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BRASIL | Inflación. La inflación acumulada de 12 meses de Brasil se elevó al 10,4% en noviembre, el nivel mensual más alto en los últimos 12 años, desde noviembre del 2003, cuando alcanzó el 11,02%, durante el primer año en el poder del ex presidente, Lula da Silva (2003-2010). El índice de precios al consumidor se elevó un 1,01% en noviembre, de acuerdo con el instituto nacional de estadísticas (Ibge). Esta más alta de lo esperado cifra para los precios al consumidor fue conducida por un incremento en los precios de los alimentos y combustibles. La alta tasa de la inflación presionará al comité de política monetaria (Copom) del banco central para que incremente la tasa de interés de referencia (Selic) en su primera reunión el 19-20 de enero del 2016.

The traditional honeymoon period is over for President Mauricio Macri. An opinion poll released on 12 June to mark Macri’s first six months in office found that public support for the president and his centre-right Cambiemos coalition government is declining. The effects of the tough economic adjustment plan that the Macri government has implemented in order to tackle the macroeconomic imbalances inherited from the administration of his predecessor, Cristina Fernández (2007-2015), has taken a toll. This should provide encouragement to the main opposition Partido Justicialista (PJ, Peronists) as it tries to rebuild itself after losing the presidency last year.

The national poll carried out by private consultancy firm Ibarómetro between 5 and 8 June, found that while President Macri’s approval rating remains high, it has fallen over the last six months. Macri’s approval rating in June stands at 51.4%, 14 percentage points lower than his approval rating when he first assumed office (and incidentally almost identical to the 51.34% with which he won election in last November’s presidential run-off). Meanwhile, Macri’s disapproval rating over this period has increased by 19.8 percentage points to 42.1%. While the proportion of people that approve of Macri still constitutes a majority, there has been a marked downward trend and this trend looks set to continue in the short term.

According to Ibarómetro, the fall in Macri’s approval rating is primarily explained by the negative perceptions about the domestic economy, which continues to exhibit flat growth and high inflation as a result of the economic adjustment. Indeed 72.1% of respondents said that the country’s economic situation was ‘bad’ or ‘very bad’; while only 22.9% felt that the economic situation was ‘good’ or ‘very good’. And while one in two respondents believe that the situation will improve in the future, the majority (53.8%) have a negative view about their short-term economic prospects.

This is an issue for the Macri administration because it has insisted that while the adjustment may be painful, its effects will only be temporary, with benefits starting to be felt “in the second half” of 2016. Macri has said that the economic policy measures would not only lead to inflation coming down to more acceptable levels but also to the creation of jobs as investors flock back to Argentina. But at the midway point of the year, there is still little sign of this. Pointedly, while 50% of Ibarómetro respondents recognised that the current adverse domestic scenario had been inherited from the Fernández administration, 45% said that they believed that such a deep adjustment, including highly unpopular increases in utility tariffs and mass lay-offs of government workers, could have been avoided and a more gradual approach adopted instead.

This sentiment is what the opposition, and in particular the hard-line Frente para la Victoria (FPV, Kirchneristas) faction of the PJ, is keen to seize upon (see sidebar). To mark the six months since it lost the presidency, the FPV issued a statement criticising Macri for “hiding undeniable truths and promising imminent improvements, when the crude consequences of an adjustment, which particularly affects poorer sectors, are becoming more visible”. The FPV and the wider PJ are clearly hoping that dissatisfaction with the Macri administration will continue to increase over the next few months so that it can profit from it in next year’s mid-term federal legislative elections, in which the PJ will be looking to consolidate its dominant presence in the national legislature.

• Argentina becomes Pacific Alliance observer

On 8 June the Pacific Alliance trade bloc comprising Chile, Colombia, Mexico, and Peru accepted Argentina as an observer nation following a request submitted by the government led by President Mauricio Macri. According to Chile’s foreign ministry, Macri will attend the next Pacific Alliance leaders’ summit, to be held in Chile on 1 July, as a guest to celebrate Argentina’s adhesion to the group. The Macri administration’s decision to reach out to the Pacific Alliance represents a clear break with the policies pursued by his predecessor Cristina Fernández (2007-2015), which sought to strengthen intraregional trade within the Southern Common Market (Mercosur) and saw the Pacific Alliance as a threat.

• Peronists claim electoral victory

Highlighting the change in mood towards the ruling Cambiemos coalition, just two days after President Macri completed six months in office, on 12 June, the PJ obtained a symbolic victory in the municipal by-election in the city of Río Cuarto, Córdoba province. The consensus PJ candidate handily defeated his rival from the centre-left Unión Cívica Radical (UCR), the main partner in Cambiemos, in what has traditionally been a UCR bastion. This is the first electoral victory claimed by the PJ since it lost the presidency last year. And it is even more significant when considered that Macri campaigned for the UCR candidate. The result was celebrated by the PJ as a “harbinger of what will surely be a great Peronist victory in next year’s mid-term elections”.

President Rafael Correa has repeated that he does not intend to seek re-election in February 2017, but neither does he discount it completely, warning political opposition parties “not to rest on their laurels”.

President Correa is trying to keep the opposition second-guessing. While public opinion is no longer so favorable towards Correa and the ruling left-wing Alianza País (AP), the dearth of opposition candidates with charisma or national reach means that Correa expects the AP to secure re-election in 2017 with or without him, notwithstanding the biting economic recession in the oil export-dependent country.

Until recently, the former vice-president, Lenín Moreno (2007-2003), one of Correa’s preferred successors, was well ahead in pre-presidential polls. In June, for instance, Moreno’s putative support was twice that of Jaime Nebot, the long-serving conservative mayor of Guayaquil (who has since declared that he does not intend to run), and four times that of Guillermo Lasso, of the centre-right Creando Oportunidades (Creo), the (distant) runner-up to Correa in the 2011 presidential contest.

However, Moreno recently suffered a minor scandal after it emerged that he was in receipt of public funds to finance his expenses in Geneva, Switzerland, where since 2013 the former minister (who is paraplegic) has served as the United Nations Secretary General’s Special Envoy on Disability and Accessibility. It is unclear whether Moreno, who in 2012 was nominated for the Nobel Peace Prize for his work in support of disability rights, will suffer in the polls from the revelation, which was confirmed (and defended) by the foreign minister, Guillaume Long. Given Moreno’s high standing in Ecuador, it seems unlikely.

There is some speculation that Correa is continuing to float the possibility of his candidacy as a means of maintaining cohesion in the AP, which has shown signs of fragmenting without him at the helm. The AP will hold its party convention in early October and has yet to decide on a method for candidate selection. By deliberately keeping himself front and centre and dominant in the national news, runs the argument, Correa creates space for the AP to get its act together behind the scenes, while sowing uncertainty in the opposition as to his intentions.

• Re-election

Still pending is a ruling by the constitutional court that would allow President Correa to run next year. Last year, at Correa’s request, the ruling Alianza País (AP) inserted a delaying clause into a newly approved constitutional reform permitting indefinite re-election so that the reform would only take effect after the February 2017 polls. But earlier this year, a group of AP supporters petitioned the constitutional court for the removal of that clause, on the grounds that it infringes the constitutional right of citizens to seek election. The court has yet to declare.

ARGENTINA | Taking debt renegotiations into extra time. On 10 May the Argentine government extended the deadline of the expiry of the formal debt restructuring offer it has made to holders of US$66bn worth of sovereign bonds issued under international law until 22 May.

The move by the government led by President Alberto Fernández came after insufficient bondholders accepted its offer by the 8 May deadline it had set; 75% must agree for there to be a binding global agreement. Groups of bondholders had already rejected the offer, arguing that the debt write offs proposed by the government were unjustified, and called for the terms of the offer to be improved [WR-20-18].

The Fernández administration has ruled this out in an apparent bid to pressure bondholders into accepting the offer or face the prospect of trying to collect on the debts following a default.

President Fernández had said that he would not extend the 8 May deadline, raising concerns about an imminent default. But, after only a minority of bondholders (fewer than 20%, according to press reports) signed up to the offer before the deadline, the government issued a decree extending the deadline for accepting the offer on the grounds that it still believes that an agreement can be reached.

Since then, Fernández has urged bondholders either to accept the offer or present a counteroffer before the new deadline. However, Fernández was clear that any counteroffer must meet the debt sustainability criteria outlined by his government, warning that otherwise his administration would not accept it.

The 22 May deadline coincides with the end of the grace period that Argentina has in order to meet US$500m in foreign debt repayments. The Fernández administration has said that it is not willing make any debt repayments until a debt restructuring agreement is reached. If no deal is reached, and the overdue payment is not made by then, Argentina will be in technical default.  

CHILE | Economy struggling. Chile’s central bank requested a US$23.8bn flexible credit line from the International Monetary Fund (IMF) on 12 May “to protect the economy from eventual external shocks” in the face of the coronavirus (Covid-19) pandemic. The IMF said that its managing director, Kristalina Georgieva, would recommend that the request be approved by the board of governors.

A week earlier the central bank reported that the economy contracted by 3.5% year-on-year in March. This equalled the worst decline in the monthly economic activity indicator (Imacec) since July 2009. The Imacec had just started to stage a recovery, expanding by 2.7% in February, after the economy contracted in the wake of last October’s social unrest.

The Imacec record will be smashed in April and May, and there is no sign of the economy picking up soon. President Sebastián Piñera announced his determination to open up the economy and avert “a social crisis from unemployment and bankruptcy” at the start of May but his government has been forced to shelve its ‘Plan Retorno Seguro’ amid a surge in Covid-19 cases. On 13 May Piñera announced a full lockdown in the capital and surrounding areas to take effect from 15 May as the government is losing the “Battle of Santiago” as it was dubbed last week by the health minister, Jaime Mañalich [WR-20-18]. There were 2,660 confirmed new cases of Covid-19 on 13 May, an increase of 60% on the previous day, and 12 fatalities, the majority in the capital.

PERU | Interest rates held. On 10 July Peru’s central bank (BCRP) announced it was holding its benchmark interest rate at 4.50%. This was the second consecutive pause to its rate-cutting cycle after a 25 basis-point cut in May. In a statement, the BCRP noted that the annual inflation rate in June was 1.7%, where it had hovered since April. The BCRP’s 12-month inflation forecast is also unchanged at 2.3%, within the 1-3% target range. However, the bank did note that “most indicators of the current situation and expectations about economic activity deteriorated compared with the previous month,” despite economic activity remaining on a “positive trajectory”. It highlighted increased global uncertainty due to restrictive trade policies that have contributed to volatility in financial markets.

COLOMBIA | Inflation cools. On 7 July Colombia’s national statistics department (Dane) published the latest consumer price index, putting monthly inflation in June at 0.10% – down from 0.32% in May. This brought the annual inflation rate in June to 4.82%, down from 5.05% the previous month. The categories which saw the steepest monthly price rises were restaurants and hotels (+0.42%), healthcare (+0.36%), and alcoholic drinks and tobacco (+0.27%).

BOLIVIA | International reserves up. On 1 July Bolivia’s central bank (BCB) announced that its international reserves increased by US$830m over the first six months of the year and stood at US$2.81bn at the end of June. Low reserves have been a source of major concern over the past two years, contributing to credit rating downgrades. BCB president Edwin Rojas said that the rise “is an important signal for the financial system and the whole economy”. In a statement, the BCB noted that Bolivia had met all its foreign debt obligations during the first six months of 2025 “despite the adverse context affecting the national economy”. Fuel imports, necessitated by widespread shortages, continue to be a major drain on international reserves, with the BCB stating that fuel import costs during the first half of 2025 totalled US$1.02bn.

Andean countries: inflation rate
Percentage variation (year-on-year)

Andean countries: GDP growth (%)
Quarterly figures are year-on-year growth

BRAZIL | Slashing forecasts for another year. On 15 April Brazil’s planning ministry announced that the government was reducing its official GDP growth forecast this year from 4.5% to 3.5%. This is the second consecutive year in which Brazil’s official growth forecast has been cut, suggesting that Brazil’s economic recovery following the 2008-2010 global economic crisis remains fragile.

Last year the government led by President Dilma Rousseff not only rolled out a series of economic stimulus packages such as increasing tax incentives to local producers but also convinced the central bank to cut the structurally high interest rates in a bid to reduce domestic costs so as to stimulate more economic activity. Indeed last year the central bank cut the interest rates on no less than 10 occasions in a bid to help re-energise the economy. However, this failed to produce the expected results as Brazil’s economic growth rate of just 1% was underwhelming. In fact evidence is now starting to mount that the deep interest rate cuts may have produced more harm than good to the Brazilian economy.

According to local economists, the low interest rates have helped to keep domestic consumption levels high, which in turn have pushed up prices of food, goods and services resulting in the economy now suffering from inflationary pressures. Indeed, the March measure of the national consumer prices index (IPCA) of 6.6% year-on-year already breached the upper range of the central bank’s official target of 4.5% plus a 2.0% tolerance limit, causing serious concern among economists who pointed out that runaway inflation could end up suffocating domestic consumption, the one area of the economy that continues to have relatively high activity.

To make matters worse for the government there are also signs that Brazil’s entrepreneurs are losing confidence in the economy. On 16 April Brazil’s national industry confederation (CNI) released its latest entrepreneurial confidence index, which fell from 57.1 points in February to 55.4 points in April, the lowest level since August last year. The index ranges from 0 to 100 and any measures above 50 points are considered to be a sign of confidence in the economy. Consequently a CNI statement said that the index’s fall towards the 50-point mark shows that entrepreneurs believe that the economic environment in the last couple of months has worsened and expectations are less optimistic. As a result the CNI added that these could translate into lower levels of investment all of this year.

PARAGUAY | Beef exports surge. On 16 April Paraguay’s national animal health service (Senacsa) revealed that the value of Paraguayan beef exports in the first quarter of the year had reached US$233.9m, a 51.05% increase on last year. Paraguay’s beef exports suffered last year following the January 2012 outbreak of foot and mouth disease (FMD) which resulted in many of Paraguay’s main export markets, such as Chile, Brazil and Russia, temporarily suspending imports until Paraguay could recover its FMD-free status. However, thanks to the efforts of the Paraguayan authorities back in November 2012 Russia and Chile agreed to resume imports partially from certified establishments. This has allowed Paraguay’s key beef sector, the second most important source of revenues for the country, to rebound this year: Russia has now displaced Chile as the main export market for Paraguayan beef, with US$158.4m in exports, followed by Brazil, with US$23.7m. Chile is now the fifth export market, with US$8.9m in exports.

Taking into consideration that the price of beef in Chile, which according to Paraguay’s beef chamber (CPC) currently stands at US$6,300 per tonne (t), is much higher than the price paid in Russia, US$4,300 per t, it is easy to see why the Paraguayan authorities are still trying to convince their Chilean counterparts to re-open the beef market fully. Indeed, Senacsa has pointed out that it has invited its Chilean counterpart, Senasa, to come to the country this month to conduct a second audit of the local beef industry in a bid to secure the full opening of the market in order to further stimulate economic growth in the sector.

According to the latest forecasts by Paraguay’s central bank, the economy is expected to achieve GDP growth of 13% this year as the key agricultural sector rebounds from its dismal performance last year which led to a 1.2% GDP contraction.

• Argentina signs new agreement with Nigeria

On 15 April Argentina’s tax authority, Afip, announced that it had undersigned a new information exchange agreement with its Nigerian counterpart which would help it prevent, investigate and combat illicit customs activity. An Afip statement said that the agreement was signed by Afip head, Ricardo Echegaray, and his Nigerian counterpart, Abdullahi Dikko, during the latter’s visit to Buenos Aires. The statement cited Echegaray as stating that “we have strong hopes that this agreement with Nigeria will be very productive”. According to Afip data last year Argentina exported US$151m worth of goods to Nigeria.

Barring any unforeseen upsets, a new government will take office in Honduras in late January after presidential elections due on 24 November, which are being contested by nine rival candidates. What kind of economic policy will it pursue?

Amid the cut and thrust of election politics, the candidates’ position on economic policy matters has been rather vague. Roughly a month before election day, the final opinion polls identified the two frontrunners as Juan Orlando Hernández, of the ruling Partido Nacional (PN), and Xiomara Castro de Zelaya of the newly created Libertad y Refundación (Libre) coalition. Hernández, from one of the country’s two traditional conservative parties, represents a degree of continuity on the centre-right. Castro, the wife of former president Manuel Zelaya (elected in late 2005 and ousted in a coup in June 2009) represents change on the centre-left. Their campaigning so far has not really clarified how much continuity and how much change each is offering the voters. The final surveys gave polls gave Hernández a slight edge for the first time over Castro, although the difference was within the error margin – neither breached 30%. With almost a third of voters still undecided, last minute electoral swings in one direction will win it.

Hernández has the benefits – and disadvantages – of representing continuity. He supports agricultural development and attracting more foreign investment. Voters and the private sector see him as offering market-friendly policies. It has to be said, however, that those policies have shown their share of problems. The incumbent government led by President Porfirio Lobos Sosa has been spending ahead of revenue, with this year’s fiscal deficit estimated at 6% of GDP. Last month in Latin American Economy and Business we examined the weak state of Honduran public finances, concluding that the Honduran government’s financial position remains very fragile indeed. In fact, many analysts believe that whatever the political colour of the new government, it may have to start its term in office by announcing emergency fiscal austerity measures. Substantive fiscal reform remains essential but politically very difficult to achieve, however. In the meantime, the country has no agreement in place with the International Monetary Fund (IMF), for instance.

The Honduran economy depends on remittances from overseas workers (mainly migrants in the US), coffee exports (hit by the coffee rust plague), local assembly plants (maquilas) and tourism (surprisingly resilient to the country’s growing reputation for gang violence).  According to the central bank, economic growth is slowing to a projected 3.1% in 2013, down from 3.3% last year (some forecasters are predicting a sharper deceleration).

Faced by a continuing surge in drug trafficking and criminality, Honduras now has one of the world’s highest homicide rates (est. 85 per 100,000 in 2012). Hernández supports a hardline crack down, via the use of a brand new military police force, which has recently joined the military and the national police on the streets. However, this involves increased security spending at a time when public sector nurses and doctors have been complaining of salary arrears of up to 11 months. It also raised the nightmarish spectre of the Mexican experience under President Felipe Calderón (2006-2012), when militarisation of the anti-drugs campaign led to an increase in violence and economic costs, but failed to defeat the drug cartels.

Castro, who is not a career politician, would focus instead on the creation of community police forces to tackle the high crime rate. She has tried to woo the private sector by offering to overhaul the tax system and to provide fiscal incentives for small- and medium-sized enterprises, as well as for foreign investors. Although she is offering a somewhat less radical version of her husband’s policies, business remains cautious, noting for example that Libre calls for greater state involvement in the economy.

There are two additional policies that might again spark political turbulence and resistance from the traditional Honduran establishment. First, she retains a general if vague commitment to constitutional reform, and second, she is also supports land reform. Her husband’s purported attempt to change the 1982 constitution to allow his own re-election, and moves to redistribute land held by some of the country’s wealthiest families, were key factors in his overthrow.

Arguably, the situation has changed on the first point, as any potential re-election bid is no longer a priority, only potentially becoming so some years down the track. On the second, with two thirds (66%) of Hondurans living in poverty (some calculations put that rate at a higher 80%) it can be reasonably argued that any government keen to achieve sustainable growth needs to tackle some kind of land reform; much will depend on the political skill with which this objective is pursued.

With the electoral race so-evenly balanced, economic policy may be deeply affected by outcomes other than a straight win by one or other candidate.

These could take place within the current constitutional framework or outside it. With neither party set to win a congressional majority, on current trends, it is clear that some form of coalition-making will be required. Which way the Partido Anti-Corrupción (PAC), the new party of the currently third-placed presidential runner, Salvador Nasralla, chooses to direct its support could be crucial. In this scenario, the economic policies of the next government will probably be shaped in post-election party negotiations. The much more negative scenario, of course, is one in which deadlock and conflict over the election results leads to renewed civil unrest and even another coup.

• Economic overview

Even as the main presidential candidates for the 24 November election make populist spending promises they realistically cannot fulfil, key public sector workers including teachers and doctors were - yet again - out on the streets of the capital Tegucigalpa in demand of the back-payment of their salaries.  Like its main trading partner the US, Honduras is facing a steep fiscal cliff of its own, with the fiscal deficit of at least 6.0% of GDP and total public debt now hitting 50% of GDP – or an estimated US$9.1bn - on the back of a rapid surge in internal debt since the June 2009 coup. That’s more than the executive’s proposed 2014 budget of US$7.9bn

Growth has slowed down this year, with the economy hit by a triple whammy of still-volatile external growth in its main export markets, led by the US; the devastation by rust disease of much of its coffee export crop which, in turn, has worsened the current account deficit (running at about 10% of GDP). Higher fuel import prices don’t help. Honduras spent just over US$2.0bn a year on fuel imports in 2011-2012. All this has reduced the government’s ability to spend, especially on sectors like construction, which has dragged down the domestic economy. On some measures, the government is effectively broke.

According to the central bank’s latest (July) indicator of economic activity (Imae), a GDP proxy, overall growth in the first seven months of the year was just 1.6%, compared to an annualised 4.4% in the equivalent 2012/2011 period. While the agriculture sector managed growth of 3.8% despite the coffee rust plague, thanks to increased output of other products like bananas and palm oil; other sectors like manufacturing, construction, retail and electricity and water all registered marginal growth or a contraction, underlining weak domestic demand. The central bank latterly reduced its growth forecast for the year to 3.0%, down on 2012’s 3.3%. Following a routine staff mission visit in late August, the IMF concurred.

• Petrocaribe  - a non-starter?

Honduras recently re-joined Petrocaribe, Venezuela’s  discount oil scheme for Central America and the Caribbean. It was suspended by Venezuela’s left-wing president Hugo Chávez [1999-2013] after the 2009 coup. Yet amid apparent ‘technical’ problems in Venezuela, Honduras has yet to receive its first oil shipment under Petrocaribe – it was due in July. According to the Honduran trade and ministry minister Adonis Lavaire, fuel import costs are running at US$2.3bn a year, with illegal imports (fuel smuggled in mainly from Venezuela) costing some US$230m in lost fiscal revenues.

• Budget

On 12 September the council of ministers approved a 2014 draft budget of US$7.9bn, down US$50.5m on the 2013 plan. According to Deputy Finance Minister Carlos Borjas, 54.8% (US$4.34bn) is destined for the central government and 45.2% (US$3.6bn) for the ‘decentralised sector’ (the 18 departments). The budget must be approved by December. On 11 September President Lobo had said that the executive would not present a budget, arguing that there was no point when a new administration would take office in January. Apparently, the finance ministry didn’t agree.

BRAZIL | GDP figures highlight challenges. The Brazilian economy grew 2.9% in 2022, GDP figures released on 2 March by the national statistics institute (Ibge) show. Growth in the services (4.2%) and industrial (1.6%) sectors underpinned this expansion, while the agricultural sector contracted 1.7%, reflecting a smaller soya output due to adverse climatic conditions. On the demand side, family consumption buoyed growth, expanding 4.3% in the year – compared with 1.5% growth in government consumption.

GDP contracted 0.2% in the fourth quarter of 2022, the first negative quarterly result in over a year. This confirms an impending economic downturn this year and fans concerns that Brazil could even be headed for a recession, amid persistent inflation and high interest rates. The World Bank forecasts 0.8% growth for the Brazilian economy in 2023 in its latest Global Economic Prospects report.

On 30 September, the Salvadoran government led by President Nayib Bukele presented its proposed 2021 national budget, which is unlikely to be approved by the legislature given concerns about the huge rise in spending.

The proposed budget is for US$7.45bn, up 16% on the US$6.4bn approved for 2020 and would be the largest in the country’s history. It includes big spending increases in education, health, security, and defence. But analysts say it relies on unrealistic forecasts. On 22 October the Guatemala-based economic think-tank, Instituto Centroamericano de Estudios Fiscales (Icefi), warned that the increase in social spending is “uncertain” due to an “exaggerated over-estimation of tax income”, while on 6 October international credit ratings agency, Fitch Ratings, said that implementing the proposed budget in full would “increase pressure on El Salvador's ‘B-’sovereign rating from deteriorating debt sustainability metrics and financing constraints”.

Finance Minister Alejandro Zelaya says the budget aims to bring about a “Salvadoran miracle”. However, Zelaya has admitted that it is difficult to envisage it passing the opposition-controlled legislative assembly - an assessment with which Fitch agrees. The ratings agency emphasised that “short-term borrowing has already hit record levels, and the approach of next year's legislative elections may complicate efforts to secure additional multilateral support”. Fitch forecasts that El Salvador’s GDP will contract by 8.2% in 2020 and expects its fiscal deficit to come in at 11% of GDP, up from 3.1% in 2019. The proposed budget “would imply a 7.5% of GDP fiscal deficit, debt-to-GDP of 94%, and financing needs of nearly US$1.85bn”, which Fitch believes would be challenging to meet. 

Fitch had already raised concerns over El Salvador’s debt sustainability in July, when the government announced a US$1bn bond issue. “The high interest rate on the recent bond (issued at 9.5%) and limited domestic financing options underscore how a sharp rise in debt, higher interest burden and continued financing challenges raise questions around debt sustainability, especially in the absence of concrete strategies to consolidate fiscal accounts in the coming years” Fitch noted. El Salvador’s debt to GDP ratio has increased from 58.8% in 2011 to 93.2% in 2020, according to Icefi, which projects that the proposed budget would push that figure to 95.6%.

Local analysts have also raised concerns over the budget. Carmen Aída Lazo, an economist and dean of the Escuela Superior de Economía y Negocios (ESEN), a private, non-profit university in El Salvador, has pointed out that almost 20% of the planned spending is allocated to servicing public debt. Other criticisms include projections that don’t take into account the impact of the coronavirus (Covid-19) pandemic on public finances, and a reliance on a strong economic recovery in 2021. Icefi believes it is more likely that an economic recovery will be slow, and that public finances will be affected for longer.

Meanwhile Rommel Rodríguez, an economist at Fundación Nacional para el Desarrollo (Funde), the local branch of international anti-corruption NGO Transparency International, also warned that the spending plans fall foul of the constitution, with planned funding for the judicial branch falling short of the level required by law. Rodríguez says that the judiciary should be allocated at least 6% of budget revenue as per the constitution but under the current proposal it would receive only US$290m which is short of this.

Violence and criminality are on the up in Chile. This is what a series of violent, sometimes deadly incidents in December 2020 would suggest, something which 2020 figures on homicides seem to confirm.

Chile is Latin America’s least violent country. In 2019, it had a homicide rate of just 2.8 murders per 100,000 inhabitants, the lowest in a region where some countries have a homicide rate in excess of 20 per 100,000, according to specialist website InsightCrime’s annual round-up of homicides in Latin America. In Santiago, Chile’s capital, the 2019 homicide rate stood at 4.9 per 100,000, making it the second least violent capital city in Latin America (Buenos Aires in Argentina stole first place, with a murder rate of 4.7 per 100,000). However, Chile is now seeing a trend of rising violence. InsightCrime’s 2020 homicide roundup, released on 29 January, reports an uptick in the national homicide rate to 3.7 murders per 100,000 inhabitants.

According to figures from the Carabineros militarised police’s OS-9 department (responsible for investigating criminal organisations), disclosed to national daily El Mercurio, the country saw 704 homicides last year up until 20 December. This represents a 33.6% increase on 2019, when 527 homicides were recorded. A spate of deadly shootings in the Santiago Metropolitan Region (RM) in the final weeks of December will have further added to these figures, while illustrating the reality of this increase in violence. Figures from a different Carabineros department reported by national daily La Tercera in early January put the total number of homicides last year at 741.  

Violence remains an issue across other types of non-deadly crimes. Drug trafficking is on the rise in Chile [SSR-20-07], and appears to be driving an increase in micro-trafficking and associated violence. Firearms use has also grown. Even where criminal incidences are declining, violence is increasing. For example, incidents of car theft have become increasingly violent, with 25% of the 22,400 car thefts recorded last year involving either car hijacking while the vehicle was moving, or the theft of the car as the driver was getting in or out of it.

Police believe that score settling between criminal gangs is behind the increase in violence and homicides, as the crimes often involve two individuals with a prior record of criminal activity – although the violence claims innocent victims too, as the December shootings show. Speaking to La Tercera, Fernando García, the director of the Carabineros’ department of criminal analysis (DAC), said that the increase in homicides reflects criminal gangs’ growing fire power, and fits into a trend observed across Latin America, as the economic squeeze caused by the coronavirus (Covid-19) pandemic has driven many people into the informal and illegal economies, and made criminal groups more active in their search for alternative activities and revenue sources.

• A violent December

A series of deadly shootings in municipalities of the RM shook Chile during the final weeks of 2020, as the victims were seemingly innocent bystanders. Most shocking was a shooting at a Christmas market in Maipú, which injured several people and left a woman dead; and the deadly shooting of a 15-year-old girl walking home in La Pintana, reportedly after having gone out to buy sushi. “Criminal gangs and organised crime have caused the loss of many lives, terrorized entire neighbourhoods, enslaved many young people, destroyed many families, and caused great damage to our society,” President Sebastián Piñera said as he announced a new bill to help tackle crime.

President Sebastián Piñera responded to the situation by signing a bill on 27 December that seeks to implement tougher sanctions against organised crime. The bill notably seeks to modify the penal code by replacing the offence of ‘illicit association’ with two separate offences: delinquent association and criminal association, with the latter carrying a heavier sentence. The bill would also expand the investigative capacity of the civilian Policía de Investigaciones (PDI), by facilitating the use of undercover agents and wiretapping for example. There have also been calls from the government for the senate to approve a bill on arms control that has been stuck in the upper house for years. These projects are controversial, however, and pushback is expected amid calls for priority to be given to a more comprehensive police reform.

El Salvador’s President Nayib Bukele has announced measures designed to make basic goods more affordable as he searches for ways to address growing economic concerns at the beginning of his second term in office.

On 6 July President Bukele said that he would use similar tactics against importers and wholesalers that engage in price gouging as he did against the street gangs as part of his security crackdown. He said that some had been involved in tax evasion, bribery, and contraband importation, which are criminal offences that could lead to imprisonment. “We are not playing around,” he said. “I expect the prices to come down by tomorrow or there are going to be problems.”

Bukele also announced that the agriculture ministry (MAG) would roll out mobile markets which will provide goods such as tomatoes, onions, potatoes, lettuce, and other vegetables at lower prices. Then on 16 July the president announced a proposal to suspend tariffs on all basic food basket products and 70 additional food items for a ten-year period, with the aim of reducing prices, which has since been rubber-stamped by the 60-member unicameral legislature in which his Nuevas Ideas (NI) party has 56 seats. He later announced that tariffs on fertilisers, animal feed, and other agricultural inputs would also be eliminated to boost competitiveness.

The government consumer protection agency has swung into action, pledging to identify and prevent abusive pricing practices for basic goods, and on 26 July it said it had made 8,500 inspections. It also announced an investigation into price gouging on insect repellent amid an outbreak of dengue fever in the country. The agency said it would act “firmly” against those found to be making unjustified price increases or restricting sales of repellent.

These measures are designed to help people afford the basic basket of goods, which has risen faster than salaries. Figures from the central bank (BCR) widely cited in the media put the cost of the basic food basket at US$256.56 per month, against a minimum wage of US$243 in agriculture, US$359 in maquilas, and US$365 in trade and industry.

However, critics have questioned whether Bukele’s moves will help to make goods more affordable. A report published on 27 July by national daily La Prensa Gráfica cites Luis Treminio, the president of farming association Asociación Cámara Salvadoreña de Pequeños y Medianos Productores Agropecuarios (Campo), as saying that the country is highly reliant on food imports, with 93% of fruit and vegetables imported as well as up to 60% of meat and cheese. However, many items from the basic basket of goods have already been benefiting from tariff exemptions since March 2022, when the legislative assembly passed an anti-inflation law which has since been extended to March 2026. Given that the cost of the basic basket of goods has continued to rise despite this law, it is not clear how effective tariff eliminations will be in reducing prices. Local economist Rafael Lemus was cited by the local media as saying that the move will incentivise importation over local production.

Carlos Acevedo, economist and ex-president (2009-2013) of El Salvador’s central bank (BCR), told La Prensa Gráfica that the move will have only a “marginal” effect on prices. In an article published 17 July, he said that the best solution is to focus on boosting local production. The same article cites another economist José Luis Magaña as saying that the focus should be on strengthening small producers, as a lack of local production means the government has a limited ability to affect food prices because the price of imported products is set outside the country.

However local farmers have also suffered due to unpredictable weather patterns in recent months. In an article also published 17 July, corn vendors in the city of Usulután told La Prensa Gráfica that prices have more than doubled since April due to a lack of rain and repeated storms.

With the majority of imports already free from tariffs and local farmers struggling with unpredictable growing conditions, it is not clear how Bukele will be able to affect food prices in the short-term. It is possible that his investigations into price gouging will encourage importers and wholesalers to introduce some discounts in order to keep the authoritarian leader on side, but they will risk going out of business unless the government subsidises the cost of imports, which are set by international markets.

Bukele may hope that his economic policies drive growth and creates well-paying jobs that help more Salvadoreans pay the increased cost of the basic basket of goods, but the country’s perilous fiscal situation [EB-24-06] means that he does not have the funds to invest in projects that would spur economic activity and make the country a more attractive place to invest.

In the meantime, poverty rates continue to rise and pressure will grow on Bukele to address worsening living standards. Failing to do so would risk social unrest as daily life gets harder for a greater number of people, wiping out the goodwill towards the president which has built up due to his security policies.

Public concern

A survey by Universidad Centroamericana’s Instituto Universitario de Opinión Pública (Iudop), published on 26 June, showed 74% of respondents cited economic issues such as the cost of the basic basket of goods, high cost of living, and poverty, as El Salvador’s main problem. The survey showed 61.3% of respondents as saying that the government had done little or nothing to combat rising prices, with a third saying that the government should introduce price controls and a third believing that officials should focus on generating jobs.

Since 1 January 2014, soft drinks have become more expensive in Mexico. As part of fiscal reforms introduced by the government led by President Enrique Peña Nieto, and reflecting health concerns over the spread of diabetes in the country, a one-peso tax has been added to the retail price of soft drinks (equivalent to a duty of around 12%), while an 8% tax is being applied to high-calorie processed foods such as potato chips, chocolate and ice cream. Major bottling companies opposed the soft drinks tax, but this did not stop PepsiCo from announcing, at the end of January, a major new US$5.0bn investment programme in Mexico, which is expected to create 4,000 new jobs.

PepsiCo likes Mexico, and it is not too hard to see why. The country has the highest per capita consumption of carbonated drinks in the world (last calculated at 163 litres per head per annum). Although PepsiCo’s traditional rival, Coca-Cola, has a giant 71% market share of the Mexican soft drink sector, PepsiCo’s smaller 14% is still an important source of sales. PepsiCo’s Frito Lay division also has a big share of the local snack market through brands such as Doritos, Cheetos and Sabritas.

Sabritas has an 80% share of Mexico’s salty snack market. In fact, Mexico was the company’s number three source of global revenue in 2012, after the US and Russia. It generated US$4.0bn, or 6% of global PepsiCo sales.  The company’s Latin American Foods (LAF) division has outstripped all others in terms of annual growth rates.  Announcing the latest investment, Pedro Padierna, president of PepsiCo Mexico, stated: “Mexico is an important market for PepsiCo and we believe there is a tremendous opportunity for growth and expansion throughout the country. This investment reflects our confidence in Mexico’s future”.

Company executives also said that they expect Mexico’s middle classes to expand, pushing up consumptions of soft drink and snacks. Significantly, the new investment will not just go into increased food and beverage production, but also into locally-based research and development, through, among other things, the creation of a ‘Global Baking Category Innovation Centre’ to be based in  Monterrey. In the end, the higher taxes do not seem to have been a big deterrent. According to Marisol Huerta, an analyst at Grupo Financiero Banorte SAB, PepsiCo still sees strong sales: “the consumer will feel it, but will most probably absorb it,” she concluded.

Others have also seen the opportunity. Coca-Cola itself earlier announced a US$5.0bn investment programme, while the Switzerland-based Nestlé is investing US$1.0bn over the next five years to build new factories including an infant nutrition production plant at Ocotlán and a pet food plant in Silao.

Given US President Donald Trump’s policy flip-flopping, his difficulty in securing congressional support for planned reforms and overall uncertainty over the White House policy stance, it was unclear whether Trump planned on following through on his 2016 campaign pledges to reverse the changes introduced by Barack Obama with regard to Cuba policy. A speech on June 16th appears to have cleared up any uncertainty, with a number of measures set to unpick some of the legislation passed by Obama. Although the diplomatic rapprochement is clearly on hold, the planned changes are in fact relatively limited in nature and rather than push the Cuban economy into recession, the changes simply means that a rapid economic expansion in Cuba is unlikely.

Essentially, the policy changes involve tighter restrictions on travel by US citizens, as well as on business transactions with the Cuban government and state-run firms. Individual people-to-people travel will now be prohibited, with travellers wishing to engage in people-to-people travel now required to do so in a managed group and via a US-government approved travel agency. The changes announced by Trump also prevent US companies (as well as individuals) from any financial dealings with the Cuban military and firms aligned with the government and/or the security apparatus.

Some of the Obama reforms will remain in place

Equally as important as the areas that will change, are those that will not. Rather than roll back all of Obama’s Cuba reforms, Trump’s changes represent a partial reversal. Airports and seaports are exempt from the ban on doing business with Cuban government companies, meaning that US airlines and cruise ship companies can continue to operate existing routes to Cuba.

There has been no mention of reintroducing any restrictions on remittances sent by Cuban Americans, nor on the telecommunications and internet access programmes introduced under the Obama administration. In addition, the reforms introduced by Obama just before the 2016 presidential election that eased restrictions on bilateral trade, mainly on agricultural and pharmaceutical products, will remain in place.

Moreover, Trump’s changes will not come into effect immediately, as the agencies responsible for drawing up the new legislation (including the Office of Foreign Assets Control, or OFAC, and the Commerce Department) have not yet begun drafting the reforms. The process of crafting new legislation, submitting it to congress and subsequently debating and voting on the measures will take several months, particularly given the five-week summer recess that begins in late July and runs to early September.

In the meantime, the existing legislation will remain in place, meaning that travel and commercial plans that have already been arranged will be permitted to continue. The Sheraton Hotels and Resorts group, for example, will not be required to abandon a deal to open another two hotels in Cuba, following the opening of the new ‘Four Points’ hotel in Havana last year.

Questions over enforceability and economic impact

Significant questions remain about whether the new measures are enforceable in practical terms. The Trump administration has made it clear that the driving force behind the changes is the desire to prevent US citizens from spending money in outlets affiliated with either the Cuban government or the military, but this is likely to prove extremely difficult to prevent, given that many hotels and sights are run by the Cuban state.

Grupo de Administracion Empresarial SA (Gaesa), a Cuban military conglomerate, owns 57 of the (mainly foreign-operated) hotels in Cuba and most retail chains. Even the international chains, like Spain’s Melía, are in collaboration with the Cuban government through joint ventures. The guest houses that proliferate on sights like Airbnb are run by Cubans with no direct link to the government, but few cater to more than a few people at a time and would therefore be unable to host an organised tour of American tourists. Critics have also pointed out the Cuban military also has a stake in some of the financial systems that clear Airbnb payments.

There are also questions over the likely impact on the local economy. While there is a broad consensus that the new measures outlined by President Trump are negative for Cuban economic prospects, it is unclear when the impact will be felt, who will be affected and to what extent. The most immediate impact is likely to be on the tourism sector, with demand for hotels and restaurants set to fall, most likely from 2018. The number of tourist arrivals is still likely to rise in 2017, as arrivals grew by 22% year on year in the first half of the year, before the low season (May-November), meaning that any decline towards the end of 2017 is unlikely to offset the earlier strong growth.

Americans still only account for a small share of the total number of tourists visiting Cuba (285,000 in 2016, accounting for around 7% of total tourist arrivals, but the rapid growth in the number of US visitors has accounted for much of the overall increase in tourist numbers in recent years. This implies that the sector is likely to grow at a much slower pace in the coming years, without the stimulus of an influx of US tourists. That said, Cuba’s main source markets – Canada and Europe – are all faring well economically, with improved consumer spending and accelerating economic growth boding well for outward tourism, which should benefit Cuba. A sharp fall in tourism earnings, which are a crucial source of foreign exchange, is therefore unlikely.

Lower investment will hamper potential GDP growth

The implications for medium-term growth are more significant, however, with Trump’s new measures set to have a major impact on US investment in Cuba. Many US firms had established a foothold in Cuba during Obama’s tenure, with minimum investment and little activity, but with the intention of ramping up their presence on the expectation that trade and investment sanctions would be eventually lifted. Given that there is no question of a lifting of sanctions anytime soon, these firms are likely to either mothball their operations or withdraw from Cuba entirely. Even firms that had agreed firmer investment plans (including Sheraton’s other two hotel projects) might now falter, as lower projected inflows of visitors might dissuade the company from proceeding with construction.

The US airline Southwest has already announced its plans to end flights to Varadero and Santa Clara from September, instead retaining just its Havana route. The company stated that its decision was based on the belief that the routes were not financially sustainable, particularly with the ongoing prohibition on US tourist travel. Southwest did not directly mention President Trump’s new restrictions, but the timing of the announcement, just two weeks after the reforms were unveiled, was telling.

The danger is that the widely-hoped-for acceleration in medium-term economic growth will not materialise. In recent years, agriculture and industry have both performed erratically, suffering from a lack of investment and exposure to swings in external demand, with services helping to prop up otherwise-feeble rates of growth (or, in some cases, preventing the economy from dipping into recession). If the tourism sector grows at a much slower pace, weaker stimulus from services will undoubtedly hamper overall GDP growth.

The danger is particularly heightened given that Cuba’s main trading partner – Venezuela – remains in a critical state. Oil exports to Cuba have plummeted from a long-running 100,000 barrels per day (b/d), forcing Cuba to look for other sources of oil. The authorities are looking to tap their own offshore wells, but in the meantime Cuba are having to import oil at market prices (the Venezuelan agreement, by contrast, involved a swap for Cuban medical services and therefore had less of an impact on the public purse, as well as on scare foreign exchange).

The medium-term outlook for the Cuban economy therefore appears somewhat weaker than had previously been the case, characterised by lower services revenue and investment, combining to reduce the pace of medium-term GDP growth.

Guatemala’s President Bernardo Arévalo and other top officials have held a series of meetings with US counterparts in recent weeks, underlining the strength of ties with Washington and setting out economic priorities for his time in office.

On 18 March, a US delegation led by Under Secretary for Economic Growth, Energy, and the Environment Jose Fernandez travelled to meetings in Guatemala City for the first ever High-Level Economic Dialogue (HLED) between the two countries. The meeting produced various concrete agreements, including plans for the US Agency for International Development (USAID) to provide technical assistance for anti-corruption measures and the announcement of US$650,000 in funding to advance the Arévalo administration’s plans for a metro system in Guatemala City.

More widely, the two sides highlighted cooperation in various areas such as good governance; increased investment, competition, and infrastructure; supply chain resiliency; greater food security; and a more resilient energy sector. 

This meeting was followed by a visit from US Secretary of Homeland Security Alejandro Mayorkas, who travelled to Guatemala on 20 March to discuss migration, and then Arévalo met with US Vice President Kamala Harris in Washington on 25 March. Harris announced US$170m in development, economic, health and security assistance, including US$135m from USAID. “This assistance will support efforts to combat corruption; conserve biodiversity; scale agricultural technologies; and improve health outcomes, inclusive of all Guatemalans, especially indigenous communities,” reads a statement from USAID.

That same day, the White House announced more than US$1bn in new private sector commitments for its Central America Forward (CAF), a public-private partnership that was created in response to Harris’s Call to Action for Northern Central America. While many of these commitments involve training programmes or small-scale lending, significant pledges include US$260m for six electrical transmission projects and US$42m more investment in a new industrial park.

Arévalo has hailed relations with the US, which played a pivotal role in ensuring that he was able to take power amid attacks from corrupt actors in Guatemala, saying that the two countries are enjoying a “special moment”.

The agreements will help with key policy priorities such as an anti-corruption drive, which Arévalo recognises as a building block in a declared bid to attract more foreign investment, and in delivering on a campaign promise to build Guatemala City’s first metro line. Current plans are for a 6km line from Ciudad San Cristóbal in the contiguous suburb Mixco to the Obelisco in Zone 10, which would take 10 minutes. The line is expected to cost Q$7.8bn (US$1bn) and is scheduled to open in mid-2027, helping to reduce road traffic, according to the president. It will be run as a public-private partnership, with the World Bank already assisting in the design and project management. Arévalo is also likely to need Washington’s continued support in order to deal with serious governance challenges as opponents seek to block his reformist agenda.

For its part, Washington is seeking to address record migration on its southern border, which it blames in part on corruption and criminality in Central America, as well as a lack of economic opportunities and jobs. Fernandez said that businesses had found it difficult to invest in Guatemala due to corruption, but Arévalo’s commitment to cracking down on this “cancer” would make it easier to attract investment.

As a press release from the US Department of State made clear, the HLED was part of efforts to advance the Joe Biden administration’s ‘Root Causes Strategy’ which launched in July 2021 to address the economic, governance, and security factors driving migration. It was also intended to advance Harris’s CAF, which aims to generate jobs and new economic opportunities. 

Washington will likely expect Guatemala to comply with agreements on improving law enforcement and border infrastructure reached at a tripartite meeting on migration with Mexico in February in order to unlock further economic help. However, beyond technical assistance and some funding from USAID, Washington’s strategy relies on mobilising private companies to invest. This is important as China, which is more able to mobilise investment as a foreign policy tool through its state-owned enterprises, continues to develop links with Central America. 

Relations with China?

Guatemala and Belize are the last two countries in the sub-region that maintain diplomatic relations with Taiwan, the island nation China considers a breakaway province, which regional neighbours have broken off in favour of closer ties with Beijing. Arévalo has so far said that his government intends to maintain relations with Taiwan while trying to deepen commercial ties with China, but Beijing will most likely limit cooperation if this situation does not change. While Arévalo will no doubt continue to cultivate links with Washington, he may also be tempted to seek the economic benefits of closer ties with Beijing if the US cannot help to make concrete improvements to the Guatemalan economy.

Hydroelectric generation

In February, hydroelectric generation in Guatemala was 17% lower than the historical average, AMM chief Jorge Álvarez told national daily Prensa Libre in an article published 18 March. This has coincided with a period of increased demand, which has broken records on multiple occasions in recent weeks, including an all-time high of 2035MW on 13 March.

Energy emergency declared due to lack of rainfall

On 14 March the Guatemalan government declared an energy emergency after a lack of rainfall affected power generation at hydroelectric dams.

The state of emergency will last until 31 May but could be extended, according to a statement from the ministry of energy and mines (MEM). The declaration will allow the wholesale power market administrator (AMM) to take “necessary and exceptional actions” to ensure electricity supplies and avoid power cuts.

Guatemala is vulnerable to the effects of climate change and weather phenomenon such as El Niño, both of which are associated with lower amounts of rainfall. This was the case last year, which made for lower water levels in rivers and reservoirs and less power generated by hydroelectric dams.

Migrants are on course to send home a record-breaking amount of remittances to Nicaragua this year, with money sent home providing an economic lifeline to many families and helping to shore up the government’s financial position.

From January-September this year, Nicaragua received US$3.83bn in remittances, more than in the whole of 2022, when US$3.23bn was sent to the country, according to figures from the country’s central bank. It appears likely that 2024 will see further growth compared to last year, when a record US$4.66bn in remittances was received, and in an article published 12 October, local outlet Confidencial is forecasting that this year’s total will exceed US$5bn. The value of remittances rose steadily from 2009 onwards before starting to increase more rapidly from 2016 and then recording massive year-on-year growth from 2021 onwards.

This money represents a lifeline for many recipient households, but it is also a signal of increased emigration from Nicaragua. Eliseo Núñez, a Nicaraguan economist and former legislator, told Confidencial that the growth in the value of remittances comes at the cost of divided families and a brain drain that will hurt the country’s competitiveness in the long-term. 

Núñez said that almost two-thirds of migrants are between 20 and 35 years old, which will have knock-on effects on the country’s demographics as the number of retired people per working age person increases as younger people of child-bearing age leave the country. This will leave Nicaragua with an ageing population, and those of working age who have stayed will have few technical skills, he added. 

Núñez also highlights the fact that remittances are on course to surpass the total value of Nicaraguan exports, the same as they did in 2023. The value of the country’s exports has stagnated in recent years, according to figures from the central bank. In the first half of 2024 exports were worth US$3.95bn, down from US$3.980bn in the same period last year and US$4.06bn in the same period in 2022. The US remains Nicaragua’s largest export market, representing 36.5% of the total, but exports to the US were worth 14.9% less in the first half of 2024 compared to the same period in 2023.

Another economist, who spoke to Confidencial anonymously, said that remittances cannot be relied on in the long-term. Most migrants send a larger amount of money home in the first seven years after they leave, after which the number starts to fall, they said, highlighting the fact that value of remittances has been increasing more slowly in the last couple of years.

Although this growth has slowed, the significance of remittances to the Nicaraguan economy has been increasing. Remittance inflows as a percentage of Nicaragua’s GDP have skyrocketed in recent years, according to the Migration Data Portal, which is managed by the UN’s International Organization for Migration (IOM) Global Migration Data Analysis Centre (GMDAC). The portal highlights that inflows have increased from 9.5% of GDP in 2016 to 15.1% in 2021, 19.9% in 2022, and 26.8% in 2023, the fifth-highest proportion of any country in the world. Remittance inflows as a percentage of GDP were also high in regional peers Honduras (25.7%), El Salvador (24.1%), and Guatemala (19.6%) in 2023, but Nicaragua has seen the fastest increase in the last decade.

One issue is that President Daniel Ortega’s increasing authoritarianism has isolated Nicaragua from the US and its allies, dissuading investment from those countries, particularly since his crackdown on protests in 2018. According to the United Nations (UN) Economic Commission for Latin America and the Caribbean (Eclac), Nicaragua received a total US$1.23bn in foreign direct investment (FDI) in 2023, 5% lower than the year before. Further declines appear likely with only one project, a US$137m warehouse to be built by Sri Lanka-based logistics company EFL Global, announced last year. Washington has also slapped a wide range of sanctions on Nicaraguan individuals and businesses in an attempt to encourage Ortega to restore democracy.

Worsening relations with the West have left Managua increasingly reliant on China, and Chinese firms have invested massively in gold mining since the two countries re-established diplomatic ties in 2021. Although mining operations have long been present in Nicaragua, the amount of national territory granted as concessions more than doubled from 2021-2023, according to figures from the energy & mining ministry seen by environmental news site, Mongabay, and Ortega’s mining law grants tax incentives including tariff exemptions on materials and machinery. 

Despite stagnating exports and decreasing FDI inflows, the Nicaraguan economy has “remained resilient in the face of multiple shocks,” said the International Monetary Fund (IMF) in a statement published in January. It highlighted the role of remittances in driving a current account surplus of around 4% of GDP in 2023, allowing the rapid accumulation of international reserves. It also highlights that GDP growth has proven resilient, forecasting in its January statement to reach 3.5% this year.

However a deepening reliance on remittances and gold mining leaves Nicaragua vulnerable to external shocks such as an economic downturn in the US, where the vast majority of remittances come from, as well as a fall in gold prices, which have reached record highs this year. Nonetheless Ortega is unlikely to change course, with emigration providing a useful release valve for political dissent and the resulting remittances driving domestic consumption.

Global Competitiveness Report. On 28 September, the World Economic Forum (WEF) published the Global Competitiveness Report 2016-2017 which surveys 138 economies. The WEF assessment is based on 12 factors: institutions and infrastructure, health, primary and university education, market efficiency, labour market efficiency, technological advances, market size, development of the financial market, business sophistication and innovation.

Since the previous report for 2015-2016, Panama has soared eight places in the WEF rankings, securing its position as the 42^nd most competitive economy. It is only surpassed in South America by Chile, which is ranked in 33^rd place.

As regards the rest of Central America, the same 2016-2017 WEF report showed that Costa Rica was in 54^th place (down two places on the previous year) followed by Guatemala (78, unchanging); Honduras (88, unchanging); Nicaragua (103, up from 108) while El Salvador was in 105^th place (previously 95^th).

FDI: In a presentation on 29 September, Finance & Economy Minister Dulcidio De La Guardia revealed that foreign direct investment (FDI) to Panama grew by 6.5% in the first half of 2016, compared with the same period in 2015, amounting to a total of US$3.0bn, up US$184m.

A June 2016 report by the United Nations Economic Commission for Latin America & the Caribbean (Eclac) noted that in 2015 FDI inflows to Panama were up 17% to reach a record high of US$5.039bn – making the country the leading recipient of FDI in Central America.

During the presentation, De La Guardia also highlighted the importance of the Panama Canal expansion, completed earlier in the year [RC-16-08], to the country’s economy. She estimated that expansion would result in a 40% increase in investment in the logistics sector; create between 150,000-250,000 jobs by 2026; and boost Canal contributions to state coffers by 45% by the beginning of 2017.

The Turks and Caicos Islands went to the polls on 15 December to choose between the incumbent (conservative) Progressive National Party (PNP) and the opposition (centre-left) People’s Democratic Movement (PDM). The Progressive Democratic Alliance (PDA), led by former PDM leader Oswald Skippings, made up the slate in what was only the second election since direct rule was imposed by London from 2009-2012. The PDM, led by Sharlene Cartwright Robinson, took 10 of the 15 seats in the National Assembly to give the Turks & Caicos its first female premier. The remaining five seats were won by the PNP, but outgoing premier Rufus Ewing lost his seat and resigned as leader of the PNP. He was replaced by Washington Misick.

On winning the election, the new premier made an immediate promise to the so-called ‘Belongers’, that is the long-standing native population of the Turks & Caicos. She said: “For too long the Belongers of the Turks and Caicos Islands have been denied their rightful share of the wealth of our country. For too long those holding political office have diverted funds away from where it rightfully belongs: it belongs in the pockets of the Belongers. For too long we have had to tolerate the empty promises of false and weak leaders in the previous governments. No more…the time for talk is over, the time for action is now.”

The main criteria for Belonger status in the Turks & Caicos are to have been born in the islands and, at the time of birth, to have had at least one Belonger parent. If born outside the island, then at least one of the parents has to have been born in the islands and at least one has to have Belonger status. Belonger status can also be acquired, subject to certain additional requirements and the approval of the governor, by marriage or by making a significant social or economic contribution to the islands.

But if a pledge to look after Belongers resonated with the electorate, the PNP’s legacy of corruption must also have played its part in the electorate’s defection. Former PNP premier Michael Misick and several other former PNP ministers are on trial for corruption. Misick was chief minister of TCI from 2003-2006 and the country’s first premier from 2006-2009 until allegations of corruption against him and his government led the UK to impose direct rule for three years. He fled to Brazil, where he sought political asylum, but he was arrested in December 2012 and extradited back to the TCI in October 2013. Misick is implicated in the allegedly corrupt sale of Crown land, and his opponents cite his lavish lifestyle after his election in 2003 and his flight to Brazil in 2009 as prima facie evidence of his guilt.

Misick, even though he is currently on trial in the TCI, originally sought to stand in the election as one of the PNP’s “at large” candidates (the Assembly has 10 constituency members, five “at large” members, and four who are appointed – two to represent the governor and one each for the two main parties). After this attempt to stand for the PNP was blocked by the party, Misick then decided to stand as an independent “at large” candidate but the electorate was unimpressed by this and refrained from returning him to parliament.

The new premier will also act as Minister of Finance, Trade, and Investment, and she has appointed a six-member cabinet. However, the party has committed itself to a periodic rotation of ministerial positions.

*** IMF EXPECTS ‘MODERATE GROWTH’ FOR ST LUCIA. An International Monetary Fund (IMF) mission was in St Lucia in the second half of January for Article IV consultations. It reported that despite a weak tourist sector in 2016, unemployment continued to fall on the back of strong growth in agriculture and construction. Overall, growth was just 0.8% in 2016.

Construction and agriculture are expected to continue to perform strongly in 2017, but positive developments in tourism – new hotel capacity and increased direct flights from the US – could be diluted by the impact of the new airport tax.

The IMF is calling for a “multi-year fiscal consolidation plan” in order to contain debt and to reach the targeted debt-to-GDP ratio of 60% by 2030. It is calling for the plan to be included in the FY2017/18 budget. Key provisions should include broadening the tax base, controlling expenditure, and improving financing terms. The IMF views St Lucia’s “very high” taxes and charges on imports as having a negative impact on competitiveness. “Much needed investment in infrastructure, renewable energy, and natural disaster resilience should be financed with concessional lending rather than costly bond issuance.”

Revenues from St Lucia’s Citizenship by Investment (CIB) programme should be “used primarily to reduce debt”, the IMF argues.

*** JAMAICA FOCUSES ON PAYING DOWN DEBT. The Jamaican government has said that it will have met all the quantitative performance indicators set for it by the IMF for 2016 and will be “in a good place” when the IMF conducts its review in February and March.

Separately, on 9 February, Finance Minister Audley Shaw tabled estimates for expenditure for 2017/18. The headline figure is a large increase in allocations for public debt servicing, which has contributed to a 20% increase in the budget from J$592.7bn (US$4.62bn) last year to J$710bn (US$5.53bn). Of this, J$310bn (US$2.42bn) is for interest and amortisation payments.

*** SIMPSON MILLER GIVES LEAVING DATE. The leader of Jamaica’s opposition People’s National Party (PNP), Portia Simpson Miller, has said that she will be relinquishing her role as leader of the opposition on 2 April. Simpson Miller has led the party since replacing PJ Patterson in 2006. She was prime minister twice, first when she inherited the post from PJ Patterson in 2006-2007, and secondly from 2012-2016 after leading the PNP to victory.

*** IMF CONCLUDES ARTICLE IV CONSULTATION WITH SURINAME. In late January, the IMF reported on its December 2016 Article IV consultation with Suriname. The IMF reports a “challenging” economic outlook following an estimated GDP contraction of 9% for 2016, which in turn followed on from a 2.7% contraction in 2015. The Newmont Merian gold mine opened in October 2016, and the recession is expected to ease in 2017.

The budget deficit for 2016 is estimated to have been around 6% of GDP, with the debt-to-GDP ratio rising to 68% of GDP. Inflation is running at 60%. The IMF’s goal is to push Suriname towards a primary fiscal surplus by 2018. In line with this intention, the IMF “welcomed the authorities’ intentions to eliminate energy subsidies in 2017, fully reinstate fuel taxes, and implement VAT in 2018”.

The IMF is also urging Suriname to refrain from large wage increases, and to launch a “broad-based reform of the civil service”.