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President Juan Manuel Santos has announced that his government will embark on a new plan to transform and modernise the national police force. Santos said that the police force had played a key role in bringing an end to Colombia’s long-running internal armed conflict but that it now needed to be focused on consolidating peace in a post-conflict scenario following the signing of a peace deal with the country’s main guerrilla group, the Fuerzas Armadas Revolucionarias de Colombia (Farc), and the start of formal peace negotiations with its second-largest, Ejército de Liberación Nacional (ELN). Santos said this should not only involve combating persistent threats to national security, such as organised crime, but also conducting more traditional policing duties.

President Santos announced the plan to overhaul the national police force during a televised address on 21 March. Santos said that the objective of the plan was to “have a more humane police…disciplined, innovative, and effective, and, above all, closer to citizens”. He added that this was part of a wider reform of Colombia’s security forces, already underway with the military which, after years of being dedicated to combating guerrillas, will now have the opportunity to take on other duties. In this context, Santos explained that the police force would likely undergo a demilitarisation process to concentrate on policing duties, with the armed forces focused on military duties.

Santos said that the transformation process would begin after the government fully evaluates a report on the matter that it tasked a commission of experts to draft, and which has now been submitted. He said that the report makes recommendations centred on five strategic points: the institutional framework of the police force; its relation with the defence ministry; its organisation; the management of human resources; and its transparency and accountability.

Santos noted that this process was not starting from scratch. He said that the police force had already launched a new strategic plan called ‘Comunidades seguras y en paz’ (‘safe and peaceful communities’), which is focused on reinforcing public security in areas of the country previously under Farc control. As part of this strategic plan, 960 police officers will be permanently reassigned to rural areas around the country; while 500 young peasant farmers will be incorporated into the institution as auxiliary officers to help support policing efforts in rural areas. Santos said that as part of the transformation process, the rural policing unit (Dirección de Carabineros y Seguridad Rural) of the national police force would be strengthen, as would officer training in areas like citizen assistance.

Previously, the Santos administration had mooted the possibility of transferring control of the police force from the defence ministry to the interior ministry as part of its efforts to demilitarise it and turn it back into a civilian institution (see sidebar). However, Santos noted that the report recommends against this due to the fact that Colombia’s immediate security challenges still require “close coordination between the police and the military”.

Nonetheless, Santos said that the government’s ultimate goal was to have a police force that “is capable of facing existing challenges and those that will come, such as promoting peace and coexistence” in a post-conflict Colombia. “This will be the police for the post-conflict: a police force up to the social transformations that the country is already starting to experience, a country that is reacquainting itself to normality,” Santos said.

• Military control

Although the national police force was created as a non-military security force in 1891, it was placed under control of the defence ministry in 1960 as part of the reorganisation of the country’s security forces by the government of the time to better combat the country’s guerrilla groups. The police force has remained under the control of the defence ministry (although not under direct control of the military high command) ever since. It is widely speculated that a crucial figure in the police demilitarisation process will be its former head (Ret.) General Oscar Naranjo (2007-2012), who has been named by Santos as his new vice-president. Naranjo’s leadership of the police force has been internationally recognised and following his retirement he became an adviser in the peace negotiations with the Farc.

Bogotá was rocked by a deadly bomb attack at the upmarket Centro Andino shopping centre this week. The authorities are treating the incident as a terrorist attack and have linked it to an attempt to undermine and destabilise the ongoing peace process that the government led by President Juan Manuel Santos is currently engaged in with Colombia’s guerrilla groups. But so far the authorities have failed to identify the perpetrators. This has raised questions about the state of public security in the country and whether this will improve as a result of the peace process.

The attack took place on the evening of 17 June, when the Centro Andino, located in the upmarket ‘Zona Rosa’ area in the north of the capital was full of shoppers. Three women, including a French national, were killed when an explosive device planted in the ladies’ toilet on the second floor of the centre went off; nine other people were seriously wounded and hundreds of others had to be evacuated from the area.

Attacks in such a buzzing area of Bogotá may have been common back in the 1990s, during one of the most intense periods of the internal armed conflict. But they had become practically unheard of in recent years as the security forces succeeded in getting the upper hand over the various insurgent and armed criminal groups operating in the country. As such, the attack stung the nation and prompted intense speculation as to who could be behind it and what could have been the motive. This forced President Santos, who was in the northern city of Barranquilla at the time of the attack, to cancel a scheduled trip to Portugal and return to Bogotá to hold an emergency security meeting and to deal with the aftermath of the attack.

After chairing the meeting, Santos gave a press conference in which he condemned the attack as “vile, cruel, and cowardly”, and vowed that the authorities would not rest until all those responsible were identified and captured. Santos also said that if the attack was an attempt to destabilise the peace process “the enemies of peace” would not succeed. But Santos was careful not to link the attack to any particular group even though there was intense speculation that it could have been perpetrated by members of the Ejército de Liberación (ELN) guerrillas opposed to the group’s ongoing peace negotiations.

Notably, the ELN leadership was quick to deny any involvement, to condemn the attack targeting innocent civilians as “execrable”, and to demand a thorough investigation by the authorities to identify all those responsible, which it said were intent on “destroying” the peace process. All of this was echoed by the leadership of the Fuerzas Armadas Revolucionarias de Colombia (Farc), which is currently concluding a formal demobilisation process.

The denials of responsibility for the attack by the ELN and the Farc have left the authorities under pressure to find out what group was behind it. Santos said on 18 June that anti-terrorism prosecutors investigating the incident were currently working on three hypotheses. Santos did not reveal these so as not to hamper the investigations. But the local media has reported that the three suspect groups are ELN dissidents, the ELN-linked Movimiento Revolucionario del Pueblo (MRP) urban guerrilla group, and the Clan del Golfo criminal organisation founded by former members of right-wing paramilitary groups. This only shows that despite the significant advances made in the peace process with the Farc and the ELN, there are still numerous threats to national security in Colombia that will not dissipate any time soon.

• Leading by example

On 18 June President Santos made a point of going to the Centro Andino shopping centre, 24 hours after the bomb attack, to have a Father’s Day lunch there. Speaking to journalists, Santos said that “Last night I told Bogotanos, Colombians, that the best way to respond to these terrorist attacks is to carry on with our normal lives, to celebrate Father’s Day with our families, and this is what we are doing. My son invited me to lunch. He asked me where I would like to go. Let’s go to the Centro Andino I responded.” The president added that “terrorism will never subjugate the Colombian people”.

This article analyses recent trends in Central American migration, starting with a brief historical context and moving on to current developments. It considers geographical divisions, reasons for migrating, and growth in the overall migrant population. Finally, it considers implications of these current trends for Central American countries.

Although Central American immigration is a relatively new phenomenon, mostly dating from the late 1970s, its impact in the region and on foreign policy is quite significant. On the latter, it has come under renewed scrutiny since US President Donald Trump introduced his anti-immigrant rhetoric which targeted mostly Central Americans. The population of Central American migrants in the US has nearly doubled from 2000 to the present, but the trend has changed from 2009 onwards resulting from causes that stem from the impact of globalisation. Though migration has continued, over the past five years, it has done so at a declining rate. Overall growth in the migrant population in the US has been offset by large numbers of deportations. In the long run, continued decline will affect economic growth and prosperity in the region.

Historical context

Migration from Central America is a phenomenon of the late 20^th century, shaped by a combination of dynamics, mostly associated with political instability and poorly performing economies. In the 21^st century, migration has been shaped mostly by globalisation and transnational organised crime.

The region exhibits four different outmigration periods. The first migration wave predates the 1970s, which was shaped mostly by intra-regional mobility of Salvadorans moving to Guatemala, Hondurans to El Salvador and Nicaraguans to Costa Rica. A second wave, 1970s to 1990, is shaped by conflict-related dynamics, with people escaping from civil war, repression, and military rule during that period. A large outflow of people moving abroad came from El Salvador and Nicaragua. The third wave is the post-civil war transition and the gradual integration to the global economy. During this wave people migrated as an economic rationale, responding partly to a demand for foreign labour and economic necessity. The final and current wave is shaped by continued economic needs, external demands for foreign labour and insecurity resulting from the consolidation of transnational organised crime networks. Since 2009 the region has experienced major shifts associated with insecurity and violence.

Recent trends of Central American migration

As of 2017, Central American migrants had practically doubled from 2.6m people to 4.3m people within a span of 17 years. This number reflects patterns associated with flows from two main sub-regions. Recently, policymakers have distinguished two regions within Central America, the so-called Northern Triangle and the Southern region, which includes Nicaragua, Costa Rica, and Panama. Migration follows similar patterns linked to the rationales shaping the two sub-regions. The Northern Triangle is considered a region exceedingly affected by the ravages of violence associated with dense waves of transnational organised crime, particularly narco-trafficking, with out migration as a consequence. The second region is mostly defined by intra-regional migration networks with Costa Rica and Panama as labour importing countries for Nicaraguans working in domestic labour, security, transportation, and construction activities (Panama in particular for construction).

Drivers of migration from the Northern Triangle

Central American migration, particularly from the Northern Triangle countries, underwent changes in the post-2009 period, particularly related to increased insecurity coming from transnational organised networks. The slow economic recovery, the effect of the 2009 military coup in Honduras, as well as the expansion of youth gang violence and narcotrafficking networks in El Salvador and Guatemala had a broader and devastating effect on increasing emigration.

Waves of severe violence and insecurity associated with a prevailing environment of the operation of organised crime networks has informed decisions to emigrate. A larger number of people have sought to leave their home countries, including many applying for political asylum to escape persecution from narco-trafficking networks, gangs, or extortion rings. For example, in a 2014 study of Salvadorans, at least 20% stressed their interest to emigrate, particularly among those between the ages of 18 and 24, while 28% stressed that insecurity was the primary reason.

Insecurity is not accidental; the Northern Triangle is affected by violent homicides and extortions that intimidate people and push them out of their neighbourhoods and country. These homicides are not negligible in number and since the mid-2000s they have ranged between 38 and 40 a day for the three countries combined. They are accompanied by thousands of cases of extortion a year, and the intimidation and turf wars of an estimated 100,000 youth gangs (over half in El Salvador). In addition to insecurity, the economic factor is also central to this situation. Within a macroeconomic context, Central American economies are split between two poles of growth and wealth generation, with a third ‘missing middle’. First, the growth in the region has been driven by its dependence on the global economy, specifically on merchandise exports (predominantly agriculture and ‘maquilas’) and tourism (much of which comes from the diaspora itself). In terms of merchandise exports, fewer than 20 products account for more than 60% of exports by 50 top companies, which in turn employ only a fraction of the total labour force.

The second pole of growth is linked to migration. Remittances, nostalgic trade, diaspora tourism, and other services represent nearly 20% of GDP, on average. Remittances alone amounted to US$17bn in 2015, representing over 50% of household income in some 3.5m households in the region. Moreover, remittance recipient households have a total stock of savings of over US$3bn, the majority in informal, ‘under the mattress’ savings. This economic factor has contributed to inform people’s decision to migrate as the opportunity costs of migrating are not negligible.

In fact, amid these poles is a vast informal sector, comprised of more than two thirds of the labour force and the business sector together. It is euphemistic to talk about a private sector in Central America when most of these enterprises are one-person businesses that make less than two minimum wages. In turn, the low levels of income are the by-product of this economic model based on agriculture or other low-performing products that rely on unskilled, uneducated and underpaid labour. Therefore, the consequence of an obsolete growth model, accompanied by high rates of informal work, and the presence of drug cartels, extortion rings, and youth gangs, have triggered emigration.

In fact, research showed that migration is triggered by different factors, including insecurity. Looking at the municipal data level, in Honduras, a 1% increase in homicides drives migration by 120%, while increases in the size of economic informality boost migration by 12%. In Guatemala, a 1% increase in homicides drives migration by 100%, while increases in economic informality boost migration by 4%, and a decline in the human development index increases migration by 5%. In El Salvador, a 1% rise in homicides increase migration by 188% and economic informality by 27%. A similar pattern was found between the migration of minors and violence in the three countries. These trends have continued in 2016 and 2017. Surveys of migrants in 2016 and 2017 show that 20%-30% of Central American respondents cited insecurity as a reason for having left their country.

Another driver of migration is the US demand for foreign labour. Central American migrants meet an important demand in certain low-skill or labour-intensive sectors of the US economy, particularly construction, domestic work, food, and hospitality services. For example, one important growth factor in the US economy is in real estate and construction where only 4% of the labour force works. In that sector more than 25% of migrants work in construction and may represent at least one-third of workers in that industry. A similar case is of female domestic workers, about a third of which work in that sector in a US economy where less than 2% of the labour force works in that activity.

Migration of Nicaraguans

As with the Northern Triangle, Nicaraguan foreign labour migration is a by-product of the poor model of growth, one which precedes the 1980s period when thousands of Nicaraguans left escaping the civil war. Given the economic asymmetries of Nicaragua and Costa Rica (Costa Rica’s economy and minimum wages are at least five times that of Nicaragua) and a growing international demand for foreign labour in strategically important areas of other countries’ economies, there are more than 700,000 Nicaraguans living and working abroad, particularly in Costa Rica and the US. These migrants are sending over a billion dollars in remittances. Nearly half of those flows come from Nicaraguans in the US and the other half from Costa Rica.

These flows are only a part of a larger set of economic engagements that this community establishes with their homeland. Nicaraguan immigrants in the US not only send money home but also consume nostalgic products (beans, tortillas, cheese, etc.), call home, visit the country, or donate to charitable projects in their home community. In addition, remittance recipients have important stocks of savings and investments they make in their own initiatives.

However, despite these numbers, labour migration is not integrated into the government’s national development plans. Given the magnitude of informality and the extent of wealth generated through migration-related transnational activities, it is important to consider new development approaches.

A declining trend in Central American immigration to the US?

This increased outward migration has not directly translated into a dramatic increase of immigration to the US. Rather, during 2009-2017, migration growth to the US has been seeing mixed patterns. For the Northern Triangle the growth in the number of migrants for this period was 1.9%. Two main factors are, one, that enforcement efforts are reflected in more apprehensions and difficulties entering the US, especially with Mexican authorities detaining prospective migrants, and two, the steady pattern of deportations.

The table below compares people entering the US, the majority (89%) by crossing the US border, with the exception of Salvadorans where over half entered legally. In addition, many unaccompanied minors have sought to come to the US in numbers that are comparatively as large as, or larger than, the annual growth in the enrolment rate in secondary school within their home countries. In 2014 more than 50,000 unaccompanied minors had crossed the US border, and by the first half of 2018 the number was over 30,000.

The magnitude of this migration is measured by considering the number of people who are apprehended along the Mexico and US border as well as by those who eventually enter. Thus there are still large numbers of people who attempt to leave their countries but remain in transit trying to enter the US. Total migration outflows from these countries may be two or three times higher than the number of people crossing the US-Mexican border.

But while migration has continued, it is doing so at a declining rate (see Table 2 below). This decline is particularly noticeable because the pattern of deportations has remained steady. Eventually, because most migration to the US is irregular without legal authorisation to work, the continued numbers of deportations effectively reduce the number of people in the country. In turn, the replenishment ratio of migrants from the Northern Triangle declines because the number of entries is not too large. In fact the net number between new migrant entries and deportations, in 2017 is 67,000. If to this situation is added continued border enforcement and the termination of Temporary Protected Status (TPS) for more than 300,000 Central Americans from El Salvador and Honduras, the size of the migrant population will effectively decline further.

Implications of changes in Central American migration

Central American migration continues to be one of the largest outflows of people in the world. However, as the number declines, there are some concerns that may point to a deterioration of the economies and societies in Northern Triangle countries.

First, while migration has been shaped by a demand for foreign labour, economics and insecurity in the region, there seems to be a slowing rather than increasing migration pattern relative to the total number of migrants. The economic implications for the Northern Triangle countries point to declining family remittances in the short term, in turn affecting economic growth as they are a driving economic force. Under the current model of economic growth, economic opportunities will remain limited. Slowing migration not only affects the receipt of remittances but also long-term transnational engagement, including family ties.

Second, given the continued apprehensions and deportations, the problem of job generation and reintegration is not negligible. For example, deportations alone amount to half of the annual labour force growth in El Salvador. However, the skill set of those returned, many of whom have been at least 10 years out of their home country, is suited to the US labour market rather than the home country. More problematic is that current reintegration programmes are mostly focused on light workforce development support or on entrepreneurship in countries with highly informal economies. In turn, unemployment or informal work rates will increase, affecting growth and development.

Moreover, with declining migration it is difficult to find short-term practical solutions and mitigating strategies for US labour shortages because the demand for foreign labour in the US is not negligible. There are many activities in the US economy that are requiring low-skilled foreign workers.

Trade agreement with EU updated: On 28 April Mexico and the European Union (EU) announced the conclusion of the last outstanding element of the negotiation of their new updated bilateral trade agreement. The two sides began negotiating an updated trade agreement in May 2016, reaching an agreement in principle in April 2018, which has now been fine-tuned. The final negotiations concerned the exact scope of the reciprocal opening of public procurement markets. Under the updated EU-Mexico agreement, practically all trade in goods between the EU and Mexico will be duty free. The updated agreement includes measures to fight corruption and money laundering as well as investment protection, sustainable development in line with the Paris Climate Agreement, and simpler customs rules to boost bilateral exports. Mexico was the first country in Latin America to sign a trade agreement with the EU in 1997 and bilateral trade in goods has more than tripled since it came into effect in 2001. According to EU data, Mexico is currently the EU’s top trade partner in Latin America, with bilateral trade in goods reaching €66bn (US$72bn) in 2019, while trade in services was worth €19bn in 2018.

Job losses: On 5 May Mexico’s central bank (Banxico) has estimated that around 700,000 jobs had been lost in Mexico by the end of April due to the impact of coronavirus (Covid-19) pandemic, according to minutes from a meeting of Banxico’s governing board. The minutes reveal that Banxico's board believes that the principal danger Mexico is facing is of “short term job losses that can’t be recovered in the medium term, condemning a proportion of the population to a situation of structural poverty”. Banxico’s warning comes after Mexico’s social security institute (IMSS) reported on 14 April that 130,593 formal jobs were lost in March, the highest number of formal jobs lost in the month of March since 2002. According to an IMSS report, with the March data only 61,501 formal jobs were created in the first quarter of the year, the lowest figure since the first quarter of 2009. The IMSS had previously reported that firms had laid off 346,878 workers between mid-March and early April due to the social isolation measures imposed by the government to try to contain the spread of Covid-19.

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

Mexico: Unemployment Rate
Econimically active population

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

Chile’s President Gabriel Boric has called for strengthened cooperation between countries in the region to fight against organised crime. Boric’s comments, during the opening of a regional security forum hosted by Chile, came just days after heightened bilateral diplomatic tensions with Venezuela whose foreign minister, Yván Gil, claimed that the Venezuelan criminal organisation Tren de Aragua was “a fiction” of the international media. This went beyond a lack of cooperation on security matters to “unacceptable denialism”, prompting Boric to withdraw Chile’s ambassador from Caracas for talks and the right-wing opposition to demand that the country sever diplomatic relations with Venezuela.

Addressing deputy security ministers and officials from Argentina, Bolivia, Brazil, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, and Venezuela at the regional security forum hosted in Santiago, President Boric emphasised the importance of regional security collaboration, information exchange, and prison security cooperation, while avoiding “authoritarian and populist solutions”, an allusion to El Salvador’s President Nayib Bukele. “It is not just a police challenge but a political and cultural one,” Boric said, adding that democratic states had “all of the tools and capabilities to confront this challenge but it needs the close collaboration of every single government”.

It is not the most auspicious time for close regional security cooperation. Regional confrontations, driven by ideological antipathy, are more frequent than at any stage in recent years, with ambassadors being recalled with striking regularity. Only in January this year, members of the Brasília Consensus, which was spearheaded by the Brazilian government in May 2023 to improve regional integration before handing the baton over to Chile, had expressed its “unequivocal support and solidarity to the people and the authorities of Ecuador…in their fight against the actions of organized crime” after President Daniel Noboa decreed a state of ‘internal armed conflict’ in the face of a wave of violence by criminal gangs, some members of which burst onto the set of a live television broadcast. Since then diplomatic relations between Ecuador and two other members of the Brasília Consensus - Colombia and Venezuela - have been deeply strained by the Mexican embassy raid in Quito [WR-24-14].

Chile itself has been at loggerheads with Venezuela over the Tren de Aragua. Boric recalled his ambassador in Caracas, Jaime Gazmuri, to Santiago for talks on 13 April in response to Venezuelan foreign minister Gil’s assertion that the Tren de Aragua was “a fiction”. Boric described Gil’s comments as “deeply disturbing” and “an insult to the victims of this organisation and their families”. Meanwhile, members of congress for Chile’s far-right Partido Republicano (PR) demanded on 12 April that Boric suspend diplomatic relations with Venezuela “in the face of the violation of our national sovereignty by the dictatorship of Nicolás Maduro” in response to the murder of a former Venezuelan soldier, Ronald Ojeda, granted asylum by Chile last year [WR-24-07]. Hours earlier the prosecutor in charge of the case, Héctor Barros, said on a television programme that the main hypothesis investigators are working on is that the kidnap and murder of Ojeda was orchestrated from Venezuela.

Deputies Cristian Labbé and Gustavo Benavente, members of the right-wing opposition Unión Demócrata Independiente (UDI), urged the government to denounce Venezuela before the Inter-American Commission on Human Rights (IACHR) for promoting organised crime and irregular migration in the region. They also blasted comments by the interior minister, Carolina Tohá, earlier in the day that Venezuelan cooperation was necessary to clarify the crime, and to coordinate expatriation of Venezuelan immigrants from Chile, as “unusual and absurd”: “there is no Chilean alive right now, except government authorities, that would think the Maduro administration has any interest in cooperating in this investigation”.

Maduro called on Boric, during his weekly television programme on 15 April, to engage in direct dialogue about organised crime. Maduro said that he had “very big differences” with Boric but saw no advantage to a verbal confrontation. Maduro did not disavow Gil (who later backtracked). “Behind the Tren de Aragua story there are people like [Republican Senator] Marco Rubio in the US” who make out that it is “a sort of Isis, a new Taliban, or a new Medellín Cartel,” Maduro said.

Boric might be forgiven for having reservations about Maduro’s sincerity. The Venezuelan leader loves nothing better than dialogue but possesses an unenviable track record when it comes to reaching meaningful accords. Speaking during a visit to Chile’s northern region of Antofagasta on 16 April, Boric said he was prepared to speak to Maduro and “to have all of the dialogue necessary to combat international crime…because it is a problem we have in the whole region”. But Boric added that “beyond rhetoric and words what is important is concrete collaboration”. He also ratcheted up the pressure over Ojeda, calling on Venezuela to collaborate and “hand over the criminals that committed this extremely serious crime”, adding that “this is what we are working on and if it is necessary to talk to Maduro I have no problem with that”. Venezuela’s attorney general, Tarek William Saab, has said that local authorities are searching for two Venezuelan citizens suspected of involvement in the crime.

Carabinero officer shot dead

Bilateral tensions between Chile and Venezuela heightened again after a member of the Carabineros militarised police was shot dead on 10 April in a gunfight with a group criminals stealing mobile phones from passers-by in the metropolitan region of Santiago. Three members of the group, arrested soon afterwards, were Venezuelan and one was Colombian, Dayonis Orozco Castillo, who was arrested in Popayán, the capital of the south-western department of Cauca in Colombia, on 24 April.

Ketamine seizure

Chile’s investigative police force (PDI) made the biggest seizure of ketamine in the country’s history, according to the interior minister, Carolina Tohá, on 19 April, confiscating 84kg of the drug, “saving many young people from consuming it”. The director of the PDI, Eduardo Cerna, who was appointed on 20 March to replace the scandal-hit Sergio Muñoz [WR-24-11], said it amounted to 150,000 doses with a market value of Ch$7.2bn (US$7.5m). It was found in powder form in two cars of Peruvian origin heading for southern Santiago.

The international credit ratings agency Standard & Poor’s (S&P) has downgraded Peru’s long term foreign currency credit rating from BBB to BBB-, the lowest ‘investment grade’ rating on S&P’s scale.

S&P cited political turmoil as a major factor behind the downgrade, with specific mention of the fragmentation of congress and the limited political capital of President Dina Boluarte’s government. The personal unpopularity of the president, especially amid an escalating corruption investigation into her collection of undeclared Rolex watches and luxury jewellery, is seen as so extreme that it is impacting upon the growth outlook of the country. With no popular mandate to speak of, Boluarte’s political survival is dependent on the whims of the right-wing parties that control congress and which for the past two years have been extracting heavy concessions from the government.

S&P predicted GDP growth of 2.7% for 2024, following a contraction of 0.6% in 2023, and the return of inflation rates to the central bank’s target rate of 1%-3%. However, it anticipated that the complex political landscape will persist until the next election, which is due to be held by 2026. Low levels of popular trust in public institutions and a lack of consensus among politicians has made it difficult for any Peruvian president to enact long term policies to rebuild fiscal buffers that were eroded by the coronavirus (Covid-19) pandemic. A severe El Niño cycle in 2023 also impacted Peru’s economic performance, making it one of the worst performing emerging economies in 2023.

Although the Peruvian government has dismissed the concerns as political noise, the weakness of Boluarte’s government is clearly weighing on the investment climate. S&P said that raising its ratings for Peru would be dependent on “stable political conditions” that support long-term economic growth. However, it is difficult to see how Boluarte will be able to deliver substantive economic reform, given her lack of real congressional support and her unpopularity with voters.

A change of leadership does not currently seem likely prior to 2026, as it has been advantageous for the right-wing bloc that dominates congress to keep a president in power who depends on their support. However, those parties will almost certainly distance themselves from the government as the election looms.

Whilst Peru has some key advantages – particularly the potential to benefit from high copper prices, as well as relatively low levels of government debt – the effective political deadlock makes it difficult for the country to benefit from these opportunities, and Peru may lag behind other copper exporters in the region. An April Ipsos poll found that 86% of Peruvians believed their country was headed in the wrong direction, the highest figure among 29 countries surveyed. The latest credit downgrade, which is likely to negatively affect the costs of servicing Peru’s foreign debt, as well as discouraging investors, will only cement the perception that the fraught political situation in Peru is undermining any hopes of strong economic growth.

At one level the economic outlook for the Caribbean this year is “business as usual”: supported by recovering tourism and remittances, the sub-region will see growth above the Latin American average, coupled with a degree of price stability. But the sharp increase in uncertainty associated with US President Donald Trump’s tariff increases could put all that at risk.

In its World Economic Outlook (WEO) published in April, the International Monetary Fund (IMF) predicts that Caribbean GDP will grow by 4.2% this year, while accelerating back up to 8.6% in 2026. These numbers look very good compared to the recently reduced forecast for the Latin American and Caribbean average, which is 2.0% in 2025 and 2.4% in 2026.

However, it can be argued that the numbers are wildly distorted by the extraordinary oil boom in Guyana, now one of the world’s fastest growing economies. In contrast, the growth forecast for the 11 “tourism dependent” Caribbean economies, a group which excludes Guyana and three other commodity exporters (Haiti, Suriname, and Trinidad and Tobago), comes down to 2.5% in 2025 and 2.0% in 2026. In other words, average.

The World Bank has projected similar growth numbers for the Caribbean, noting that these play their part in making LAC one of the slowest growth regions in the world. In a recent report released on 23 April, it also warns that low investment, high debt, and a shifting external environment are major obstacles to Caribbean development. Fiscal deficits are a cause for concern. The LAC debt-to-GDP ratio is expected to have hit 63.3% in 2024, up from 59.4% in 2019.

These and other multilateral institutions identify the stronger growth countries as Guyana (driven by the oil boom) the Dominican Republic (strong tourism and remittances), Barbados (tourism and diversification), and Jamaica (tourism and remittances).  Appearing at the bottom of the ranking are Haiti (political instability and natural disasters), Suriname (debt and currency instability), and St Lucia (vulnerability to external shocks).

More generally, much will depend on the sharply increased US import tariffs announced by President Trump on 2 April but partially “paused” for negotiations during a further 90 days. In the Caribbean most countries are facing tariffs of 10% on their merchandise exports to the US, with Guyana looking at 38%.

Even if these levels are negotiated down within the 90-day period, the shock to local economies will be substantial. To some extent the island economies will be shielded because services such as tourism – their principal source of foreign currency - are not, for the moment at least, attracting new taxes.

But it is still possible that the US will enter a recession later this year, forcing US tourists to cut back on Caribbean holidays. Timothy Antoine, governor of the Eastern Caribbean Central Bank (ECCB), has warned that “we could see in the latter part of this year, next year, some impact on our tourism arrivals”.

Mia Mottley, prime minister of Barbados and chair of the Caribbean Community (Caricom), said the tariff increase was particularly impactful because the region is heavily dependent on imports. Most products on sale in Caribbean supermarkets and malls she says, are imported from the US or transited in through the US. The trade war and the fee on Chinese ships “will mean higher prices for all of us, higher prices at the supermarket, higher prices at the electronic store, higher prices for us at the shop, higher prices at the restaurant, higher prices at the dealership and beyond.”

In response she argued it would be necessary for Caribbean leaders to “re-engage” with the US, invest in local agriculture and manufacturing, and diversify their export markets.

Debt levels in the Caribbean

The World Bank’s Latin America and the Caribbean Economic Review published on 23 April notes that overall, “debt levels in the Caribbean remain stable, although several countries - Barbados, Belize, and Jamaica in particular -have engineered impressively large declines of 26 percentage points to 40 percentage points of GDP in recent years”.

Nunca hay un buen momento para que un gran terrateniente describa a los campesinos de subsistencia como haraganes y sugerir que deben ser tratados a palos. Para Tranquilo Favero, el mayor productor individual de soja en Paraguay, la oportunidad difícilmente podría haber sido peor. El gobierno había declarado la emergencia alimentaria ante la seria sequía en Paraguay cuando Favero, un Brasilero-Paraguayo, dijo al diario Folha de São Paulo de Brasil que los campesinos sin tierras paraguayos eran haraganes y poco colaboradores: “Es inútil lidiar con diplomacia con los sintierras. Ellos deben ser tratados como mujer de malandro, que sólo obedece a base de palos.”

Dejando de lado la ofensa a las mujeres, los comentarios de Favero fueron menos que faltos de tacto, teniendo en cuenta el resentimiento visceral hacia los llamados Brasiguayos que son ampliamente percibidos como los compradores de enormes extensiones de tierras en Paraguay, mientras los habitantes locales luchan para poder subsistir. El ministerio de agricultura ha insistido en que las cosechas de soja, maíz y algodón podrían caer un 40% este año, como resultado de la ausencia de lluvias desde noviembre, lo que ha dañado seriamente el sustento de unos 250.000 pequeños productores. La Federación Nacional Campesina (FNC) emitió una declaración  afirmando que la cosecha de algodón promediará solamente los 300-400 kilogramos por hectárea bastante menos que la meta de 1.800kgs. El sector privado calcula que las pérdidas en las exportaciones más importantes de Paraguay llegarían a unos US$1,5mm, y que tendrá un gran impacto en el crecimiento del PIB del país este año.

Unos 200 manifestantes prendieron fuego a una efigie de Favero frente a sus oficinas cerca del aeropuerto internacional de Asunción, el 17 de febrero. El consejo de la ciudad de Asunción declaró a Favero persona non grata y presentó una petición al ministerio del interior pidiendo que le sea despojada la ciudadanía paraguaya. El ministro del interior, Carlos Filizzola, expresó su apoyo a esa petición.

Un contrito Favero, de 77 años, decidió publicar una declaración en los medios de Paraguay el 19 de febrero buscando el perdón. Explicó que él se volvió paraguayo naturalizado por opción hacía 40 años. Dijo que como padre y abuelo de mujeres él las tenía en la más alta consideración posible. Dijo que estaba sinceramente arrepentido de sus mal escogidas palabras y que nunca tuvo la intención de ofender.

Agregó que no había tenido la intención de dar la impresión, en su entrevista con Folha de São Paulo que había apoyado la dictadura de Alfredo Stroessner (1954-1989).  Explicó que durante la época de Stroessner se podía vivir con mayor seguridad y que no fue cuestionado como ahora, pero eso no significa que él prefería la dictadura a la democracia.

Cientos de autoproclamados agricultores sin tierra (‘Carperos’) liderados por Victoriano López están exigiendo que el gobierno del Presidente Fernando Lugo expropie cerca de 168.000 hectáreas (ha) del holding del Grupo Favero para ser redistribuidas (ver más abajo). Favero defendió sus títulos sobre la tierra, en Ñacunday en el departamento de Alto Paraná, en el este, de las que dijo que las había adquirido legalmente a la tasa de mercado y en las que él afirmó, había trabajado en los últimos 15 años. Agregó que la justicia paraguaya era la única institución con el derecho constitucional de dictaminar sobre la materia y que cualquier acción por cualquier otra entidad del estado sería totalmente ilegítima en un país democrático.

• Tierra

El gobierno se ha distanciado de las exigencias del líder Carpero, Victoriano López, incluso aunque Tranquilo Favero no fue exactamente lo más digerible del mes. El jefe de gabinete, Miguel López Perito, dijo que él sospechaba que Victoriano López quería que el gobierno “se manche las manos con sangre”. Dijo que López debía aceptar las 30.000 hectáreas en Alto Paraná que el gobierno había ofrecido a los agricultores que él representa y abandonar el reclamo sobre las tierras de Favero, algunas de las cuales han sido ocupadas por ellos. López rechazó la oferta del gobierno de las 30.000 hectáreas, que el instituto de desarrollo rural y de la tierra (Indert) afirma que están disponibles en otra parte del departamento.

COLOMBIA | Ecopetrol inicia el 2013 con el pie derecho. La petrolera estatal de Colombia, Ecopetrol, anunció el 2 de abril que había hecho el descubrimiento de un depósito de hidrocarburos en el departamento de Meta en el este del país en el área de los Llanos Orientales, el segundo descubrimiento de esta clase este año. El anuncio es una buena noticia para Colombia dado que tan recientemente como en febrero, el ministro de finanzas de Colombia, Mauricio Cárdenas, destacó la necesidad de que Ecopetrol redoble sus esfuerzos de exploración a fin de mantener la ambiciosa meta de producción del gobierno de 3m de barriles de petróleo por día (bpd).

Desde entonces, el 19 de marzo, Ecopetrol anunció su primer descubrimiento de hidrocarburos del año en el pozo Pastinaca-1, también en el departamento Meta. Ecopetrol dijo que la perforación preliminar en Pastinaca-1, produjo 202 bpd; y que esto sirvía como una confirmación más del potencial de producción de petróleo sin explotar en los Llanos Orientales, de donde actualmente Colombia extrae el 55% de su petróleo. Ecopetrol también señaló que el pozo Pastinaca-1 era parte de un contrato de concesión (CPO) que fue otorgado exclusivamente a Ecopetrol por la Agencia Nacional de Hidrocarburos (ANH) de Colombia, en el 2008. Esto significa que la compañía estatal es la única operadora y por lo tanto podrá cosechar todos sus beneficios.

El alentador descubrimiento en Pastinaca-1 fue rápidamente seguido de otro en el área CPO adyacente en el pozo Venus-2. De acuerdo con Ecopetrol, las perforaciones preliminares en Venus-2 han producido 630 bpd, lo que sugiere que este pozo bien podría ser incluso más productivo que Pastinaca-1.

A fin de continuar con estos esfuerzos de exploración y para explotar exitosamente sus recién descubiertos pozos en los Llanos Orientales, está claro que Ecopetrol tendrá que reunir fondos para invertir. Afortunadamente para la firma hay signos de que no encontrará muchas dificultades en lograr esto. El 26 de marzo, Ecopetrol anunció que había concluido exitosamente la negociación de una línea de crédito de US$847m del Export-Import Bank de EU, y de otros cuatro bancos internacionales: JP Morgan Chase, Citibank, The Bank of Tokio-Mitsubishi UFJ, y Mizuho Corporate Bank; que será “usada exclusivamente para pagar por bienes y servicios contratados de proveedores de EU”.

PERÚ | Crece el turismo interno. Durante la Semana Santa, el turismo interno en Perú ha generado US$260m, o 15% más que el año pasado, de acuerdo con cifras oficiales difundidas por la cámara nacional de turismo de Perú (Canatur) el 1 de abril.

El sector turismo de Perú se está convirtiendo en una crecientemente importante actividad económica, y según el presidente de Canatur, Carlos Canales, el turismo interno es una de las fuerzas motoras en el sector. De hecho, de acuerdo con el ministerio de comercio exterior & turismo, Mincetur, el turismo interno se incrementó el año pasado un 5%; esto a medida que los viajes de peruanos a otras partes del país se incrementaron un 13%, con 34m de peruanos convirtiéndose efectivamente en turistas internos.

Señalando que el promedio de dinero gastado por los turistas internos se ha incrementado un 42% desde el 2009, a US$191,66 por cabeza, Mincetur dijo que el turismo interno es una buena manera de promover el desarrollo económico del interior del país pues tiende a beneficiar directamente a comunidades más pequeñas donde el dinero de los turistas está siendo gastado. Esto llevó a Mincetur a lanzar una “agresiva” campaña de promoción del turismo interno este año. Según Canales, las últimas cifras muestran que los esfuerzos de  Mincetur ya han producido algunos resultados. Sin embargo, Canales señala que esto debe ser igualado por el sector privado, así como también por otras agencias del gobierno para mejorar las infraestructuras del transporte y el turismo de Perú.

Aunque las cifras del Mincetur son positivas, el observatorio de turismo de Perú (OTP), una ONG local, ha tomado un visión menos optimista indicando que la metodología utilizada no es precisa pues Mincetur considera que todos los peruanos que viajan dentro del país son turistas, mientras que en realidad algunos de ellos sólo son personas que retornan a sus pueblos natales.

El jefe de investigación del OTP, José Manuel Marsano, explicó que “los turistas gastan dinero en hoteles, alimentos, paseos, souvenirs, etc., mientras que aquellos que retornan a sus ciudades natales no tienden a tener estos gastos”. En este sentido, Marsano dijo que las cifras no solamente son engañosas con relación al número de turistas, que OTP ubica apenas como una fracción de la cifra del Mincetur (4,1m), pero también en la cantidad de ingresos generados. De todos modos, Marsano dijo que la OTP cree que el turismo interno está creciendo y pronostica un incremento del 4% este año si el actual clima interno positivo continúa.

• Palestina

El 2 de abril, una delegación de la autoridad monetaria Palestina (PMA) liderada por su presidente, Jihad Khalil Al Wazir, visitó el banco central de Bolivia (BCB) donde buscaron intercambiar “experiencia técnica” en política monetaria y un número de otras cuestiones. La delegación fue recibida por la ministra de planeamiento del desarrollo de Bolivia, Viviana Caro, quien dijo que los visitantes también estaban buscando más información acerca de oportunidades de inversión en el país andino. De hecho según Caro, el objetivo de la visita era poder “establecer relaciones más formales y firmes con el Estado de Palestina”. Caro agregó que “Bolivia es un país con gran potencial y estamos en el proceso de llevar adelante proyectos de inversión y desarrollo,” aunque no mencionó qué proyectos eran estos.

*** DECISION TIME FOR CAYMAN ISLANDS. The Cayman Islands will go to the polls on 22 May following a period of considerable political turmoil. This turmoil stems from developments such as the arrest in December 2012 of Prime Minister McKeeva Bush of the United Democratic Party (UDP) accused of theft and corruption, and the threat of having direct rule imposed by the United Kingdom in November 2012 in response to Bush’s backsliding on implementing an agreed Framework for Fiscal Responsibility (FFR).

In the 2009 election, the UDP won nine seats to the five won by the People’s Progressive Movement (PPM) led by Alden McLaughlin. There was one independent elected. Since then, the political equation has been considerably muddied by defections from the UDP after Bush’s arrest. Five UDP members formed a minority government under Juliana O’Connor-Connolly.

The UDP and the PPM are fielding 12 and 15 candidates respectively for the 15 elected seats in the assembly. However, two other political groupings have also been formed: the Coalition for Cayman (C4C) and the People’s National Alliance (PNA), with seven and five candidates respectively. In addition, there are 17 independent candidates contesting the election. Bush, whose next court appearance is not until after the election, is still leading the UDP.

McLaughlin, the PPM leader, has said that “hell will freeze over” before he forms a coalition government which includes Bush. He has also said that he is suspicious of the Coalition for Cayman (C4C) because “there are strong links between certain C4C candidates and the [UDP]”. But the PNA, made up of UDP defectors now forming the interim government, has not yet announced exactly what its post-election tactics will be.

*** WARNER RESIGNATION SPARKS BY-ELECTION. Trinidad’s controversial National Security Minister, Jack Warner, was forced to resign from the government following a highly critical report released on 19 April by the Confederation of North, Central American & Caribbean Association Football (Concacaf) on his former role as Concacaf’s head. Warner and another former Concacaf leader, Chuck Blazer, were described as “fraudulent in their management”. On 26 April, Warner then also resigned his parliamentary seat of Chaguanas West, forcing a by-election which must be held by 8 August.

Warner has announced his intention to contest the seat and has launched his campaign for re-election. However, it is unlikely that he will be selected as the candidate for the ruling United National Congress (UNC). Chaguanas West has always been viewed as a bastion of the Indo-Trinidadian community, from which the UNC draws most of its support. Warner, as an Afro-Trinidadian, has been important to the UNC in widening its appeal beyond the racial divide.

*** A GOOD MONTH FOR SURINAME. On 26 April Malaysia’s state oil company Petronas said it had signed a US$25m investment deal with Suriname’s state oil company (Staatsolie). At the same time, the international ratings agency Standard & Poor’s raised its outlook on Suriname from stable to positive based on the premise that “large investments in the mining and oil sectors could lead to higher growth prospects”. S&P, which puts Suriname’s foreign and local currency sovereign credit rating at BB-/B, is projecting annual growth of 4%-5% for the next three years. Other foreign oil interests now active in Suriname include Norway’s Statoil Hydro, Apache Corporation, Murphy Oil, Kosmos Energy and Chevron.

A fresh debate over the impact of a major project on indigenous communities has been triggered by a campaign by a number of Peruvian NGOs, supported by Survival International, to halt the expansion of the Camisea natural gas project. At stake, say the campaigners, is the risk posed by the project to “uncontacted” communities within the Kugapakori-Nahua-Nanti territorial reserve, which is “within Camisea’s area of influence.”

The main risk is contagion of diseases against which these communities have no immunity through contact with workers on the gas project. A communiqué by Survival International states that the Inter-American Human Rights Commission (IAHRC) has expressed grave concern about these risks. In fact, the IAHRC said in an 8 November press release that it had “continued to receive worrying information on the situation of human rights of indigenous peoples in different countries of the region” among which it mentions “the lack of implementation of effective measures for the protection of indigenous populations in voluntary isolation in Peru.” It reiterates to Peru the call issued to all member states to guarantee the rights of these people. It does not mention Camisea explicitly.

In question is whether there are indeed “uncontacted” communities in the reserve. Peruvian NGOs that took the matter to the IAHRC on 1 November say they have evidence that they do. The consultant and columnist Irma Montes has been strenuously arguing that the inhabitants of the reserve, far from being uncontacted, have Peruvian IDs and have even travelled to Washington to appear before the IAHRC.

ARGENTINA-BRAZIL | Bilateral trade falls steeply

May was the worst month for bilateral trade between Argentina and Brazil since 2009. Commerce between the two countries declined by 23.7% compared with the same month of 2014, falling just under US$2bn. Argentina’s trade deficit with Brazil reached US$246m in May, compared with US$70m in April. Argentina is Brazil’s fourth largest trade partner after China, the US and Germany. With the Brazilian economy now in recession, and the Brazilian congress approving an increased tax on foreign imports, the trend is likely to continue.

BRAZIL | Copom raises interest rates to 13.75%

On 3 June the monetary policy committee of Brazil’s central bank (Copom) raised the benchmark interest rate, the Selic, to 13.75%. The 50 basis point increase was a unanimous decision by the committee. In the note accompanying the announcement, Copom indicated that further rises may be necessary in the months ahead. In recent testimony to congress, Alexandre Tombini, the central bank president, said that it was still the central bank’s goal to bring inflation in line with its target of 4.5% with a 2% band of tolerance. Inflation is currently running at around 8%.

Venezuela’s opposition coalition Mesa de la Unidad Democrática (MUD) has unveiled a new canopy structure. This will incorporate into the MUD additional political parties, as well as civil-society organisations and NGOs, to create one national opposition movement. This appears to be an effort to broaden, renew and strengthen the opposition, before launching a new offensive against the government led by President Nicolás Maduro and the ruling left-wing Partido Socialista Unido de Venezuela (PSUV). The clear risk, however, is that this ambitious new movement becomes even more unwieldy and unmanageable.

Late last year, having failed in its ambition to dislodge President Maduro via a recall referendum, and deeply divided about the advisability of sitting down to a Vatican-backed roundtable dialogue with the government, the MUD seemed at risk of total implosion between its various constituent parts, which range from Marxists to moderate left-wing social democrats to conservative right-wing groups. In December with the Vatican-backed talks going nowhere, the MUD decided upon a restructuring as a way of moving forward.

After some delay, the new structure was unveiled on 17 February. The main casualty of the re-organisation was the MUD’s secretary general, Jesús ‘Chuo’ Torrealba, whose apparently unilateral decision (in late October 2016) to take the MUD into the talks backed by the Vatican cost him dearly. His post has now been eliminated, but José Luis Cartaya, a political scientist and relative unknown who to date has been assistant secretary of the MUD-controlled national assembly, becomes ‘general coordinator’ of a newly-expanded MUD secretariat. “In Venezuela, there’s an urgent need for a new opposition, it was absolutely necessary that the coalition restructured, and not just cosmetically,” Torrealba stated, announcing the changes.

MUD – new structure

1. Consulting Organisms

Congreso de la Sociedad Democrática (Democratic Society Congress)

                         – Political Organisation

                         – Social Organisation

2. Political Committee (with a rotating leadership)

Comprising nine parties: Acción Democrática, Alianza Bravo Pueblo, Avanzada Progresista, La Causa R, Movimiento Progresista de Venezuela, Primero Justicia, Un Nuevo Tiempo, Vente Venezuela, Voluntad Popular.

3. Secretariat – General Coordinator – José Luis Cartaya

Comprising three sub secretariats:

– Political – coordinated by Ángel Oropeza

– Technical – coordinated by Roberto Picón

– Social – coordinated by Alfredo Padilla and Tinedo Guía

Torrealba also emphasised that the MUD, as per an August 2015 regulation, will continue to select candidates via primaries in the first instance, or via consensus, in limited and exceptional circumstances. However, the fate of the pending state and municipal elections remains in doubt, as the CNE continues to find ways to delay, the latest of which includes a re-registration process for small parties that the MUD says will kill off a string of smaller political groups, most of them opposition-leaning. Maduro declared on 20 February that he ‘didn’t know’ when the CNE would call elections, but noted that whenever it did, the government “must have victory guaranteed”. To this end, Maduro too announced a restructuring of “the PSUV…of the missions…and the inauguration of ‘casas del partido’ in every parish and municipality of the country”.

• López

The jailed leader of the radical MUD party Voluntad Popular, Leopoldo López, continues to call for a more disruptive strategy against what he says is a dictatorship in Venezuela. “This fight is not a fight within a democratic framework, it’s a fight against a dictatorship, and thus a democratic resistance”, he told the Spanish newswire Efe. López has called on the newly restructured MUD to push for a national referendum on whether to hold early elections this year.

The latest International Monetary Fund (IMF) Regional Economic Outlook talks of a general improvement in the economic prospects for the Caribbean “supported by higher US and global growth”. But there is a huge range in likely outcomes for the sub-region, from a contraction of -14.1% projected for Dominica this year, as it continues to struggle with the aftermath of Hurricane Maria, to growth of 3.4% for Guyana as it begins to feel the first positive effects of the forthcoming oil bonanza. Overall, tourism-dependent Caribbean will grow by just 1.4% in 2018 and 1.8% in 2019. The region’s commodity exporters (Belize, Guyana, Suriname, and Trinidad & Tobago) will grow by a similar 1.4% this year and 1.6% in 2019.

It is the strength of the US economy that is providing support to some of the more attractive tourism destinations, notably St Lucia (3.4% forecast growth for 2018) and Grenada (3.6%). Other countries are experiencing more modest growth, like Jamaica with a forecast advance of 1.2% for 2018. The other countries that make up the ‘tourism-dependent’ category are Antigua & Barbuda (3.5% forecast growth for 2018), Aruba (1.1%), The Bahamas (2.3%), Barbados (-0.5%), St Kitts & Nevis (2.7%), and St Vincent & the Grenadines (2.0%). There is also the special case of Dominica.

Among the commodity-exporters, the best that can be said for Trinidad & Tobago is that it is no longer in recession after contractions of -6.1% in 2016 and -2.6% in 2017. The forecast growth for this year is 1.0%.

Fiscal deficits and debt remain a major concern in the region, with Barbados the leading concern with its public-sector gross debt of 157% of GDP in 2017. Now the IMF has been called in to impose a programme aimed at restoring macroeconomic stability, but not swiftly enough to prevent another downgrade from Standard & Poor’s in mid-October.

Under the programme, Barbados is aiming to achieve a primary surplus by 2019/20 of 6% of GDP, and (according to the IMF) “maintain it at that level for several years thereafter”. Another key objective is to reduce the drain on government funds from transfers (amounting to 7.5% of GDP) to state-owned enterprises (SOEs). The IMF says: “The program aims to reduce transfers by about 2 percentage points of GDP, by a combination of much stronger oversight of SOEs, supported by improved reporting; cost reduction, including reduction of the wage bill; revenue enhancement, including an increase in user fees; and mergers and divestments.”

The average level of debt for the tourism-dependent countries (measured as a percentage of GDP) is forecast to be 81.1% in 2018, coming down slightly to 79.1% in 2019. Behind this improvement is an average public-sector primary balance of 1.7% for 2018 and 1.5% for 2019.

Debt levels are lower for the commodity exporters, at 64.9% for 2018, but the public-sector primary balance is a negative -2.5% for 2018, improving to -2.0% for 2019.

Discussing the overall position, the IMF says: “High fiscal deficits and public debt remain major vulnerabilities for the region.” However, it adds, “in some tourism-dependent economies, debt ratios are now retreating from very high levels.” It singles out Grenada (64.6% in 2019, down from 90.1% in 2015); Jamaica (97.4% in 2019, down from 121.3% in 2015); and St Kitts & Nevis (63.6% in 2019, down from 66.1% in 2015).

It is less enthusiastic about Antigua & Barbuda, with its primary deficit of -2.8% and debt-to-GDP ratio of 88.2% for 2018. It says: “In Antigua and Barbuda, there is a clear need to tighten the fiscal stance, in combination with structural reforms to bolster growth, to reduce public debt. A well-designed fiscal rule could help guide the consolidation effort and broaden support for it.”

With regard to the commodity exporters, the IMF says: “In commodity exporters such as Suriname and Trinidad and Tobago, the sudden decline in commodity prices in 2014-15 contributed to large fiscal deficits and a rapid increase in public debt. In these cases, tighter fiscal policies in the context of medium-term macroeconomic adjustment are needed to re-establish a sustainable fiscal path and ensure debt sustainability.”

Dominica struggles…

As mentioned above, Dominica is one of two main outliers in the Caribbean (the other being Guyana, see below). For Dominica, the problem was Hurricane Maria, a Category 5 hurricane which hit the island in September 2017 while it was still recovering from tropical storm Erica. Damage was estimated at US$1.3bn, or 226% of GDP. Output in 2018 is projected to fall by 14%, and it is likely to take five years for the economy to recover to pre-hurricane levels.

However, there are signs of recovery. This started in the construction and public sector and can now even be seen in tourism. Prior to Hurricane Maria, Dominica was visited by around 220 cruise ships a year. In the 2017/18 season, this fell to just 33. However, for 2018/19, the industry is predicting a total of 181 cruise ship visits, with over 300,000 passengers. On the hotels side, it is estimated that of some 960 hotel rooms on the island, over 500 are now available.

Not surprisingly, the IMF is concerned about the effect of the disaster on indebtedness. The debt-to-GDP ratio is expected to reach 87.8% this year, up from 75.3% in 2015. With this in mind, the IMF says that it recommends “containing current spending extraneous to recovery”. However, in its latest Article IV consultation, published in early September, it does add: “Given Dominica’s vulnerability to natural disasters, directors noted that investment in resilient infrastructure was appropriate, despite its higher cost.”

Looking further ahead, the IMF adds: “Once output recovers, directors recommend fiscal consolidation to sustain reconstruction while generating a primary surplus sufficient to set public debt on a downward trajectory.” Dominica’s primary deficit is likely to be -2.1% this year, rising to -2.2% in 2019.

One final point of concern for the IMF, with regard to Dominica, is financial-sector regulation, not least because it sees the vulnerabilities as having been exacerbated by Hurricane Maria. The IMF is urging Dominica to develop stronger financial-sector regulation and supervision, and to take “decisive action to reduce non-performing loans and capital shortfalls”. In its Article IV report, it also urged Dominica to strengthen its Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) framework, and it “welcomed the phasing out of the off-shore bank sector”.

The IMF also raised this point in its Regional Economic Outlook report with regard to the Eastern Caribbean Currency Union (ECCU). It said that, while the authorities “have made progress on reforms to strengthen bank resilience”, further steps are required, particularly on “the oversight of nonbank financial institutions and further enhancing the capital adequacy of indigenous banks”.

On AML/CFT regulations within ECCU, the IMF pointed out how important effective implementation was if the region were to regain or replace the correspondent banking arrangements which have been withdrawn due to fears over money-laundering issues.

…while Guyana plans for golden future

There are also concerns about Guyana, but they are of an entirely different nature to those hovering over the rest of the Caribbean. Guyana is now just two years away from ‘first oil’ in what is projected to be a hugely transformative bonanza. The main concern is that small, inexperienced, Guyana will suffer from the ‘resource curse’, of which neighbouring Venezuela is one of the best examples. But one this is for certain: Guyana is not short of advice on how to avoid this trap.

The latest organisation to offer its advice is the American Security Project, in a report published in early October. It highlights all the well-known pitfalls of small poor nations coming into great wealth, and it highlights the security threat posed by Venezuela and its long-standing claim to Guyanese territory. But, on a positive note, it says: “As soon as oil begins to flow in 2020, Guyana will become an energy exporter – no longer dependent upon the whims of foreign politics. With that will come new challenges like a dependence on global market prices and all the problems of the resource curse, but it also provides a great opportunity.”

In particular, the ASP highlights with approval the Guyana government’s stated commitment to “use their incoming resources to fund a clean, resilient economy”, put forward in the government’s Green State Development Strategy. The plan envisages Guyana moving to 100% renewable energy by 2025, only seven years from now.

The ASP is of the view that Guyana is “engaging in the critical, long stage process of preparing for oil resources”. But, it warns, “political pressures will increase” as the 2020 presidential election approaches. Certainly, the election will be the most important in living memory, given that the flow of oil-money after 2020 will multiply the traditional power of incumbency many times.

The size of the bonanza to come was emphasized in a recent report by the oil specialists Wood Mackenzie entitled Guyana – the richest corner of South America? According to the report, 4.5bn barrels of oil equivalent (boe) has already been found offshore. The discovery, the report estimates, “accounts for 15% of all conventional crude found globally since 2015”.

Woodmac adds, “the 10 exploration wells drilled so far have yielded eight discoveries, and 80% success rate”. Furthermore, ExxonMobil’s target of producing more than 750 thousand barrels per day (kb/d) by 2025 would represent “the fastest ever growth trajectory for a deepwater area from a standing start”.

Another plus is that the development is relatively straightforward, with water and reservoir depths of 1,500-2,000m and 5,500-6,000m respectively. The drilling conditions are benign, and existing technologies are sufficient for the task.

As a consequence, Guyana, with a population of around 750,000, “has hit the jackpot”. Woodmac says that, based on current proven and probable (2P) reserves, Guyana will benefit from lifetime revenues of US$215bn. It adds that, over the 30-year producing life, this will represent a GDP increase of US$7.2bn per year and US$9,500 per capita. Currently, Guyana’s GDP is around US$3.45bn, and its per capita GDP is US$4,582.

Details based on indicators above:

Income: US$8,580 GNI per capita

EGDI: 0.7327 (44 of 193)

IIE: 2 of 15 Latin America, 31 of 100 globally

LPI: 2.99 (56 of 160)

DB: 60.01 (109 of 190)

Brazil stands out as the largest country in Latin America, both in terms of area and population. The country is home to more than 210m people, the vast majority of whom are concentrated in urban areas in coastal regions. It also contains the largest city in South America, São Paulo, as well as major conurbations such as Rio de Janeiro, Brasilia, and Salvador de Bahia. 

Connectivity is good, with 65% of Brazilians enjoying internet access. A whopping 95% of internet users access the web using a mobile phone, 64% on a computer and 16% on a tablet, according to Latin America Business Stories. 

As a result it will come as no surprise that Brazil boasts the largest ecommerce market in the region, forecast to account for 34.0% of regional ecommerce sales this year, according to eMarketer. The sector recorded revenues of R$35bn (US$8.39bn) in the first half of 2019, according to the Associação Brasileira de Comércio Eletrônico (ABComm), a 16% increase compared with the same period in 2018. Total sales for the year are forecast to reach R$79.9bn (US$19.15bn), which would represent the largest annual growth rate since 2015, based on a total 265m orders of R$301 (US$72.14) on average. ABComm president Mauricio Salvador said the high growth projections can be explained by optimism surrounding the national economy. There are around 87,000 virtual stores in the Brazilian market, according to ABComm, with marketplaces set to increase their share from 31% of revenue in 2018 to 35% in 2019. Micro and small companies are also driving growth and will increase their share of revenue to 29% this year. 

Compre & Confie, a digital security and market intelligence company, also monitors Brazil’s ecommerce market in conjunction with the Metrics Committee of the Brazilian Chamber of Electronic Commerce. The idea is to provide official data on ecommerce to encourage the formulation of public policies for the sector. For example, from July 2018-July 2019 revenue from ecommerce was divided into office, computer, and communication equipment and materials (42.2%); furniture and appliances (23.9%); textiles, clothing and footwear (13.2%); other articles of personal and domestic use (10.1%); pharmaceutical, medical, orthopaedic, perfumery and cosmetic articles (6.3%); hypermarkets, supermarkets, food products, beverages and tobacco (2.7%); and books, newspapers, magazines and stationery (1.6%). However, it is important to note that these figures do not include data from MercadoLivre, OLX and Webmotors, the travel and tourism industry, or transportation and food ads and applications, which are not yet subject to monitoring by Compre & Trust.

Research shows that 10.1% of internet users made at least one ecommerce purchase from April-June 2019, compared with 7.6% for the same period in the previous year. Figures also reveal a 28% increase in the number of online purchases made using mobile devices in 2018, but interestingly the average purchase amount was 17% lower on mobile than on desktop. This could reflect a lack of confidence in mobile operations, but Compre & Confie executive André Dias said this is changing as retailers invest in mobile apps and payment solutions. 

Among Brazil’s online shoppers, popular payment methods include credit card (69%) and Boleto Bancário (24%), according to Boa Compra, a payment company. The ‘boleto’ is a uniquely Brazilian payment method, regulated by the Federação Brasileira de Bancos (Fedraban), and each one has a barcode and serial number. It is popular because a bank account is not necessary in order to use it, opening payment options to those who aren’t part of the formal banking system. The boleto is also a good way of overcoming a lack of trust in digital payments as it has been in use for decades. “The Boleto Bancario is a device that really helped the development of digital commerce in Brazil,” said Pérez-Grovas. However, he also pointed out that credit card penetration is far higher in Brazil (around 60%) than Mexico (around 20%).

Other significant developments include the increasing use of messaging app WhatsApp by ecommerce companies in Brazil. With a reported 120m users in the country, Brazil is the second-largest WhatsApp market in the world after India, and 91% of Brazilian internet users have the app. The ubiquity of WhatsApp means that companies are increasingly using it to communicate with customers and allow them to place orders, while there are also reports that WhatsApp will launch a payment system in Brazil and Mexico following a trial in India.

“In terms of payments, Brazil is much more sophisticated than us (Mexico),” said Pérez-Grovas, but both markets share an issue. “Brazil has similar problems to us in terms of logistics.” The country struggles with complicated land logistics due to its vast size, poor roads and security issues in some areas, and this has slowed the growth of digital commerce. Security can also be an issue for high-value deliveries, and in October 2018 news emerged of a pilot project between Amazon and Cargo X which uses bulletproof trucks to make deliveries of goods such as electronics. There were also reported talks between Amazon and airline Azul SA over a logistics deal, around the same time as the ecommerce giant expanded its operations in the country. However, Amazon and other international retailers must contend with taxes on international payments, which have driven Brazilians to shop predominantly on domestic ecommerce channels.

From oil to minerals and trees, Brazil has been blessed with plenty of natural resources that have fuelled numerous economic boom and bust cycles throughout its history. Now, Latin America’s largest economy may embark on another resource-based boom, only this time a much cleaner and sustainable one.

Thanks mostly to large hydropower plants such as Itaipu, renewable sources have long made up the bulk of the country’s energy matrix. But with cheap wind and solar farms having mushroomed in recent years, renewables now make up nearly 90% of the country’s electricity. That means that Brazil will soon have excess capacities of renewable energies that it can use to produce green hydrogen, which is made by splitting water with the use of electrolysers powered by solar or wind energy.

In order to help develop the nascent industry, the government on 24 August launched a 2023-25 hydrogen roadmap laying out its policies, incentives, and targets. The outlined objectives include access to financing from development banks, a certification process that ensures the hydrogen really is green, as well as increased investment in research and development.

The plan to make Brazil the largest and most competitive producer of green hydrogen in Latin America by 2035 may sound far-fetched, but it is actually entirely feasible, based on comparative advantages and the existing pipeline of investments. According to the mines and energy ministry, green hydrogen projects worth US$30bn are already underway.

Industry media Hydrogen Insight counted 42 such projects. The biggest are situated around three maritime ports: Porto de Suape in Pernambuco state, Complexo Industrial Portuário de Pecém (CIPP) in Ceará state, and Porto do Açu in Rio de Janeiro state. Australia’s Fortescue is looking to invest US$6bn into a hydrogen plant at CIPP that would produce 837 tonnes of green hydrogen per day. France’s Qair is to invest US$6.9bn in a hydrogen plant at Suape and an offshore wind farm at CIPP.

There are reasons the three ports are emerging as hydrogen hubs, beyond the obvious transportation infrastructure they offer. The southeast, specifically Rio de Janeiro state, harbours the bulk of the country’s heavy industry, which is to be decarbonized by hydrogen. Meanwhile, large parts of the semi-arid northeast have steady winds, lots of sunshine and are relatively close to Europe, which is shaping up to be one of the biggest clients for green hydrogen from South America.

EU investments

The European Union (EU) has promised investments of €2bn (US$2.16bn) in green hydrogen in Brazil, following a landmark meeting between European Commission president Ursula von der Leyen and Brazil’s President Luiz Inácio Lula da Silva in Brasília in June. The Lula administration is currently working on a framework law for the hydrogen industry.

According to Bloomberg New Energy Finance (BNEF), Brazil last year had the lowest levelized cost of hydrogen among 28 leading producers, using onshore wind and western alkaline electrolysers. By 2030 that cost is projected to fall to US$1.47 per kilogram from US$4.50 currently. BNEF estimates that shipping costs to Rotterdam would also be cheaper from Brazil than from major producers such as Australia, Chile, or the United Arab Emirates, with the exception of Canada and Colombia.

Rotterdam

The Port of Rotterdam, which hopes to become the gateway to Europe for the global hydrogen market, is heavily invested in Brazil with a stake in CIPP and the hydrogen projects in and around its port. 

The European Union (EU), with its current 27 members, has also increasingly used sanctions. In EU jargon they are known as “restrictive measures”. To be approved they require unanimous support from the bloc’s key decision-making body, the Council of the European Union. Since 1992 the EU has applied sanctions more than 30 times. Sanctions imposed on Iran in 2012 – and later lifted in 2015 after an agreement was reached on that country’s nuclear development - have been regarded as a turning point since they were the first time a country had been targeted (previous EU sanctions were mainly focused only on individuals and companies).

The package of sanctions applied against Iran was also important because it demonstrated the legal complexity of the process including significant points of disagreement between the EU and the US, which in 2018 during Donald Trump’s presidency withdrew from the nuclear agreement, re-imposing sanctions including so called secondary or extraterritorial sanctions which applied to European companies doing business with Iran. The EU responded by creating a ‘special purpose vehicle’ – a company which in theory could trade with Iran and circumvent US sanctions, but it does not seem to have been particularly active.

In recent weeks Paraguay’s government and it’s often contrarian congress have taken decisive steps in their efforts to secure the removal of the country’s temporary political suspensions from the Union of South American Nations (Unasur) and the Southern Common Market (Mercosur), imposed in the wake of the impeachment of former president Fernando Lugo (2008-2012). The measures, seen as a valiant attempt to defend the country’s sovereignty, are popular at home. But in the short term they will only complicate further Paraguay’s frayed relations with its powerful neighbours, potentially delaying its re-integration into the regional forums.

Since it came to power on 22 June the government led by President Federico Franco has consistently argued that the political measures against Paraguay were “arbitrary” , rejecting the Unasur and Mercosur argument that Lugo’s constitutionally permitted impeachment represented a “break in the democratic order” meriting a sanction for the country [RBS-12-07]. The Franco government also maintains, moreover, that it has never been allowed to present its case to its neighbours, all of which rushed to judgement, immediately refusing to recognise the new administration and breaking off diplomatic relations with the country.

This situation complicates the work of Franco’s foreign minister, José Félix Fernández Estigarribia, whose main task is to repair relations between Paraguay and its immediate neighbours; and fully restore the country’s standing internationally. But in the absence of any official contact with regional neighbours, Estigarribia’s job looks difficult.

In contrast, his efforts elsewhere, notably at the Organization of American States (OAS), where he was allowed to present Paraguay’s position and the current (peaceful) internal situation, have produced some important results.

The OAS, the main hemispheric body, is divided over Paraguay, with the US, Canada, Mexico and some Central American countries like Panama in disagreement with the view and actions adopted by the Southern Hemisphere members of Unasur and Mercosur. In the absence of a consensus within the OAS to suspend Paraguay, the OAS instead opted to actively engage with the Franco administration, in an effort to help it overcome the political crisis and restore credibility in Paraguay’s democracy ahead of the April 2013 general elections.

This was a boon for the Franco administration, which said that it was completely open to working with the OAS and other organisations so as to improve and strengthen democracy.

Mixed signals

Neither Unasur nor Mercosur followed the OAS lead. Instead they stubbornly reiterated that they would only consider re-engaging with Paraguay after the 2013 election process. This incensed the Franco government. It accused Unasur and Mercosur of being politically biased against Paraguay and of adopting an unreasonable stance. It also threatened to take a case to an international court and said Paraguay would seek to have its regional rights restored, along with some form of compensation from its neighbours. The Paraguayan government is particularly aggrieved at the fact that Mercosur has taken advantage of Paraguay’s suspension to usher in Venezuela as full member of the bloc – against Paraguay’s wishes.

On 7 October Antonio Patriota, the foreign minister of Brazil (the leading player in both Unasur and Mercosur), said that Paraguay’s political suspensions could be lifted before the April elections as long as regional bodies could “verify that democracy was fully functioning in the country”. Patriota said that there was no “legal constraint” preventing Paraguay from rejoining the regional groups and that it all just depended upon a decision by the other members to allow it back into the fold. He added he would like this to take place “as soon as possible”, but admitted that it was “improbable” given that none of Paraguay’s regional neighbours were currently minded to lift the suspensions.

If Patriota’s comments were meant as some form of overture to the Paraguayan government to approach its neighbours, it did not have the desired effect. Instead it was taken as a sign in Paraguay that Brazil knew only too well that Paraguay’s legal case was solid. One influential Paraguayan senator, Miguel Angel Saguier, said that Patriota’s comments were indicative of the “irresponsible manner in which other countries sanctioned us” adding that Paraguay’s neighbours were fully aware that the internal political situation remained stable.

According to Saguier, the entire episode just showed how “dangerous” it is to allow other countries the ability to impose sanctions on the “excuse of defending democracy”. This was a clear allusion to new protocols on the commitment to democracy recently adopted by Unasur and Mercosur, which call for the imposition of sanctions on offending members and that were invoked to justify Paraguay’s suspensions. The protocols were signed by Lugo in 2010 and 2011. However, they were never ratified by Paraguay’s senate, which expressed concerns that the imposition of sanctions could curtail national sovereignty.

Taking action

Following Patriota’s comments, Paraguay’s congress called on Franco to submit the protocols to the senate with a view to rejecting them, thereby setting in stone Paraguay’s official position on the matter. Franco obliged and the senate voted against ratification of the Unasur protocol on 10 October, arguing that the proposed sanctions, which include the closure of borders and the suspension of certain services, were “too severe” and would “seriously affect a landlocked country such as Paraguay”. Two weeks later the senate also voted against the ratification of Mercosur’s corresponding Ushuaia II protocol. So officially, Paraguay now does not recognise the two treaties used to suspend it. This point may become crucial in the eventuality that the country decides to take its case to international arbitration.

As congress took these steps, the Franco government was making its own moves. Taking advantage of the OAS offer, it welcomed the OAS proposal to send observer missions to Paraguay to monitor the run-up to and the electoral process.

The first of these arrived in Asunción on 23 October. After meetings with Fernández Estigarribia and other political actors from across the spectrum, the head of the mission, Chile’s John Biehl Del Río, stated that Unasur and Mercosur “need to reintegrate Paraguay as soon as possible” and suggested that Unasur, the political body, should send its own observer mission to Paraguay to verify the situation inside the country (see sidebar).

However, Fernández Estigarribia countered that the Franco government would only invite Unasur to send an observer mission to the country if the regional body made “positive gestures” towards the government. “We cannot accept countries that judge and condemn us without having all the relevant details, without even listening to us to come and judge us”, he stated. This was echoed by Franco, who said that Unasur did not have an “impartial stance” on the situation in Paraguay (see sidebar).

At the same time, Fernández Estigarribia also revealed that he had been in contact with some Unasur representatives (not from Mercosur) to discuss ways for Paraguay to rejoin the group. The local press speculated that Paraguay had established contacts with some of the right-leaning governments in Unasur, such as Chile and Colombia. On 6 November Fernández Estigarribia announced that Colombia had taken a unilateral decision to return its ambassador to Asunción.

• Franco’s conspiracy accusations

According to President Franco, Paraguay was unjustly suspended from Unasur, because Unasur is dominated by leftist governments allied to Lugo. He suggests that Unasur is behind Lugo’s (constitutionally illegal) attempts to seek re-election in 2013 as part of a “conspiracy to delegitimise” the elections and indefinitely isolate Paraguay in the eventuality that a politician not of their liking be elected as the next president.

• Biehl Del Río

“There is no doubt at all that many of the solutions taken with Paraguay were in accordance with other interests of the countries that make up the regional blocs [Mercosur and Unasur]…They had nothing to do with what actually happened here [the impeachment of Lugo].” - John Biehl Del Río, OAS.

PARAGUAY | Iragro tax approved. On 10 September Paraguay’s chamber of deputies approved a bill introducing a new tax on agricultural profits (Iragro) and the extension of value added tax (VAT) to cover agricultural products. Following earlier approval by the senate, the bill is now ready to be signed into law.

The agricultural sector is the driving force of Paraguay’s domestic economy and levying higher taxes on the sector has been long debated. While some argued that it was essential to help boost the low level of tax revenue, providing the State with resources to promote the country’s development; others warned that it could end up stifling the sector.

However, the new government led by President Horacio Cartes managed to forge sufficient support in congress and from the local business lobbies for its plans to increase the tax burden on the sector through a combination of raising the tax rate on profits and on agricultural sales as opposed to an alternative proposal presented by opposition legislators from the Partido Liberal Radical Auténtico (PLRA) to tax agricultural exports. In fact, the bill was fast-tracked through congress after PLRA legislators submitted their own proposal.

The bill calls for the replacement of the existing 2.5% general Imagro tax levied on agri-business activity, with the new 10% Iragro rate and the extension of the 5% VAT rate (which the government has the discretion to increase to 10% if it deems necessary) to cover all agricultural products, including unprocessed ones.

The motivation for the changes proposed by the Cartes government stems from the fact that despite agriculture being the main economic activity in Paraguay Imagro tax revenues only represented 0.45% of the total tax revenues received by the Paraguayan State. Indeed the finance ministry has calculated that with the changes the State will receive an additional US$250m form Iragro and US$70m from VAT as the sector’s current tax base of 150,000 producers is expected to double. By providing their support for the bill the agricultural sector lobby may have avoided a tax on exports, but PLRA Deputy Amado Florentín warned that if the new taxes failed to raise sufficient funds the PLRA would seek to push through its own proposal.

URUGUAY | Inflation concerns. The consumer price index (CPI) increased by 1.04% in August, higher than expected, taking the accumulated rate for the year to 6.74%, Uruguay’s national statistics institute (INE) reported last week. The current rate of inflation is already higher than the top end of the central bank’s target range of 4%-6%.

Perhaps more problematically for Uruguayan policymakers, INE’s figures also showed that rising inflation is part of a wider trend given that the inflation rate for the last 12 months to August now stands at 8.86%. According to the INE report, the increase in the CPI in August was driven by higher domestic prices in food and drinks, which increased by 1.86% in the month contributing to a 0.49 percentage point increase in the CPI rate.

The unexpectedly high inflation rate has taken many local analysts by surprise (the central bank’s survey of private economists had forecast August inflation to come in at 0.85%) and they are now left trying to find an explanation for the surge in prices; and more importantly to try to determine whether inflation should now be considered to be a cause for concern or not.

While there is a general consensus that the strong appreciation of the US dollar in recent weeks [WR-13-34] has in part contributed to the higher than expected prices by “importing” inflation from outside the domestic economy; there is less agreement over whether the Uruguayan authorities should now look to adopt increasing measures to address the issue.

Some, such as Gabriela Mordecki from the economic institute at the national university, believe that, while unexpected, the higher inflation rate is still “manageable”. According to Mordecki there is no real risk that the annual inflation rate could reach double digits this year and as such the government should not need to adopt any new measures. However others, such as Marcelo Sibille from consultancy firm KPMG, point out that the inflation rate to August this year is the highest for the period since 2008.

Sibille added that what is really worrying is the fact that Uruguay’s inflation rate is now “only surpassed by that of Argentina and Venezuela in the region”, both of which have inflation rates of well over double digits. Sibille said that there is a risk that the inflation rate will reach double digits this year and that the government “will have to do everything at its disposal to try to avoid it”.

• Paraguay’s widening foreign public debt

Paraguay’s foreign public debt to July stood at US$2.612bn, the central bank (BCP) revealed in its latest statistical summary report last week. While the figure was 0.4% lower than in the previous month, it was 19.7% higher than in July 2012. According to the BCP, this was the result of net negative transfers of US$17m in the month, with US$24.9m in outgoing payments and US$7.9m in received payments. The July result brought the accumulated foreign debt figures for the year to US$542m in outgoing payments and US$151.7m in incoming payments, resulting in a net negative transfer of US$390.3m.

CHILE | Economic growth forecast cut. On 3 September Chile’s central bank (BCCH) cut its economic growth forecast for 2014 to 1.75%-2.25%, down from its previous June forecast of 2.5%-3.5%. The latest projection suggests that the Chilean economy is set to post significantly lower growth this year than the 4.1% registered in 2013, providing further evidence of the economy’s marked slowdown. The BCCH attributed the fall in economic activity this year to the end of the international cycle of high prices for raw materials and mineral commodities - Chile’s main source of revenue. The price of copper, Chile’s largest export, has fallen to US$3.15 per pound (/lb) and is predicted to continue falling to US$3.05/lb by 2015. The cooling in domestic consumption (projected to increase by just 2.5% this year) has been compounded by a 4.2% fall in domestic investment levels following a jump in production costs which has halted the investment boom in the mining sector of recent years. Annual inflation is now forecast to come in at 4.1%, 0.1% higher than the previous estimate and still above the BCCH’s target rate of 3%. However, despite the mounting concerns that this could mark the start of a period of economic stagnation, BCCH president, Rodrigo Vergara, has told the senate that “the economic deceleration was an expected phenomenon” and pointed to predictions that economic growth will rise to 3%-4% in 2015. Economy Minister Luis Felipe Céspedes has said that “the country has all the tools to recover via an expansive monetary and fiscal policy, along with greater public investment”. In line with this, on 1 September President Michelle Bachelet unveiled a US$500m economic stimulus package. Furthermore, in anticipation of the slowdown, the BCCH began easing monetary policy in October 2013, cutting the benchmark interest rate six times since then to its current rate of 3.5% and announcing its intention to bring it to 3.0% by the end of the year.

ARGENTINA | Chinese investment. On 3 September Argentina agreed to a deal which will see China invest US$2bn in the construction of Argentina’s fourth nuclear plant, Atucha III. Under the deal China National Nuclear Corporation (CNNC) will provide technical support, manpower, equipment and materials to Argentina’s state-owned company, Nucleoléctrica Argentina, which will oversee the plant’s construction and operation. The plant, which will generate 800 megawatts (MW), will be constructed over eight years 115kms northeast of the capital in the municipality of Lima, Buenos Aires province. The deal was signed in Beijing by José Luis Antúnez, the president of Nucleoeléctrica Argentina and CNNC president, Qian Zhimin. It came after China’s President Xi Jinping’s visit to Argentina in July, during which he announced a number of other bilateral cooperation projects including one to jointly construct a reactor for pressurized heavy water. However, one new Chinese investment project in Argentina, the construction of a space exploration station in Neuquén province, has recently come under scrutiny amid concerns that it may have military capabilities. The first to raise such concerns was Miguel Ángel Toma, a former national deputy and national intelligence secretary under the Eduardo Duhalde administration (2002-2003), who recently said that the 50-year construction and concession agreement for the station, signed in April, contains secret clauses that allow for the “possible military use of the station”. This led Toma to rail against the government led by President Cristina Fernández, accusing it of “ceding sovereignty” by allowing a foreign country to set up a military base in Argentina’s national territory. Toma’s concerns prompted opposition senator Fernando ‘Pino’ Solanas, a member of the senate’s foreign relations committee, to state that to his knowledge the technology to be employed by the station “is sensitive and of dual civil and military use…it is used for the tracking of aerospace and military activity”. Solanas then called on the government to fully disclose the terms of the deal. But the committee’s head, Senator Ruperto Godoy of the ruling Frente para la Victoria faction of the Partido Justicialista (PJ, Peronists), said that the project “is very beneficial for Argentina due to the investment and the labour” it will attract, adding that “it is absolutely false to say that it has military aims”.

• Diversifying exports.

On 4 September Chile’s agricultural minister, Carlos Furche, met his Chinese counterpart in Beijing to sign several trade agreements aimed at expanding bilateral agricultural trade. Faced with an economic slowdown, the Chilean government is currently stepping up its efforts to diversify the country’s exports in order to reduce dependence on the mining sector. Chile’s food exports to China, which include products like nuts and fresh fruit, have increased by 50% for the past three years. This led Furche to say that “in less than a decade, China will be the principal destination for Chilean food exports”. Furche also took advantage of the visit to encourage Chinese investment in Chilean biofuel firms.