing nearshoring, other indicators such as foreign direct investment (FDI) and gross fixed investment suggest that its impact is still incipient.

Crucially, there are certain factors that could undermine its advantages. According to the local press, a report published on 20 April by Moody’s Investors Services highlights there are three key issues of concern: limitations of infrastructure, adverse public policies, and climate change.

According to this analysis, the current administration’s energy policy has severely undermined investors’ confidence and created regulatory uncertainties. While access to renewable energy continues to be limited (in 2022 Mexico only generated around 22% of its total power from renewable sources, well under its commitment to generate 35% for 2024), multinationals continue to aim for their decarbonisation goals and to boost sustainable production processes. Without a policy that prioritises renewable energy generation and private investments, the potential for nearshoring investment will be limited.

With regards to infrastructure, the country’s electricity transmission network has seen greater congestions levels, which limits intraregional connectivity. In addition, the lack of water resources in industrial areas close to the US could also dampen nearshoring investments. Moreover, industrial spaces are saturated with an occupation level of 98%.

Mexico recovered its Category 1 air safety status from the US Federal Aviation Administration (FAA) on 14 September. This came over two years after the FAA downgraded the country to Category 2 citing concerns that Mexico’s federal civil aviation agency (Afac) did not have the necessary requirements to oversee the country’s air carriers in accordance with minimum international safety standards, which are set by the International Civil Aviation Organisation (ICAO), the aviation arm of the United Nations (UN).

The upgrade will allow Mexico’s aviation industry to add new routes and increase the frequency of flights to the US, which remains the country’s main partner in terms of tourism and trade. Transport Minister Jorge Nuño said that within a year there could be 50 new routes to the US, and more than 1m additional passengers flying a year.

While Mexican airlines welcomed the change, the sector will continue to face challenges, particularly after the government announced on 31 August that operations at the Benito Juárez International Airport (AICM), the main airport serving Mexico City (CDMX), will be temporarily reduced from 52 to 43 flights an hour to mitigate congestion. This decision follows an earlier cut from 61 to 52 flights per hour which was announced in September 2022, and which the authorities claim was not enough to reduce congestion in the AICM.

Mexico’s national chamber of air transport (Canaero) estimated that some 1,000 flights per week would have to be cancelled and some 1.4m passengers would not go through CDMX due to the reductions. As a result of the industry’s reaction, the government subsequently agreed to move the starting date from 29 October to 8 January 2024, and to exclude international airlines. Nevertheless, the sector remains concerned over the impact of the decision. On 28 September, the International Air Transport Association (IATA) called on Mexico’s authorities to postpone the cut to the summer season, which starts in March, to allow airlines to modify their timetables and reduce disruption to passengers. The decision will affect Mexico’s flag carrier Aeroméxico the most because it has the largest number of slots at the AICM, followed by local budget airlines Volaris and Viva Aerobus.

The government’s aim is to encourage more flights to move to the Felipe Ángeles International Airport (AIFA), one of President Andrés Manuel López Obrador’s priority infrastructure projects, that has failed to attract much interest from airlines and passengers due to difficulties accessing the airport by road or public transport. Following the Category 1 upgrade, the AIFA could indeed increase flights to and from the US. However, this will only happen if and when overland transport is available. According to local press reports, Nuño is keen to encourage usage of the AIFA by reducing the cost to reach it and is exploring the option of providing passengers with tickets with a QR code that allows them to avoid paying toll charges to reach the airport.

BRAZIL | Former central bank chief to join Nubank. Brazil’s largest digital bank, Nubank, announced on 6 May that the former head of the central bank (BCB), Roberto Campos Neto (2019-2025), will serve as Nubank’s Vice Chairman and Global Head of Public Policy from 1 July. In a company press release, the CEO and founder of Nubank, David Vélez, praised Campos Neto as “one of the world’s leading thinkers in how to use technology to advance local financial systems”. The statement highlighted BCB initiatives implemented under Campos Neto’s leadership, such as the launch of the Pix digital payment system, the ‘Open Finance’ system to share and integrate financial data and systems, and the ongoing research into creating a new digital currency known as ‘Drex’.

ARGENTINA | Government raises minimum wage. The government led by President Javier Milei announced on 11 May that the monthly minimum wage would rise to Ar$302,600 (US$268) and hourly minimum wage to Ar$1,513, backdated from 1 April. The government announced the minimum wage increase via decree, including a series of further increases every month, to Ar$308,200 per month on 1 May, Ar$313,400 on 1 June, Ar$317,800 on 1 July, and Ar$322,000 on 1 August, when the hourly minimum wage will reach Ar$1,610. In the decree, the government noted that no consensus had been reached following “an extensive exchange of opinions, during which each sector made its presentations and deliberations”. Minimum wage was one of many issues fuelling protests by Argentina’s trade unions on 1 May. The unions had proposed a monthly minimum wage of over double the amount enacted via the decree, indicating that more protest action is likely. The minimum wage for April is up 1.94% on Ar$296,832 in March, below the monthly inflation rate of 3.7%.

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

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

Faltando poco más de un mes para que la Presidente electa Michelle Bachelet asuma el poder, su autoridad ya ha sido cuestionada en relación a la educación –un tema electoral clave. La selección de Bachelet de un político veterano, Nicolás Eyzaguirre, como su ministro de educación [IL-14-03] ya había provocado quejas y rezongos de los estudiantes, pero su opción de una consultora de educación, Claudia Peirano, como segunda de Eyzaguirre, resultó ser tan impopular con los estudiantes y miembros radicales de su alianza Nueva Mayoría, que una semana más tarde Peirano anunció que ella no asumirá su cargo. Esto subraya la dificultad que Bachelet tendrá que enfrentar para mantener unida a la Nueva Mayoría una vez que asuma el poder.

La designación de Eyzaguirre, un miembro del Partido por la Democracia (PPD) de la Nueva Mayoría, y un ex ministro de finanzas bajo Ricardo Lagos (2000-2006), fue bien recibida por los sindicatos de maestros como el Colegio de Profesores, pero provocó quejas de líderes estudiantiles tal como Melissa Sepúlveda, la presidenta de la Federación de Estudiantes de la Universidad de Chile (Fech), quien cuestionó sus antecedentes en finanzas más que en la educación.

Sin embargo, la designación de Peirano, anunciada el 30 de enero, provocó protestas. Peirano, quien está asociada de muy cerca con el Partido Demócrata Cristiano (PDC), el partido más centrista de la Nueva Mayoría (aunque ella no está oficialmente afiliada), posee una firma consultora que provee servicios a una red de colegios privados propiedad de su ex esposo, Walter Oliva. Mientras esto ha planteado preocupaciones acerca de un posible conflicto de interés, su compromiso con la reforma de la educación de Bachelet fue puesta en tela de juicio a la luz de una carta co-firmada por ella, y que fue publicada en el diario nacional El Mercurio, en el 2011, contra la gratuidad de la educación superior.

La ex líder de la Fech, Camila Vallejo, quien debe ocupar en marzo su banca legislativa por el Partido Comunista (PCCh) de la Nueva Mayoría, criticó severamente la designación, tal como lo hicieron otros ex líderes estudiantiles y diputados electos: Gabriel Boric (Izquierda Autónoma) y Giorgio Jackson (Revolución Democrática). Esto provocó que Peirano anunciara el 4 de febrero que ella no asumiría el cargo. Mientras que Peirano desde entonces ha sido reemplazada por una opción menos controversial –Valentina Quiroga, miembro del equipo de campaña de Bachelet y una ex directora de una fundación de educación sin fines de lucro, Política Educativa de Educación 2020– los miembros de la saliente Coalición por el Cambio fueron rápidos en calificar el episodio como un gran revés para Bachelet e indicativo del poder ejercido sobre la Presidenta electa por los miembros menos moderados de la Nueva Mayoría.

HidroAysén: otro desafío

Aparte de la educación, el proyecto de la mega-represa de HidroAysén también podría plantear problemas para el gobierno entrante de Bachelet. El 30 de enero, después de una reunión de un comité ministerial especial, el ministro de energía, Jorge Bunster, anunció que se necesitaban más estudios sobre el proyecto, que involucra la construcción de cinco represas en Aysén (Región XI). El comité halló que dos de los 35 puntos en discusión requieren investigación adicional, efectivamente difiriendo la decisión final para el próximo gobierno. La prensa local está informando que estos estudios tardarían entre ocho meses a un año.

En su manifiesto, Michelle Bachelet dijo que “tal como está, HidroAysén no es viable”. La designación de Bachelet de Máximo Pacheco Matte, un miembro de su Partido Socialista (PS), como su nuevo ministro de energía no ha sido bien recibida por ambientalistas ya que el Grupo Matte (con el cual él tiene lazos familiares) posee el 35% de las acciones en la compañía chilena de energía, Colbún, que posee el 51% de HidroAysén (con el resto perteneciente a Endesa de España). Pacheco se refirió indirectamente a su apoyo por el proyecto en su discurso de aceptación (ver abajo), sin embargo, vale señalar que el nuevo ministro del medioambiente, Pablo Badenier, se opone al mismo.

• HidroAysén

El entrante ministro de energía, Máximo Pacheco Matte, dijo que la Presidenta electa Bachelet tiene “muchas dudas” acerca del proyecto HidroAysén, que es un “proyecto complejo”, pero que “desafortunadamente las decisiones con relación a la energía son todas muy complejas debido a que tienen un gran impacto […] el pueblo necesita energía en sus casas […] Chile necesita resolver estas cuestiones”.

The liberalisation of trade and investment flows between Cuba and the rest of the world is good news for foreign banks (from Spain, Canada, France and Trinidad & Tobago) already providing trade finance services through their representative offices in Havana. Some local Cuban banks and non-bank financial institutions involved with trade finance should benefit too. However, wholesale liberalisation of the banking sector is very unlikely until the authorities have identified a sustainable alternative to the complicated dual currency system and worked out how that alternative should be introduced.

In mid-March, press reports indicated that there has been progress in negotiations between the Cuban government and the Paris Club of 20 creditor governments (i.e. Russia plus 19 developed countries). The Cuban government stopped servicing its Paris Club debt in 1987, having renegotiated its debt payments for 1982-86 the previous year. The last negotiations, back in 2000, broke off without a result. The Paris Club reported that Cuba owed its members $35bn at the close of 2012, rising to US$37bn in late 2013. In late 2013, there were signs of tentative efforts again, with a Paris Club delegation reportedly travelling to Havana for exploratory talks. At the same time, Russia suddenly announced that it had reached a deal with Cuba to forgive some US$29bn of Cuba’s Soviet Era debts, of which about US$20bn was Paris Club debt. (Under the deal, Russia agreed to forgive US$20bn plus interest, while Cuba reportedly would pay US$3.2bn over 10 years in settlement of the remaining 10%). Observers suggested that the unilateral move by Russia may have rankled with other Paris Club members. In any case, a year ago, in April 2014, news agency Reuters reported that talks between Havana and the Paris Club were beginning again.

Bruno Bézard, director general of the French government’s treasury, and ex officio chairman of the Paris Club, has suggested that Cuba's remaining debt owing to the Paris Club now amounts to around US$15-US$16bn, of which one third is owed to France alone. The negotiations are significant, because forgiveness of at least some of the debt is expected to be on the agenda for discussions between Cuba’s President Raúl Castro and France's President François Hollande, when he visits Cuba in May.

Since 2011, Cuba has restructured its debt with China, Japan (commercial creditors), Mexico and Russia, reworking its debt payment schedules. Should the new Paris Club negotiations result in further restructuring (and potentially a write down of some of the debt), this will improve Cuba's current account balance and give the government much greater access to global capital markets. The fact that the negotiations are finally taking place can be seen as another step in the improvement of trade and investment links between Cuba and the rest of the world, including the US.

Other recent developments in Cuba have included a rise in the number of in-bound tourists to over 3mn for the first time ever in 2014, visits to Cuba by US House of Representatives Minority Leader Nancy Pelosi (D-CA) and other US legislators, a US congressional bill seeking to lift the trade embargo against Cuba, and announcements by American Express, Mastercard and Netflix that they will extend their operations to Cuba. This all followed President Barack Obama’s December 2014 executive moves to ease the embargo, including measures to facilitate trade and financial transactions between the two countries.

On 19 March, the president of the Inter-American Development Bank (IDB), Luís Alberto Moreno, noted that there remained some obstacles to Cuba's having a direct relationship with the institution. However, it is possible that President Castro's presence at the Summit of the Americas, hosted by the Organisation of American States (OAS) in Panama on 10-11 April, will be a prelude to Cuba's re-adhesion to the OAS, membership of which is a prerequisite for dealings with the IDB.

All of this could be positive news for international banks with a presence in Cuba already. Potential opportunities include trade finance, payments, transaction services (such as cash management and working capital management) and the handling of remittances. These banks are also well placed to assist foreign investors who want to take advantage of the gradual reduction in barriers to trade and capital flows.

As of mid-March 2015, the Banco Central de Cuba (BCC) identifies nine foreign banks with representative offices in Cuba. One of these is Havin Bank Limited, which was set up in 1972 as the UK-based international banking subsidiary of Banco Nacional de Cuba (BNC). The activities of the representative office of National Bank of Canada (NBC) include trade finance and the provision of advice to clients in relation to investment in Cuba. The representative office of Spanish giant Banco Bilbao Vizcaya Argentaria (BBVA) has also been involved with trade finance and the funding of industrial projects in which foreigners have been investing. The representative office of Lebanon's Fransabank manages a portfolio of short- and medium-term loans.

The arrival in Cuba of other foreign banks has been more recent. In May 2002 Republic Bank, the largest universal banking group in Trinidad & Tobago, opened an office in Havana. According to the BCC, Republic Bank has been financing Cuban trade since 1999, through the discounting of bills, direct loans and the provision of letters of credit. Spanish group Bankia is also present in Cuba, having inherited the operations of Caja Madrid. Bankia owns 60% of Corporación Financiera Habana (CFH). Launched in late 1998, this was the first joint venture (JV) finance company in Cuba. The other shareholder in the JV is Cuba's Banco Popular de Ahorro (BPA). Although it is regarded by the BCC as a non-bank financial institution, CFH offers many trade finance products that are provided by the other banks with representative offices in Cuba.

In 2011, BPCE International et Outre-Mer (BPCE-IOM) opened a representative office to provide trade finance. BPCE-IOM is a subsidiary of France's second largest universal banking group, based on the cooperative banking networks of Banque Populaire and Caisse d'Epargne.

Canada's Scotiabank opened a representative office in Havana in 2012, to focus on trade finance. Like Royal Bank of Canada (RBC) and Canadian Imperial Bank of Commerce (CIBC), Scotiabank has a broad footprint across the region.

At the margin, some of the local Cuban banks and non-bank financial institutions will also benefit from the liberalisation process. The majority are involved in trade finance to some extent (see sidebar). Nevertheless, a quick look at the basic profiles of these organisations, as provided by the BCC, suggests that financial sector reform will be a much more gradual process than the liberalisation of trade and investment getting underway.

Most of these indigenous Cuban financial institutions were established in two waves. The first was in 1997 when, among much else, the central banking functions of the BNC were transferred to the BCC, a new institution; the BNC continued to operate as a commercial bank. The second was in 2002 in a series of further reforms.

Further, most of the institutions have fairly specific objectives in terms of their activities, the currencies in which they operate and the (mostly corporate/institutional) clientele that they serve. The implication of this is that the financial system has evolved in an ad hoc way. Institutions have been launched or changed in response to (usually challenging) changes to Cuba’s financial environment. New institutions have been given fairly well defined objectives, so that they fit neatly within the centrally planned economy.

It cannot be coincidental that the foreign players present have only been permitted to open representative offices and are dedicated principally to the provision of trade finance. These are banks with a commitment to the Caribbean region, and who come from countries that are regarded by the government of Cuba as being friendly. Crucially, they can efficiently provide Cuban firms and foreign firms operating in Cuba with access to funding that would otherwise be unavailable.

In most respects though, the foreign banks on the island are not in competition with the Cuban banks. While some domestic sectors – like tourism – have been opened up to foreign participation, this is not true of the financial sector.

One obvious reason is that it is not yet clear what will replace the current dual currency system. The authorities have said that currency unification is in the pipeline. However, very little is known as to the schedule or shape of the process.

The challenge for the authorities is two-fold. First, they must identify a new currency regime that will be sustainable. A currency peg, presided over by a formally constituted currency board, is one (but not the only) possible solution. (Latin American Economy & Business, July 2013). The government’s improved access to global capital markets should facilitate the introduction of a currency peg, should the authorities wish to do so. The improvement in relations with the US means that the US dollar is a more acceptable foreign currency to which the peso can be pegged than was the case even six months ago. Given the potential for US-Cuba trade to grow, it is becoming a more logical currency as well.

The second thing is to work out is how to introduce any new system with minimal disruption to existing institutions designed to work in the context of the dual currency system. Neither the CUC nor the CUP serve as wholly satisfactory means of exchange nor units of account. Nor do they adequately perform the other key function of money – to act as a store of value. A rapid move to a situation where there is only one currency, and that currency is a store of value, could result in a massive withdrawal of deposits from the BPA, given that it is the main institution serving households. People would, for the first time, feel that they had money that could be spent. Given its status as the main commercial bank, the BNC would also in this situation be vulnerable to a run on deposits. It is unlikely that the more specialised commercial banks, which exist to serve (mainly) Cuban state-owned enterprises, would be unaffected either.

In short, the authorities cannot consider the question of how to reform the currency system without at the same time giving consideration to what sort of financial sector should exist in Cuba afterwards. The latest developments are consistent with greater trade between Cuba and the rest of the world, greater Foreign Direct Investment in Cuba, increased access of the government (and perhaps other Cuban entities) to global capital markets and, in all probability, stronger economic growth. However, real reform of the economy will only be possible when the dual currency system is replaced by something new. At that time, there will be very dramatic changes to the Cuban financial sector.

Who is who in Cuba's financial sector?

1. According to BCC, Banco Exterior de Cuba is the main local bank that specialises in international trade finance.
2. Banco Industrial de Venezuela-Cuba (BIVC), which was set up in 2005, also offers trade finance products and processes remittances for Venezuelan diplomats (and other citizens) residing in Cuba. Interestingly, the BCC notes that the BIVC also participates in debt rescheduling operations.
3. The other seven institutions are quite diverse and, in general, have specific areas of focus. Aside from being the minority shareholder in CFH, BPA is the main savings bank in the country. According to the BCC, BPA served around 40% of the population in 2001, the latest year for which the central bank provides information.
4. The main commercial bank is BNC, which served as the central bank from 1948 to 1997, when most central banking functions were transferred to the BCC. BNC is still the agent for the government and the BCC in relation to their foreign currency debts. BNC has around 180 branches across Cuba.
5. Banco de Crédito y Commercio (BANDEC) is another major universal bank. Established in 1997, it serves enterprises, and provides accounts in national pesos (CUP), convertible pesos (CUC) and foreign currencies.
6. Set up in 1984, Banco Financiero Internacional operates mainly in foreign currency.
7. Banco Internacional de Comercio, which was established in 1993 serves state owned enterprises.
8. Banco Metropolitano, which was set up in 1997 serves embassies, foreign entities in Cuba and the people who work for them.
9. Since 1996, Banco de Inversiones has acted as a corporate advisor, trustee, custodian and agent in relation to investment deals. End box

It remains to be seen to what extent Cuba's nine domestic commercial banks will be able to participate in the growth in trade.

In a similar way, the 17 non-bank financial institutions which are overseen by the BCC are quite specialised. Eleven are involved to some degree with trade finance.

Non-bank financial institutions

1. FINCOMEX Limited is the one of the oldest of these companies. It was incorporated in Jersey in 1997 to provide banking services to Cuban enterprises as a part of industrial restructuring (and, in particular, that of the sugar sector).
2. Since 1997, RAFIN SA has also been involved in trade finance. Its services include factoring and forfaiting (the discounting of commercial bills). RAFIN SA operates in free trade zones and industrial parks.
3. FIMEL SA provides financial engineering and business management services. It was established in 1998.
4. Set up five years later, Gilmar Projects SA performs a similar function, but operates in hard currency.
5. In 1999, Novafin Financière, a Swiss financial institution dedicated to trade finance, opened an office in Cuba.
6. FINEXIM SA was set up in 2010, expressly as a trade finance institution.
7. Corporación Financiera Azucarera (ARCAZ), which was set up in 2002, provides a range of products and services to state owned enterprises in the agribusiness sector. It is authorised to operate in hard currencies.
8. Financiera para el Turismo SA (FINATUR) has been serving the tourism industry in a similar way since 1992.
9. A second company, FINTUR SA, has also been serving the tourism industry since 1994.
10. CFH, as noted above, was the first JV financial services business. It serves foreign companies that are looking to operate in Cuba.
11. Finally, Financiera Iberoamericana SA was established in 2002 as a 50:50 JV between Grupo Nueva Banca and Spain's Banco Sabadell. It provides a range of corporate banking services to Cuban entities.
12. Established in 1994, Casas de Cambio SA (Cadeca) is the institution which oversees the operation of the official currency market, in which the CUC is fixed at parity to the US dollar and in which the value of the CUP is determined by the forces of supply and demand.
13. Grupo Nueva Banca, founded in 1993, is essentially a financial holding company. It is the principal shareholder in Banco Internacional de Comercio and has close links to the various ministries and the state owned enterprises for which they are responsible.
14. As its name suggests, Compañía Fiduciaria is a trustee company. It is also a subsidiary of Grupo Nueva Banca.
15. Financiera Cimex (FINCIMEX) SA is incorporated in Panama. Since 1984, it has been authorised to handle remittances to Cuban households from outside Cuba. It is also authorised to operate as a card processing centre.
16. Compañía Financiera is an asset management company. It keeps hard currency accounts with Banco Financiero Internacional and Banco Internacional de Comercio. It was set up in 2002.
17. RED SA has run Cuba's ATM network since 2009.

Opinion polls rarely tell the full story, but the latest could denote an important turning point for President Michelle Bachelet. A survey by Plaza Pública Cadem released this week showed Bachelet’s approval rating had climbed two percentage points to 27% on the previous week. On 4 November Adimark published the results of its regular monthly opinion poll, showing that for the first time since January Bachelet’s approval rating had improved in a statistically significant way. In October, Adimark said, Bachelet’s approval rating rose four percentage points to 29%.

Needless to say there is divided counsel on how to interpret these numbers. Another opinion poll, by Universidad Diego Portales (UDP), shows President Bachelet still losing popularity. However there are good reasons to take the Adimark numbers in particular seriously: its surveys are regarded as credible; the UDP survey is a once-a-year affair.

Bachelet’s disapproval rating in the Adimark survey dropped by three percentage points on the preceding month to 67%. It now looks like Bachelet’s worst month, with the lowest approval rate (24%) and the highest disapproval rate (72%) was in August.

The detail of the Adimark survey offered some tantalising hints as to what may be happening. There were pronounced increases in Bachelet’s ratings for “dealing with a crisis”, “being active and energetic” and “inviting trust”. Her approval ratings increased among those defining themselves as left-wing (rising to 50%) or independent (to 24%), while they fell among those defining themselves as right-wing (to 12%). Some say Bachelet is finally emerging from under the shadow of the various corruption scandals that have dogged her, and that her image was helped by the government’s response to the earthquake in September.

Writing for the national daily La Tercera, blogger Andrés Benítez suggested the numbers showed Bachelet was rebuilding her appeal to her natural constituency of those on the Left, low income earners, and women. Sociologist Eugenio Trioni argued that Bachelet is re-establishing a leadership role with which she feels comfortable. He cited her cabinet reshuffle, her decision not to attend the annual dinner with business lobby Sofofa and her success, against opposition, in imposing her chosen candidate, Jorge Abbott, as the new national prosecutor, as signs that she is now more “empowered”.

Government officials say they are stepping up Bachelet’s “field visits” around the country so as to get the message out. But Bachelet’s reforms, particularly in education, still face an uphill struggle. Her challenge is to consolidate her core supporters but reach out more to independents and those in the political centre. That remains a difficult task.

• Bachelet bounces

President Michelle Bachelet’s supporters may be getting themselves over-excited. Writing for the national daily La Tercera, blogger Andrés Benítez makes the simple point that Bachelet still has plenty more disapprovers than approvers. “Despite the change in trend, most people still think this is a bad government,” he says.

Almost 62,000 undocumented Hondurans have been deported out of the US to date this year, a sharp increase of 55% year on year. This is but the tip of the iceberg for the Honduran government, however. If the US Congress does not resolve the issue of the expiring Temporary Protected Status (TPS) for Central American migrants, another 57,000 Hondurans resident in the US for 20 years will also face deportation as of 5 January 2020.

According to latest data from the Honduran Consular Network and Migration Observatory (CONMIGHO), between 1 January and 19 October US authorities deported 61,700 undocumented Honduras, an increase of almost 55% (54.7%) on the same year-earlier period. These stark data underline the vast sweep of undocumented migrants in the US being carried out under the administration led by US President Donald Trump. Honduran authorities estimate that there are 1m Hondurans in all living in the US, legally and illegally.

Like their countrymen and women benefitting from TPS, some of these undocumented migrants have already lived for years in the US, working and raising families – most of them far from the hardened criminals and violent gang members painted by President Trump. Others are recent arrivals, including some who fell prey to the family separation policy instituted by the US authorities earlier this year.

According to CONMIGHO, the US deported 23,940 Hondurans in the year to October, including 199 minors. The Mexican authorities – under sustained US pressure to stop illegal migration through its territory, before it reaches the Southern US border – has flown back 1,404 Hondurans, including 803 minors, many of them unaccompanied. A further 36,247, including a staggering 6,590 minors, were sent back via land from Mexico, with a further 103 deported from other Central American countries. Finally, four Honduran minors were deported from European counties, according to observatory data.

Overall in 2017, 48,022 undocumented Hondurans were deported from third countries, the majority by the US and Mexico. Yet the latest figures illustrate that the hard-line policies being implemented by President Trump are not having the desired deterrent effect. Whether for political, economic or security reasons, they keep on coming – as is starkly visible in the 7,000-strong migrant ‘Caravan’ currently snaking its way up through Mexico – having started in Honduras.

However, while President Trump’s policies and threats – including of cuts to vital US aid and cooperation for Central America – may sound good on the campaign trail, the US government may be storing up even bigger problems for later.

Cutting off aid?

On 22 October US Representative Eliot Engel (D-NY), Ranking Member of the House Committee on Foreign Affairs, issued a statement in response to US President Trump’s tweet that he would be cutting off or substantially reducing aid to Central America’s Northern Triangle countries (El Salvador, Guatemala and Honduras) if their respective leaders fail to stop migration.: “Fortunately, Congress – not the President – has the power of the purse, and my colleagues and I will not stand idly by as this Administration ignores congressional intent. My office has reached out to the Government Accountability Office, which is statutorily authorized to track acts of impoundment, to ensure that the President does not violate the Impoundment Control Act (which prohibits the President from withholding – or impounding – money appropriated by Congress).

• Questioning Trump’s threat

In his statement issued on 22 October US Representative Eliot Engel (D-NY) added that “Beyond these potential egregious violations of laws and norms, the President’s approach to Central America will have precisely the opposite impact from what he intends. El Salvador, Honduras and Guatemala are plagued by violence and poverty. In many communities, gender-based violence against women and girls is tragically common. The best way to keep Central Americans from migrating to the United States is to continue investing in their communities so that they are not forced to make the dangerous trek north. Yet again, President Trump’s policy toward Latin America will only make things worse.”

BRAZIL | Guedes presents tax reform proposal. On 21 July, Brazil’s Economy Minister Paulo Guedes presented the chamber of deputies with the first part of the government’s tax reform, which seeks to merge two federal taxes – PIS/Pasep and Cofins – into a single 12% levy called the contribution on goods and services (CBS). Special tax regimes will apply to certain products and areas: the Manaus Free Trade Zone will not be affected for example.

This is the first step in attempts to simplify Brazil’s byzantine tax system, bringing an end to over 100 distinct tax regimes for different sectors of the economy. José Barroso Tostes Neto, the secretary for the Receita Federal tax authority, claimed that Brazilian businesses currently spend around 1,500 hours per year declaring taxes, almost three times more than the Latin American average. “These contributions, which are currently extremely complex and a big source of litigation, will be eliminated and replaced by this new tax…ending the enormous differences that exist for various sectors and products,” he said.

The government plans to propose three further elements as part of the wider tax reform next month. These include changes to the levy on industrialised products (IPI), which would impose a ‘selective tax’ on products with negative health effects, such as cigarettes, alcohol, and sugary drinks. Other proposals in the pipeline include reducing business tax rates in exchange for higher levies on dividends, which the government claims would reduce tax evasion, and a reduction in employer contributions.

Tostes emphasised that the proposed reforms are aimed at simplifying the tax system rather than altering the amount businesses and consumers will pay, saying that “regardless of the various proposals…the idea is to keep the tax rate at the same level”. Guedes said this first proposal complements two separate constitutional amendments for tax reform already under discussion in the lower chamber and the senate.

Although still suffering the knock-on effects of a long-running corruption scandal, Chilean lithium miner Sociedad Química y Minera (SQM) has signed a promising long-term sales agreement with LG Energy Solutions.

On 31 December 2020 Chile’s Finance Minister Ignacio Briones criticised Julio Ponce, SQM’s top shareholder, saying that had his share dealings come under US law, he would probably now be in prison. The minister was referring to the so-called ‘Cascades Case’, a complicated system of transactions in 2008-2011 involving four linked investment societies which were used by Ponce to manipulate the market. In 2014 Ponce, a former son-in-law of Augusto Pinochet, Chile’s military dictator from 1973 to 1990, was fined US$70m by the stock exchange regulator. However, Ponce appealed against the fine and last October Chile’s supreme court reduced it to US$3m. Briones said it was not for him to question the judgements of the courts, but that similar illicit share dealing in the US would have led to a prison sentence. Without directly referring to the protests that shook the country from October 2019 onwards, Briones said “I believe cases like these create an impression of unequal treatment under the law which are fatal for our democracy”. SQM said it would not comment on the case.

SQM is the world’s second largest lithium producer and is currently benefiting from rising demand for lithium-ion batteries used by electric vehicles (EVs). On 22 December 2020 SQM said it had signed an agreement to supply 55,000 tonnes (t) of battery-grade lithium carbonate to LG Energy Solutions of South Korea over the 2021-2029 period. On 24 December it said it was authorising a capital expansion of US$1.1bn to help finance its US$1.9bn lithium, nitrates, and iodine expansion plan. Under existing plans annual production is to be expanded to 180,000 t of lithium carbonate and 30,000 t of lithium hydroxide by 2023.

*** GOOD LOCAL ELECTION FOR GUYANA’S RULING PPP/C. Guyana’s ruling People’s Progressive Party/Civic (PPP/C) won 66 of the 80 Local Authority Areas (LAAs) contested on 12 June, up from the 52 it secured at the last local elections in 2018. The opposition A Partnership for National Unity (Apnu) won only 14 LAAs, down from 23 in 2018. The PPP/C gained a majority in seven of the country’s 10 townships. Apnu held onto its control of Georgetown, New Amsterdam, and Linden, two municipalities less than in 2018. In Georgetown, the PPP/C won five constituencies to Apnu’s 10.

The PPP/C’s general secretary Guyana’s former president (1999-2011) and now vice-president Bharrat Jagdeo called the result a “wipeout”, saying: “That’s the definition of a massive victory. That is how you define landslide, not be winning a constituency in Georgetown you have won for 60 years.”

*** CONSTITUTIONAL REFORM IN JAMAICA. Jamaica has begun a process of constitutional reform that is likely to see, amongst other things, a move to becoming a republic. However, there are fears that the process might become a victim of the general election due in 2025. Accordingly, Minister of Legal and Constitutional Affairs Marlene Malahoo Forte has urged both the prime minister, Andrew Holness, and leader of the opposition Mark Golding to commit to continuing with the reform process regardless of the outcome of the election.

The difficulty over time is because many of the provisions that are up for reform, such as having King Charles as head of state, require a two-thirds majority in both houses of parliament and a referendum to change. Speaking in early June, the minister said: “We will not achieve all goals at once. We do not yet have the capacity to absorb monumental and complex changes all at once, of the magnitude that would come if we were to amend all of the constitution all at once.” She added: “On top of that, many Jamaicans do not even know what is contained in the constitution”, and members of the reform committee have agreed that the electorate needs to be educated about what is in the constitution before being asked to decide on it, and that will take time.

Malahoo Forte in her appeal to Holness and Golding said: “It is my hope that the work to reform the constitution will continue with the commitment from both sides regardless of what happens after a general election. It is too important a work to be pushed aside, as has been done on many previous occasions.”

*** IN SEARCH OF FOOD SECURITY. The issues of food security in the Caribbean, where 80%-90% of all food consumed is imported (according to World Bank estimates) and only three countries (Guyana, Haiti, and Belize) produce more than 50% of their food, continues to focus attention. The 34^th West Indies Agricultural Economics Conference, hosted in The Bahamas from 4-9 June, was opened by Bahamas Prime Minister Philip Davies and had presentations on subjects ranging from how to get young people engaged in agriculture to the opportunities of innovations such as vertical farming.

Davies in his opening remarks emphasised the importance of embracing new technology, saying: “The conference will provide space to explore these cutting-edge innovations, encouraging collaboration between researchers, policymakers, and industry experts. By embracing technology and digitalisation, we can enhance productivity, reduce waste, and bridge the gap between agricultural potential and economic outcomes.” In line with this injunction, Samuel Bertram, the CEO of a US-based company called OnePointOne (OPO) gave a presentation on its “state-of-the-art automated farming system” which includes artificial intelligence (AI), robotics, and machine learning “to optimise resource use, crop growth, and yield”.

Amid the ongoing uncertainty over the future of the free trade deal between the European Union (EU) and the Southern Common Market (Mercosur), the South American trade bloc has managed to close a deal with the European Free Trade Association (Efta), comprising Iceland, Liechtenstein, Norway, and Switzerland – four non-EU countries that participate in the European single market. Although Efta is a much smaller trade partner than the EU, the signing of a trade deal has been celebrated by Mercosur leaders as a sign of the bloc’s continued relevance.

Recent Mercosur summits have been platforms to celebrate at least one notable achievement for the bloc. The December 2023 summit in Rio de Janeiro hailed the signing of a trade deal with Singapore; the July 2024 summit in Asunción featured the confirmation of Bolivia’s accession to the bloc; the December 2024 summit in Montevideo celebrated the latest draft of the trade agreement with the EU; and the Efta trade agreement was announced on 2 July, the first day of the latest summit in Buenos Aires.

The two larger economies of the Efta, Norway and Switzerland, have already made inroads with trade and investment in South America and could stand to benefit the most from an FTA with Mercosur. Switzerland features among the top 10 international investors in Brazil across a range of sectors, for example, with investments in agriculture, pharmaceuticals, and infrastructure, in addition to other areas. Meanwhile, Norwegian companies have invested in energy projects in South America, such as in Argentina’s Vaca Muerta shale oil and gas field.

Aside from the specific sectoral opportunities of the deal, the agreement offers a chance to boost morale within Mercosur after years of frustration. When Argentina’s President Javier Milei accepted the six-month rotating presidency for the first half of 2025, he criticised Mercosur for failing in its purpose of boosting free trade. Throughout 2023 and 2024, Mercosur’s future was frequently called into question amid its struggles to close the EU trade deal.

Even after an updated agreement with the EU was reached in December, doubts remained over its ratification. This would likely be the main prize for Brazil’s President Luiz Inácio Lula da Silva, who will assume Mercosur’s pro tempore presidency for the second half of this year. When he visited France last month, Lula called for the deal to be ratified by the end of 2025. This year will likely be the final year of Lula’s term that he will focus heavily on foreign policy, given that Brazil’s presidential elections are due in October 2026, which could force him to prioritise shoring up domestic support rather than pushing for trade deals abroad.

European markets

According to Efta, exports from Efta countries to Mercosur countries totalled €5.26bn (US$6.18bn) in 2024, while Mercosur exports to Efta totalled €3.07bn. The four founding members of Mercosur (Argentina, Brazil, Paraguay, and Uruguay) held the first round of formal negotiations for a free trade agreement (FTA) with Efta in 2017, while the trade talks with the EU began in 1999. Norway, Iceland, and Liechtenstein participate in the European single market as signatories of the European Economic Association agreement, while Switzerland has several sector-specific bilateral deals with the EU that allow it to take part in the single market.

ARGENTINA | Intervention in foreign exchange market. The government led by President Javier Milei appears set to row back on its commitment to let the peso float freely within wide bands taken on 14 April when it lifted the bulk of longstanding currency controls after securing a new loan deal with the International Monetary Fund (IMF). 

The finance secretary, Pablo Quirno, revealed on 2 September that the treasury would intervene in the foreign exchange market “to contribute to its liquidity and normal functioning” or, in other words, to try and arrest the peso’s alarming slump against the US dollar after it reached Ar$1,385/US$1.

Investors seem concerned about the strength of political opposition to the government’s tough fiscal austerity measures and how well the ruling far-right La Libertad Avanza (LLA) and allies will fare in crucial upcoming elections.

The peso recovered to Ar$1,361/US$1 after the treasury’s dollar selloff.

BRAZIL | Quarterly growth slows. On 2 September the national statistics institute (Ibge) reported that Brazil’s quarterly GDP growth rate in the second quarter of this year came to 0.4%. This marks a slowdown from the quarterly growth of 1.3% registered in the first quarter and the 1.5% growth rate registered for the second quarter of 2024.

Quarterly growth in the second quarter this year was primarily driven by the services and industrial sectors, which posted growth rates of 0.6% and 0.5% respectively, while the agricultural sector contracted by 0.1% in quarterly terms.