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Recent comment in the mainstream and financial media on Petrobras’ level of indebtedness, the unprofitability of its refining and marketing business in Brazil, the technical difficulties of extracting oil and gas from the pre-salt basins and various legal problems miss the point. The company performed well during H114 and is on track towards achieving its planned doubling of production to 4.2m barrels of oil per day (bpd). As production from the pre-salt basins is increased, the company’s cash flows should improve.

It is easy to find evidence of the challenges facing Petróleo Brasileiro SA (Petrobras), Brazil’s listed (but predominantly state-owned) gigantic oil company. In late July, the ratings agency Moody’s Investors Service suggested that the company’s credit metrics would deteriorate until 2016, after which time, higher production should boost cash flow. Moody’s highlighted how the increase in production will depend on greater output from the massive pre-salt basins off the south-eastern coast Brazil: the oil is at extremely great depths and is difficult and expensive to extract. Financial journalists have long focused on government policies preventing Petrobras from lifting the prices of (significantly imported) diesel and gasoline to bring them in line with international prices. The result is that Petrobras’ very substantial refining and marketing (R&M) business segment is unprofitable. Ahead of the October 2014 general election, a congressional inquiry has been examining Petrobras’s purchase – apparently at a grossly inflated price – of a refinery in Pasadena, Texas, in 2006 when President Dilma Rousseff, who is seeking re-election in October, was chair of the Petrobras board. There have also been allegations of corruption in relation to the construction of the Abreu e Lima refinery in Northeastern Brazil. Earlier this year, Paulo Roberto Costa, a senior Petrobras executive, was arrested as a result of a major police investigation into money laundering. Without prejudice to the various allegations and police investigations, it is the case that corruption allegations (and congressional investigations) involving Petrobras have become par for the course in general election years in Brazil, when the opposition is on the attack.

However, the share price of Petrobras tells another story. The price of the approved depository receipts (ADRs) that are listed on the New York Stock Exchange (NYSE) reached an all-time high of a little over US$70. In the wake of the global financial crisis, the ADR price slipped from around US$40 in early 2010 to a nadir of about US$11 in March 2014. Since then, the price has recovered to US$18. As we explain below, Petrobras and its management have been performing well through H114. The results for the first six months of the year were published on 8 August 2014.

As chart 1 shows, the company’s cash holdings (including small positions in government bonds) slipped from US$32.8bn at the end of June 2013 to US$30.1bn at the end of 2013. However, the cash position had slipped to US$19.75bn at the beginning of 2014. Cash generated from operations amounted to US$10.5bn in H114, and the company’s net raisings from global bond markets (i.e. proceeds from issues of new bonds less payments for maturing bonds) amounted to US$19.6bn. This amount included the US$5.1bn that Petrobras raised from European investors and the US$8.5bn raised in North America early in 2014. Petrobras also generated US$1.1bn from divestments. Cash from these sources amounted to US$31.1bn. The cash was applied to capital expenditure (US$17.2bn) and dividends (US$3.9bn). As is indicated by Moody’s, Petrobras still needs to raise money from bond investors, and particularly those that are based outside Brazil.

And the absolute amount owed by the company to bond investors continues to grow. As chart 2 shows, total debt rose from US$114.2bn at the end of 2013 to US$139.7bn at the end of June. The latter number is inflated by the general softness of the Brazilian Real through the first half of this year.

However, other data published by Petrobras in its half-year report identifies a number of positive trends. As noted above, the company’s paper is seen as an attractive opportunity by global investors: indeed, the vast majority of the debt is denominated in foreign currencies. Over the course of the first six months of the year, Petrobras extended the maturity profile of its debt. The percentage that matures in 2019 or later has increased to 58%. Floating rate securities account for just under half of the outstanding debt. Petrobras should gain a partial benefit from a fall in bond yields over the long term: conversely, it is not fully exposed to a rise in bond yields.

The slippage in capital expenditure from US$21.67bn in H113 to US$18.1bn (i.e. including the cash payment of US$17.2bn plus an increase in amounts payable to suppliers of US$905m) may seem anomalous for a company that is committed to roughly doubling its production from the current level of just over 2.0m bpd to 4.2m bpd in 2020. However, almost all of the reduction is accounted for by a drop in capital expenditure in Petrobras’ currently unprofitable R&M business segment and in its operations outside Brazil. The details are shown in chart 3.

Net income slipped from US$6.7bn in H113 to US$4.8bn in H114. This was partly due to the softness of revenues in US$ terms, although they were higher by 12% relative to the earlier period in Real terms. Costs of sales were US$1.22bn higher than they had been in H113, thanks in part to the impact of the slippage in the currency on the costs of imports. Much of the deterioration in profitability was taken by the R&M business segment, which posted an operating loss of US$5.8bn – in part because of the official requirement that it sell imported gasoline and diesel at a loss: the government’s cap on retail prices is a measure to protect household budgets from some of the ravages of inflation. However, Petrobras is a vertically integrated operation, and most of its other business segments are profitable. The profits from outside Brazil slipped from US$1.67bn in H113 to US$485m in H114: this was the result of Petrobras having sold foreign assets since the earlier period. Crucially, the exploration and production (E&P) segment, which plays a central role in the company’s planned expansion, lifted its operating profit from US$14.2bn in H113 to US$14.25bn in H114. The details are shown in chart 4.

As is the case with the company’s discussion of its debt profile, Petrobras’s explanation for the rise of expenses is a source of encouragement about the general direction that the company is headed. Other operating costs soared from US$911m in H113 to US$2.7bn in H114. However, the latest figure included US$1.0bn arising from the Voluntary Separation Incentive Plan – a scheme to pare headcount in an orderly way (and one that focuses mainly on older workers). In H114 there were also higher write-offs of dry wells (US$512m) and areas returned to the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP), the government agency that regulates the energy industry. These are essentially one-off costs. Petrobras noted that cost savings under its long-term program to boost efficiency amounted to US$2.1bn in H114 achieved, or 39% more than expected. In short, the decline in profits could have been a lot worse.

The US$4.78bn in net income that was achieved in H114 needs to be considered in the context of total equity, which rose from US$149.1bn at the end of December 2013 to US$164.5n at the end of June this year. The firm’s return on equity in the first six months of this year was around 6%, having been 10% in the previous corresponding period. We would assess that the slippage in profitability is only temporary. Given the payment of the dividend to shareholders, that appears to be the view of the Petrobras management as well.

Meanwhile, the company’s balance sheet remains reasonably strong. As chart 5 shows, total debt of US$139.7bnn is less than equity (including shareholders’ funds, retained earnings etc.). Total assets rose during the first six months of the year from US$321.4bn to US$363.4bn. Current assets have risen by US$12.85bn to US$65.5bnn, while current liabilities have slipped by US$1.06bn to US$32.16bn. The growth in trade receivables and inventories over H114 appear reasonable for a company that is lifting its output.

In summary, both equity and bond investors believe that Petrobras is on track to develop its massive pre-salt reserves so that the increase in production of oil and gas easily compensates for declines at its longer-established projects. We agree. Production from the pre-salt basins now amounts to 0.5m bpd, which is three times the level of 2012 and one quarter of the current total. Cashflow in the short term should be boosted by further divestments of non-core assets: press reports in late July indicated that Petrobras was close to selling its (remaining) 40% stake in gas distributor Gasmig to a partnership comprising the Minas Gerais power utility Cemig and Spain’s Gas Natural Fenosa. Profits in the coming six months should benefit from further progress with the management’s programme to boost productivity and to cut costs. In her comments to shareholders about the H114 result, Chief Executive Officer Maria das Graças Silva Foster noted that the company “remains committed to adjusting Brazilian prices for oil products with those in the international market in order to achieve the Net Debt/EBITDA and leverage targets within the limits and deadlines” set by the Board in late 2013. It is possible that Petrobras will have greater scope to set retail prices for gasoline and diesel after the forthcoming general election.

• Shares up, Silva up

Petrobras shares in New York hit a 52-week high of US$19.32 on 27 August after the company announced it had found more gas and light oil at its second extension well. The ultra-deepwater well, 3-BRSA-1244-SES/3-SES-182, or Moita Bonita-3, is located in the Sergipe-Alagoas Basin, 82kms off the coast of Sergipe. Meanwhile in Brazil, the company's share price rose 4.6% to R$22.8 as polls put Marina Silva ahead of Dilma Rousseff in the presidential race. Silva has promised fiscal reform and less intervention in state companies.

• What could go wrong for Petrobras?

The planned growth of Petrobras is based on the assumption that the profits and cashflow from its massive pre-salt reserves of oil and gas are sufficient to offset the impact of declining output from its long-established fields. An obvious question is: what are the main risks to this optimistic view?

In his presentation of the Petrobras second quarter results, Almir Guilherme Barbassa, the company’s chief financial officer, noted that the lifting costs for the pre-salt oil is US$9 per barrel – although this figure should fall as production volumes grow. Excluding the cost of the infrastructure, production from the pre-salt reserves should be profitable provided that the price of oil remains above US$45 per barrel. Including additional facilities to evacuate gas, that figure rises to around US$50 per barrel.

The US Energy Information Administration (EIA) released its latest Short-Term Energy Outlook (STEO) on 12 August. The EIA expects that, globally, supply of and demand for oil will remain broadly balanced. It envisages surplus oil production capacity of 2.1m bpd on average in 2014 and 2.7m bpd in 2015. The EIA noted that unplanned disruptions to supply remained at a high level of about 3.2m bpd in July, of which Libya accounted for one third.

The EIA noted that the North Sea Brent crude price slipped by around US$5/barrel (/b) in July to US$107/b. July was the 13^th consecutive month in which the price of North Sea Brent crude remained in a fairly narrow band of US$107-US$112/b. The EIA estimates that the average crude oil price, by this yardstick, should be US$108/b in 2014 overall, and US$105/b through 2015. The EIA anticipates that the West Texas Intermediate (WTI) crude oil price in the US will be US$7/b lower than the North Sea Brent crude price through the second half of 2014, and US$9/blower in 2015.

In short, Petrobras’ pre-salt oil can be extracted at a cash profit unless a crisis in the global economy (for instance, as a result of dislocations within China’s financial system) causes oil prices to fall by more than one half. Of course, if the global price of crude oil were to fall to, say US$60 per barrel, the impact on Petrobras’ return on equity would be adverse.

If problems in China’s financial system represent one wildcard (albeit an indirect and geographically remote one), another wildcard is much closer. This is the possibility that supply of oil and gas (and other products) in Southern South America increases greatly as a result of the development of the shale deposits at Argentina’s Vaca Muerta formation. Obviously, this could have an impact on prices across the sub-region.

For now, we would suggest that the unknowns associated with the development of Vaca Muerta are considerable. One is the likely output. Press reports indicate that the second phase of the project, which began in April 2014 and may require total investments of US$16bn by YPF and Chevron, will result in production of 50,000 bpd of oil and 3.0m cubic metres per day of gas. With output from Petrobras pre-salt reserves rising to a new record of 546,000 bpd on 13 July, we would conclude that the Brazilian company will remain the pre-eminent supplier in the region.

A separate question is: to what extent will the oil and gas produced from the Vaca Muerta formation actually reach customers outside Argentina? There are early indications that it will be sold mainly to producers of petrochemicals and other products within the country: in essence, the various protagonists see import substitution as a major objective of the development of shale oil and gas in Argentina.

The bottom line is that a precipitous slide in the market price of the oil and gas extracted by Petrobras from the pre-salt reserves is a possibility, but not a probability. Given the performance of the company’s share price in 2014, and investment appetite for the bonds that Petrobras has issued, we would conclude that many other observers are sanguine about the company’s plans. We are confident that the development of Vaca Muerta will not pose problems for the Brazilian company.

• WTI discount to Brent widens

WTI for October delivery closed at US$93.4/b on the New York Mercantile Exchange on 26 August, the lowest close since 14 January last. Meanwhile Brent crude for October delivery was trading at US$102.65/b on the ICE Futures Europe exchange in London. Spreads between WTI and Brent are widening on expectations of falling fuel prices in the US, thanks to its growing shale supplies. US production hit 8.5m bpd in July, the most since April 1987, according to the EIA’s 12 August monthly Short-Term Energy Outlook.

Just a matter of weeks after regional and local elections in Peru, the national congress has comprehensively approved a bill barring regional presidents and mayors from running for consecutive re-election. Opinion polls suggest this is a very popular measure. How effective it will actually be at targeting corruption and inefficiency is a decidedly moot point.

In addition to barring consecutive re-election the bill reforming regional and local politics will also see regional presidents downgraded to ‘regional governors’ and stipulates that they could be summoned to the national congress and held to account. The bill also retains the provision for a recall referendum, such as that faced by Susana Villarán, the outgoing mayor of Lima, last year. The bill was approved by 97 votes to 0 against with 10 abstentions. Because it reforms the constitution it will also need to be approved in the next legislative session beginning in March 2015 in order to enter into force but given that not one deputy opposed it this should be straightforward. The changes would take effect in time for the next regional and local elections in 2018.

The president of the national electoral council (JNE), Francisco Távara, congratulated congress which he said had taken the first step towards “the reform the people are demanding”. He said it would “relieve political tension unleashed through the excessive ambition of those who try to impose their re-election through anti-democratic measures”. The JNE is also calling on congress to approve a new political parties’ law and a law on rights of participation.

Marisol Pérez Tello, a deputy for the conservative Partido Popular Cristiano (PPC), explained that her party had abstained from voting in favour of the changes because it did not feel the reform gets to the root of the problem. “Corruption has to be pursued, and re-election is not the solution,” Pérez Tello said. She has a point. Of the 100 regional presidents elected between 2002 and 2014, only 12 were re-elected so this is clearly not the sole cause of corruption and inefficiency at a regional and local level in Peru. The reform does not address the problem of hundreds of candidates facing legal charges, some for corruption, narco-trafficking and even terrorism, who registered to compete in the elections earlier this month.

The electoral authorities have also made suggestions to congress to reform the rules and regulations for the registration of local and regional political movements and to strengthen national parties, with heavy penalties for those which fail to meet established standards of financial transparency, or if party candidates are found to be guilty of any crime. National deputies have shied away from approving reforms which would create stronger national institutions to provide more efficient oversight of parties and improve the quality of candidates.

The president of the southern region of Puno, Mauricio Rodríguez, struck back at the national congress by saying that re-election of national deputies should also be outlawed. He claimed that the reform had no legal basis because re-election should be decided by popular will. Congress was responding to public sentiment, however, when it approved the reform: a recent nationwide poll conducted by Ipsos Perú showed that 72% of the Peruvian public approved of the proposal to ban the immediate re-election of regional presidents and mayors. If the survey had included re-election to congress, the result would probably have been very similar but national deputies argue that as they do not command a budget they cannot misuse public funds in the same way as regional presidents and mayors.

• Popular measure, limited impact

The president of the association of mayors for the metropolitan region of Arequipa, Omar Candia Aguilar, criticised the congressional bill barring re-election at a regional and local level, arguing that it was no guarantee against corruption. “Someone who is corrupt will always take advantage of their position, even if it is just for four years. The difference is that now they will do it more quickly,” he said. Other mayors complained that many of them would suffer for the sins of a few, and that the new measure would imperil the continuity of policymaking carried out by efficient and competent mayors.

President Horacio Cartes has ordered all public entities to publish their payrolls since 2003. The measure is part of a new drive to find, shame and sack all ‘planilleros’ – the local term used to describe individuals that have been included on public sector payrolls due to their political affinities or kinship to political leaders. Such nepotistic and clientelistic practices have been common in Paraguay since the Alfredo Stroessner dictatorship (1954-1989) and have been tolerated by successive governments, irrespective of their political affiliation, ever since. However, in the wake of a series of official corruption scandals that have exposed how pervasive these practices remain, the increasingly unpopular Cartes has decided to tackle this issue in response to the public outrage it has caused.

“The president wants it to be clear to all ministers, heads of [public] entities and citizens in general that this issue of discrimination, planillerismo, of redundant people in public institutions must end,” Industry & Trade Minister Gustavo Leite said during a 28 January press briefing. Leite said that President Cartes was ordering all public entities to present the presidency with the names of all individuals that have been on their payroll in the last 13 years, including their salaries, qualifications and titles. The government will then conduct a major investigation to determine just how many public officials have been improperly hired or paid a salary without actually working. Leite said the probe would be carried out with “transparency, without persecution, with no discrimination, with no witch hunt; through the media we’ll make all the information available to the public and determine what steps to follow”. He was adamant that “this is not about a war with anyone, but it is a reality: there is discrimination…this must be reviewed and corrected”.

The catalyst for this was the planillerismo case affecting the supreme electoral court (TSJE) that emerged in mid-December 2015. The case centres on Manuel Radice, a TSJE councillor and close friend of TSJE vice-president Alberto Ramírez Zambonini of the main opposition Partido Liberal Radical Auténtico (PLRA). The local press discovered that Radice’s current wife, his ex-wife and one of his daughters were all receiving salaries from the TSJE even though TSJE records show that only one of them (his current wife) occasionally clocked-in. This prompted an investigation into the TSJE, with 11 officials (including Ramírez and Radice) charged with breach of faith and 300 others under investigation, which has led to one unexpected resignation (see sidebar).

However, this is just one in a series of cases to emerge recently. And they affect all political parties and institutions. In the week before Leite’s announcement, two directors from the state-owed water utility firm (Essap) suddenly tendered their resignations, as did the director of the Yacyretá binational hydroelectric dam that Paraguay shares with Argentina, Juan Alberto Schmalko. Officially, Schmalko’s resignation was for “personal reasons” but it came amid allegations of mismanagement at Yacyretá and complaints that Schmalko, a politician from the ruling Asociación Nacional Republicana-Partido Colorado (ANR-PC), was not qualified to hold such a technically demanding post.

Essap’s president, Osmar Ludovico Sarubbi, said that the changes at Essap were “ordered not by me but by the [national] executive” as part of a bid to improve internal controls. Leite has announced that neither Essap, nor the state-run electricity firm (Ande), nor the state-oil firm (Petropar) will be allowed to increase their employees’ salaries, contract new workers, or even increase their tariffs this year, until they purge their payrolls of planilleros. All of this may play well to the public but how successful Cartes's “anti-corruption crusade” will be is a moot point.

• Unexpected resignation

The investigations into planillerismo at the TSJE led to the resignation of Karina Rodríguez as social services director at the Asunción municipal government. Prior to her appointment by Mayor Mario Ferreiro in December 2015, Rodríguez served as a national deputy for her leftist Partido del Movimiento al Socialismo, when she acted as the liaison of Lino Valencia, a Spanish adviser contracted by the TSJE. Investigators found records signed by Rodríguez claiming that Valencia was working in Paraguay from October 2013 to December 2015, even though immigration records show that he last entered and left Paraguay in 2012. Rodríguez, who denies wrongdoing, was charged with falsifying official documents. She resigned on 20 January “to avoid tarnishing the Ferreiro administration”.

COLOMBIA | Unemployment creeps up. On 28 March Colombia’s national statistics department (Dane) reported that the country’s national unemployment rate stood at 10.5% in February, 0.5 percentage points higher than in the same month of 2016. The marginal increase in unemployment in February suggests that the domestic economic slowdown is starting to impact on the local labour market. This is problematic for the government led by President Juan Manuel Santos, who since assuming office for a second time in 2014 pledged that the national unemployment rate would be in single digits by the end of its term in 2018. While temporarily achieved in 2014, since then, unemployment has been on the rise due to the slowdown in domestic economic activity, stemming from the fall in international commodities prices. Yet on the more positive side, the Dane figures show that the overall number of people in employment in Colombia in February stood at 21.85m, the highest such figure of the last 16 years.

PERU | BCRP adjusts growth and inflation projections. On 26 March Peru’s central bank (BCRP) released its latest monthly inflation report, in which it revised its economic growth and inflation forecast for the year. The BCRP report identifies the recent heavy rains produced by the ‘El Niño Costero’ climatic phenomenon, which has led to significant flooding and landslides in the country’s coastal areas, as major factor in its new forecasts. BCRP president Julio Velarde explained that the effect of the natural disaster on the price of goods is so strong that the bank opted not to report March inflation figures, because they will be very high but only a “temporary shock” and that will eventually subside. However, Velarde said that the inflation forecast for the year is now for 2.4%, just one percentage point higher than previously forecast but still within the BCRP’s target range of 1%-3%, and “still one of the lowest in the region”. As for GDP growth, Velarde recognised that this would be negatively impacted by the destruction and disruption caused by the natural disaster, leading the BCRP to revise down its forecast from 4.3% to 3.5%, lower than the 3.9% growth rate recorded in 2016.

COLOMBIA | New minimum salary. President Juan Manuel Santos has confirmed that his government and representatives from trade unions and private sector lobbies have agreed to a 5.9% increase to the national minimum wage.

Santos’s announcement that the new minimum salary has been set at Col$781,242 (US$268.16) came in the wake of the government’s having to convene an emergency meeting to discuss the minimum salary after no agreement could be reached during a series of meetings of the permanent national minimum salary council. Reaching a consensus in the council proved difficult amid differences between the government and the unions over the appropriate level of increase.

The unions argued that the 2016 fiscal reform, which came into full effect last year, had eroded the purchasing power of workers by increasing the tax burden, and they called for a 7%-9% increase. However, the business sector lobbies and the government argued that since national inflation, which closed 2016 on 5.75%, had consistently fallen last year to finish on around 4%, a minimum salary increase of around 5% would be sufficient.

In the end the Santos government budged slightly and agreed to settle on a higher increase than it had initially been seeking. Santos hailed the agreement over the minimum salary for this year noting that it was only the third time that a consensus agreement on the matter had been reached between the unions, business leaders, and the government during his term. Consensus agreements over the minimum salary had previously been reached in 2011 and 2013, while in all other years no agreement could be reached, and the minimum salary was ultimately set by the government.

In two referendums at the beginning of November, both Antigua & Barbuda and Grenada rejected replacing the UK’s Privy Council with the Caribbean Court of Justice (CCJ) as the last court of appeal.

The CCJ has two roles. Firstly, it judges issues pertaining to the Caribbean Community’s (Caricom) founding treaty, the Revised Treaty of Chaguaramas, and all Caricom members submit to its jurisdiction in these matters. Secondly, it acts as the court of final appeal for member states which have decided to replace the UK’s Privy Council in this role. So far, that is just Barbados, Belize, Dominica, and Guyana out of the 15-member Caricom.

The simultaneous referendums were held on 6 November. In Antigua & Barbuda, Prime Minister Gaston Browne and the ruling Antigua & Barbuda Labour Party (ABLP) campaigned for a ‘yes’ vote, but the opposition United Progressive Party (UPP) said it was not in favour of the switch. In the event, the ‘no’ side won by 9,234 votes to 8,509 on a 33% turnout.

The same negative message was delivered by the voters of Grenada, who had already delivered a ‘no’ vote on the same question only two years earlier. In Grenada, the ‘no’ campaign secured 12,979 votes against 9,846 for ‘yes’, and Prime Minister Keith Mitchell said after casting his own vote that if ‘no’ prevailed there would not be a third attempt to force the change.

Nevertheless, he was less than gracious about the ‘no’ campaign, saying: “I really don’t have a problem with voices who say they want to say ‘no’, but to concoct false stories to confuse people, for what I reason I don’t know…. This is not about party, this is about our children and grandchildren.”

As in Antigua, Grenada’s main opposition, the National Democratic Congress (NDC), supported the ‘no’ campaign.

The CCJ, and other supporters of deeper integration, expressed their disappointment but pledged to continue to press for greater regional integration. Justice Adrian Saunders, the president of the CCJ, said: “While the news is not what we hoped for, we respect the people of both nations and their decision. The court will naturally continue ongoing initiatives with justice-sector bodies in each of these countries.”

He added: “These results will not, of course, deter us from serving with distinction those nations that currently send their final appeals to us.”

Interestingly, only a few days after the referendum setbacks, the CCJ issued a ruling that gained considerable publicity. It ruled that a law in Guyana that makes it a criminal offence for a man or a woman to appear in a public place while dressed in clothing of the opposite sex for an “improper purpose” was unconstitutional. 

The case dates back to February 2009 when four of the appellants (they were joined in the case by the Society Against Sexual Orientation Discrimination – SASOD), who identify as transgender persons, were arrested and subsequently convicted and punished for cross-dressing in public. At the time of arrest, one of the appellants was dressed in a pink shirt and a pair of tights, another was wearing slippers and a skirt, and the other two were dressed in skirts and were wearing wigs.

BRAZIL | Meat prices drive higher-than-expected inflation. On 10 January, Brazil’s national statistics institute (Ibge) released the latest data for the national consumer price index (IPCA) which showed that inflation closed the year 2019 at 4.31%. This is above the target of 4.25% inflation set by the central bank (BCB), although it remains within the target range of +/-1.5%.

Earlier forecasts and results, including monthly deflation in September, had pointed to inflation remaining below target for 2019. The annual figure was driven up following a 1.15% increase in monthly inflation in December, the highest figure for that month since 2002.

The food and beverage subcategory saw the largest variation, with 3.38% monthly inflation in December, followed by transport (1.54%), and personal expenses (0.92%). Annual inflation for the food and beverage subcategory stood at 6.37% for 2019 due to a sharp increase in the price of meat, driven by increased exports to China and the devaluation of the real towards the end of 2019. The manager of the Ibge’s IPCA measure, Pedro Kislanov, said that meat stood out with an accumulated price increase of 32.40% over the course of the year, with a 27.61% increase concentrated in the final two months of the year alone.

Citing the “atypical” inflation in December, President Jair Bolsonaro announced a R$6 increase to the monthly minimum wage on 14 January, to R$1,045 (US$253), to maintain the purchasing power of low-income earners.

President Juan Orlando Hernández revealed this week that he has tested positive for coronavirus (Covid-19), along with his wife Ana García. The two become the first presidential couple in Latin America to have tested positive for the virus. Having said initially that he had just mild symptoms, Hernández has since been hospitalised for pneumonia, a health setback which comes at a challenging juncture for the Honduran head of state on various levels.

In a televised appearance broadcast on 16 June, President Hernández, whose government has implemented a strict lockdown as part of efforts to stop the spread of Covid-19, explained that “due to my work, I haven’t been able to stay at home 100%,” referring to how he may have contracted the virus. He added that he would continue to do his work through “virtual media, through teleworking”. The following day, however, government officials confirmed that he had been hospitalised for pneumonia and was receiving medicines via intravenous drip, but generally was in good health.

Hernández’s admission comes at a critical point for Honduras as the economy began reopening on 8 June in a “gradual, orderly, and intelligent” manner, whereby businesses would only welcome back 20% of their workforces, with a further 20% permitted to return every two weeks thereafter provided there is no surge in cases [WR-20-22]. With the Economic Commission for Latin America and the Caribbean (Eclac) forecasting that Honduras’s GDP will contract 2.8% this year, slightly above the -2.3% average for Central America, the executive director of the Tegucigalpa chamber of commerce and industry (CCIT), Rafael Medina, underlined the need to kickstart the economy, warning on 5 June that the failure to do so could risk some 400,000 jobs. He added that, over the past 13 weeks, over 175,000 people have been suspended from their jobs already.

However, as in neighbouring countries, efforts to reopen the economy slowly come as the number of confirmed Covid-19 cases continues to rise, casting doubt on the future of the process. On 10 June, two days after the start of efforts to reopen the economy, Honduras (which as of 16 June had registered 9,656 confirmed cases and 330 fatalities) registered its highest number of daily fatalities (19).

Arrests

Two Guatemalan cousins, Otto Salguero and Ronald Salguero, are in US federal custody for drug trafficking charges and weapons offences and have an arraignment scheduled in a New York court later this week, according to US-based broadcaster Univisión. Charged in December 2019, the two cousins were accused of drug trafficking on behalf of Joaquín ‘El Chapo’ Guzmán, former head of Mexico’s Sinaloa drug trafficking organisation (DTO), in relation to the case involving President Hernández’s brother, Juan Antonio, who was convicted in October 2019 by a US jury on drug trafficking charges. The case has stoked controversy amid claims that El Chapo gave US$1m in cash to Juan Antonio for his brother’s presidential campaign - which President Hernández has firmly denied.

Comandante Cero dies

While President Hernández is the highest-level politician to have contracted the virus in Central America (and Latin America), the number of high-profile deaths linked to the health emergency continues to rise in the sub-region. Neighbouring Nicaragua, where President Daniel Ortega has not implemented a national quarantine or more stringent measures to contain the virus, has registered a particularly high number of deaths of public figures, although not all are explicitly linked to Covid-19 [WR-20-23].

Most recently on 16 June the Ortega government reported the death of former Sandinista guerrilla Edén Pastora, known as ‘Comandante Cero’, at the age of 83. While the Ortega government did not provide details as to the cause of his death, one of his sons Alvaro Pastora, told Reuters that he died of respiratory arrest, while declining to comment on whether he had contracted Covid-19.

A legendary figure, Pastora broke with the first Ortega government (of 1979-1990) in 1982, following differences with the leadership, to become a Contra. Having run as presidential candidate for the Christian Democrat Alternativa por el Cambio (AC) in the 2006 election he subsequently made up with Ortega and was in charge of the controversial project to dredge the River San Juan, which, in October 2010, triggered the revival of a territorial dispute with Costa Rica.

Most recently, Pastora came out in support of Ortega in relation to the crackdown by the government beginning in April 2018 on its opponents who Ortega accuses of attempting to carry out a coup.

On 2 July Guatemala announced that it had started the process of leaving the International Coffee Organisation (ICO), the London-based body that drives cooperation between almost 50 coffee-producing countries, amid concern for regional agriculture.

In a statement, the Guatemalan government led by President Alejandro Giammattei said that it would withdraw from the ICO’s International Coffee Agreement, and therefore end its membership of the organisation. The decision was taken following discussions between the local coffee policy council (CPC) and the national coffee association (Anacafé) according to officials, who cited years of low income under the agreement. They also accused the ICO of not doing enough to deal with the crisis facing the coffee sector, such as falling prices and inequities in the supply chain. 

“The prices paid to producers do not reflect the real value of the product and in many cases do not cover production costs, generating losses which have severely affected living conditions for coffee producing families in every producer country,” the statement says. Guatemala will not be part of the agreement from the next ‘coffee year’, which starts in October, and will now look for other forms of regional and multilateral support, continued the statement. In response, the ICO said that it is not a market regulator and urged Guatemala to remain a member. ICO figures reveal that coffee prices fell 5.2% in June, the third consecutive month of decrease.

Some 125,000 Guatemalan families depend on coffee cultivation to earn a living, according to the government statement, and 97% of those families work small plots. The same statement notes that coffee provides almost half a million jobs in Guatemala, underlining the crop’s importance to the economy.

Guatemala exported 463m kilograms of coffee in 2018-2019, bringing in US$663.62m. As a reference the country exported US$9.98bn of goods in 2018, according to figures from the World Bank. This means that coffee exports 2018-2019 represented 6.65% of total goods exported.

In an interview with Forbes published on 6 July, Ricardo Arenas, who represents the government in discussions with Anacafé, said that the ICO no longer has a reason to exist. “The organisation has been inefficient, unproductive, and indifferent towards producer countries,” he said. Arenas believes that the ICO has failed to adapt to a new coffee market in which consumers are more concerned with transparency in supply chains and criticised the organisation’s reaction to coffee leaf rust (CLR), a disease caused by the Hemileia Vastatrix fungus which decimates coffee plantations. 

In fact, Guatemala has already joined a new regional effort to solve the problems of the coffee sector. On 3 February 2019, the Costa Rica-based Inter-American Institute for Agricultural Cooperation (IICA) announced that its new Central American CLR management programme (Procagica), involving the countries of the Central American Integration System (Sica): Belize, Costa Rica, the Dominican Republic (DR), El Salvador, Guatemala, Honduras, Nicaragua, and Panama.

The Procagica aims to address challenges such as low international market prices, climate change, aging plants, lack of access to investment, lack of labour resources, and the recent intensification of disease outbreaks, and the organisation announced the implementation of a regional CLR early warning system (Sirat).

IICA is also addressing the impact of the coronavirus (Covid-19) pandemic on the coffee sector, particularly its effects on food security for small producers. On 3 July it announced that it was working with the European Union to mitigate these effects and recommended the creation of a regional agri-food system to foster the modernisation of agriculture, generate value added, take advantage of technology and increase trade between countries. This would help to protect those living in rural areas, including coffee farmers, from nutritional risks, which have been worsened by the pandemic. “The post-pandemic agricultural model must work to protect those responsible for production, increase the private sector’s involvement in sustainable development strategies, and foster greater and equitable participation by women and youth,” IICA says.

Another important part of Central America’s agricultural sector is also under threat. Costa Rica is concerned about the possible entrance of a banana plague called Fusarium Tropical race 4 (TR4) and declared a phytosanitary emergency on 1 July to release emergency funds to combat it.

The plague is a soil-borne fungus that poses a serious threat to global banana production. Fusarium TR4 has already affected plantations in Asia, Mozambique, Australia and the Middle East, according to the government statement, and in August 2019 it was detected in Colombia. This is worryingly close for Costa Rica and other banana-producing nations in Central America where exports of the fruit make significant contributions to GDP.

Costa Rica exports around US$1bn worth of bananas per year, according to the national banana Corporation (Corbana) and the sector generates 140,000 direct and indirect jobs. Around 45,000 hectares are planted with bananas, equal to 1% of national territory, said Corbana.

Announcing the state of emergency, which will remain in force for an initial one-year period, Costa Rica’s President Carlos Alvarado said that the decree “reflects the government’s effort and commitment to protect our agribusiness sector and the thousands of people who work in it”. Resources will be spent on monitoring banana plantations, as well as training and awareness programmes designed to prevent Fusarium TR4 from entering the country.

Costa Rica’s phytosanitary service (SFE) has also implemented tougher controls on imported organic materials, as well as carrying out more checks on incoming passengers to make sure that they aren’t bringing in the fungus. Even objects made from vegetable fibres can be a risk as Fusarium TR4 spores can survive in infected material even if it’s dry and they can live in soil for up to 30 years. There are currently no banana varieties that are resistant to Fusarium TR4.

Fusarium TR4 is not the only plague currently causing concern in the region. On 11 July the international regional agricultural health organisation (OIRSA), based in El Salvador, issued an alert warning about swarms of Central American locusts, which feed on basic grains and more than 400 species of plants. OIRSA called on regional governments to “step up phytosanitary measures to detect outbreaks and implement timely controls” against the locusts. The organisation warned that there is a high risk of outbreaks that could continue until 2022, and a swarm with a density of 80m locusts per square kilometre can eat around 100 tonnes of living material per day. Central America has suffered huge economic losses from past outbreaks, and a new outbreak could have devastating effects on regional agriculture, warned OIRSA.

International financial institutions have praised El Salvador’s recent efforts to repay creditors, but the resulting hit to social spending has pushed tens of thousands into extreme poverty.

On 3 February, international credit ratings agency Moody’s changed the outlook on El Salvador’s long-term foreign-currency issuer rating and long-term foreign currency senior unsecured debt rating to stable from negative. While the overall rating remains poor (Caa3), the change “reflects Moody's view of a decreased risk of a credit event in the near term, following…the recent repayment of the 2023 international bond,” reads a statement from the agency. Moody’s is referring to the successful repayment of a bond which matured on 24 January, funded by disbursements from multilateral banks, particularly the Central American development bank (BCIE) and the Latin American development bank (CAF).

In addition, the agency cites two buyback operations in September and November last year, which reduced the outstanding sum on a bond maturing on 30 January 2025 from US$800m to US$348m. This repayment remains “manageable” as long as multilateral banks continue to lend to El Salvador as forecast, added Moody’s. The agency believes that narrower fiscal deficits have helped to reduce the amount of borrowing, with the non-financial public sector deficit falling from 5.6% of GDP in 2021 to 4% in 2022. This was helped by growth in government revenues, which were 11.7% higher for January-November 2022 compared to the same period the previous year, while government spending only increased by 1.6% year-on-year.

On 10 February, the International Monetary Fund (IMF) published a concluding statement following an IMF mission which visited the country from 30 January - 8 February for an Article IV consultation. It underlined efforts to boost growth by improving security, promoting tourism, and increasing human capital, as well as the fact that the “economy grew at a robust pace last year,” with an estimated 2.8% growth. The IMF also highlighted how “strong remittances and tourism revenues have contributed to the robust activity and investment dynamics”.

Wall Street investors have also hailed the Bukele government’s efforts to repay creditors, and Salvadorean bonds have been the second strongest performer among emerging markets this year after Lebanon, according to the Bloomberg sovereign bond index. “We went from scepticism, from looking at the numbers and hearing his announcement of paying down the bond, to basically being surprised in a good way by his very strong willingness to pay,” Federico Kaune, head of emerging-markets fixed income at Switzerland-headquartered UBS Asset Management, told Bloomberg in an article published 16 February.

• Bukele hails developments

President Nayib Bukele trumpeted the developments on Twitter. “Those that bet against our country lost hundreds of millions of dollars, while those that invested in our bonds had the second highest profitability in the world,” he tweeted on 17 February.

But while things might be looking more positive for bond traders, the Salvadorean population is suffering, according to Ricardo Castaneda, senior economist at the Instituto Centroamericano de Estudios Fiscales (Icefi), a Guatemala-based think tank. Castaneda told Salvadorean media outlet El Faro that 165,000 people in El Salvador have fallen into extreme poverty in the past two years as the government has prioritised paying creditors over social spending. “In fact, the largest budget allocation in the 2023 budget is for debt repayments,” Castaneda told El Faro in an article published 1 February.

The Bukele government has cut spending on hospitals and has failed to introduce measures to help families deal with a cost-of-living crisis brought on in part by high inflation caused by Russia’s invasion of Ukraine, said Castaneda. The economist believes that Bukele is so desperate to secure financing that he is prioritising debt repayments over helping the most vulnerable in society.

In addition, Castaneda highlights the fact that El Salvador has struggled to attract foreign direct investment in recent years, which he blames on an increased risk profile due to deteriorating institutionality and a lack of clear economic policy. One important source of uncertainty is Bukele’s adoption of the cryptocurrency bitcoin as legal tender in September 2021. The move was criticised by international financial institutions at the time, and it remains a cause for concern.

While the IMF admits that bitcoin risks have not materialised so far, due to lack of adoption of the cryptocurrency, it sees “underlying risks to financial integrity and stability” because bitcoin remains legal tender, and because of the recent Digital Assets Law, approved in November last year, which is designed to boost adoption of crypto assets. Negotiations over IMF lending to El Salvador ended over the country’s adoption of bitcoin, and ratings agency Fitch Ratings cites the move as a key factor in limiting the country’s sources of funding. Coupled with a high debt burden, this means that borrowing costs will remain high, added Fitch in a statement published 2 February.

Moody’s also warns that “still-high financing needs, a lack of access to international capital markets, low debt affordability, and the lack of a credible medium-term fiscal and financing framework will continue to weigh on creditworthiness”. The agency cites a deterioration in the quality of policymaking in recent years, as well as weak governance, in affirming its Caa3 rating, which means the country’s debt obligations are subject to high credit risk. While the risk of a default has decreased in the short-term, thanks to the recent bond repayment, there remains an “elevated probability” of a credit event, according to Moody’s.

While Bukele may have succeeded in keeping the wolf from the door for now, there remain structural issues with the Salvadorean economy. Some of the problems are self-inflicted, such as the adoption of bitcoin, but external pressures such as the war in Ukraine are also making life harder. Bukele has managed to boost economic activity by cracking down hard on criminal gangs, but his sky-high approval ratings may suffer as the human rights implications of his policies become more apparent. Coupled with increasing poverty rates, Bukele may have to choose between pleasing investors or placating Salvadorean voters ahead of the 2024 election. 

Economy – the main public concern

At the end of last year, a poll of 1,273 people by El Salvador’s Universidad Centroamericana (UCA), a Jesuit university, showed that Salvadoreans believe that the economy is the biggest challenge facing the country, with inflation as the biggest economic concern for Salvadorean families.

Pension reform

In December, lawmakers approved pension reforms, fulfilling one of Bukele’s campaign pledges. The move will increase the minimum monthly payment to US$400, with a cap of US$3,000, as well as establishing a national pensions institute (ISP) to oversee contributors’ rights and regulate pension funds. According to Fitch Ratings, the reforms “will likely lead to an increase in long-term pension liabilities despite higher employer contributions”.

Others, including Icefi and El Salvador’s chamber of commerce and industry (Camarasal), have also raised concerns over the impact on public finances.

For its part, the IMF, in its 10 February statement, illuminates one possible motivation for the reform, predicting that the proposed debt exchange between old and new bonds “could provide some temporary Treasury cashflow relief,” a welcome development for a government that is struggling to keep the lights on. However the IMF also predicts larger medium term liabilities due to the increase in entitlements, as well as potentially “large contingent liabilities as the new law grants a blanket public guarantee for all pension-related claims”.

Migrants face a multitude of dangers when crossing Mexico. One such danger – kidnapping – was thrown into the spotlight in recent weeks with the abduction of over 30 migrants on 30 December and “rescue” of over 60 migrants on 11 January, both in the border state of Tamaulipas. The kidnapping and extortion of migrants is an increasing problem in parts of Mexico, exacerbated in no small part by stringent US migration policies.

On 30 December 32 migrants were abducted in the border city of Reynosa when travelling on a bus from Monterrey, capital of Nuevo León state, to Matamoros in Tamaulipas. The kidnappers abandoned the migrants some days later, with authorities reporting their release on 3 January. The public security minister, Rosa Icela Rodríguez, confirmed that some of the migrants’ relatives had paid ransom money to the kidnappers. This indicates that the migrants were freed due to obtaining payment, rather than because of the “strong deployment” of security forces to which President Andrés Manuel López Obrador attributed their release.

In a press conference on 5 January, both López Obrador and Tamaulipas Governor Américo Villarreal rejected media reports suggesting police involvement in the kidnapping, saying such speculation was “offensive”. Villarreal, who is affiliated with the ruling Movimiento Regeneración Nacional (Morena), stated that crimes of such a nature in the border region had decreased due to cooperation between state and federal forces. Rodríguez was also keen to portray the incident as an exception, stating in a press conference on 3 January that it was “unusual” due to the high number of migrants kidnapped.

However, evidence suggests that such kidnappings are not so unusual. On 11 January authorities in Tamaulipas announced they had “rescued” 61 migrants in Reynosa. Although further details were not offered, it can be assumed these migrants had been kidnapped. Similarly, on 4 January, the attorney general’s office (FGE) in the border state of Sonora announced it had rescued 18 migrants who had been held captive in a motel in Santa Ana municipality. Similar mass migrant kidnappings took place last year. In May 2023, 50 migrants and two drivers were kidnapped on the border between San Luis Potosí and Nuevo León states. This followed a kidnapping the previous month of 59 migrants in various incidents in Matehuala city, San Luis Potosí.

Indeed, according to official sources and human rights defenders consulted by national daily Milenio, over 300 migrants were kidnapped in just five states in 2023. These included some 150 migrants kidnapped in the border state of Chihuahua, and at least 100 kidnapped in San Luis Potosí. Other states highlighted in the Milenio report, which was published on 5 January, were Veracruz, where two local migrant shelters documented at least 30 migrants who had been victims of kidnapping, as well as Tamaulipas and Sonora.

Stringent US migration policy is a major contributing factor to these kidnappings. The US administration of President Joe Biden has largely limited access to asylum to those who make appointments through the CBP One mobile app, which has long wait times. This has forced migrants to wait for longer periods in dangerous Mexican border towns, increasing their exposure to crime. Barriers to accessing asylum have also forced migrants to take ever-more perilous routes through isolated stretches of the border where criminal groups wield a greater presence, or to put themselves in the hands of human smugglers, making them more susceptible to crimes such as kidnapping.

Record numbers

US Customs and Border Protection (CBP) recorded 3.2m encounters with migrants in fiscal year (FY) 2023, which ran from 1 October 2022 to 30 September 2023, compared to 2.77m in FY 2022. The first two months of FY 2024 saw 617,865 encounters

Not unusually, Jamaican politicians cannot agree on what is happening in the local economy. Output looks to have contracted in the last two quarters of 2024, signalling a technical recession, but there is little consensus on what caused it.

GDP fell by 3.5% in the third quarter of 2024 and the Planning Institute of Jamaica (PIOJ), a government office, is projecting a 1.8% contraction in the fourth quarter (definitive numbers are expected by the end of March). The fall comes as politicians continue to disagree. In February Prime Minister Andrew Holness of the Jamaica Labour Party (JLP) said the economy was “strong, resilient, and fiscally fit”. Improved fiscal management meant that for nine consecutive budgets, the government had not had to introduce any new taxes. He also highlighted the strength of the freely floating Jamaican dollar and government policies to increase investment, productivity, and prosperity.

Not so, seems to be the response from leaders of the opposition People’s National Party (PNP). Senator Peter Bunting accused the government of operating a plantation style economy marked by “low skills, low wages, low productivity, and high job insecurity as contract work predominates”.

Recession?

PIOJ director Wayne Henry acknowledged that there had been a fall in output but suggested that this fell short of a recession, particularly if other indicators such as income and unemployment were considered. Metry Seaga of the Private Sector Organisation of Jamaica (PSOJ) said the GDP data did point to a slowdown, but unemployment, at 3.5%, remains at its lowest level ever, and the strong dollar reflects underlying business confidence. Bank of Jamaica governor Richard Byles suggested that there might be a short-term downturn due to the effects of last year’s Hurricane Beryl, impacting an otherwise strong economy.

CHILE | Compra virtual. El 7 de setiembre, el gigante minorista Cencosud lanzó oficialmente su nuevo servicio de compra virtual –Jumbo Mobile. Buscando tomar ventaja de los crecientes niveles de consumo interno y el alto nivel de penetración de los teléfonos inteligentes en el país, Cencosud es la primera compañía en Sudamérica en explotar el uso de los teléfonos inteligentes en el sistema de compra virtual.
El gerente de negocios digitales de Cencosud, Mauricio Soto, explicó que el sistema, a través del cual los usuarios podrán comprar electrónicamente comestibles a través de sus teléfonos inteligentes, usando pasillos virtuales establecidos en las estaciones del metro de Santiago y luego para que esas compras sean despachadas a sus hogares, era similar a uno implementado exitosamente por el minorista británico, Tesco, en Corea del Sur. Soto señaló que él espera que el sistema se expanda a otras áreas cubiertas por los supermercados Jumbo, incluidos los países vecinos.

BRASIL | Aviones no tripulados. Embraer de Brasil, el cuarto más grande fabricante de aviones del mundo, anunció el 8 de setiembre que había llegado a un acue4rdo con Elbit Systems, de Israel, para desarrollar y producir aviones no tripulados (VANT) en Brasil. De acuerdo con una declaración de Embraer, las compañías acordaron crear una nueva empresa llamada Harpia Sistemas S.A. con sus oficinas centrales en Brasília. Según el acuerdo logrado, Elbit, que ya está produciendo VANT para la fuerza aérea brasileña, transferirá la tecnología utilizada en el desarrollo de los VANT a la nueva compañía.
El presidente de la subsidiaria de Embraer para defensa y seguridad, Luiz Carlos Aguiar, afirmó que “la creación de Harpia está perfectamente alineada con la END [Estrategia Nacional de Defensa, y se convertirá en un importante instrumento para cumplir con los requerimientos de la industria de la seguridad y de las fuerzas armadas”.

ARGENTINA | Rating de la deuda. El 12 de setiembre la agencia de ratings Standard & Poor’s (S&P) confirmó que la deuda soberana de Argentina tiene un rating de B con un panorama estable. De acuerdo con S&P, ese rating refleja el limitado acceso que tiene el gobierno argentino a las fuentes de financiamiento; la incertidumbre con relación a la política económica del país que contribuyó a una tasa de inflación de doble dígito; y la rigidez en el gasto público.
El rating permanece sin cambio debido al superávit de cuenta corriente, una sólida disponibilidad de reservas internacionales, acceso a trabajo calificado, y la relativa diversificación de la economía. Mirando hacia adelante, la agencia da por sentado que la Presidenta Cristina Fernández asegurará su reelección en octubre próximo. Como un resultado, los pronósticos del panorama podrían ser más positivos si se “observase que las políticas del gobierno apuntan a mejorar la transparencia en la implementación de una sustentable política económica”.
Por el contrario, S&P cuestiona que “un enfoque más radical de la política económica podría causar cambios en el ritmo de la actividad económica o un significativo empeoramiento de las posiciones fiscales, que podrían conducir a su degradación”.

URUGUAY | Militares. El secretario de la presidencia, Alberto Breccia, reveló el 12 de setiembre que luego del retiro obligatorio del general Jorge Rosales a fin de mes, él será reemplazado como comandante en jefe del ejército de Uruguay, por el General Pedro Aguerre.
Rosales, designado como jefe del ejército durante el primer gobierno del Frente Amplio, liderado por Tabaré Vázquez (2005-2010) en 2007, ahora ha completado su término de cuatro años en el puesto y debe retirarse. Es interesante señalar que Aguerre fue sancionado previamente por el gobierno de Vázquez en 2006, por asistir a una reunión con el ex presidente Julio María Sanguinetti (1985-1990; 1995-2000) del Partido Colorado.
El entonces comandante en jefe, Carlos Díaz, también presente en la reunión, fue sumariamente destituido y reemplazado por Rosales. De todos modos, las autoridades vieron a Aguerre como el candidato ideal para restaurar la unidad en las fuerzas armadas que se había deteriorado bajo Rosales. Por separado, Breccia anunció que en febrero próximo cuando el general de la fuerza aérea, José Bonilla, se retire, él será reemplazado por el general del ejército, Daniel Castellá como jefe de estado mayor de las fuerzas armadas.

Chile’s economic performance continues to surprise on the upside. According to the central bank, economic activity rose a higher than expected 5.2% year-on-year in March, sparking concerns of overheating. Finance Minister Felipe Larraín rejected this notion in a 7 May press conference and pointed out that Chile should take credit for its posting continued positive growth despite the “complex” international scenario. Larraín said that key important sectors like construction and retail remained dynamic, but admitted to a slight activity falls in manufacturing and mining.

Copper exports, Chile’s main revenue source, were valued at US$3.58bn in April, up 57.3% year-on-year over the US$2.27 registered in April 2011. First quarter copper sales came to US$14.bn, up 34.2% year-on-year.

Larraín said he expected a first quarter real annual GDP result of 5.6%. The central bank will release its figures on 18 May.

In the bank’s April poll of local economists, the consensus real GDP growth forecast for 2012 was 4.8% up from 4.6% previously, the fourth consecutive monthly increase. Significantly, inflation expectations for the year remained stable 3.3%, lower than the central bank’s forecast 3.5% and well within the official target range of 2%-4%. In 2011, inflation was 4.4% on the back of the higher than expected real GDP growth of 6.0%. That forced the central bank to revise up its inflation forecast for 2012.

*** Israel says to continue building settlements, unrest rising.  On 27 August, Israel’s Interior Minister Gidon Saar said that Israel will continue to build in east Jerusalem and the West Bank even during peace negotiations with the Palestinians.  He told students during a visit to a high school in Maale Adumin that with 300,000 Jewish settlers in the settlements it was impossible not to continue building. 

Two days earlier, Housing and Construction Minister Uri Ariel said that a two-state solution was unrealistic.  During a dedication ceremony for two new neighbourhoods in the West Bank settlement of Qedumim, the minister said: “Those who are here understand why the vision of two states is unrealistic and will never happen.  Those who think they can force us to build only within the Auschwitz borders are wrong.”

During a visit to celebrate a new neighbourhood in Alei Zahav, Ariel added: “I will say very clearly that I am here to build you an apartment, and we are doing this everywhere in Israel.  We are building 300 homes in Leshem just like we are building thousands in Rosh Haayin.  We are building in Qedumim like we are building in Qiryat Gat and in Modin.  We are building in Jerusalem like we are building in Galilee.”

On 26 August, there were violent clashes at the Qalandiyah West Bank refugee camp in which three Palestinians were killed by Israeli soldiers attempting an arrest.  Some 1,500 Palestinians participated in the rioting. 

This was the second significant incident in a week.  The other took place six days earlier in the Jenin refugee camp and led to the killing of one Palestinian.  Israeli sources say that these incidents are an indication of growing Palestinian resistance to arrests, particularly in refugee camps.

Our Israeli sources add that while these clashes are worrying, there is no sign as yet that the West Bank is on the brink of a third intifada.

*** China to hold meeting on reforms in November.  A meeting is to be held in November by the Communist Party of China (CPC) to discuss reforms.  The Politburo of the CPC announced on 27 August that the Third Plenary Session of the 18th CPC Central Committee would include the delivery of a report by the Politburo and “the study of major issues concerning comprehensive and deepened reform”.

The recent murder of a 26-year-old woman in Santa Cruz, the capital of the eponymous eastern region, has shocked the country, once again focusing attention ahead of the 12 October general elections on what has been a weak point of the Movimiento al Socialismo (MAS) government led by President Evo Morales – security.

Sophia Leticia Calvo, a former model and biochemist, was attacked in a car park on 15 August by an attendant, Ronald Fernández Chambi, who is believed to have raped her before stabbing and strangling her. Three days later Fernández received a 30-year prison sentence (the penalty for femicide as per a 2013 law – see box). The murder prompted outrage, with some 4,000 people gathering in Santa Cruz on 19 August demanding better security from the Morales government. The local representative of the United Nations Development Programme (UNDP), Claudio Providas, also issued a statement of concern.

As well as focusing attention on the continued need to address gender violence (see box), Calvo’s murder has led to more general calls for the Morales government to improve security. Back in June 2014 the former interior minister, Carlos Romero (who has since quit in order to run in senate elections), put the national homicide rate at 12.1 per 100,000 inhabitants in 2013. This is up on 8.9 per 100,000 inhabitants in 2010, on figures from the UN Office on Drugs and Crime (UNODC). Calvo’s murder has also compelled the different parties competing in October’s election to provide more information as to how they intend to tackle femicide and crime in general.

As regards femicide, the centre-right Unidad Demócrata (UD) led by cement magnate, Samuel Doria Medina, who is currently second in the polls behind Morales (on 17% to 59% on the latest Ipsos survey released on 19 August), is proposing life imprisonment, and former president Jorge Quiroga (2001–2002), of the Partido Demócrata Cristiano (PDC), who is running third on 4%, is calling for tighter sanctions. While Justice Minister Sandra Gutiérrez called for the death penalty, the left-wing opposition Movimiento Sin Miedo (MSM), whose candidate former La Paz mayor Juan del Granado is fourth, on 3%, is calling for the installation of community police officers to tackle crime more generally.

Yet the parties’ manifestos remain vague on security. The MAS is proposing to further strengthen the police and provide better equipment – implementing security cameras in the capital cities, safe taxis as well as preventative education programmes. The UD is offering a comprehensive citizen security policy which envisions strengthening the police and prison service. The MSM is calling for community police and citizen security committees, while the PDC proposes strengthening the police and creating neighbourhood watch brigades which would receive state support via training, equipment and logistical help.

• Gender rights

Despite the promulgation in March 2013 of a law sanctioning the crime of femicide with a prison term of 30 years without pardon, the women’s rights organisation, Observatorio Manuela del Centro de Información y Desarrollo de la Mujer (Cidem), warns that femicide is on the rise. Cidem reports 59 femicides in the first six months of 2014, while the total for 2013 was 110.

A March 2013 report by the World Health Organization, ‘Violence against Women in Latin America and the Caribbean’, notes that 53% of the Bolivian women surveyed claimed to have suffered physical or sexual abuse at the hands of a partner, the highest rate of the 12 countries studied. The others were Colombia, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Nicaragua, Paraguay and Peru.

• Progress

It is worth pointing out that the government of President Morales has made some improvements vis-à-vis gender rights. The World Economic Forum (WEF)’s annual Global Gender Gap Index (GGGI), released on 25 October 2013, ranks countries’ efforts to close the gender gap in relation to economic, political, education and health-based criteria. Bolivia registered the second highest percentage change of all the 110 countries included, relative to its 2006 score, improving by 15.9% - behind only Nicaragua (17.4%). As regards political representation, the most recent figures from the UN Economic Commission for Latin America & the Caribbean (Eclac)’s gender observatory place Bolivia second in the Andean sub-region after Ecuador as regards the proportion of female ministers and legislators (30.0% and 25.4% respectively), although this falls to 7.0% as regards mayors.

The case of the disappearance of the 43 trainee students in Iguala, Guerrero state, and the botched official response, which has done so much to destroy faith in Mexico’s established political parties, remains unresolved. The head of the federal attorney general’s office (PGR), Arely Gómez, told a hostile federal senate on 8 October that a special unit within the PGR had been created “to direct, coordinate and supervise investigations in the search for disappeared people”. There was a surge of interest in an announcement by the PGR on 5 November that five bodies had been found in three shallow graves in the small town of Carrizalillo, Guerrero state, after residents in the area appealed to the authorities to search there for the bodies of the missing students, but there has been no confirmation yet of their identities.

Relatives of the missing students have been left frustrated by the tantalising suggestions of progress. Gómez told the senate, for instance, that important new lines of investigation had identified new “material authors” involved in the Iguala disappearances, but she provided scant details. Nearly three weeks after the Carrizalillo discovery the results of dental, genetic and anthropological examinations have not been revealed.

Local residents claimed that there were unusual movements in Carrizalillo on the night of 27 September last year, three days after the Iguala disappearances, by members of the local Guerreros Unidos criminal organisation, believed to have abducted and murdered the students. Nobody came forward at the time because of fear of reprisals. Guerreros Unidos keeps the local population in thrall, demanding extortion money, food and occasionally protection.

• Guerreros Unidos

The discovery of the human remains in Carrizalillo followed the 28 October seizure by local inhabitants of Modesto Onofre Peña Celso, a local powerbroker whose family has been linked to Guerreros Unidos, and five federal police (PF) officers who they prevented from arresting the president of the local town council, Ricardo López García. The locals said that Peña Celso subsequently informed them of graves in the area. Since last year, Carrizalillo locals have accused the PF of carrying out arbitrary arrests and torturing people in their search for members of Guerreros Unidos.

ARGENTINA | Indec releases new unemployment figures. Argentina’s national statistics institute (Indec) reported on 23 August that the national unemployment rate in the second quarter of the year was 9.3%. These are the first official labour market data released by Indec since President Mauricio Macri assumed office in December 2015 and ordered the complete overhaul of the Indec, which had become widely discredited under the previous administration led by former president Cristina Fernández (2007-2015) amid allegations that it regularly adjusted economic figures to paint a rosier picture. Indeed, the latest unemployment figure represents a sharp 3.4-percentage-point increase from the last official unemployment rate of 5.9% quoted for the third quarter of 2015 and 2.7 percentage points more than the 6.6% unemployment rate quoted for the second quarter of 2015.

“No data from previous quarters are included because in line with the statistical emergency, Indec has established that unemployment reports published after the first quarter of 2007 through the final quarter of 2015 should be considered with reservation,” Indec said in a statement. In June Indec began reporting inflation data again and now it has resumed with labour market figures. The official figures show an underemployment rate of 11.2% in the second quarter and differences between the unemployment rate for men (8.5%) and women (10.5%).

Indec Director Jorge Todesca said in a press conference that the situation in the labour market is serious and that “Argentina is a country with very strong structural employment problems” because the activity rate in some areas such as Santiago del Estero, Formosa, Concordia, and Viedma (Río Negro) is lower than 40%. Cynthia Pok, who was in charge of the reconstruction of the permanent household economic survey (EPH), said that Indec’s immediate objective is to expand the survey to more urban areas and in the medium term extend it to rural areas to get a better representation of the employment situation in Argentina.

“Peace is constructed, as I told his Holiness, like a cathedral, brick by brick,” Colombia’s President Juan Manuel Santos said on 16 December. “And this requires the efforts of a lot of people over a long time.” Santos was speaking after meeting Pope Francis in the Vatican. The meeting went far beyond mere protocol because it marked only the second time in six years that Santos had met his predecessor and chief antagonist, former president Alvaro Uribe (2002-2010), the leader of the right-wing opposition party Centro Democrático (CD) in the senate, who the pope decided to invite. The cathedral analogy is apposite because, as far as Santos is concerned, Uribe is hampering efforts to construct it. In Uribe’s view, construction of the cathedral has begun without obtaining requisite prior approval.

Pope Francis, disappointed that Vatican diplomacy in Venezuela has reached a dead end, switched his attention to overcoming the insoluble differences between President Santos and Uribe over the peace accord with the Fuerzas Armadas Revolucionarias de Colombia (Farc) by intervening personally. Uribe rushed halfway across the world in a private plane to attend the meeting after an impromptu invitation from the Vatican.

Official photos showed Colombia’s two most influential politicians facing Pope Francis across his desk looking like two errant pupils arguing their cause, while ‘the headmaster’ urged “the importance of sincere dialogue between all the actors in Colombian society at this historic juncture”.

During the 25-minute private meeting, Santos was placatory but firm. He argued that the original peace accord had been revised with the Farc, incorporating several of the suggestions made by the ‘no’ camp. Santos said that this made the revised accord noticeably different to the original rejected by the Colombian public in October’s referendum, justifying his decision to send it to congress rather than stage a second referendum at a time of heightened tension and uncertainty.

For his part, Uribe urged the government to “open up some issues to debate with ‘no’ compatriots”, arguing that “you cannot impose everything”. Santos stressed that the peace accord had now been approved and there was no turning back, but he insisted that his government was “always ready…to talk and reach an agreement on how to implement [it]”.

Santos has managed to outmanoeuvre Uribe because of his conciliatory rather than confrontational approach. As a result of the large ruling coalition he forged when coming to power, and his alliance with Colombia’s left-wing political parties over the peace accord, Santos has a massive majority in congress. The decision by the constitutional court to validate the ‘fast-track’ mechanism sought by his government, which will effectively cut debating time in the senate and lower chamber in half, means that congress is now moving ahead, at speed, to approve legislation to enact the peace accord. This should ensure, to Uribe’s frustration, that the accord is fully implemented before campaigning begins for the 2018 general elections.

The first commission in both the senate and the lower chamber of congress overwhelmingly approved the amnesty law this week to establish guarantees for Farc guerrillas and pave the way for their transfer to 27 ‘concentration zones’ around the country to disarm and demobilise. The interior minister, Juan Fernando Cristo, described the amnesty law as “a fundamental step to guarantee demobilisation and disarmament of the Farc [and] end the armed conflict with this group”.

Cristo also announced that the Santos administration would send a bill to create a ‘national security guarantee commission’ to congress as demanded by the Farc in the wake of an upsurge in attacks on and murders of leaders of social movements and left-wing politicians in recent weeks. The ‘national security guarantee commission’ will be a top-level body reporting directly to Santos. The defence and interior ministers will sit on the commission, along with the attorney general, the heads of the police and the armed forces, and two representatives of human rights organisations, as well as others.

Part of the commission’s remit will be working to dismantle neo-paramilitary groups that threaten the implementation of the accords. These groups have also been responsible for a series of fatal attacks on members of social movements and left-wing politicians, especially in the municipality of San Vicente del Caguán in the southern department of Caquetá (see sidebar).

The Farc has been pressing for guarantees from the government that demobilised guerrillas will be protected irrespective of whether they enter politics. The ‘national security guarantee commission’ is the government’s response. The armed forces also announced this week that from 1 January next year they will set in motion a ‘plan of stabilisation and victorious consolidation’ to consolidate control over national territory, especially areas of influence abandoned by the Farc as they move into ‘concentration zones’.

The commander of Colombia’s armed forces, General Juan Pablo Rodríguez Barragán, said that the military and the police would be deployed to these areas to prevent other illegal armed groups from moving in (although there is mounting evidence that this has already happened in some areas of Farc influence) or Farc dissidents from establishing their own post-accord groups. Rodríguez Barragán said that “the institutional presence” would follow.

The United Nations Office of the High Commissioner for Human Rights (OHCHR) expressed concern on 16 December that there were “no concrete security measures in place”. The OHCHR said “As Farc guerrillas leave areas traditionally under their control, the State has not yet fully stepped in, leaving a power vacuum. Armed and criminal groups are vying for control of illegal economic activities in these areas, such as coca-growing and illegal mining”.

• Farc security guarantees

The fatal attacks on leaders of social movements and left-wing politicians have got the Farc apprehensive about a repeat of the systematic extermination of left-wing members of the Unión Patriótica (UP), which was established during the peace process with the Farc carried out by the government led by Belisario Betancur (1982-1986), and included demobilised guerrillas.

COSTA RICA | New maritime route to China. Shipping vessel ‘Xin Wei Hai’ belonging to the state-owned China Ocean Shipping Company (Cosco) will complete its 22-day journey from the Moín Container Terminal (MCT) in Limón province, Costa Rica, to Shanghai, China, this week. The vessel is the first to use the new commercial maritime service which aims to increase productivity and reduce transit time from 34-40 days to approximately 22 days, improving the competitiveness of fresh Costa Rican products.

According to local news reports, the vessel has the capacity to hold 4,700 20-foot containers allowing the transportation of fresh produce such as pineapples, bananas, orange juice, and meat from Costa Rica to Asia.

Exports to China totalled US$162m in 2018, according to Costa Rica’s ministry of foreign trade (Comex). A free-trade deal between the two nations has been in force since 2011.