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Earlier this month a Guatemalan court sentenced former guerrilla, Fermín Felipe Solano Barrillas, to 90 years imprisonment for terrorism and crimes against humanity committed during the country’s 1960-1996 civil war. While a handful of former military officials received sentences for war crimes committed under the previous Alvaro Colom administration (2008-2012), the conviction of a former guerrilla is unprecedented.

The leader of the defunct Organización del Pueblo en Armas (Orpa), one of the four groups comprising the Unidad Revolucionaria Nacional Guatemalteca (URNG) guerrilla group, Solano was arrested in May 2013 for his suspected involvement in the November 1988 massacre of 22 peasant farmers in El Aguacate, in the central department of Chimaltenango.

The United Nations Historical Clarification Commission (CEH), which was established by the 1994 Oslo Accord, found that the guerrillas were responsible for 3% of all human rights violations committed during the civil war, which resulted in over 200,000 people killed or disappeared. In contrast the CEH found that 93% of violations were committed by agents of the State, particularly the army. At the time of Solano’s arrest, some slammed it as an attempt to distract attention from the high-profile trial of former dictator, Efraín Ríos Montt (1982-1983), who in May 2013 received an historic conviction for genocide and crimes against humanity, only for it to be overturned ten days later [RC-13-06].

Yet Solano’s arrest, which followed the filing of a complaint by the prominent human rights NGO Grupo Apoyo Mutuo (GAM), was hailed by leading human rights activists like Helen Mack of the Fundación Myrna Mack. She said it was important in terms of illustrating that “justice is not of the Left or the Right”. At the time then attorney general, Claudia Paz y Paz, also a respected human rights activist, told reporters that it was the “priority” of her office to investigate “all crimes” whether committed by a State official or a guerrilla.

Progress in the fight against malnutrition?

On 14 July Luis Monterroso, the head of the Guatemalan government’s secretariat for food security (Sesan), told reporters that cases of chronic child malnutrition were down by 23.3% so far this year compared with the same period in 2013, with 7,802 children under the age of five reported to have symptoms of chronic malnutrition, down from 10,168 over the same period last year. Monterroso added that while in January 2012- when the Partido Patriota (PP) government led by President Otto Pérez Molina took office- the mortality rate for child malnutrition was 2.2 per 100 children, this dropped to 1.1 by 2013 and that currently the figure is of 0.7.

Upon taking office President Pérez Molina declared that reducing chronic child malnutrition was one of his three main priorities (along with public security and boosting investment and economic competitiveness) and he pledged to cut this by 10% by the end of his term in 2015, through the Plan Hambre Cero (PHC) government initiative. This initiative includes programmes like the ‘1,000 days window of opportunity’, which supports mothers from pregnancy up until their children are two years old, ensuring that they both have access to a healthy diet.

However, doubts persist as to the efficacy of the PHC. A February report by the NGO, Colectivo de Estudios Rurales Ixim (Ceri), noted the poor execution of the PHC’s budget and criticised the lack of transparency surrounding access to Sesan information as well as the poor coordination between different institutions involved in the initiative. According to Ceri’s report, the PHC’s budget last year was Q$3.67m (US$473m) but by December 2013 only 70.63% of it had been executed (compared with 92% in 2012). The Ceri report also underlines that the PHC does not really address the structural causes of the child malnutrition problem, which figures like United Nations Special Rapporteur on the Right to Food Olivier de Schutter, have noted lie in Guatemala’s “intolerable” levels of inequality and unequal distribution of wealth [RC-09-09]. Ceri has reiterated its calls to approve a rural development law, initiative 4084, which it says would guarantee food security and widen access to rural lands, but which has been stuck in congress since 2009.

• FAO report

According to the State of Food Insecurity in the World 2013 report by the United Nations Food and Agriculture Organisation (FAO), Guatemala has the worst rate of food insecurity in Central America, with 30.5% of the population (total 15m) undernourished. This is worse than Nicaragua (21.7%); El Salvador (11.9%); Honduras and Panama (8.7%) and Costa Rica (8.2%).

ARGENTINA | Aerolíneas Argentinas. Argentina’s transport minister, Guillermo Dietrich, said on 22 November that the state-owned national carrier airline Aerolíneas Argentinas was on the verge of bankruptcy. Dietrich’s revelation came after the Aerolíneas workers’ unions called for an indefinite strike starting on 26 November over pay. Speaking at a press conference, Dietrich urged the unions to call off the strike, which follows three 24-hour strikes already held this month, arguing that the firm simply does not have the resources to meet their demands.

“Aerolíneas, a firm that systematically loses money, is technically bankrupt…if it were not partly subsidised by the state…salaries would not get paid,” Dietrich said. He urged the unions to reflect on this and on the fact that a strike would “only cost the firm more money”, while complaining that “it is almost impossible to advance any dialogue with the unions over how to improve productivity at Aerolíneas”. Dietrich’s calls fell on deaf ears. The strike went ahead as planned, with Aerolíneas forced to cancel 371 flights on 26 November, affecting 40,000 passengers.

• Aerolíneas

Argentina’s transport minister, Guillermo Dietrich, said that the current government’s objective is to reduce subsidies gradually and force Aerolíneas to become a competitive firm, noting that in 2016 Aerolíneas received US$380m in subsidies from the state but that this was reduced to US$180m in 2017 and the plan was for this not to exceed US$100m this year. However, Dietrich said that the government had to inject an additional US$32m into Aerolíneas this month to help ease financial pressures, which has taken the total subsidies received by the firm this year to US$197m.

On 30 August, Suriname’s government and the International Monetary Fund (IMF) reached a new staff-level agreement, with both sides saying measures to improve fiscal discipline “are starting to bear fruit”.

The original 36-month extended fund facility (EFF) had been signed in December 2021, and involved an economic stabilisation programme and loan support package worth approximately US$688m. Amid high inflation and a heavy foreign debt burden, implementation has been controversial – austerity measures and reduced petrol subsidies were a factor in major public protests in February this year [SSR-23-03]. However, the authorities now say the situation is improving. If endorsed by the IMF board the staff agreement reached on the EFF’s third review will unlock US$53m in disbursements, bringing the total released so far under the IMF programme to US$212m.

In a press release published on 30 August, IMF team leader Anastasia Guscina said the economy is stabilising, pressures on the exchange rate have eased, and inflation, while still high, is “on a downward path” (in recent years inflation has been in a 50%-60% range). Fiscal and monetary measures are now expected to bring inflation down to around 40% by the end of this year. The government is “on track” to achieve a primary fiscal surplus equivalent to 1.7% of GDP this year. Overall the economy contracted sharply in the years of the coronavirus (Covid-19) pandemic (2020 and 2021) beginning a recovery in 2022. The IMF now says the economy will expand by 2.1% this year and will “converge to 3% over the medium term”.

There are a number of risks to this scenario of modest improvement. The IMF itself recognises a “challenging socio-political environment” and calls for action to shelter poor and vulnerable groups from fiscal austerity and the high cost of living. It also calls for governance and anti-corruption reforms. It recognises the possibility of unfavourable shifts in the terms of trade (key exports include gold, rough wood, rice, and petroleum).

Meanwhile the country is struggling to reschedule foreign debt owed to various creditors, including China. Over a year ago the government of President Chandrikapersad Santokhi sought to reschedule US$545m owed to China, one of the largest creditors, but progress has been slow. In September President Santokhi said he hoped a rescheduling of China-held debt might be completed in November.

Regional context- low growth

Suriname’s economy will be influenced by low growth across the Latin American region. In its latest update published on 5 September the United Nations Economic Commission for Latin America and the Caribbean (Eclac) says the regional growth rate for Latin America and the Caribbean will drop from 1.7% this year to 1.5% in 2024, marked by high financing costs, limited fiscal space, reduced dynamism in job creation, and growing social demands. Growth in the Caribbean (including Suriname but excluding Guyana) is projected to drop from an average of 4.2% this year to 2.8% in 2024. Eclac also notes that the regional is vulnerable to growth-reducing climate change. 

COLOMBIA | Considerando más recortes en las tasas. El 24 de septiembre, el recientemente designado ministro de finanzas de Colombia, Mauricio Cárdenas, dijo antes de su primera reunión de política monetaria el 28 de septiembre que el banco central debía considerar más recortes a su tasa de interés de referencia para frenar los altos niveles de flujo de capital que ingresan a Colombia y que están produciendo la apreciación del peso.

Cárdenas explicó que estaba preocupado con el reciente anuncio hecho por la reserva federal de EU de que se estaba preparando para lanzar una tercera ronda de facilidades cuantitativas (quantitative easing) estimularía el flujo de capital extranjero hacia Colombia en busca de oportunidades financieras. El peso colombiano se ha apreciado un 7,4% contra el dólar de EU desde el inicio del año, la tercera mayor tasa de apreciación en el mundo este año, sobre la base del fuerte desempeño de su economía. Sin embargo, esto afecta a los exportadores y las manufacturas colombianas, quienes se han quejado acerca de los bajos niveles de exportación y los más altos costos internos.

Las últimas cifras difundidas por el departamento de estadísticas de Colombia (Dane) el 20 de septiembre muestran que la economía creció un 4,8% en la primera mitad del año, sobrepasando las expectativas del mercado. De acuerdo con el Dane, el mejor de lo esperado desempeño de la economía estuvo apoyado por el auge del sector de la minería y el petrolero, que continúa atrayendo inversión externa y nacional; y que registró un incremento del 10,8%. En contraste, las cifras del Dane muestran que el sector de manufacturas se contrajo un 0,2% durante el periodo, confirmando los efectos negativos de un peso fuerte. Quizá preocupado con esto, el banco central ha recortado la  tasa de interés de referencia por 50 puntos básicos a 4,75% en los últimos dos meses, alegando que esperaba menores exportaciones este año como resultado de la crisis económica global. Aún así, Cárdenas dijo que el objetivo ahora debería ser reducir la diferencia entre las tasas de interés de Colombia y las tasas internacionales, a fin de contener los grandes montos en el flujo de capital hacia Colombia.

La adopción de una estrategia de ese tipo por parte del banco central de Colombia podría ser rápidamente replicada por el vecino Perú, que también ha visto una fuerte (5%) apreciación del Sol contra el dólar de EU. El banco central de Perú ha reaccionado a esto interviniendo en el mercado de monedas comprando dólares de EU, pero hasta ahora se abstuvo de recortar la tasa de interés de referencia del 4,25%.

CHILE| Central bank approaches IMF. On 12 May, Chile’s central bank (BCCh) announced that it had approached the International Monetary Fund (IMF) for a US$23.8bn credit line. The BCCh explained that this credit line is of a precautionary nature, destined to complement its international reserves and increase immediate access liquidity availability by 60%. This would provide the BCCh with further means to face an eventual worsening of the economic crisis caused by the coronavirus (Covid-19) pandemic. IMF Managing Director Kristalina Georgieva has recommended that the organisation approve this Flexible Credit Line (FCL) arrangement, which it offers only to “countries with very strong policy frameworks and track records of economic performance”. Chile’s Finance Minister Ignacio Briones has clarified that the credit line is a request of the central bank to face external shocks, and not a loan requested by the government to fund public spending. He added that Georgieva’s recommendation is a vote of confidence in the robustness of Chile’s economy. This is the first time that the BCCh has requested this type of credit line from the IMF.    

ARGENTINA| Flight ban worries air travel industry. On 27 April, Argentina’s civil aviation authority (Anac) issued a decree banning domestic and international flights, as well as the sale of commercial airline tickets, until 1 September, part of efforts to limit coronavirus infections. A number of industry associations have called upon the government led by President Alberto Fernández to reconsider this ban. A statement by the international aviation agency (Iata), the Latin American and Caribbean Air Transport Association (Alta) and the Latin American branch of Airports Council International (ACI-LAC) argued that the ban “directly affects the future of the entire commercial aviation chain in Argentina and the region” and would cost the country thousands of jobs. There is particular concern that Argentina’s low-cost airlines, the region’s most successful, will not survive such a measure.

Brazil & Southern Cone: Inflation
Monthly year-on-year figures

CUBA | Cuba claims tourism recovery. On 3 May Cuba’s tourism minister, Juan Carlos García Granda, said that a million tourists had visited Cuba so far this year, exceeding the number registered in the same period last year. Speaking at the 41st Cuban International Tourism Fair (FITCuba 2023) in the capital, Havana, he said that the government had the target of 3.5m foreign tourists visiting in 2023. He also said that Canada was the top source of tourists, accounting for over 50% of arrivals, and tourism from this country had recovered to 80% of levels seen in 2019 prior to the coronavirus (Covid-19) pandemic which struck in 2020 and proved hugely damaging for Cuba’s crucial tourism sector. According to the Cuban government, representatives from over 573 international tour operators, more than 51 hotel chains, and over 50 air lines planned to attend the fair which took place from 1-5 May and was the first in Havana since the pandemic hit in March 2020. A total of 1.614m tourists visited Cuba in 2022, less than the target of 1.7m, which had itself been revised down from 2.5m at the start of the year. Before the pandemic struck, Cuba was receiving between 4m and 5m tourists per year, making tourism one of the mainstays of the economy.

COSTA RICA | Coffee production up. On 12 April Costa Rica’s coffee institute, Instituto del Café de Costa Rica (Icafe), released new figures which show that the 2022-2023 harvest (which ran October 2022 to March 2023) of 1.9m ‘fanegas’ (a standard unit of measure for coffee in Costa Rica where one fanega = 45kg) was up 14.14% on the previous 2021-2022 harvest. According to an Icafe press release, there are over 26,000 coffee producing families in the country. Icafe attributes the result to a combination of “cutting edge technology, application of sustainable agricultural practices and dedication of producers”.

Central America & Caribbean: inflation rate
Percentage variation (year-on-year)

Central America & Caribbean: GDP growth (%)
Quarterly figures are year-on-year growth

The Superintendencia de Administración Tributaria (SAT) said that between January and August, the government collected Q28.294bn (US$3.62bn), which was 17.7% more than the Q24bn (US$3bn) collected in the same period of 2010.

Almost exactly two-thirds (65.6%) of the tax revenues come from the domestic market. The remainder comes from tariffs.

The government’s tax target for 2011 is to generate revenues of Q38.8bn (US$4.96bn). It looks on course to beat that target.

The election: Economic policymaking has barely featured as an issue in the election which culminates in a run-off on 6 November between a former general, Otto Pérez Molina, who lost last time, and Manuel Baldizón, a populist businessman from Petén. Baldizón’s main election pitches are to reintroduce public execution of criminals and to ensure that Guatemala qualifies for the next World Cup in 2014 in Brazil.

Remittances: In the first eight months of 2011 remittances were up by 7% at US$2.934bn.

Inflation: In August monthly inflation was 0.60% bringing the annual rate to 7.63%.

On 7 March Paraguay’s centre for regulation and communications standards (Cerneco) held a conference on prospects for the Paraguayan economy in 2012. The keynote speaker was economist Alberto Acosta Garbarino, who gave a very sobering assessment. According to him, between the severe drought, which has wiped out 50% of Paraguay’s soya production; and the Foot and Mouth Disease (FMD) outbreak, the country is set to lose some US$1.5bn in revenues this year. Garbarino argued that to think that the economy will be able to post 3% GDP growth this year was “utopic”. More worryingly, he said that in his opinion the country was headed for zero growth in 2012 without discarding the possibility of negative growth. In this context, Garbarino said that a fiscal deficit for the year would not be a “bad” thing and he urged the government to increase spending to stimulate growth, lamenting the fact that it appears to be “in denial” about the crisis and has wasted time in implementing countercyclical measures. After the conference, Cerneco said it would seek to create a public-private alliance to promote countercyclical measures in congress in order to avert an economic collapse. Cerneco’s president, Enrique Brendaña, said that the idea is to get in touch with other private sector organisations and set up a task team that could work with the finance ministry or lobby congress to adopt countercyclical measures in this “difficult year”. According to central bank figures, the economy has been slowing down dramatically since 2010, when it posted real annual GDP growth of 15% on the back of a record year for the agricultural sector. In 2011 it slowed to 4.0%.  The central bank’s most recent forecast (December 2011) was for 3.7% real GDP growth in 2012.

It is not everyday that voting on a budget turns so acrimonious that it changes the balance of power in congress. But that is what happened in El Salvador on 8 November. The main opposition Alianza Republicana Nacionalista (Arena) was plunged into disarray after four of its deputies voted in favour of the government’s budget for 2013. The leadership committee promptly expelled the deputies who refused to toe the party line – abstention - with the result that the left-wing Frente Farabundo Martí para la Liberaciόn Nacional (FMLN) is now the largest party in congress.

The 2013 budget proposal of Finance Minister Carlos Cáceres passed with the approval of 55 of the 84 deputies in the legislative assembly. At US$4.51bn it is up nearly 7% on this year. The FMLN won the backing of all of the parties in the assembly except for the 33-strong Arena bloc.

However, four of the Arena deputies broke rank and voted in favour of the budget. This elicited shrill cries of indignation from the Arena party hierarchy which expelled the four rebels - Sigifredo Ochoa Pérez, Santos Adelmo, Jesús Grande and Rigoberto Soto - from the party. The upshot is that Arena now only has 29 deputies while the FMLN becomes the largest single party in the assembly with 31.

The vote of the four rebels was hardly decisive: the budget only required a simple majority of 43 votes, which the FMLN obtained with the backing of the party of Arena dissidents Gran Alianza por la Unidad Nacional (Gana), with 11 seats (see sidebar), and nine others. However, the draconian action by the Arena leadership committee (Coena) could have been designed to deter any further deputies from breaking rank.

The government needs one more Arena deputy to secure a two-thirds majority of 56 in the assembly, which is required for the approval of external financing and loans. Part of the budget proposal Cáceres submitted for approval is an US$80m loan from the World Bank to upgrade the country’s hospitals, and a further loan of US$60m for a family agriculture plan (PAF), which assists thousands of low-income families in El Salvador.

The official Arena line is that the loans are unacceptable because the country cannot afford them. It maintains that the budget itself is not properly financed and would lead to the country becoming over-indebted. Arena deputy Enrique Valdez argued that the 2013 budget was predicated on growth of 2.3% when “everybody knows it will not exceed 1%”. This projected growth, at a time when the global economy is hardly firing on all cylinders, is unquestionably ambitious as it is not far off twice the GDP growth to which the country has been forced to become accustomed in recent years.

Donato Vaquerano, head of Arena’s legislative bloc, said the dissident deputies had “betrayed the party and the country” by selling their consciences (and their votes): Coena alleged that they accepted bribes of US$400,000 each to back the budget. The other Arena deputies formed a human cordon around the four rebels in the legislative assembly, booing.

President Mauricio Funes denied that his government had sought to divide Arena, still less offered any kind of inducement to the four deputies to vote in favour of the budget. Funes did admit, however, that he had met the Arena leadership and Arena deputies along with various other members of his government to discuss the budget.

Funes maintained in an interview on 20 November with the national daily La Prensa Gráfica that the four Arena deputies had simply been demonstrating “the true exercise of democracy” and that if a handful of Republicans in the US Congress had opted to vote with the Democrats on an issue it would not immediately be assumed that they must have accepted a bung. Funes added that article 125 of the constitution made it clear that deputies voted in accordance with their consciences and in the interests of members of the public who had voted for them in national elections, and were not obliged to adhere to a party line.

In practice, however, it is not nearly as simple as that. For one thing, failure to toe the party line invariably spells the end of a deputy’s political career within that party, as the leadership committee can choose where to position candidates on party lists, although this practice has been reformed by the crusading constitutional chamber of El Salvador’s supreme court. It is also worth noting that, back in January 2005, the FMLN party leadership expelled two of its deputies who voted to approve the budget presented by then-president Tony Saca of Arena.

FMLN opts for unity ticket

The FMLN has overridden internal party differences and chosen the best possible candidate to complete its presidential ticket, in the eyes of the general public, ahead of elections in 2014. Oscar Ortiz, the moderate mayor of Santa Tecla, was chosen by an FMLN national party convention on 11 November to run as vice-president on the same ticket as Salvador Sánchez Cerén, the incumbent Vice-President.

    Irreconcilable differences between the orthodox wing of the FMLN, which controls the party hierarchy, and the more moderate, reformist, wing of the party, led by Ortiz, have prevailed since 2003. Ortiz was ostracised by the party orthodoxy after he had the temerity to challenge the veteran (now-deceased) former guerrilla Schafik Hándal for the party’s presidential candidacy that year.

    Sánchez Cerén, another veteran guerrilla, is far more pragmatic than Hándal. He tweeted that after “profound reflection” he had reached the conclusion that Ortiz was the most suitable candidate to be his running mate. His decision will have been influenced, to a large degree, by Ortiz’s popularity - he is one of the most popular politicians in the country – and his own lack of popularity.

   Recent polls by Mitofsky and LPG-Datos, published in September, showed Sánchez Cerén trailing the Arena candidate, Norman Quijano, the popular mayor of San Salvador, by more than 20 percentage points, a formidable early lead. This tallies with the results of an internal poll organised by the government’s secretary for strategic affairs, Hato Hasbún, which was carried out in late August but not made public. Hasbún told the FMLN party leadership that house-to-house surveys had demonstrated that Quijano was amassing a huge lead over Sánchez Cerén.

    Sánchez Cerén’s best chance of reversing this is by attracting floating voters -and this is where Ortiz fits in. Renowned for being conciliatory and pro-business, Ortiz, like Funes, has an ability to reach beyond the fault lines of El Salvador’s polarised political landscape. Sánchez Cerén himself is talking a good game. He says the FMLN must demonstrate that it is “the new Left: a pluralist and tolerant party”. The public will be far less sceptical of his intentions with Ortiz by his side.

    The big question, however, is why Ortiz consented to buttress Sánchez Cerén’s wobbly candidacy. What is he getting out of it? He denies attaching any pre-conditions to his acceptance of the post but he must at least have sought reassurances that he would be more than the traditionally powerless figurehead as Vice-President. Senior figures in the FMLN have hinted that he could be given a new brief as cabinet chief and play a pivotal role in the design of the party’s plan of governance.

• Arena’s travails

The departure of the four Arena rebels is the second significant split in the right-wing opposition party since it lost its long stranglehold on power in 2009. Within months of losing presidential power, a group of 11 dissidents left Arena and formed Gran Alianza Nacional (Gana), which has been prepared to work with the Funes administration and approve a series of legislative initiatives opposed by Arena.

• Funes in Spain

President Funes echoed the voices of many of his Latin American counterparts during the XXII Ibero-American summit, held in Spain’s south-western port city of Cádiz in mid November. Funes said that “the old recipes of adjustment have only brought recession and those countries that have applied these mistaken policies have gone backwards”. He thanked the Spanish government, however, for its support of his government’s programmes to prevent youth violence.

Latin America suffers from a significant skills gap which experts say is only getting worse as regional economies undergo digital transformation. Education and training systems are absolutely essential in matching workers with jobs, but studies show that the current approach is not working.

The significance of education and training in labour market and macroeconomic performance should not be underestimated. Data show that the number of years spent in education is responsible for 28% of the GDP per capita gap between LAC countries and OECD countries. If we consider the quality of human capital available, education is responsible for 60% of this difference. As productive sectors evolve as part of the fourth industrial revolution, the labour market needs capable workers with up to date skills to ensure that LAC countries can move towards a knowledge- and innovation-based economy.

Latin America (18 countries): young people aged 20–24 years with complete secondary education, and young people aged 25–29 with complete tertiary education (four years of study), by income quintile, 2002–2016^a (Percentages)

At first glance, certain education statistics are improving. LAC countries’ investment in education systems grew from an average of 3.6% of GDP in 1995 to 5.3% in 2013; student-teacher ratios for the region decreased from 24.4 to 17.3 from 2000-2014, suggesting that class sizes are decreasing; and the Programme for International Student Assessment (Pisa) education study reveals that there were 20 times more computers available to students in 2015 compared with 2000, implying improvements in school infrastructure. However, experts say that the efficiency and equity of expenditures is low compared with other regions, and more spending is necessary.

The 2015 results from the tri-yearly OECD Programme for International Student Assessment (Pisa) show that educational coverage and attainment improved for the 10 LAC countries involved in the study. The percentage of adolescents aged 15-19 who finished primary school increased from 86.9% to 92.4% from 2000-2015. Attainment for maths, reading, and science also increased almost 10%, 6%, and 5% respectively, with Brazil, Chile, Colombia, Mexico, and Peru receiving special mention for improvements. However, LAC countries scored poorly for social and problem-solving skills.

In addition, the results show that LAC countries spend far more on teachers and human resources than other regions, which suggests that stronger labour unions funnel resources to teaching staff. Experts suggest that this could leave less money for pedagogical inputs and ancillary services. Attempts to reform the education systems in Peru and Mexico have fallen foul of teaching unions, whose members oppose the introduction of teacher assessments designed to improve the quality of teaching.

However, education reform needs to address the allocation of funding as well as professionalising teaching. Many public universities do not charge fees, which Jacqueline Mazza believes is a key reform area in Latin America. Mazza uses Chile as an example of a country that has achieved economic growth with a strong social policy, including pensions and a sound attempt to elevate the lower- and middle-income sections of society. One area that has proved a stumbling block is education, where proposals to charge university fees have led to huge protests.

“Subsidies in education in Latin America are highly skewed to the top, that is university education being free and leaving less subsidy for primary and secondary,” said Mazza. And graduates are not meeting the demands of the labour market either, despite drawing government funding away from primary and secondary education, from which more people would benefit. “Latin America produces, for the money it invests in higher education, few engineers and IT professionals,” said Mazza. “The innovation sector is not fed by the university system.” Access to courses related to science, engineering, and robotics must increase to drive innovation, say experts, with further investment. For example, Colombia’s former finance minister Mauricio Cárdenas said that the country spends 10% of oil royalties on science and technology.

As things stand, 38%-40% of employers say they can’t find talent to fill job vacancies, according to ILO human resources specialist Fernando Vargas. Firms need people with language, technological, and social skills, which are in high-demand as the fourth industrial revolution continues, but they struggle to find them. “Our education has not changed,” said Vargas during an ILO regional meeting in October 2018. “We have education systems from the 19^th and 20^th century [which do] not teach people to solve problems.”

If education systems struggle to meet the demands of the labour market, perhaps training schemes can be used to reduce skills gaps. According to a 2017 ILO report called ‘The Future of Professional Training in Latin America and the Caribbean’, LAC countries have long boasted specialised public training institutes, and there are increasing numbers of private alternatives as well as in-firm training schemes. However, Mazza says that the quality of training is poor and does not respond to the demands of the labour market. “They are training systems based, if we are lucky, in the 1950s,” she said. “Beauticians, carpenters, I mean it’s a really odd disconnect between what the economy needs and what the training systems and technical institutes train.”

These skills gaps show a serious mis-adjustment of supply and demand in the labour market given high levels of un- and under-employment among young people, suggesting that training systems need to be more dynamic in order to adjust to the changing conditions of the digital transformation. One solution could be the introduction of workforce development programmes, which combine education and training throughout a worker’s career. “Right now in Latin America if you drop out of school it’s hard to go back,” said Mazza. “What needs to change is the availability of training over the course of a lifetime.” Such schemes would also help the one in five 14-25-year-olds who are looking for work but failing to find it, with little change in those numbers in recent years.

The increased use of public-private partnerships could be one way of boosting dynamism in education and training, as well as targeting young people who are neither studying nor working (known as Ninis in the Spanish acronym). Mexico’s aforementioned ‘Jóvenes Construyendo el Futuro’ programme is one example, which will provide grants to companies to pay apprentices. This kind of dual learning model has been used effectively in other countries, encouraging unemployed people back to school or providing training opportunities that boost their chances of finding formal employment. Costa Rica, which has the highest rate of youth unemployment in Central America (27%) according to the Central American Observatory of Social Development, is also discussing a law that would enable dual learning programmes, while at the end of January 2019, Guatemala passed the ‘Law for Strengthening Entrepreneurship’, which will introduce business classes in primary and secondary education as well as creating a new legal entity for entrepreneurs.

Moving forward, LAC countries require serious reforms to improve education coverage, quality, and equity. The region lags behind developing regions such as South East Asia and Eastern Europe in terms of quality, said Alejandro Werner, Americas director at the International Monetary Fund (IMF), and the labour force must be better trained and more agile to deal with digital transformation.

And it’s not just enough to encourage people to spend more years at school in order to increase the earnings of lower income sectors. Research published by the World Bank shows that a significant increase in total years of education from 2004-2014 resulted in unequal income gains between the top 60% of earners and the bottom 40%. Those who were already earning higher wages saw greater income gains, providing further proof of the complexity of labour market policy. Latin America needs to join the global conversation on technological adoption, updating labour regulations in a changing world of work, and how to better connect education and business if it is to be competitive in global markets.

Case study: teachers protest reforms

Attempts at education reform in Peru have pitted reformers against teachers and their unions, as well as resulting in the politicisation of an issue of national interest.

The drive to reform was started by Jaime Saavedra, who first served as education minister under President Ollanta Humala (2011-2016). Saavedra’s main aim was to make Peruvian education more meritocratic, planning to introduce performance-based pay for teachers, improve education quality, modernise management systems, and close the educational infrastructure deficit.

By 2015, Peru was improving in the OECD’s educational rankings based on assessments for 15-year-olds, and was the fourth-best improver in the Pisa tests from 2012-2015. Saavedra succeeded in convincing government, business, and the media that education reform should be a priority, and at first his plans were well-received. However, moves to regulate private universities in 2014 provoked opposition from political rivals, some of whom profited from the business of education. The highly-regarded Saavedra had been kept on as education minister by President Pedro Pablo Kuczynski (2016-2018), who declared education a national priority, but amid political wrangling he was ousted in 2016.

Saavedra’s successor, Marilu Martens, took over in December that year and continued with plans to boost the monthly minimum wage for teachers by around 30%, the first meaningful pay increase for a decade. The pay hike was part of a larger package of measures that would see education spending jump from 3.7% of GDP in 2017 to 6% by the end of 2021, but trouble was brewing over performance evaluations for teachers. Those who failed could lose their jobs, which provoked opposition from the teachers’ union Sindicato Único de Trabajadores de la Educación del Perú (Sutep) and ultimately resulted in a 15 June 2017 strike that lasted for three months.

The dispute was eventually resolved after the teachers’ pay rise was brought forward and the government promised to provide teacher training. Martens struggled to negotiate a deal due to the splintering of Sutep into regional factions, and by September 2017 she was ousted after education was once again used as a political football. The weakness of both the education ministry and the central Sutep union has raised fears of further strikes.

While Peru has made some progress in improving results, huge problems remain. Average scores may be going up, but there are huge inequalities between urban and rural education, according to Ricardo Cuenca from Peruvian think-tank Instituto de Estudios Peruanos (IEP). Another issue is public perception of teaching, said Cuenca, who believes that the profession is associated with low salaries and low prestige.

Fixing these issues requires bold initiatives like those introduced by Saavedra, but a weakened education ministry doesn’t have the political capital to force through controversial regulations. The main Sutep union remains weak, and more radical factions called a strike on 3 July 2018. However it was called off after two weeks as the vast majority of teachers ignored calls to walk out of classrooms, illustrating continued divisions in the union movement that will make it hard to negotiate future deals.

Education reform showed early promise before politics derailed its good intentions. Political instability in recent years has not helped to create favourable conditions for reform, but some argue that Saavedra attempted to change too much, too quickly by going after private universities. In doing so he managed to politicise the issue and the ousting of Saavedra and Martens left the education ministry weakened.

Peru is not the only country to struggle with professionalising teaching. The introduction of performance assessments was also met with strident opposition in Mexico, where they form part of the 2012-2013 education reform introduced by former President Enrique Peña Nieto. Convincing entrenched vested interests to allow change has never been easy, and both episodes underline the difficulties of pushing through sweeping reforms in the Latin American context.

Trinidad and Tobago has brokered a major liquid natural gas (LNG) deal with two long-standing regional rivals, Venezuela and the US, which will also benefit Jamaica and the Dominican Republic.

After a round of regional diplomatic talks, including interventions by US Vice President Kamala Harris, Trinidad and Tobago Prime Minister Keith Rowley announced the deal on 24 January. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) which enforces economic sanctions against Venezuela, has issued a licence allowing Trinidad to do business with Venezuela’s state oil company Petróleos de Venezuela (PDVSA), to develop the Dragon gas field. Dragon is in Venezuelan waters, but there is a long-standing proposal that its natural gas should be pumped by pipeline to Trinidad’s oil and gas hub, where it will be liquefied and exported in liquefied natural gas (LNG) form to the world market. Rowley said that under the deal Trinidad would gain access to 350m cubic feet of gas per day (cfd). 

Various conditions are attached to the new, two-year Dragon development licence. One is that part of the eventual LNG output should go to Jamaica, the Dominican Republic, and potentially other Caribbean states, to improve their energy security. Another is that PDVSA should receive no cash payments from the deal. That would normally be a complete deal-breaker, but the proposal is that Trinidad could pay Venezuela in kind, with humanitarian aid supplies such as food and medicine. It could therefore fit with recent talks between the Venezuelan government and the opposition, which have floated the idea of a United Nations (UN)-supported programme to use US$3bn of disputed overseas Venezuelan assets to meet humanitarian needs. Rowley commented: “We have done that before. So we buy the gas and we pay for it in a variety of ways.”

PDVSA owns and operates the Dragon project, which has been inactive over the last decade, largely because of a lack of investment funds. An earlier development proposal envisaged that investment of US$1bn-plus would be needed to get the gas flowing.  Oil company Shell is the operator of the neighbouring Hibiscus field in Trinidadian waters, and Rowley said he hoped Shell would become the operator of Dragon. Oil industry analysts say financially troubled PDVSA is unlikely to be able to raise the capital needed. Francisco Monaldi, a Latin American energy specialist at the Baker Institute for Public Policy, says Trinidad and Venezuela would have to reach agreement on how to compensate PDVSA for past exploration and infrastructure spending

Analysts have also pointed out that increasing gas supplies into the Caribbean would improve the region’s energy security as well as assisting the transition to cleaner and renewable energy sources. Trinidad would make significant gains. It is Latin America’s largest LNG exporter but is operating at below full capacity. The country can process 4.2bn cfd into LNG, petrochemicals, and power, but its current gas production is only 3bn cfd. There is therefore significant room for expansion. If the Dragon project meets the politically diverse objectives of the US, Venezuela, and Trinidad, it might be possible to extend it to another Venezuela-owned project, the Loran-Manatee gas field. A downside however is that developing these fields is a multi-year, billion dollars plus commitment, with investors sensitive to ongoing political risks.   

US-Caribbean Partnership

A 24 January press release by the US embassy in Trinidad highlighted that OFAC’s action is in line with efforts to strengthen the energy security and climate resilience of the Caribbean, pointing out that at the US-hosted Summit of the Americas in June 2022, Harris launched the US-Caribbean Partnership to Address the Climate Crisis 2030 to “support the region’s long-term energy security and climate resilience priorities”.

In May Costa Rica’s right-of-centre Partido Progreso Social Democrático (PPSD) government led by President Rodrigo Chaves announced that it had issued its first licence for medical cannabis to a local firm, Azul Wellness. The announcement comes just over a year after Costa Rica legalised the drug for medicinal purposes and for the production of hemp [SSR-22-04], becoming the second country in Central America to do so after Panama in October 2021, although cannabis cultivation and sale for recreational purposes still remains prohibited.

On 15 May Costa Rica’s minister for agriculture & livestock (MAG), Víctor Carvajal, issued the licence for Azul Wellness, whose president is José Álvaro Jenkins, head of Costa Rica’s private sector lobby Unión Costarricense de Cámaras y Asociaciones del sector Empresarial Privado (UCCAEP), and which has partnered with US private equity firm Merida Capital Holdings, to develop its first project in an area of 800m² in Filadelfia town, Guanacaste province. As of 15 May, MAG had authorised nine permits, eight for the cultivation and processing of hemp and another for psychoactive or medicinal cannabis. MAG is currently evaluating another licence for medical cannabis and two more requests for authorisation of planting and processing of hemp.

The law permitting cannabis for medical and therapeutic use and of hemp for industrial and food-related aims was promulgated in March 2022 by Chaves’ predecessor Carlos Alvarado (2018-2022), of the centre-left Partido Acción Ciudadana (PAC). In September 2022, President Chaves signed the final regulations which allow authorities to issue licences for the production and industrialisation of cannabis for medical and therapeutic purposes, among other things. The government is spinning the new regulations as part of efforts to promote social and economic development – echoing the line of Zoila Rosa Volio, an agronomist and former legislator (2018-2022), who had spearheaded efforts to legalise cannabis for medicinal purposes and hemp. Volio had argued that cultivation of hemp in particular would help reactivate the productive sector which, like other sectors, was affected by the coronavirus (Covid-19) pandemic.

Cannabis plants destroyed

According to the most recent (March 2023) annual International Narcotics Control Strategy Report (INCSR) by the US State Department, Costa Rican authorities reported destroying over 499,960 cannabis plants from October 2021– August 2022, a 20% increase over the previous year.

New law against organised crime

On 29 May Costa Rica’s 57-member unicameral legislature approved a new legislative bill against organised crime which was promulged the next day by President Chaves. The initiative is part of efforts by the Chaves government to tackle rising crime and homicides after the country registered record homicides last year. With little sign that crime rates are dropping, the president also recently dispensed with his security minister, Jorge Torres, replacing him with Mario Zamora, a former security minister under former president Laura Chinchilla (Partido Liberación Nacional, 2010-2014) [SSR-23-06]

While the PPSD has just ten legislative seats, the bill received strong cross-party support, being approved in the second debate with 47 votes in favour and just two against. It amends two pieces of legislation: the organic law of the judiciary and the law on specialised jurisdiction on crime. It seeks to improve the redaction of existing rules regarding the distribution of competencies in issues of organised crime, clarifying which cases should be dealt with under ordinary jurisdiction and which fall under the special jurisdiction dealing with organised crime. Other changes include a provision doubling the amount of time that those accused of organised crime can be held on a preventative basis, to 24 months, as well as stipulating that cases involving organised crime are public acts and cannot be dealt with as private prosecutions – thereby ensuring that the responsibility of prosecuting organised crime remains with the state.

Un debate político es algo raro en Venezuela, aún más cuando se enfrentan los jinetes del Apocalipsis uno contra otro. Pero eso es lo que ha ocurrido el 14 de noviembre cuando los cinco precandidatos presidenciales por la opositora Mesa de la Unidad Democrática (MUD) aceptaron una invitación de un movimiento de estudiantes para tomar parte en un debate antes de las elecciones primarias en febrero, por el derecho a enfrentar al Presidente Hugo Chávez en octubre próximo. El mismo Chávez no tiene intención de participar en un debate con cualquiera de los cinco precandidatos de la oposición, a los que Chávez ha comparado con los jinetes del Libro de las Revelaciones, que emerja victorioso en la contienda de la MUD el año próximo.

Los cinco precandidatos que compiten por la candidatura de la MUD celebraron un debate televisado en la Universidad Católica Andrés Bello (Ucab) en Caracas. En su mayor parte, ellos buscaron minimizar las referencias a Chávez por su nombre, y se concentraron en sus planes para Venezuela, y lo que simplemente no pudo ser ignorado fue, sin embargo, subrayado por el hecho que la precandidata considerada que se ha desempeñado mejor, María Corina Machado, tuvo pocos reparos para atacarlo a él; el actual favorito en las encuestas, el gobernador del Estado Miranda, Henrique Capriles Radonski, que fue mucho más inhibido, y en dificultades para evitar mencionar a Chávez, resultó menos inspirado e incluso un poco insípido. No fue una sorpresa que Capriles fuera más cuidadoso –él está tratando de atraer a los chavistas disidentes también– mientras que Machado, quien está bastante a la deriva en las encuestas y carece del respaldo de un partido opositor dominante, tiene mucho menos que perder y necesita ser más distintiva.

Los debates nunca fueron realmente parte de la cultura política venezolana, aún menos desde 1998 cuando un casi desconocido Chávez fue involucrado en un debate pre-electoral. Por tanto, el debate fue un nuevo desafío para los cinco precandidatos que enfrentaron preguntas de los estudiantes por más de una hora sobre temas que iban desde la educación, el sistema económico y el empleo, hasta el tráfico de drogas y la seguridad pública.

Fue llamativo que mientras todos los precandidatos sugirieron que el delito violento y la impunidad era uno de los grandes problemas que afronta Venezuela, ninguno de ellos abogaron por un enfoque de mano dura empleado por Centroamérica. Capriles dijo que él frenaría la inseguridad pública a través de la creación de empleos y de trabajar muy de cerca con los gobernadores y alcaldes de todas las banderas pues este “no es un problema político” –una crítica implícita a la administración Chávez por no trabajar con la oposición sobre ese tema. Machado, cuyo autobús de campaña fue tiroteado por un par en una motocicleta en Caracas el 12 de noviembre, dijo que ese era un problema sistémico que requiere la transformación de la policía, mejor educación y empleos. Pablo Pérez, el gobernador de Zulia, dijo que él ofrecerá empleos seguros y “una educación no politizada”. El ex alcalde Leopoldo López prometió “empleos, educación y deportes”.

• La Haya

Diego Arria, un ex embajador ante la ONU, que tiene la menor chance de ganar la candidatura de la MUD, fue, sin causar sorpresa, el más abierto y franco. “El final para todos aquellos que abusan de su pueblo, es una ciudad llamada La Haya, donde está basada la Corte Internacional de Justicia,” dijo. “Eso no es retaliación, no es venganza, eso es justicia.” Concluyó su discurso de cierre en el debate, diciendo que él presentaría un juicio contra el Presidente Chávez por abusos contra los derechos humanos el 21 de noviembre.

Argentina, where mining exports have increased more than sevenfold since 1993, has had mining-related unrest in seven provinces strung along the country’s western Andean ‘spine’, and two more in downstream river basins. The most outstanding are:

■ Bajo La Alumbrera - an open-cast copper and gold mine located in Catamarca and operated by Minera Alumbrera, half-owned by Xstrata, by agreement with Yacimientos Mineros de Agua de Dionisio (YMAD), a company owned by the government of Catamarca and the Universidad Nacional de Tucumán. It began operations in 1997. It has been accused of polluting the environment in Catamarca and contaminating the basin of the Salí-Dulce River, which runs through Tucumán and Santiago del Estero. A court-ordered environmental audit in 2007 found no evidence of contaminants in above-normal concentrations. Last February a federal court ordered a reassessment; the national government has been pressing Minera Alumbrera to invest more in the country.

In its most recent phase, which began last February, the protest against Bajo La Alumbrera involved successive ‘selective’ roadblocks in Catamarca and Tucumán, which were forcibly removed by police. The aim of the protesters has been to disrupt the flow of supplies to the mine.

■ Famatina is a gold exploration project in La Rioja, run by Osisko Mining Corporation under an agreement with ESME, the provincial state mining company. It has been strongly opposed by residents (and supporters across the country) since last August, on fears of widespread contamination by the planned open-cast mine. Protests were called off in late January when Osisko said it was suspending work and stated that it would not be resumed without a social licence.

■ San Jorge, a project for an open-cast copper and gold mining conducted by Coro Mining in Uspallata, Mendoza, began to attract protests in 2009. The provincial legislature refused to ratify a favourable environmental impact assessment in late 2011. It subsequently approved legislation establishing protected areas in the mountainous western reaches of three departments, where ‘mega-mines’ are banned.

■ Salinas Grandes-Guayatayoc is a lithium prospecting by 12 companies in the salt flats straddling the provinces of Salta and Jujuy that has moved 33 indigenous communities to appeal to the federal supreme court for an order of consultation and participation, in furtherance of an injunction request filed in November 2010. The court began to hear the case in late March.

■ Campana Mahuida is an open-cast copper mining project in Loncopué, Neuquén; it has been resisted by locals, including Mapuche communities, since the late 1990s. Resorting to the courts, they first blocked a project by Golden Peaks, then one by Emprendimientos Mineros, an affiliate of the Chinese firm Metallurgic Construction Corporation in association with the provincial state mining firm Cormine. The protesters finally succeeded in getting supreme court approval for a binding referendum that in early June 2012 voted against ‘mega-mines’ in the area.

■ Pascua Lama & El Pachón is a bi-national Argentine-Chilean polymetallic mining projects in the high Andes, both located in San Juan on the Argentine side. Challenges to the project are now before Argentina’s supreme court (see pages 15-16 for details).

Copper strikes: On 9 April Chile’s Federación de Trabajadores del Cobre (FTC), which groups 22 unions at the state copper company Codelco, made good on its threat to stage a 24-hour nationwide strike [RBS-13-03]. This was the second national strike by the FTC since Piñera took office and the second Chile’s return to democracy in 1990. The FTC objects to Codelco’s use of temporary contractors, accuses the management of seeking to privatise health and pensions services and is also critical of the company’s failure to develop the potential of its mines.

The FTC’s president, Raimundo Espinoza, said that 100% of Codelco’s eight divisions were paralysed on 9 April, with preliminary estimates putting losses at US$35m. This is less than the US$41m registered when the FTC held its last strike in July 2011. One positive for the Piñera government was the failure of the Federación Minera de Chile (FMC), which represents workers at private mining companies, to join the strike, despite initial suggestions that it would. While there were some shows of support and solidarity by private sector mining workers, Mining Minister Hernán De Solminihac told reporters that there was no “active participation” by FMC members. Espinoza has since said that he met President Piñera, who made a “serious commitment” to set up a dialogue table with the unions to discuss their demands. Subsequent strikes took place on 23 April by contract workers employed by Codelco at El Salvador, Gaby, Ministro Hales, Andina and El Teniente mines. This protest came ahead of a review of a six year accord on labour rights and salaries, suggesting that labour issues in the mining sector are set to roll on.

More worrying for Piñera has been the fluctuation in copper prices. On 23 April, in an interview with a local radio station, Radio Duna, he expressed concern about the fall in copper prices, after they closed that day at US$3.08 a pound, the lowest level since October 2011. The drop in prices is attributed to concerns about slowing growth in China. China’s industrial output slowed to 7.7% in the first quarter of 2013, on official figures, down from 7.9% in the final quarter of 2012. According to Chile’s copper mining commission, Cochilco, the country’s copper exports were worth US$29.5m in 2012, accounting for 52% of Chile’s total exports, down from 54% in 2011 and 56% in 2010.

ARGENTINA | Desciende en picada la libertad económica. El 13 de enero la Heritage Foundation y el Wall Street Journal difundieron la última versión de su anual Índice de Libertad Económica, que ubica a Argentina en el lugar 166^to entre 178 países, en el último grupo de países del ranking por primera vez. El informe del Índice fue mordaz sobre el desempeño de Argentina en su ranking, señalando que su puntuación general cayó 2,1 puntos a 44,6, lo que significa que ahora se une a otras naciones, tales como Cuba y Corea del Norte, que son consideradas como económicamente ‘reprimidas’.

Sin embargo, el Índice señala que no hace mucho tiempo, Argentina solía estar entre los países considerados ‘mayormente libres’. “Durante 20 años de historia del Índice, la libertad económica de Argentina se ha desplomado al estatus de ‘reprimida’. Con su puntuación general cayendo 23,4 puntos, la economía alguna vez considerada ‘mayormente libre’ ha registrado la segunda caída más severa de puntaje desde que el Índice comenzó la medición de la libertad económica”. Aludiendo al hecho que la caída parece haber tenido lugar constantemente bajo los sucesivos gobiernos Kirchneristas del fallecido Néstor Kirchner (2003-2007) y de su viuda y sucesora, la Presidenta Cristina Fernández, el informe señala que ha habido una sustancial interferencia del Estado en la economía desde el 2003, hasta el punto de que “Ocho de las 10 libertades económicas se han deteriorado debido a políticas que incluyen duros controles de capital, fijación de precios, restricciones a las importaciones, y una serie de nacionalizaciones”.

Las críticas al legado económico Kirchnerista llegan en momentos en que el récord económico del gobierno de nuevo está bajo severo escrutinio en el país y en el exterior, a medida que las preocupaciones acerca de la economía interna de Argentina después de los recientes disturbios sociales que brotaron como resultado de la creciente inflación real en el país a pesar de la terca insistencia del gobierno de que la tasa oficial de la inflación está en alrededor del 10%. En estas circunstancias, no es una sorpresa que un leal Kirchnerista, tal como lo es el ministro de defensa, Agustín Rossi, se haya sentido obligado a salir en defensa de la política económica Kirchnerista. En una entrevista con la agencia de noticias del Estado, Télam, Rossi fustigó al Índice, al que acusó de estar sesgado y de intentar forzar a Argentina a adopte políticas económicas neoliberales. Rossi dijo que él estaba “pasmado por la virulencia de las críticas que varios mensajeros del orden financiero internacional [sic] están haciendo […] con la clara intención de algunos sectores económicos […] de reincorporar los modelos económicos del Consenso Washington en Argentina”.

Rossi señaló que en el 2002, cuando Argentina estaba ubicada en el 38^vo lugar en el Índice, su tasa de desempleo era del 24%, y su tasa de pobreza del 57% y que la caída en el ranking “no tiene sentido” dado que ahora el desempleo es del 7% y la tasa de pobreza es “de un solo dígito”. Sin embargo, recientemente, los medios locales han empezado a cuestionar las cifras del gobierno sobre la pobreza, preguntando si es posible tener tasa de pobreza tan baja (6,5%), cuando la tasa de inflación real de dos dígitos está socavando el poder de compra de la población.

PARAGUAY-BRASIL | Acuerdo bilateral de cooperación científica. El 13 de enero los gobiernos de Paraguay y Brasil firmaron un nuevo acuerdo bilateral de cooperación en ciencia y tecnología, que esperan que ayude a promover la inversión bilateral. El acuerdo fue firmado en Asunción por el ministro de industria & comercio de Paraguay, Gustavo Leite, y su contraparte de Brasil, Fernando Pimentel. Leite explicó que la idea es que el acuerdo ayude a promover las existentes cadenas de producción en Paraguay establecidas por empresarios brasileros en diversos sectores tales como calzados, vestimentas, y partes de automóviles, que de acuerdo, con Leite exportan más de US$200m al año de vuelta a Brasil. Además, Leite dijo que los dos ministerios también acordaron trabajar juntos para asegurar líneas especiales de crédito del banco nacional de desarrollo de Brasil (Bndes), exclusivamente para firmas brasileras interesadas en invertir en Paraguay. Por su lado, Pimentel dijo que el acuerdo también ayudaría a impulsar el intercambio de tecnología en áreas tales como combustibles, alimentos y salud.

Incidentemente representantes del ministerio de agricultura de Brasil que acompañaron a Pimentel a Asunción, dijeron que ellos habían mantenido una reunión con el ministro de agricultura de Paraguay, Jorge Gattini, para discutir la posibilidad de establecer alianzas público-privadas para promover conjuntamente la adopción de la última tecnología en semillas para la producción en Paraguay. Según Helcio Campos Botelho, el director de propiedad intelectual y tecnología agrícola en el ministerio de agricultura de Brasil, el objetivo es “fortalecer las relaciones de los ministerios de agricultura en nuestros países a fin de promover el desarrollo rural y el uso racional del suelo”, señalando que el Paraguay tiene grandes áreas de suelo agrícola de alta calidad. Por cierto, ese mismo día el ministerio de comercio & industria de Paraguay reveló que las exportaciones agrícolas del país en el 2013, fueron de 10,83m de toneladas, 34% más que en el 2012, impulsadas por el incremento en las exportaciones de productos vegetales procesados, semillas, y frutas.

• Chile: siguen creciendo las exportaciones de frutas

El 14 de enero ministerio de agricultura de Chile reveló que las exportaciones de frutas del país habían experimentado un significativo incremento tanto en términos de valor como de  volumen en el 2013. De acuerdo con el ministerio, el resultado es de alguna manera sorprendente dado que los productores enfrentaron condiciones climatológicas adversas al inicio del año pasado, cuando Chile fue afectado por una prolongada sequía. Sin embargo, de acuerdo con cifras oficiales, las exportaciones de frutas del año pasado totalizaron 2,7m de toneladas, 5,4% más que en el año anterior. Estas exportaciones, a su vez, fueron valuadas en US$4,41mm, o 5,4% más que en el 2012. Comentando el resultado positivo, el ministro de agricultura, Luis Mayol, destacó que esto fue logrado pese al hecho de que los productores también enfrentaron otros factores adversos tales como “un bajo nivel de la tasa de cambio, y los altos costos de la energía”.

PARAGUAY | Tourism industry on recovery track. On 23 July, Paraguay’s tourism ministry (Senatur) released new figures which show that international tourism to the country increased by 102% in the first half of 2023 as compared to the same period of 2022. According to Senatur, 416,576 international tourists visited Paraguay in the first six months of the year, compared to 205,898 in the same months of 2022. January 2023 was a particularly successful month, with 105,609 tourists visiting. Visitors from neighbouring Argentina made up 77.72% of tourists (323,781) in Paraguay in the first half of 2023, followed by visitors from fellow bordering country Brazil (35,220), the US (8,032), and Germany (5,280). Senatur stated that these results confirmed the upwards trend recorded in 2022, “consolidating the recovery of Paraguay’s tourism sector” following the coronavirus (Covid-19) pandemic and representing “a great opportunity” for the country both culturally and economically.

BRAZIL | Central bank cuts interest rates after months of pressure. The monetary policy committee (Copom) at Brazil’s central bank (BCB) on 2 August lowered the Selic benchmark interest rate by 50 basis points to 13.25%. This is the first cut in interest rates in Brazil in three years, after the BCB embarked on one of the steepest processes of monetary tightening in the world during the coronavirus (Covid-19) pandemic when it started hiking rates from an all-time low of 2%, keeping them at 13.75% since last August. The bank’s committee was split on whether to cut the Selic by 0.25 or 0.5 percentage points, with the more aggressive cut winning out amid signs of a slowdown in inflation and some negative economic indicators. The Luiz Inácio Lula da Silva government has repeatedly criticised the central bank and BCB president Roberto Campos Neto for maintaining a hawkish monetary policy to the detriment of the economy. The Selic is expected to be cut further before year’s end, although the Copom indicated in a statement that it would err on the side of caution. 

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

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

*** INGLORIOUS END TO DENZIL DOUGLAS. The now ousted prime minister of St Kitts & Nevis, Denzil Douglas, spent the last two years of his fourth term avoiding a no confidence motion that he and his centre-left St Kitts & Nevis Labour Party (SKNLP) could not win due to defections. He finally met his fate on 16 February, but even then the controversy didn’t end as it took two days for the election results to be declared and more than two weeks for the official results to be released. It was an inglorious end for Douglas, and a poor advertisement for Caribbean democracy given that St Kitts & Nevis has an electorate of only 30,000 people.

The delay in announcing the outcome of the election led to public criticism from Prime Ministers Perry Christie of The Bahamas, Keith Mitchell of Grenada, Ralph Gonsalves of St Vincent & the Grenadines, and Kamla Persad-Bissessar of Trinidad & Tobago.

Persad-Bissessar summed up the mood of Douglas’s neighbours over the delay when she said: “I am concerned that the region’s reputation for democracy and for free and fair elections will be under threat…”

Despite all Douglas’s ducking and diving, and no doubt in part because of it, the Team Unity alliance under SKNLP defector Timothy Harris won seven out of the 11 contested seats. The SKNLP won three seats while its ally the Nevis Reformation Party (NRP) held one.

The Team Unity alliance is made up of the People’s Action Movement (PAM), the Concerned Citizens’ Movement (CCM), and the People’s Labour Party (PLP) of SKNLP defectors Harris and Sam Condor. Of the coalition’s seven seats, four went to PAM, two to the CCM, and one to the PLP (Harris, with Condor losing his seat to the SKNLP challenger).

On taking office, Harris moved quickly to assure investors that his government would be “business friendly” and that the “democratic fibre of the country was one that would ensure stability”.

*** JAMAICA CONTINUES TO PLEASE. In late February, Jamaica had its long-term foreign and local currency ratings affirmed by Fitch Ratings at ‘B-‘. The outlook on its long-term issuer default ratings (IDRs) was revised to positive from stable.

The reasons for the revised outlook were given as: diminishing external financing risks; continuing progress on fiscal and structural adjustment (Fitch said that Jamaica is on course to meet its 7.5% of GDP fiscal surplus target for the second successive fiscal year in FY 2014/15); and signs of economic revival (which Fitch noted was “growing at an underlying rate of almost 2% before being hit by a sharp contraction in agriculture in the second half of 2014”).

Nevertheless, the ratings agency warned, Jamaica’s debt burden is still the fourth highest among rated sovereigns and well above the ‘B’ median. It notes that “even after the debt exchange, interest payments account for 28% of spending”. Furthermore, 61% of government debt is denominated in foreign currency.

There is no sign of any backsliding in Jamaica, hence the upgraded outlook, but Fitch did still warn: “Failure to adhere to the IMF programme would remove a source of balance of payments support and hurt private sector and creditor confidence, renewing concerns about fiscal and external financing.”

• “The now ousted prime minister of St Kitts & Nevis, Denzil Douglas, spent the last two years of his fourth term avoiding a no confidence motion that he and his centre-left St Kitts & Nevis Labour Party (SKNLP) could not win due to defections. He finally met his fate on 16 February, but even then the controversy didn’t end as it took two days for the election results to be declared and more than two weeks for the official results to be released. It was an inglorious end for Douglas, and a poor advertisement for Caribbean democracy given that St Kitts & Nevis has an electorate of only 30,000 people.”

Ecuador posted real GDP growth of 3.3% year on year in the second quarter, the third consecutive quarter of annualised growth, prompting much self-congratulation by the ruling left-wing Alianza Pais (AP). However, those private economists who more often than not tend to see the glass as half empty were much more cautious, noting that the result was less impressive than it appeared because it was largely a statistical correction from the sharp contraction in the equivalent quarter of 2016, when GDP had shrunk by another 2.5% (giving a full year of recession). As such, they suggest, it is too soon, as yet, to declare Ecuador’s economy out of the woods.

In similar vein, according to the latest report from the internal revenue service (SRI), tax revenues rose by 10% year on year in August to US$1bn, the best result for the month in four years and the ninth consecutive month of recovery in SRI-administered tax earnings.

Overall SRI-administered revenues for the January-August period came to US$9bn, a rise of 11% year on year, and also the best result for the period in four years according to the SRI report. This US$9bn figure excludes the temporary ‘solidarity contributions’ imposed after the 7.8 magnitude earthquake hit Ecuador’s Pacific coastal regions in April 2016, killing around 600 and causing an estimated US$3bn in damages. These solidarity tax earnings were worth an additional US$875m in January-August, thereby bringing the total tax take for the first eight months of 2017 to just under US$10bn.

However, this rise in tax revenues this year is somewhat misleading. While a rebound in the tax take typically indicates recovering economic activity, Ecuador has yet to demonstrate signs of a sustained recovery.

To a considerable degree, the year-to-date result in SRI administered taxes is the result of a one-off windfall in revenues, following removal of the global import surcharges (the so-called ‘balance of payments safeguards’) imposed by the Correa government in March 2015 to protect the dollarised economy during the downturn. These surcharges, ranging from 5% to 45% on some 3,000 tariff lines, were due to be removed as of March-July 2016, but following the earthquake they were extended temporarily for another 12 months, and were gradually dismantled to July 2017 instead, as per a WTO-agreed schedule.

Repressed import demand has thus rebounded in 2017, with a spike in associated tax revenues. While the VAT rate went back down to 12% from 14% as of 1 June – as a temporary increase imposed after the earthquake also expired – overall VAT revenues rose by 13% in the eight months to August to US$4.2bn. This included internal VAT revenues of US$3.16bn, up 9% year on year, with VAT earnings from imports of US$1.04bn, up 24%. Meanwhile, revenues from the special consumption tax (ICE), a progressive 5%-35% duty imposed on certain domestic and imported goods, rose by 53%. As such, the SRI now expects total revenues of US$13.4bn this year, above its internal target of US$13.2bn.

As we noted last month, the Moreno government’s revised 2017 budget US$36.82bn plan appeared contradictory on several levels. First off, despite Moreno insisting on retaining an expansive expenditure stance, it envisages a sharp reduction in the fiscal deficit to 4.7% of GDP in 2017 (or roughly US$ 4.8bn), from a record 7.5% of GDP in 2016 (albeit the new finance ministry only recognises a deficit of about 5.6% of GDP). With oil revenues still subdued, the government said it was banking on increased tax revenues to fill that gap.

Total tax income – which includes the income administered by the SRI plus other fiscal earnings, such as royalties etc – was budgeted at US$14.76bn, a year on year increase of 7% from 2016, even though the GDP growth estimate for 2017 was slashed to 0.7% in the revised budget, from 1.4% previously. This budget assumption almost certainly will prove unfeasible, and the fiscal improvement impossible without fresh government borrowing.

As we had reported in our September edition, private economists in late August had estimated a 1.7% drop in overall tax revenues (SRI-administered and others) in the first eight months. Given the latest SRI results, these estimates look way too cautious. But while the windfall in SRI-administered taxes will certainly be supportive of the fiscal position, realistically the Moreno government will only be able to deliver a limited improvement in the fiscal deficit this year, largely financed not by taxes, but by additional indebtedness.

Meanwhile, the private sector is pressing the government for some tax incentive measures in Moreno’s pending new economic program, due October. On 26 September, the consultative council set by the president to engage with the private sector, submitted 1,400 proposals, gathered from almost 400 working tables around the country since July. The council, led by the minister for industries and productivity, Eva García, was given a mission to come up with ways to stimulate private sector activity and investment.

These submitted proposals included a call for VAT rebates for exporters, a change in the advance corporate income tax payment (levied in July and September regardless of earnings levels), and the removal of the remittance tax on financial transfers abroad. Again, it is difficult to see how Moreno will be able to reconcile these demands for tax reform in support of private-sector led economic growth with the government’s tricky fiscal predicament, not to mention the tense difficulties within the ruling AP, which is forced a delay in policy making. Moreno, in his apparent wont to please all sides, may end up disgruntling everyone.

Moreno looks to make savings in the public sector

The new government is leaving no stone unturned in its efforts to lower the fiscal deficit. Moreno in early September took aim at the bloated public sector, with Executive Decree No. 135, dated 1 September, aiming to ‘reinforce austerity’ and ‘optimise expenditure’. Measures included a 10% across-the-board salary cut for senior public servants, including ministers, as of 1 September, and the suspension of some bonus payments. Labour Minister Raúl Ledesma said 7,242 public servants would be affected, saving US$34m a year.

In addition to a public sector hiring freeze, all public bodies, including state companies like Petroamazonas, have been ordered to review staff numbers, meaning possible job losses. Other cuts affect over-time, living, travel and security expenses, and advertising and communications outlays. A portfolio of state assets valued at US$300m will also be sold off, with the proceeds put towards Moreno’s flagship public housing scheme, ‘Casa para Todos’ which aims to construct 325,000 new houses, two-thirds of which will be provided for free to poor and vulnerable families.

State media estimated total savings of US$400m from Executive Decree No. 135, albeit Finance Minister Carlos de la Torre struck a more cautious note. Moreno recognised a “complex” economic situation, but equally, he was at pains to stress that a ‘paquetazo’ – in reference to a major fiscal adjustment – was not on the new government’s agenda.

Notably, cuts to the public sector risk slower budget execution, meaning a weaker government stimulus to the economy. Local consultancy Cordes calculates that the budget execution to end August was already down by 10.4% over the year-earlier period. Almost certainly, a more extensive fiscal adjustment would prolong the country’s recession, which Moreno and his finance team desperately want to avoid.